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Factors Likely to Shape Keurig Dr Pepper (KDP) Q2 Earnings

Zacks Equity Research

Keurig Dr Pepper Inc. KDP is slated to report second-quarter 2019 results on Aug 8.

Although the company delivered a positive earnings surprise of 8.7% in the last reported quarter, it lagged the Zacks Consensus Estimate in two of the trailing four quarters. Nevertheless, Keurig Dr Pepper came up with an average trailing four-quarter beat of 3.3%.

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

Which Way Are Q2 Estimates Headed?

The Zacks Consensus Estimate for second-quarter earnings is pegged at 29 cents, indicating 7.4% growth from 27 cents earned in the year-ago quarter. The consensus mark remained unchanged over the past 30 days.

For quarterly revenues, the consensus estimate is pinned at $2.86 billion, suggesting a rise of about 1% from the year-ago reported figure.

Factors at Play

Keurig Dr Pepper has been experiencing strong retail market performance across most of its business, which is likely to continue in the to-be-reported quarter. During the first quarter, the company reported dollar consumption growth across the majority of its portfolio and KDP holding, with market share gains across all categories. Market share growth in its carbonated soft drinks (CSD) premium unflavored still water, RTD coffee and shelf stable apple juice portfolios were backed by strength in Dr Pepper and Canada Dry CSD brands, CORE waters, Peet's and Forto RTD coffees, and Mott's apple juice.

In addition, Keurig Dr Pepper undertakes partnerships and acquisitions, which form an important part of its growth strategy. Management anticipates capturing merger-related synergies of nearly $200 million in 2019, which may have a positive impact in the second quarter.

Furthermore, Keurig Dr Pepper’s bottom-line results have been benefiting from higher adjusted operating income and a considerable decline in interest expenses due to reduced indebtedness and unwinding of several interest rate swap contracts. Further, a lower tax rate is aiding its earnings. Notably, the company reduced debt by $414 million in the first quarter, courtesy of its strong operating performance and effective working capital management. All these factors might prove conducive to the company in the to-be-reported quarter.

However, the company has been witnessing soft sales trend for quite some time now. In the first quarter, sales were impacted by adverse effects of changes made in its Allied Brands portfolio, unfavorable comparisons due to a calendar shift this year and currency headwinds. Also, industry-wide challenges including a slower rate of CSD category growth and higher input costs, particularly for aluminum cans remain concerns.

What the Zacks Model Says

Our proven model does not show 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. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if they have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Keurig Dr Pepper has Earnings ESP of 0.00% and a Zacks Rank #4, which make 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:

Monster Beverage Corporation MNST has an Earnings ESP of +1.12% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Energizer Holdings, Inc. ENR has an Earnings ESP of +1.79% and a Zacks Rank #3.

Edgewell Personal Care Company EPC has an Earnings ESP of +0.35% and a Zacks Rank #3.

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