Dr Pepper Snapple Group, Inc. (DPS) is set to report third-quarter fiscal 2014 results on Oct 23, before the market opens. Last quarter, it posted a positive surprise of 15.22%. Let’s see how things are shaping up for this announcement.
Factors to Consider This Quarter
Dr Pepper had an impressive run in the first half delivering strong profits in both the quarters. This was driven by pricing gains, productivity improvements, lower marketing investments than last year and lower interest expense and taxes.
The company also raised its adjusted earnings per share outlook for the year on the second quarter conference call on the back of stronger–than-expected first half results.
Most impressively, CSD volume grew 2% in the second quarter, much better than the decline seen in the past two quarters, helped by the company’s aggressive marketing initiatives. In order to drive sales, Dr Pepper is carrying out well-planned marketing programs which include increasing distribution and availability of its key brands and packages and expanding single-serve availability.
We believe price mix and productivity gains and lower input and marketing costs are expected to drive earnings in the second half, offsetting weaker volumes and higher transportation and people costs.
Moreover, Dr Pepper’s non-carbonated beverage volumes are slowing down. Dr Pepper’s NCB volume dipped 3% in the first half and is expected to decline in the low single digits for the full year. This remains a concern for the upcoming quarter.
Earnings Whisper?
Our proven model does not conclusively show that Dr Pepper Snapple Group is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP 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% as both the Most Accurate Estimate and the Zacks Consensus Estimate stand at 88 cents.
Zacks Rank #3 (Hold): Though Zacks Ranks #1, 2 or 3 increase the predictive power of ESP, Dr Pepper Snapple’ ESP of 0.00% makes surprise prediction difficult.
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
Here are some other companies in the consumer staples sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter:
The Hershey Company (HSY) with an Earnings ESP of +2.78% and a Zacks Rank #3.
Post Holdings, Inc. (POST) has an Earnings ESP of +50.00% and a Zacks Rank #1 (Strong Buy).
United Natural Foods, Inc. (UNFI) has an Earnings ESP of +1.59% and a Zacks Rank #2 (Buy).
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