Dr Pepper Snapple Group Inc. (DPS) is set to report fourth-quarter and fiscal 2013 results on Feb 12, before the market opens. Last quarter, it delivered a positive earnings surprise of 6.02%. 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 5–6 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 the beverage company’s CSD volumes, which comprise around 80% of its business.
The situation is not expected to improve much in the fourth quarter and CSDs are expected to continue to suffer due to category headwinds.
However, profits could be better in the quarter due to an expected LIFO inventory benefit of approximately $8 million and lower marketing costs. Marketing expenses are expected to decline year over year in the quarter.
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 (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Zacks ESP: The Earnings ESP is 0.00%.
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.
Other Stocks to Consider
Other stocks in the consumer staples sector that have both a positive earnings ESP and a favorable Zacks Rank are:
ConAgra Foods, Inc. (CAG), with Earnings ESP of +1.54% and a Zacks Rank #2 (Buy).
Mondelez International, Inc. (MDLZ), with Earnings ESP of +2.27% and a Zacks Rank #3 (Hold).
Lorillard, Inc. (LO),withEarnings ESP of +1.18% and a Zacks Rank #2.
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