What’s in Store for Dr Pepper Snapple (DPS) in Q4 Earnings?

Dr Pepper Snapple Group, Inc. DPS is set to report fourth-quarter 2016 results on Feb 14, before the market opens.

Last quarter, this TX-based beverage company posted a positive surprise of 5.41%. It also has an impressive earnings history. The company surpassed estimates in the trailing four quarters, resulting in an average positive surprise of 5.45%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Dr Pepper Snapple is well-positioned for sustainable growth owing to a major shift in consumer preferences. The company’s innovation and marketing efforts will help it to improve the flexibility of core soda brands. Again, diversification into new categories, with the help of its allied brands, will support top-line growth. The acquisition of Bai Brands is the evidence of its diversification effort that will lessen its exposure to carbonated soft drinks (“CSD”).

Dr Pepper Snapple has robust long-term fundamentals – strong position in the flavored CSD market, aggressive Rapid Continuous Improvement (RCI) cost savings and regular buybacks. Continuing with its strong performance in 2015, the company recorded solid top- and bottom-line results in the first nine months of 2016. Solid execution, pricing gains, innovation, strong non-carbonated beverages performance, powerful marketing programs and productivity improvements have been driving sales and earnings for Dr Pepper Snapple since 2015 and are expected to boost fourth-quarter 2016 results as well. Moreover, the company raised its earnings expectations for 2016 thrice this year.

Improving U.S. consumer sentiments, rational pricing environment, increased marketing support and cost savings from its RCI program also bode well.

However, currency headwinds and increased marketing expenses are expected to hurt profits in the fourth quarter. That said, productivity benefits from RCI will help offset a portion of these increases and it continues to expect favorability from lower fuel costs.

For the fourth quarter, the Zacks Consensus Estimate for earnings is pegged at $1.06, reflecting a 6% year-over-year rise, while the consensus for revenues is at $1.57 billion, implying 1.8% year-over-year growth.

Earnings Whispers

Our proven model does not conclusively show that Dr Pepper Snapple is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here, as you will see below.

Zacks ESP: Dr Pepper Snapple’s Earnings ESP is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.06. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company has a Zacks Rank #4 (Sell). As it is, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Some stocks in the consumer staples sector that have both a positive Earnings ESP and a favorable Zacks Rank include:

Coty Inc. COTY, slated to report its quarterly numbers on Feb 9, has an Earnings ESP of +5.71% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Sanderson Farms, Inc. SAFM has an Earnings ESP of +0.78% and a Zacks Rank #3. The company is scheduled to report its quarterly numbers on Feb 23.

Pinnacle Foods, Inc. PF has an Earnings ESP of +1.27% and a Zacks Rank #2. The company is slated to report its quarterly numbers on Feb 23.

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