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Dr Pepper Snapple (DPS) Q2 Earnings: A Beat in the Cards?

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Dr Pepper Snapple Group, Inc. (DPS - Free Report) is set to report second-quarter 2017 results on Jul 27, before the market opens.

Last quarter, this Texas-based beverage company posted a positive surprise of 5.2%. The company also surpassed estimates in three of the trailing four quarters, resulting in an average positive surprise of 3.44%.

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 because it has the perfect combination of two key ingredients.

Zacks ESP: Dr Pepper Snapple’s Earnings ESP is +2.36% as the Most Accurate estimate is pegged at $1.30, while the Zacks Consensus Estimate is at $1.27. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Dr Pepper Snapple Group, Inc Price and EPS Surprise

Zacks Rank: Dr Pepper Snapple currently has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates.

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

The combination of Dr Pepper Snapple’s Zacks Rank #3 and +2.36% ESP makes us reasonably confident of an earnings beat.

Factors to Consider

A look at estimate revisions lends us an idea of analyst expectations right before a company’s earnings release. The Zacks Consensus Estimate for second-quarter earnings per share declined by a penny in the past 30 days to $1.27. However, this reflects a year-over-year increase of 1.8%. Further, analysts polled by Zacks expect revenues of $1.77 billion for the said quarter, reflecting a 4.4% increase from a year ago.

We are optimistic about Dr Pepper Snapple’s focus on forming distribution agreements with emerging, high-growth third-party brands. These allied brand partnerships allow the company to participate in adjacent and growing categories while also fully tapping into its manufacturing and distribution network. Allied brands have been an important driver of revenues and profits over the past few quarters. The acquisition of Bai Brands is the evidence of its diversification efforts toward lessening its exposure to carbonated soft drinks (“CSD”).

Also, the company’s aggressive marketing campaigns, pricing gains, innovation and productivity improvements are expected to boost sales. We are also encouraged by the company’s Rapid Continuous Improvement program through which it has been able to reduce inventory and storage costs and improve cash flows.

The company earlier notified that marketing expenses, excluding Bai Brands, is expected to increase by about $20 million in the second quarter. Also, it expected about a $5-million increase in health, welfare and risk insurance in the second quarter.

We are concerned about the week carbonated beverages volume trends and persistent pressure from adverse foreign currency movement. Cross-category competition and growing health and wellness consciousness are hurting CSD category growth. Foreign currency headwind is expected to impact core EPS by 7 cents in 2017, primarily because of the Mexican peso. Again, foreign currency translation is likely to dent overall 2017 revenue growth by approximately 1%.

Other Stocks to Consider

Here are some other companies in the Consumer Staple sector you may want to consider as our model shows that these also have the right combination of elements to post an earnings beat:

Tyson Foods, Inc. (TSN - Free Report) has an Earnings ESP of +1.64% and a Zacks Rank #2.

Coca-Cola European Partners PLC (CCE - Free Report) has an Earnings ESP of +4.69% and a Zacks Rank # 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Energizer Holdings, Inc. (ENR - Free Report) has an Earnings ESP of +2.78% and a Zacks Rank # 1.

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