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What's in Store for Keurig Dr Pepper (KDP) in Q2 Earnings? (Revised)

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Keurig Dr Pepper Inc. (KDP - Free Report) , the newly formed company after the merger of Dr Pepper Snapple Group Inc and Keurig Green Mountain on Jul 9, is slated to report its quarterly results on Aug 8, 2018, for the first time. The merged company is the seventh-largest company in the U.S. food and beverage sector, and the third-largest beverage company in North America. It will report second-quarter 2018 results before the market opens.

Factors at Play

With combined revenues of nearly $11 billion, the new Keurig Dr Pepper combines  Dr Pepper Snapple's drink and distribution network with Keurig' Green Mountain's coffee business. Notably, the company generates a large chunk of its revenues from distributing drinks made by other companies, including brands like Fiji Water, BodyArmor and Vita Coco. This is done through Dr Pepper Snapple's "Allied Brands" network. Before the merger, Dr Pepper Snapple generated about 18% of its revenues in 2017 from distribution deals with beverage companies that it doesn't own — mostly its Allied Brand partners.

Following the completion of the merger, the new company failed to renegotiate distribution terms with one of the key Allied brands – Fiji, which generated nearly 2% of its total revenues. While this represents big loss, the company recently signed an agreement with to add Big Red to its portfolio. It also agreed to add two coffee drinks to the Allied Brands network — Forto Coffee Energy Shots and Peet’s Ready-to-Drink Iced Expresso. It will distribute Forto throughout its network and Peet's primarily through its network of convenience stores. These additions provide scope for covering up the lost revenues from the loss of Fiji.

Altogether, the company’s distribution strategy is likely to benefit the company, as it is open to supporting partnership brands, even if it does not own them.  Moreover, the company remains poised to gain from Dr Pepper’s Rapid Continuous Improvement (RCI) cost-saving program, solid execution innovation, and powerful marketing and productivity programs. Further, Keurig's online presence will boost sales through digital platforms.

However, we believe that the CSD category headwinds will continue to impact the company’s volumes, including the diet versions, due to Dr Pepper’s strong portfolio of carbonated beverages. Cross-category competition, and growing health and wellness consciousness among consumers are hurting CSD category growth. Moreover, new taxes on sugar-sweetened beverages and growing regulatory pressures are affecting CSD sales. These general constraints in the soft drinks business are likely to continue impacting the newly formed company.

What the Zacks Model Says

Our proven model does not show that Keurig Dr Pepper is likely to beat earnings estimates 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. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Keurig Dr Pepper’s Earnings ESP of 0.00% and Zacks Rank #5 (Strong Sell) make surprise prediction inconclusive.

Stocks Poised to Beat Earnings Estimates

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to deliver an earnings beat:

Turning Point Brands, Inc. (TPB - Free Report) has an Earnings ESP of +6.12% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ollie's Bargain Outlet Holdings, Inc. (OLLI - Free Report) has an Earnings ESP of +1.57% and a Zacks Rank #2.

Monster Beverage Corporation (MNST - Free Report) has an Earnings ESP of +0.05% and a Zacks Rank of 3.

Note: This article has been revised to correct an earlier version. 

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