Investors Drink Up Natural Soda Company Profit

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Life is sweet at Reed’s Inc.

The natural soda bottler has produced a stream of positive news that has nearly tripled its share price so far this year, though the stock reversed course last week in some apparent profit-taking.

The company, located in unincorporated Los Angeles County near Gardena, signed a deal last week to distribute its products in South Carolina with Houston’s Republic National Distribution Co., one of the largest beverage distributors in the country. On June 12, Reed’s announced it would produce private-label drinks for one of the nation’s largest supermarket chains.

Chief Executive Chris Reed said both deals were part of a strategy to get into mainstream supermarkets. Currently, the company’s products – including Reed’s Ginger Brew, Virgil’s Root Beer and nonalcoholic Butterscotch Beer – are top sellers in alternative food stores such as Trader Joe’s, so future growth will come by expanding to other retail locations.

With the private-label deal, the company has relationships with two of the three largest supermarket chains in the nation, but by contract Reed couldn’t reveal the customer’s names. In addition to South Carolina, the company signed similar distribution agreements covering Utah, Tennessee and Michigan this year.

But the biggest catalyst for the stock’s run-up was the most recent quarterly filing May 14. The company reported revenue of $6.5 million, a 27 percent gain over the same quarter last year. A net loss of $133,000 was much lower than the $376,000 loss for the same quarter a year earlier.

“Everyone can do the math,” Reed said. “We are moving into profitability. When you’re not profitable, it puts a downdraft on the stock, but the upward pressure is here now.”

But the stock’s progress reversed last week. Reed’s shares fell 17 percent to close at $3.14 on June 20. The company ranked as the second biggest loser on the LABJ Stock Index. (See page 56.)

Reed said it was just a downtick compared with the recent gains. At one point earlier this month, shares had risen 276 percent for the year at the same time the overall stock market was slumping on Greek debt worries. That created an opportunity for profit-taking.

“Whenever a stock goes up that much, you can expect corrections,” Reed said. “It’s natural and healthy for the stock to take a breath.”

Still, there are question marks. In its annual report filed March 26, the company cited risk factors that include questions of whether Reed’s can support capital expansion plans and the introduction of new products. But Reed said about 60 percent of the company’s bottling is outsourced to other manufacturers, providing flexibility to expand production without major investments.

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