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What's in Store for Dr Pepper Snapple (DPS) in Q1 Earnings?

Dr Pepper Snapple Group, Inc. DPS is set to report first-quarter 2016 results on Apr 27, before the market opens.

Last quarter, the beverage company posted a positive surprise of 2.04%. Moreover, the company has surpassed estimates in the trailing four quarters, resulting in an average positive surprise of 3.80%. 

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

Factors to Consider

Dr Pepper delivered solid top and bottom line results throughout 2015 driven by pricing gains, innovations, strong performance by non-carbonated beverages, powerful marketing programs and productivity improvements. Improving U.S. consumer sentiments, rational pricing environment, increased marketing support and cost savings from its Rapid Continuous Improvement (RCI) program, should boost results in the first 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. These category headwinds are significantly affecting Dr Pepper’s CSD volumes which account for around 80% of its business. The category is bearing the brunt of increasing health and wellness consciousness, new taxes levied on sugar-sweetened beverages and growing regulatory pressures, which are likely to hurt results in the to-be-reported quarter.

In addition, the company’s guidance for 2016 mentions several headwinds.  The company expects currency headwinds, softer NCB performance, higher interest and marketing costs to keep profits under pressure.

NCB volumes are expected to be down slightly in 2016 due to pricing-related volume erosion and termination of a Mexican distribution agreement pertaining to the Aguafiel 10-liter business. However, other NCB brands, such as Snapple, Clamato, and the allied brand portfolio are expected to continue to grow.

Earnings Whispers

Our proven model does not conclusively show that Dr Pepper Snapple is likely to beat earnings 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. But that is not the case here, as you will see below.

Zacks ESP: Dr Pepper Snapple’s Earnings ESP is -1.16% as the Most Accurate Estimate stands at 85 cents while the Zacks Consensus Estimate is pegged higher at 86 cents.

Zacks Rank: Though the company’s Zacks Rank #3 increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

Note that 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

Here are some companies in the food/beverage sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Coca-Cola Enterprises, Inc. CCE, with an Earnings ESP of +2.5% and a Zacks Rank #2

Kellogg Company K with an Earnings ESP of +1.08% and a Zacks Rank #2

The Kraft Heinz Company KHC with an Earnings ESP of +4.92% 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 ENTRP (CCE): Free Stock Analysis Report
DR PEPPER SNAPL (DPS): Free Stock Analysis Report
KELLOGG CO (K): Free Stock Analysis Report
KRAFT HEINZ CO (KHC): Free Stock Analysis Report
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