Dr Pepper Snapple Group Inc. (DPS) is set to report its third-quarter fiscal 2013 results on Oct 23 before the market opens. Last quarter, the beverage company posted in-line results. Let’s see how things are shaping up for this announcement.
Factors to Consider this Quarter
Dr Pepper’s top line has been weak since the past 4–5 quarters due to disappointing volume trends of its carbonated beverages (CSD). Changing consumer preferences, increasing health consciousness and rising obesity concerns, possible new taxes on sugar-sweetened beverages, and growing regulatory pressures have tremendously pressurized the CSD category in North America. These category headwinds are significantly affecting Dr Pepper’s CSD volumes, which comprise around 80% of its business.
The situation is not expected to improve much in the third quarter and CSDs are expected to continue to suffer due to category headwinds. Though the company’s plans to expand the TEN platform to revive CSD sales look encouraging, we believe it will take some time to deliver substantial results while impeding near-term earnings growth.
Earnings Whisper?
Our proven model does not conclusively show that Dr Pepper is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Negative Zacks ESP: The Earnings ESP is -1.21%. That is because the Most Accurate estimate stands at 82 cents while the Zacks Consensus Estimate is higher at 83 cents. That is a difference of -1.91%.
Zacks Rank: Dr Pepper carries a Zacks Rank #4 (Sell). We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum. Estimates for this beverage company have been declining since the past 30 days.
Other Stocks to Consider
Here are some other companies in the food/beverage sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Coca-Cola Enterprises Inc. (CCE), Earnings ESP of +1.25% and Zacks Rank #2 (Buy).
Green Mountain Coffee Roasters Inc.(GMCR), Earnings ESP of +4.00% and Zacks Rank #2 (Buy).
Kraft Foods Group Inc (KRFT), Earnings ESP of +1.47% and Zacks Rank #3 (Hold).
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