April 21, 2024

Jones Soda – Back from the Dead

About a decade ago, Jones Soda (JSDA) was briefly an incredible success story about a regionally popular brand which had used grassroots marketing to achieve rapid growth on a national scale. Unfortunately, the soda story fizzled when they tried to expand into national chains like Target (TGT) and Walmart (WMT) using aluminum cans rather than their iconic glass bottles.  In addition, Jones Soda began their expansion efforts precisely at a time when the popularity of carbonated beverages began to decline.

A combination of missteps and bad timing brought the company to the brink of bankruptcy, driving its once promising stock from a peak of more than $28 to less than $1. The price fell further to about 25 cents after the shares were delisted from the NASDAQ exchange.  Since early March Jones Soda has been moving steadily higher and recently had a higher volume spike that propelled the stock price above both the 6 month price range and the 50 and 200 day moving average.

courtesy: yahoo finance


Courtesy: yahoo finance

Things may finally be looking brighter for Jones Soda with new CEO Jennifer Cue at the helm. Since her appointment on June 30, 2012, she has implemented a back to basics turnaround strategy which has allowed the company to stabilize before pursuing a path of responsible and hopefully profitable growth.

The strategy involved rapidly trimming expenses and slightly retrenching to the company’s core markets and independent distributors. In the latest quarter, operating expenses were cut to $1.1 million compared to $2.7 million last year. Some of the cuts did have an impact on revenue which fell to $3.1 million from $3.4 million in the prior year. Despite the drop in revenue, gross profit was up slightly, showing the positive impact of the realignment of costs.

The loss from operations for the most recent quarter was $448,000, a vast improvement from the loss of $2.0 million last year. Most significantly, the company was cash flow positive for the quarter with $247,000 generated from operations. In the previous three quarters, Jones Soda had negative cash flow from operations of $6.5 million, and they were at risk of running out of capital. Now the company believes they have sufficient working capital to carry out their operating plan for 2013.  In addition to $4.1 million of working capital, Jones Soda has a $2 million credit facility.

Corporate insiders have confirmed their conviction of a brighter future for Jones Soda through a series of stock purchases.  CEO Jennifer Cue bought 50,000 shares at $0.30 from December 7 to 10, 2012.  Carrie Traner, VP of Finance bought 10,000 shares at $0.29 to $0.34 on March 14 – 15, 2013 and Director Mills A Brown bought (indirectly) 81,350 shares at $0.2975 to $.033 on March 15, 2013.

Now that the company has brought expenses under control, they are investing in distribution and product lines that will drive long term profitable growth. After laying off nearly half of their staff in the second half of 2012, they recently hired four new employees for their sales staff. The sales staff is now paid on a variable compensation structure, which should help to keep costs aligned with revenue.

The company has just introduced Jones Natural, which will soon launch in California. The new beverage has 30 calories and will come in four different flavors. It will be offered in 50 Albertson’s grocery stores in the natural foods section. The new beverage will also be offered in 25 Whole Foods Market (WFM) stores in Northern California. Significantly, this is the first time that a Jones Soda product has been carried by Whole Foods.

The groundwork has now been laid for a possible return to growth and profitability for a company once left for dead. The current market cap of merely $13 million hardly reflects the progress that has been made in the last two quarters.  While the stock remains extremely speculative, it is certainly one worth watching in the coming months.

Disclosure: Long JSDA

When A Walmart Clerk Beats A $2 Million Trust Fund

The Federal Reserve fired its last bullet today by formally cutting interest rates to zero percent.  A Fed statement noted that  “The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability”.   In addition, the Fed will keep rates at this exceptionally low level for an extended period of time.

To date, the Federal Reserve has spent trillions and driven down rates on short term treasury paper to zero.  None the less, rates on loans for most individuals and corporations are much higher than when the credit crisis began.   One area that that has seen rates decline to all time lows is home mortgages, although it is debatable how many borrowers qualify for the best advertised rates.   Those most in need of funding are most often turned down at any rate due to issues with credit, income or collateral.

I have yet to hear of anyone who feels that the Fed really made a difference and saved them from financial ruin by cutting rates.  Whatever savings might have been accrued by the average consumer have been more than  outweighed by the losses suffered in their retirement portfolios and home equity declines.  The banking system was saved, the average worker was not.

One group that has and will continue to suffer great stress due to diminished income is the never mentioned saver.  The saver group by definition spent less than they made due to thrift and hard work and put their savings in their local bank so that they money could be lent out to borrowers who bought homes and such, frequently at 100% financing.  Now that the borrowers are in trouble, the Fed needs to cut rates to help them.  Helping those in trouble is fine, but the consequences of the Fed’s rate cutting campaign is impoverishing those very same people who provided savings capital to lend in the first place.

Let’s take the case of a Walmart clerk who retires after 30 years of service and is awarded a pension of $25,000 per year.  The Walmart clerk’s retired neighbor lives off a $2,000,000 trust fund established by her father who directed that the monies be conservatively invested only in government debt securities.  The trust fund provides a life interest of income only to the beneficiary.   The original $2,000,000 principal goes to charity after the beneficiary’s death.

This $2,000,000 trust fund, laddered in 6 month and 2, 5 and 10 year government paper yields a total of $22,100 at today’s interest rates.   Should the Fed succeed in driving long term rates to the sub 1% level that we see in Japan today, the trust fund baby would be lucky to receive $10,000 per year.

Result of ultra low interest rates?

Walmart worker stays retired and lives poorly.  Trust fund baby lives poorly and goes back to work at Walmarts.