AIRPORT CITY, ISRAEL — SodaStream International Ltd. is repositioning around health and wellness in hopes to resuscitate sales. Aside from a limited partnership with PepsiCo, the maker of home beverage systems is distancing itself from the soft drink market. The transition includes the launch of an entirely new portfolio of sparkling water flavors this summer.
“We are not a cola brand; we are a water brand,” said Daniel Birnbaum, chief executive officer, during a May 6 earnings call with financial analysts.
SodaStream executives announced a comprehensive overhaul of the business last year, after sales momentum dried up significantly following seven years of consistent double-digit growth. While cost-cutting initiatives lifted earnings in the first quarter, revenue continued to fizzle.
For the three months ended March 31, the company had net income of $6,047,000, equal to 29c per share on the common stock, up from $1,778 million, or 9c per share, in the prior-year period.
Revenue for the quarter slipped to $90,344,000 from $118,172,000, reflecting the negative impact of foreign currency exchange rates and a decline in sales of flavor syrups as the company prepares to transition to the new line of flavors.
“Despite these top-line headwinds, operating income improved versus last year as a result of product mix and tight management control over expenses,” Mr. Birnbaum said. “Specifically in the U.S. market, we are holding back our marketing spend to coincide with the new product launches planned for the back half of the year, at which point we’ll unleash a new campaign.”
In the Americas region, adjusted revenue fell 19% to $22,800,000 in the quarter, in line with expectations as the company reduced inventory and rationalized distribution ahead of the launch of new flavors in the third quarter. The company pruned its presence at Wal-Mart, Kmart, Macy’s and Sears to focus on higher-end specialty retailers.
“Our philosophy on distribution, and particularly for the U.S., is quality over quantity,” Mr. Birnbaum said. “There is not one door where we want to be we’re not. So the distribution that we have quote-unquote ‘lost’ is distribution we chose to lose…
“So, you will see door gains once we launch the new range of product, particularly starting in Q3, with the right retailers.”
Set to debut in July are five new flavor lines, which include Fruits, featuring fruit flavors without preservatives; Zeros, a line of zero-calorie flavors; Essence, a low-calorie line with a “refreshing hint of taste”; Plus, a line of flavors enhanced with vitamins, minerals, fiber and protein; and Sparkling Gourmet, which was developed in conjunction with a renowned chef and includes fruit, flower and herb varieties.
“All new flavors coming up out of our R.&D. lab are evaluated by one of the world’s leading sensory companies, and only those that score excellent on their taste and sweetness profiles are even considered for market,” Mr. Birnbaum said.
Meanwhile, the company is accelerating the consolidation of production activities into a new plant in Lehavim. SodaStream closed its facility in Alon Tavor in April and ceased production of beverage makers in its Mishor Adumim plant, with plans to shutter the plant during the third quarter of the fiscal year. The company declined to provide guidance for the full year, but executives expect to see a return to growth in the second half of the year, as the new products and marketing roll out.SodaStream’s share price fell nearly 7% on May 6, or $1.28, from the previous close of $19.11.