Investor's Business Daily, April 11th, 2007
It took pride in being "the little guy," but now Jones Soda aims to go up against the big soft-drink guys.
Jones-branded canned carbonated drinks are now being placed on store shelves of 25 major retail chains, including Wal-Mart WMT supercenters, Safeway SWY, Kroger KR, Kmart, a unit of Sears Holdings SHLD, Costco COST in Southern California and Albertsons' Intermountain, Florida and Denver divisions.
It's a major shift meant to put the $40 million drink firm into a much larger market. From the $500 million premium beverage category, it'll now play in the $66 billion soft-drink market.
Until its recent initiative, Jones Soda JSDA had specialized mostly in premium, bottled carbonated soft drinks with different flavors and unique labels.
Jones supplied Target TGT with canned sodas in an exclusive two-year deal that ended in December. Target will still buy the canned sodas, along with other retailers.
Potential
"Simply by placing the product where more people shop, it will dramatically expand the distribution and sales potential," said James Maher, analyst with ThinkEquity Partners.
Target accounts for about 2% of U.S. soda volume in the U.S. But the 25 retailers Jones signed up account for 25% of the soda market.
By selling only the concentrate, which is relatively cheap to make and comes with higher margins, more dollars will likely pour down to the bottom line.
Analysts polled by Thomson Financial estimate Jones' earnings will jump 69% this year to 22 cents a share and move up another 77% the next year.
Maher figures that concentrate sales to National Beverage Corp. FIZ will over time make up more than half of the company's case sales.
National Beverage has agreed to produce and distribute more than 35 million cases a year of Jones' canned sodas for the U.S. market.
Jones already got a boost from early concentrate shipments to National Beverage in the fourth quarter, when margins jumped to 47.4% from 36.6% the year earlier. Net income rose 256% to $2.1 million, while per-share earnings grew 167% to 8 cents a share.
Case sales in 2006 about doubled from 2005 due in part to concentrate sales in the fourth quarter. Revenue for the full year rose 16.5% to $39 million.
Jones' share price bolted March 9 after the company disclosed the names of the 25 new retailers signed on for its new canned sodas.
Those retailers are expected to have the sodas on store shelves by Memorial Day.
The new canned soda line goes by the name Jones Pure Cane Soda to stress that the drinks are sweetened with pure cane sugar rather than the high fructose corn syrup used in most other soft drinks.
Chief Executive Peter Van Stolk told analysts in a conference call that the use of pure cane sugar -- which is perceived by some consumers as a tad better than high fructose corn syrup -- will help Jones "stand out from the other players in this space." He was unavailable for comment.
At the same time, Jones plans to sweeten all its bottled soft drinks with cane sugar. But the cane sugar might not be a point 15f distinction for too long.
"There are a number of companies now experimenting or beginning to use pure-cane sugar," said John Sicher, editor and publisher of Beverage Digest.
He says Cadbury-Schweppes CSG just began a test in the Midwest using cane sugar in Dr Pepper. And he notes that PepsiCo PEP plans to introduce a "Pepsi Natural" version later this year using cane sugar.
"Companies are always looking for ways to differentiate their products and attract new consumer attention," Sicher said.
The canned sodas come in various flavors such as green apple and lemon drop. "Their flavors are different, so they have a good opportunity to compete with the other colas," Maher said.
Still, it's too early to draw conclusions since the rollout is not yet complete. "That's the piece of the puzzle that has yet to be demonstrated," Maher said.
To help get the word out, Jones is launching its first TV ad campaign this spring, touting its "better soda."
The company has no intention of phasing out its hallmark long-neck glass bottles, which feature photo labels submitted by customers. But it recently expanded into plastic bottles with a noncarbonated multivitamin enhanced drink called 24C. A broad launch is set for the second quarter.
Mainstream
"There's no doubt Jones is becoming mainstream, but in a premium sense," said Piper Jaffray analyst Nicole Miller. While the new canned soda program is a big deal for Jones, it's not "the end game," she says.
"The reason this model works is because it's a portfolio of branded products. We expect product extensions and new product launches over time," Miller said.
Jones Soda's drink portfolio also includes organic teas, natural juices and a Whoop Ass-branded energy drink. The firm licenses its name for a line of hard candies sold by Big Sky Brands.
Copyright 2007 Investor's Business Daily, Inc.
