Earnings Preview: Dr Pepper Snapple

Dr Pepper Snapple Group Inc. ( DPS - Analyst Report ) , a leading manufacturer and distributor of non-alcoholic beverages in the U.S., Canada and Mexico, is scheduled to report its fourth-quarter and full-year 2011 results before the opening bell on Wednesday, February 15, 2012.

The current Zacks Consensus Estimate for the fourth quarter and full year is 74 cents a share and $2.72 per share, respectively, reflecting a year-over-year estimated growth of 10.99% for the fourth quarter and 13.37% for full-year 2011.

Third-Quarter 2011 Summary

Dr Pepper Snapple reported third-quarter 2011 earnings of 71 cents per share, up 18.3% from the year-ago earnings of 60 cents. However, quarterly earnings were in line with the Zacks Consensus Estimate.

During the quarter, Dr Pepper's net sales grew approximately 5.0% year over year to $1,529.0 million. However, it fell short of the Zacks Consensus Estimate of $1,531.0 million. The year- over-year growth was mainly attributable to price increases, favorable foreign currency translations and revenues from The Coca-Cola Company ( KO - Analyst Report ) licenses and favorable impact of repatriated brands.

Management Guidance

Dr Pepper reiterated its full-year 2011 adjusted earnings in the range of $2.70 to $2.78 per share on a 3% to 5% growth in net sales.

Agreement of Estimate

For the fourth quarter of fiscal 2011, none of the analysts revised their estimates either upward or downward, in the last 30 as well as 7 days.

For fiscal 2011, 1 out of 13 analysts made a negative revision in the last 30 days, while there were no positive revisions in the same period. Estimate revisions for fiscal 2012 saw 1 analyst each, out of 13, lowering and raising estimates, respectively, in the last 30 days.

In the last 7 days, there was no movement in estimates in either direction for fiscal 2011 and 2012.

Magnitude of Estimate Revisions

Estimate revisions trends by analysts in the last 30 days generally point to a negative sentiment. Despite no change in estimates in either 30-day or 7-day periods, the Zacks Consensus Estimate for the fourth quarter moved down by a penny in the last 30 days, while estimate remained intact in the last 7 days.

Despite downward revisions by one analyst, the estimates for fiscal 2011 remained stable at $2.72 per share in the last 30 days. Estimate trends for fiscal 2011 in the 7-day period were also stable as there were no revisions by analysts. The Zacks Consensus Estimate for fiscal 2012 moved up by a penny to $2.91 per share in the last 30 days, while it was unchanged in the last 7 days.

Surprise History

With respect to earnings surprises, Dr Pepper showed a favorable trend in the last four quarters. The company has recorded positive surprises in the trailing four quarters with a low of 0.00% and a high of 8.7%. On average, the earnings surprise was a positive 4.94%. Based on the current flow, we expect the company to come up with healthy results in the upcoming quarter.

Our View

Dr Pepper commands a strong portfolio of well-established flagship brands, such as Dr Pepper, Snapple, 7UP, Mott's, Sunkist, A&W, Canada Dry, Schweppes, Hawaiian Punch, Squirt and Penafiel. These brands offer a strong competitive advantage to the company and strengthen its well-established position in various markets.

Moreover, Dr Pepper's 22 manufacturing facilities and over 200 distribution centers are strategically located across North America. The company's warehouses are located at or near the bottling plants and have 5,000 trucks for transportation purposes. These facilities enable the company to better align its operations with its customers, reduce transportation cost and have better control over the timing and management of new product launches.

Furthermore, Dr Pepper is in the midst of its Rapid Continuous Improvement (RCI) program. Therefore, the company has been able to reduce its package changeover time at its Aspers plant from 87 minutes to 24 minutes. Dr Pepper anticipates that the program will lead to a cash productivity of at least 150.0 million through 2013. The program should give more flexibility to its plants for meeting consumer demand while enabling it to reduce inventory and storage costs.

However, intense competition, seasonal variations and exposure to foreign currency fluctuations may undermine the company’s growth prospects and profitability.

Besides, the liquid refreshment beverage industry is highly competitive and continues to evolve in response to changing consumer preferences. Competition is generally based on brand recognition, taste, quality, price, availability, selection and convenience.

The two major competitors in the liquid refreshment beverage market are The Coca-Cola Company and Pepsico Inc. ( PEP - Analyst Report ) , each representing more than 30% of the U.S. liquid refreshment beverage market by volume.

Currently, Dr Pepper maintains a Zacks #3 Rank, which translates into a short-term Hold rating. Moreover, our long-term recommendation on the stock remains Neutral.