Dr Pepper Snapple (DPS) Q1 Earnings: A Beat In The Cards?

Dr Pepper Snapple Group, Inc. (NYSE:DPS) is set to report first-quarter 2017 results on Apr 26, before the market opens.

Last quarter, this Texas-based beverage company posted a negative surprise of 1.9%. However, the company surpassed estimates in three of the trailing four quarters, resulting in an average positive surprise of 4.47%.

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 +1.04% as the Most Accurate estimate is pegged at 97 cents while the Zacks Consensus Estimate is at 96 cents. 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 Zacks Ranks #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing a negative estimate revision.

The combination of Dr Pepper Snapple’s Zacks Rank #3 and +1.04% ESP makes us reasonably confident of an earnings beat.

Factors to Consider

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 (“RCI”) program through which it has been able to reduce inventory and storage costs and improve cash flows, which can be returned to shareholders via dividends and share repurchases and re-invested in the business.

Meanwhile, the company’s carbonated beverages volume trends scenario is quite discouraging. Cross-category competition and growing health and wellness consciousness are hurting CSD category growth. The diet drinks are also under pressure due to increasing consumer concern regarding the use of artificial sweeteners. Also, new taxes on sugar-sweetened beverages and growing regulatory pressure are affecting CSD sales, which comprise around 80% of its business.

This apart, we are apprehensive about the persistent pressure from adverse foreign currency movement. Foreign currency headwind is expected to impact core EPS by 11 cents in 2017, primarily because of the Mexican peso, which is expected to deteriorate another 14% from the 2016-end level.

For the first quarter, the Zacks Consensus Estimate for earnings is pegged at 96 cents, reflecting a 2.5% year-over-year rise, while the consensus for revenues is at $1.56 billion, implying 4.8% year-over-year growth.

Other Stocks to Consider

Here are some other companies in the broader consumer staples sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter:

The Coca-Cola Company (NYSE:KO) has an Earnings ESP of +2.27% and a Zacks Rank #2. The company is slated to report quarterly results on Apr 25.

Coty Inc. (NYSE:COTY) , expected to report its quarterly numbers on May 2, has an Earnings ESP of +25.0% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Newell Brands Inc. (NYSE:NWL) has an Earnings ESP of +6.90% and a Zacks Rank #3. The company is scheduled to report its quarterly numbers on May 8.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple (NASDAQ:AAPL) sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. Click here for the 6 trades >>