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SodaStream Down to Strong Sell

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Zacks Investment Research downgraded SodaStream International Ltd. (SODA - Free Report) to a Zacks Rank #5 (Strong Sell) on Jan 16 after this maker of home beverage carbonation systems announced lower-than-expected preliminary results for full year 2013.

Why the Downgrade?

On Jan 13, the company announced dismal preliminary results for full year 2013, the final results of which are expected in February. The company also expects weak results in the first half of 2014.

For 2013, SodaStream expects its revenues to be approximately $562.0 million, representing year-over-year growth of 29%, lower than the company’s earlier expectation of 30% growth. Revenues are also likely to fall short of the Zacks Consensus Estimate of $563 million.

Net income is expected to be $41.5 million in 2013, representing a year-over-year decline of 5.5% and in sharp contrast to management’s prior expectation of 23% growth. The company expects its adjusted net income to be approximately $52.5 million for 2013. The Zacks Consensus Estimate for 2013 earnings is pegged at $2.57 per share.

Though the company still enjoys double-digit revenue growth, its failure to achieve the desired margins during the holiday season along with a difficult consumer spending environment and currency headwinds resulted in a disappointing outlook for 2013. In order to push its products in certain markets during the holiday season, the company had to slash its selling prices despite higher product costs. Also, the company had to offer higher discounts than planned to lure its customers. A shift in product mix also remained a headwind during the holiday season.

Though the company is positive about its long term targets and expects to achieve $1 billion in revenues and net income margin between 15% and 18% by 2016, it does not foresee the consumer spending trend to improve in the next few quarters. In fact, SodaStream expects some of these headwinds to continue into the first half of 2014, signaling more weakness for the company.

Based in Israel, SodaStream commands a global leadership position in the home beverage carbonation market. Its soda making systems, sold mainly under the SodaStream brand, offer a healthier way to enjoy carbonated beverages at home. SodaStream’s products are primarily sold at retailers like Kohl’s Corp. (KSS - Free Report) , Macy’s, Inc. (M - Free Report) and Bed Bath & Beyond, Inc. (BBBY - Free Report) .

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