Will Dr Pepper Snapple (DPS) Beat Q2 Earnings on Productivity? - Analyst Blog

By Zacks Equity Research,

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Dr Pepper Snapple Group Inc. ( DPS ) is set to report its second-quarter 2014 results on Jul 24 before the market opens. Last quarter, it posted a positive surprise of 25.42%.

In fact, the beverage company has delivered three positive earnings surprises in the trailing four quarters, with an average surprise of 15.19%. Let's see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Dr Pepper Snapple 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.

Positive Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +3.30%.  This is a meaningful and leading indicator of a likely positive earnings surprise for shares.

Zacks Rank: Dr Pepper Snapple carries a Zacks Rank #3 (Hold) which when combined with a +3.30% ESP makes us confident of an earnings beat.

Note that stocks with Zacks Rank #1, 2 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.

Factors to Consider this Quarter

The company has been consistently delivering strong margins for the past few quarters. Last quarter, the company's margins grew significantly as sluggish volume trends of carbonated soft drinks (CSDs) were offset by pricing gains, lower commodity and marketing costs and improved productivity. We believe that these factors should continue to boost profits in the second quarter as well.

However, the CSD softness is expected to continue this quarter as well. Growing health and wellness consciousness, vigilance among consumers about the use of artificial sweeteners, high sugar content and related obesity concerns are affecting the sales of carbonated beverages (CSD) of Dr Pepper as well as other soft drink makers like PepsiCo, Inc. ( PEP ) and The Coca-Cola Company ( KO ).

Dr Pepper has been curtailing costs by reducing inventory and storage costs. The company's cost reduction has also resulted in improved cash flows. This allows it to regularly return cash to shareholders in the form of dividends and share buybacks.

Other Stocks to Consider

Here are some other companies in beverage/food sectors you may consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:

The Coca-Cola Company (KO), with an Earnings ESP of +4.76% and a Zacks Rank #3.

The J.M. Smucker Co. ( SJM ) with an Earnings ESP of +1.46% and a Zacks Rank #3.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

COCA COLA CO (KO): Free Stock Analysis Report

DR PEPPER SNAPL (DPS): Free Stock Analysis Report

PEPSICO INC (PEP): Free Stock Analysis Report

SMUCKER JM (SJM): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Stocks: CSD , KO , DPS , PEP , SJM

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