Anyone who's kept up on your posts knows you know little to nothing about accounting. Even Google couldn't get you what you needed to respond before. And there you are with a really cool saying about holes and digging. So clever.
When I see a firm drop their target for SODA to $40, I am puzzled. What is it they see for SODA's future? It will grow at 5%-10% per year and with about $3/share coming up that seems fair affair price?
I just can't imagine SODA settling into that mode for several years. It is either a fad or it isn't.
That's why the flavor sales matter so much even though their contribution is small to net income.
SODA must be a disruptor to sell for high multiples,frankly, IMO, to really stay in business.
Otherwise it becomes a Primo water, a supplier of a simple staple, CO2.
So, if I believed what some of these analysts seem to believe, I put a cap on the company of a few hundred million. But, if I believed in SODA's disruptive potential, I'd put a potential cap well into the billions. There really is no in between, IMO.
Listen, carefully. Walmart has reduced total inventory of SODA flavors, truth. I don't care about total types, just total inventory. It is very possible to carry more types and yet carry far less total inventory. For example, last year they might have had 20 cases of diet orange and no Crystal Light. Today they might have only one case orange , two Crystal Light Peach Tea and one strawberry. That's only 4 cases versus 20. Now, again, less total inventory by way of less purchases, the sell in from SODA, and yet they may be selling at retail the same or even much more. Got it? That is what has happened, at least according to SODA management and NPD Group.
My example using reduction in types was a way of demonstrating how selling, inventories and sell out could work.
Seth, my premise is that they have reduced inventories as they have learned to better judge what sells and what doesn't. The fact that I have personally noticed less available flavors at Walmart, BBB, Target and Staples is just anecdotal. I know that, but that pattern sure fits what appears to have happened this last quarter.
From Mlotley, more support for my position:
"SodaStream's results are expressed as sell-in numbers, while actual retail activity is referred to as sell-out, and is provided by the NPD Group. NPD has reported that SodaStream third-quarter segment sales were up 157% for CO2 canisters, 53% for flavoring, and 12% for soda machines at retail locations. While these numbers are approximations, they're regarded as being very accurate, and NPD is the gold standard in the industry. As you can see, the company is performing admirably pre-holiday in all categories; the decreased sell-in numbers reported by SodaStream are a result of poor inventory management by a few of the company's customers. "
So, Seth, think about your response in light of my example. If what you believe is accurate, then exactly the opposite would be true.
There would be a higher sell in lately then sell out as these retailers add items and if sell out just maintained we would have decent increases from SODA perspective. But, as in actual, SODA flavors are declining while selling in is going higher, well then actual sell out must be a disaster.
So, Seth who is right and who is wrong? Is SODA management lying and sell out numbers are also wrong, or could it be that no one is lying and my example is simply icorrect?
I am going to attempt to explain what happened to flavor sales in the most simplified way I can.
Assume we manage one retail outlet.
We decide to carry a line of products, say ten items.
We initially stock 10 of each item, 100 total.
We maintain those levels until we determine what sells and what doesn't.
We sell 50 items per month.
We buy 50 items to restock to our 100 level.
We determine that all we need to stock is 50 items consisting of say 6 types.
We gradually reduce inventory to 50 items while continuing to sell 50 items.
The inventory reduction takes 4 months.
Over the four month period our purchases will be 50 items less than they otherwise would be, say only 37-38 per month, even though we are selling the same number of items per month, 50.
Our sell out is maintained, but our vendors sell in is reduced.
Once the appropriate levels of inventory are reached, our purchases will resume at 50 per month.
Now, as the total number of outlets stops increasing at a rapid pace, these inventory adjustments will cause an even greater decline in total sell in, but the sell out will be maintained.
From about this time last year through probably the early to mid part of this year, SODA vastly increased its outlets. Lately not so much. So, between inventory adjustments and less new outlets, the sell in has dramatically been impacted, but the sell out hasn't been impacted so much.
That's my analysis and I think it's good.
Weird. I, too, worked Big 8, Haskins and Sells to be precise, many years ago. I am a CPA. You too? Then you know that BI+P-CGS=EI? Right? So, now explain why what I said makes no sense.
Seth, you are pi@@@g me off. Truth is, you don't know sheet about accounting and that's your problem, not mine. If there was anything not logical about what I said you would be able to easily point it out, but instead, you attack me personally with no objective statement.
Your inability to understand accounting basics is a terrible weakness for a stock analyst. It isn't just about getting the scoop, Seth. You still have to understand what it means. You don't.
Two Motley analysts summarized their attitudes about SODA's quarters in total agreement with what I stated. So, stick it.
FWIW, anecdotal observations, I have noticed a decline in variety at Walmart and Target. Think about it. You start selling these products and you try carrying as much variety as possible. Over time you realize that diet creme soda only moves a couple bottles a week while diet orange moves 10/week. You increase diet orange inventory some and eliminate diet creme soda completely. The net effect is a modest decline in overall inventory, but that modest decline spread over thousands of stores dramatically affects SODA's sell in numbers. However, the sell out is maintained.
I think the above summarizes what just happened 3rd quarter. Once the inventory adjustment is made, purchases by Walmart must be increased to match sell out rates. We should see that effect this quarter.
The truth is that the shorts have been persistent and look for any opportunity to support the concept of fad. This was ordered up for them, flavor sales dropping off, only they really weren't on the sellout basis, but the company can only report its sales numbers, not those of its retailers. The drop is not justified and as inventories and sales for company adjust back to sellout numbers, SODA will have a spectacular rebound.
These are the numbers that tell the story better, but they are not "actual" accounting numbers. Therefore Q4 should have a big bounce back on flavors. Because they are not actual, I suspect the company would be remiss to report them at the cc. Perhaps in interviews or conferences this truth will be revealed soon.
The sellout is all that matters. Period. And it was good. So, the pull back is a miracle for those of you thinking to get in. It will never be available again. Time to buy.
So as not to confuse, SODA reports what it sold to distributors. What people actually bought is the sell out. Distributors are trying to balance inventories. Sometimes there is a major difference between the sell in, the sales to distributors, and the sell out, the sales to consumers.
In the long run, we want to know what consumers are doing, not distributors because the consumer is the final stop for the product. In this quarter there is a f@@@up because distributors were out of balance. the truth is flavors are growing just fine.
Nothing said here will change tomorrows stock price, but in a few months revenues as reported by SODA will actually represent consumption by consumers. Revenues this quarter didn't. Accounting 101.
I think there is an irony to the weeks before earnings. The company would have been well advised to put out as much negativity as allowable, IMO. This might have driven out many sellers prior to earnings. Instead we were treated to a sense that all was very good, likely adding an additional layer of weak hands, those that would sell off immediately and really pushing the stock price down.
If one plotted out earnings and guidance over the last couple of years then laid in likely market valuations, the stock price would have had an uninterrupted up trend. But, as we all know, markets don't work that way in the short run. Could be that next year at this time the stock price will be at where it would have been had flavors had a couple more million in sales this past quarter. That would be my guess.
Actually, you're guessing, a reasonable guess, but still a guess.How do they count big flavors versus small,the same, or do they count double? What if all the units were larger or disproportionately large? See what I mean?
Seth indicated a split on revenue, a partnering, not a royalty. Do you really know?
If it's true that flavor units really only rose so little, even if you adjust out seasonal fluctuations, we got a really big problem. The case for Soda relies on acceptance of pop made at home, not on carbonated water.What use does a major player have for just soda water? If people are not really into the flavors, it's over.
Seth, I get it, I really do. I only wanted confirmation that units sold are actual in the bottle units, not just SODA's portion of revenue divided by a standard unit cost. Not really that complicated. You might want to confirm this. You don't even have to tell me one way or the other, just so you can be certain.
No, you're not getting the drift of my question. I am not creating a concern. Just the opposite. Suppose that revenue for flavors to partners is $10mm and that 10mm is not reflected in SODA revenue or in total flavor units sold. That means that actually more flavors are being bought than was reflected in SODA revenue or statements to the analysts this morning.
Burgh thinks the unit sales are actual, but i'm not sure. They might just be flavor revenue divided by a unit cost.
Cannibalizing SODA sales by letting partners enter the Sodastream market is a good thing not a bad thing. If tomorrow KO or PEP partnered with SODA total flavor sales of SODA might actually decline, but CO2 would surge along with machines. Are you following me?
I'm aware of those numbers, but the question is how is that number generated. If they divide total flavor revenue by a standard unit cost and revenue doesn't include a portion paid out to partners they might be understating actual unit sales of flavors sold for Sodastream customers.
I find it unlikely that CO2 sales could be growing so much faster but syrup not holding up. I know that a significant portion ofd what I buy are Crystal Light, so my purchases of SODA brand are off, but I still use plenty of syrup. My CO2 has maintained.
Therefore, does that mean that the increase in flavor sales as a portion of SODA revenues does NOT reflect the partner's share of those revenues? In other words are flavor unit sales as reported truly reflective of total flavor sales to Sodastream customers?
There is a concern that flavor sales are not rising as fast as expected, but if the sales reported by SODA don't reflect the partner's portion of revenues, then the concern is overstated.
SODA may be cannibalizing its revenues by partnering, but that is okay if that segment of the business is truly growing at a good clip.
I am wondering if the analysts really get this.