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Dr Pepper (DPS) to Report Q3 Earnings: What to Expect?

Dr Pepper Snapple Group, Inc.DPS is set to report third-quarter 2015 results on Oct 22, before the market opens. Last quarter, the company delivered a positive earnings surprise of 2.7%.

In fact, the company has posted positive earnings surprises in all the past four quarters with an average surprise of 5.46%.

Let's see how things are shaping up for this announcement.

Factors to Consider

After an exceptional performance in 2014, Dr Pepper delivered solid top line and bottom line results in the first half of 2015, despite increased currency headwinds. Pricing gains, innovations, powerful marketing initiatives and productivity improvements drove the results. Moreover, despite increased negative Fx impact, the company raised the previous sales and earnings guidance for 2015 during the second-quarter conference call.

We believe that improving U.S. consumer sentiments, rational pricing environment, increased marketing support and cost savings from its Rapid Continuous Improvement (RCI) program, will boost results in the third and fourth quarters 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. 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% 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.

Earnings Whispers

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 and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: The Earnings ESP is -1.94% as the Most Accurate estimate stands at $1.01, while the Zacks Consensus Estimate is pegged higher at $1.03.

Zacks Rank: Dr Pepper's Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Some stocks in the broader food/beverage sector that have both a positive Earnings ESP and a favorable Zacks Rank are:

The J. M. Smucker Company SJM , with an Earnings ESP of +0.66% and a Zacks Rank #2 (Buy)

Lancaster Colony Corporation LANC , with an Earnings ESP of +2.22% and a Zacks Rank #2

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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

SMUCKER JM (SJM): Free Stock Analysis Report

LANCASTER COLON (LANC): Free Stock Analysis Report

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


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

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