Herb Greenberg Just Doesn't Get SodaStream

Updated

Shares of SodaStream (NAS: SODA) popped higher this morning, and rightfully so.

The global leader in home-based carbonated beverages delivered blowout quarterly results today, sharply raising its guidance for the entire year. The Israeli pop star also got some welcome news last night, when an aspiring rival offered up laughable guidance for its potential SodaStream killer.

More important, this morning's bubbly report was an uppercut to the gut of the growing number of bears out there. There are more than 6.5 million shares sold short, and the cynics have been rewarded in watching a stock shed more than half of its value since its summertime peak.

CNBC's Herb Greenberg -- despite favoring SodaStream over name-brand pop in a blind taste test earlier this year -- is still a vocal skeptic. Just two weeks ago, Greenberg was on the air talking up Primo Water's (NAS: PRMW) Flavorstation as a formidable foe.

Well, I'll get to the amusing Flavorstation update shortly, but first let's dive into SodaStream's numbers.

Pop goes the world
Revenue soared 39% to $78.4 million in SodaStream's latest quarter, largely a combination of 10% growth in mature Western Europe markets and revenue for soda makers and consumables more than doubling in the Americas. Adjusted earnings more than doubled during the period, checking in at $0.56 a share.

A quick peek at Wall Street projections of 0.25 in earnings per share and 54.5 million in revenue may deem this to be the mother of all blowouts, but keep in mind that analyst targets are in euros. If we go with results in euros, SodaStream still handily beat the market with revenue of 58.3 million and an adjusted profit of 0.42 a share. The euro-dollar conversions may make this a drag, but it also means that you can laugh at bears that think that SodaStream is expensive based on forward estimates that need to be adjusted higher in the conversion to greenbacks.

Getting back to business, margins expanded even though the 54% spike in revenue for lower-margin soda makers outpaced the 26% uptick in consumables. Bears can always pounce on that point, suggesting that softer sales in soda flavors and carbonators relative to starter kits are indicative of faddish tendencies, but it's been that way for some time and it's hard to argue with the bottom-line growth.

I'm drowning here, and you're describing the water
Lifting one of my favorite lines from As Good As It Gets should work as a segue to Primo Water's quarterly report last night.

Primo specializes in selling water in exchangeable three- and five-gallon bottles. It's a competitive business, but Primo has a growing presence in 16,400 locations, largely supermarkets and office supply stores.

Earlier this year Primo made a small acquisition by snapping up Omnifrio, a company whose home beverage system -- similar to Green Mountain's (NAS: GMCR) Keurig in that it features a water reservoir and flavors in single-portion cups -- had been a marketplace dud. Its peak came when the $299 appliance was featured in SkyMall a couple of years ago.

Primo has spent the past few months turning Omnifrio into a SodaStream clone. All of the Keurig-like features are gone. The new Flavorstation is a SodaStream-like product with a reasonable $80 price point. The problem is that Primo can't seem to get the distribution right in time to make a difference this holiday season. A product delay as it reformulated its soda flavors also isn't helping.

Primo now sees just $1 million to $2 million in Flavorstation sales this quarter, well off the $5 million to $7 million it was previously targeting. Despite its meaty Rolodex with supermarket and office supply connections, brick-and-mortar distribution will be limited to 500 Lowe's (NYS: LOW) home improvement stores.

If 500 outlets sounds impressive, consider that SodaStream added 3,000 more locations since the end of the third quarter.

During this morning's call, SodaStream revealed that over the past few weeks, Staples (NAS: SPLS) and Target (NYS: TGT) have gone from dozens of test stores stocking SodaStream to rolling out SodaStream through roughly 1,100 locations apiece. Costco (NAS: COST) is hopping on for the holidays, and Staples is even on board with the CO2 refill exchange program that will make it even easier for the country's 400,000 active users -- and growing -- to keep their fizzers fizzing.

All of this adds up to a company that will be dangerous to short heading into the holidays.

Your move, Greenberg.

If you want to follow this pop star through its fizz and flat times, addSodaStream Internationalto My Watchlist.

At the time thisarticle was published The Motley Fool owns shares of Costco Wholesale.Motley Fool newsletter serviceshave recommended buying shares of SodaStream International, Staples, Green Mountain Coffee Roasters, Costco Wholesale, and Lowe's.Motley Fool newsletter serviceshave recommended writing covered calls in Lowe's, as well as creating a lurking gator position in Green Mountain Coffee Roasters. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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