Can Dr Pepper (DPS) Keep the Earnings Streak Alive in Q2? - Analyst Blog
We expect Dr Pepper Snapple Group, Inc. DPS to beat expectations when it reports second-quarter 2015 results on Jul 23 before the market opens. Last quarter, the company delivered a positive earnings surprise of 6.58%.
In fact, the beverage company has delivered positive earnings surprise in all the trailing four quarters with an average earnings surprise of 8.58%.
Why a Likely Positive Surprise?
Our proven model shows that Dr Pepper is likely to beat earnings this quarter because it has the right combination of two key ingredients.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +0.92%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.
Zacks Rank: Dr Pepper carries a Zacks Rank #3 (Hold).
Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Dr Pepper’s Zacks Rank #3 and +0.92% ESP makes us confident of an earnings beat.
Factors to Consider
Dr Pepper delivered a strong performance in 2014 as well as the first quarter of 2015 driven by pricing gains, innovations, powerful marketing programs and productivity improvements. We believe that improving U.S. consumer sentiments, rational pricing environment, increased marketing support and RCI driven cost savings will boost results in the second quarter as well.
However, Dr Pepper has been witnessing persistent sluggishness in its carbonated beverage volumes, including the diet versions, due to carbonated soft drinks (CSD) category headwinds. Weak consumer spending environment, cross-category competition and growing health and wellness consciousness — consumers are particularly vigilant about the use of artificial sweeteners, high sugar content and related obesity concerns — are hurting CSD category growth. Also, new taxes levied on sugar-sweetened beverages and growing regulatory pressures are affecting CSD sales. These factors are likely to have a negative impact on the results in the to-be-reported quarter.
These category headwinds are significantly affecting Dr Pepper’s CSD volumes which account for around 80–85% of its business. The sales of other soft drink companies like The Coca-Coca Company KO and PepsiCo are also being hurt due to these factors. Management expects these headwinds to continue in 2015 as well.
Other Stocks to Consider
Some stocks in the broader food/beverage sector that have both a positive Earnings ESP and a favorable Zacks Rank are:
Kellogg Company K, with an Earnings ESP of +3.30% and a Zacks Rank #3.
Cal-Maine Foods, Inc. CALM, with an Earnings ESP of +5.17% and a Zacks Rank #1.
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COCA COLA CO (KO): Free Stock Analysis Report
DR PEPPER SNAPL (DPS): Free Stock Analysis Report
KELLOGG CO (K): Free Stock Analysis Report
CAL-MAINE FOODS (CALM): Free Stock Analysis Report
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