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Dr Pepper Snapple Group Inc. (DPS - Analyst Report) is set to report second quarter 2013 results on Jul 24. Last quarter, it posted a 12.77% positive surprise. Let’s see how things are shaping up for this announcement.

Factors to Consider

Dr Pepper has been witnessing sluggish top-line growth on account of weak volumes for the past few quarters. Sales volume has been down due to difficult operating conditions faced by the carbonated beverages (CSD) segment in North America. Changing consumer preferences, increasing health consciousness and rising obesity concerns, possible new taxes on sugar-sweetened beverages and growing regulatory pressures have transformed the carbonated beverages category to a sluggish growth category in North America. These category headwinds are significantly affecting Dr Pepper’s CSD volumes, which comprise around 80% of its business.
We believe CSD volumes will continue to lag this quarter. Poor weather conditions in North America may further pull down beverage sales.

Second-quarter profits are expected to be hurt by higher marketing investments and difficult year-over-year comparisons.  Sales in the second quarter of 2012, however, benefited from lower discounts. Marketing investments are expected to be higher due to brand investments to support Dr Pepper’s TEN platform.

Dr Pepper is trying to reinvigorate its CSD category by making healthier and tastier alternatives. In 2011, Dr Pepper launched the low-calorie version of its Dr Pepper brand of soft drinks, Dr Pepper TEN. The 10 calorie drink has gained decent success, driven by solid brand support.  

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 (Read:  Zacks Earnings ESP: A Better Method) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Negative Zacks ESP: The Zacks ESP is -1.1%. This is because the Most Accurate estimate stands at 83 cents while the Zacks Consensus Estimate is higher at 84 cents.

Zacks Rank #4 (Sell): Dr Pepper carries a Zacks Rank #4 (Sell). We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies from the consumer staples sector, which you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:  

Kraft Foods Group, Inc. (KRFT - Analyst Report), Earnings ESP of +5.97% and a Zacks Rank #2 (Buy).

Monster Beverage Corporation (MNST - Analyst Report), Earnings ESP of +3.13% and a Zacks Rank #2.

The J. M. Smucker Company (SJM - Analyst Report), Earnings ESP of +4.20% and a Zacks Rank #2.


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