Dr Pepper Cuts 2017 Earnings View On Resin Supply Default

Dr Pepper Snapple Group Inc. (NYSE:DPS) reduced its earnings forecast for 2017 owing to a default by a resin supplier to its operations in Mexico.

Dr Pepper expects the default by the resin supplier to affect its 2017 operating income by approximately $7-$9 million, or 3 cents per share, the impact of which will be felt most in the third quarter of 2017.

The company slashed its 2017 earnings guidance to $4.53-$4.63 per share, from $4.56-$4.66 anticipated earlier. Analysts polled by Zacks expect earnings of $4.65 per share for 2017, reflecting a 5.8% increase from a year ago.

Nevertheless, Dr Pepper took care of its resin requirements and expects to write-off certain prepaid resin inventory. However, management has not commented on any change in its sales and volume expectation. As specified earlier, net sales growth of 4.5% and total volume growth of around 2% is anticipated for 2017.

Dr Pepper Snapple Group, Inc Price

Apart from this default, the disastrous effect of the recent hurricanes in the United States and the earthquake in Mexico also impacted Dr Pepper’s operations. However, the company did not specify the impact of such calamities on its operating results.

In addition to these aforementioned troubles, weak carbonated beverages volume trends and persistent pressure from adverse foreign currency movement raise caution. Foreign currency headwind is expected to affect core EPS by 4 cents in 2017, primarily because of the Mexican peso. Again, foreign currency translation is likely to reduce overall 2017 revenues growth by approximately 1%.

Though the default at Dr Pepper’s supplier's resin plant was not due to the impact of the recent hurricanes, it is to be noted that the effects of Harvey have significantly disrupted most of United States’ resin manufacturing supply chain, significantly raising operating costs. These resin supply issues and increased inflation are likely to persist through the rest of 2017 and in to 2018. Recently, Newell Brands (NYSE:NWL) trimmed its earnings guidance for 2017 on increased inflationary pressures due to low resins’ supply owing to impacts from the recent hurricanes.

Zacks Rank & Stocks to Consider

Dr Pepper currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the Consumer Staples sector are Nomad Foods Limited (NYSE:NOMD) , The Chefs' Warehouse, Inc. (NASDAQ:CHEF) and Ingredion Incorporated (NYSE:INGR) . While Nomad Foods sports a Zacks Rank #1 (Strong Buy), Chefs' Warehouse and Ingredion carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Nomad Foods’ current-year expected earnings growth is 22.8%.

Current quarter’s expected earnings growth for Chefs' Warehouse is 42.9%.

Ingredion projects current-quarter expected earnings growth of 3.6%.

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