SodaStream's Comeback Has Legs

SodaStream International(NASDAQ: SODA) did it again. For the fourth straight quarter in a row, the countertop soda specialist blew past earnings estimates.

In the third quarter, its biggest of the year, the company posted a profit of $0.69 per share, tripling analyst expectations at $0.23. The stock, widely considered a dud after U.S. sales crashed a year ago, has made an unlikely comeback with the share price up 162% in the past year, and more than doubling in 2016, making it one of the year's most surprising winners.

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The company's brand revamp into a sparkling water company, rather than a soda-maker, appears to be paying off, as well as operational and structural changes to streamline the business and cut costs.

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Here are the key figures from the quarter:

• Revenue grew 13% to $124.2 million.
• Operating income increased 243% to an all-time record of $18.6 million.
• EPS increased 209% to $0.69.

A look at SodaStream's income statement shows that the company was able to grow profit so fast because its operating expenses actually fell slightly in the quarter as cost of goods sold was up just 1% and sales and marketing and general and administrative costs were down modestly in the period.

Gettin' fizzy with it

There were several other encouraging signs in the quarter. Starter kit sales were up 23%, showing that new customers are embracing the sparkling water brand revamp and platform, and the popularity of sparkling water transition was made further evident by record sales of CO2 cartridges, which increased 9% to 7.7 million. In one of the few disappointments in the quarter, flavor unit sales fell 19% to 5.5 million, a reflection of the company's lapping a new flavor unit launch last year.

Geographically, its growth was evenly divided as it saw sales increase in all four of its segments with Asia-Pacific seeing the fastest growth at 43%. Western Europe remains by far its biggest region, contributing 60% of sales, and it saw a 9% uptick in revenue.

CEO Daniel Birnbaum noted particularly strong performance in Germany, where sales have grown by double digits for 19 straight quarters and were up by more than 20% in the recent period. SodaStream has only reached 6% household penetration in that country, meaning there should be a long runway of growth ahead.

Will the stock keep popping?

Trends for a company like SodaStream tend to be more unpredictable than others and there's no guarantee the company won't face a similar downturn as it did in the U.S. a few years ago. Still, guidance for the fourth quarter was strong with an expected 35% increase in net income and revenue increase of 10%.

The consolidation of manufacturing and logistics and its new state-of-the-art Lehavim facility and other expense optimization has helped the company increase its operating leverage, meaning a small increase in revenue leads to a larger increase in profits.

Management did not provide guidance for 2017, but analyst estimates look modest once again as the consensus sees revenue increasing 7.2% and earnings per share improving just 9.6% to $1.83.

There's good reason to believe SodaStream can top those numbers. Water consumption continues to increase as people around the world, especially in western countries, are beginning to see soda as unhealthy. In the U.S., bottled water consumption is expected to surpass soda next year, and sparkling water consumption is expected to double over the course of this decade.National Beverage(NASDAQ: FIZZ) has seen sales of its La Croix flavored sparkling waters double in the past year.

That's an especially favorable trend for SodaStream as it continues to pivot away from soda. The increase in starter kit sales this year should also provide a tailwind for consumables (CO2 and flavor units) next year as those customers use up the flavors and gas in the kits.

Starting from a larger base, the company won't post the same kind of blockbuster growth next year, but its performance should see a solid improvement. After a blockbuster 2016, I'd expect SodaStream shares to keep moving higher next year as well.

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Jeremy Bowman owns shares of SodaStream. The Motley Fool owns shares of SodaStream. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.