Consumer Products

After the Warning, Is SodaStream a Better or Worse Buyout Candidate?

SodaStream International Ltd. (NASDAQ: SODA) saw its stock take a serious hit on Tuesday after the company’s shares were halted for “news pending.” Rather than the hoped for buyout, the news was a fairly severe earnings warning.

Frankly, this should not be a major shock, and we have warned readers that the company is still likely to face pockets of weakness from quarter to quarter. The question to ask now is a bit complicated: Is SodaStream finally cheap enough for an acquirer to want to buy it?

The beverage systems maker warned that revenue for the third quarter would be approximately $125.0 million. Unfortunately, that compares to $144.58 million from a year ago. It is even lower when compared to the Thomson Reuters consensus estimate of $154.1 million — and the most aggressive analyst target was $158.5 million. SodaStream now only expects operating income to be approximately $8.5 million.

The company did signal that revenue and operating income expectations are estimated and preliminary and are subject to quarter-end closing adjustments and may change. Hopefully SodaStream lowered the bar so much here that there will be no disappointments. And hopefully the fourth quarter will not have such negative trends either. Hopefully.

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So, what does this look like for a potential acquisition candidate? First off, shareholders are going to be far from happy here. The stock had already dropped to $27.57 prior to the news. Then shares were down 17% at $22.70 or so right before the open on Tuesday after the news broke. Its prior 52-week range was $27.44 to $64.00, and the consensus analyst estimate before the news broke was $40.00.

When you consider that SodaStream’s stock was at $60 last October and September, many shareholders have been feeling the wrath of the market gods here. The transition from a great hyper-growth story into a value stock is often a painful one.

Someone may still be interested in buying the company for its value. The problem is that the losses from shareholders may keep them from wanting to play along with a merger now. SodaStream’s story is not yet done, but it is one that is getting bruised more and more as time passes.

Daniel Birnbaum, chief executive officer of SodaStream, said in the earnings warning:

We are very disappointed in our recent performance. Our U.S. business underperformed due to lower than expected demand for our soda makers and flavors which was the primary driver of the overall shortfall in the third quarter. While we were successful over the last few years in establishing a solid base of repeat users in the U.S., we have not succeeded in attracting new consumers to our home carbonation system at the rate we believe should be achieved. The third quarter results are a clear indication that we must alter our course and improve our execution across the board. We have already begun a strategic shift of the SodaStream brand towards health & wellness, primarily in the U.S., where we believe this message will resonate more strongly with consumers. In addition, we are developing a comprehensive growth plan for the Company that will encompass Marketing, Product and Innovation, Distribution, Operations and Organization. We intend to share more specifics around our growth plan when we report third quarter results later this month.

We have a strong balance sheet and are well positioned with ample liquidity to invest in the areas of our business that we believe will fuel profitable growth in the years ahead. Despite our current challenges, we continue to be very confident in our business model and the global prospects for SodaStream. We firmly believe that our actions to shift the brand and improve execution will strengthen our leadership position in the home carbonation category and deliver enhanced shareholder value.

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