Keurig Dr Pepper (KDP) to Post Q4 Earnings: What’s in Store?

Keurig Dr Pepper Inc. KDP is slated to report fourth-quarter 2018 results on Feb 28, 2019. In the last reported quarter, it delivered positive earnings surprise of 11.11%.

Moreover, the company recorded average positive surprise of 0.7% in the trailing four quarters. The Zacks Consensus Estimate for the fourth quarter is pegged at 30 cents, reflecting a year-over-year decline of 74.4%. However, estimates remained unchanged in the last 30 days. The Zacks Consensus Estimate for total revenues of $2.85 billion reflects growth of 73.6% year over year.

Let’s see how things are shaping up prior to the upcoming earnings release.

Factors Likely to Impact Q4

Keurig Dr Pepper is gaining from progress on the integration of the merged companies, as was clear from the robust third-quarter 2018 results. The top line is benefiting from strong volume/mix and significant market share gains across major categories. Robust volume/mix is attributed to improved shipment volumes for Dr Pepper, Canada Dry, Core Bai and BODYARMOR brands. Shipment volume growth in Canada Dry was backed by successful innovation and continued growth of the ginger ale category. Sales for the Coffee business were fueled by volume growth of pods and brewers.

During the third quarter, the company reported market share gains in both units and dollars for its CSD portfolio as both Dr Pepper and Canada Dry continued to gain traction. Further, it expanded the coffee portfolio on the back of unit growth for single-serve pod category as well as improved market share for pods produced by Keurig Dr Pepper. Additionally, the company’s promising outlook for 2018, and its strategy of making partnerships and acquisitions indicate solid prospects ahead.

For 2018, Keurig Dr Pepper continues to anticipate adjusted earnings per share of $1.02-$1.07. Net sales for the year are expected to increase 1-2%, with operating income growth of 7-8%.

For the long term, the company expects to generate deal synergies of nearly $600 million between 2019 and 2021, with about $200-million savings anticipated every year. It also expects to deliver average annualized adjusted pro forma EPS growth rate of 15-17% between 2018 and 2021. Additionally, the company expects significant cash flow generation and rapid deleveraging, targeting leverage ratio of less than 3.0 in two to three years.

Though Keurig Dr Pepper’s strong quarter and strategy look good, lower realized prices and unfavorable currency offset gains from improved volume/mix for the Coffee Systems segment. Notably, pricing continued to be moderate significantly on a sequential basis mainly due to pod pricing investment. Pricing actions initiated in third-quarter 2018 could not fully offset higher input costs and logistics.

Consequently, we expect realized prices to remain soft for the time being. This is likely to hurt results in the fourth quarter.

Further, Keurig Dr Pepper is not immune to the CSD category headwinds and higher input costs, particularly for aluminum cans. Moreover, the company’s cross-border presence exposes it to adverse currency movements, which are hurting sales and earnings. These headwinds are expected to persist and weigh on the company’s top and bottom lines in the fourth quarter.

What the Zacks Model Says

Our proven model does not predict that Keurig Dr Pepper is likely to beat earnings estimates 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. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Keurig Dr Pepper has an Earnings ESP of 0.00% and a Zacks Rank #3. Though the company’s rank increases the predictive power of ESP, its ESP of 0.00% makes surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to deliver an earnings beat:

Turning Point Brands, Inc. TPB has an Earnings ESP of +11.11% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Foot Locker Inc. FL has an Earnings ESP of +1.26% and a Zacks Rank of 2.

Abercrombie & Fitch ANF has an Earnings ESP of +2.28% and a Zacks Rank #2.

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