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The Zacks Analyst Blog Highlights: Dr Pepper Snapple Group, Coca Cola, PepsiCo, ArcelorMittal and U.S. Steel



    The Zacks Analyst Blog Highlights: Dr Pepper Snapple Group, Coca Cola,
                    PepsiCo, ArcelorMittal and U.S. Steel

PR Newswire

CHICAGO, Dec. 28, 2012

CHICAGO, Dec. 28, 2012 /PRNewswire/ -- Zacks.com announces the list of stocks
featured in the Analyst Blog. Every day the Zacks Equity Research analysts
discuss the latest news and events impacting stocks and the financial markets.
Stocks recently featured in the blog include Dr Pepper Snapple Group
Inc. (NYSE:DPS), The Coca Cola Company (NYSE:KO), PepsiCo, Inc. (NYSE:PEP),
ArcelorMittal (NYSE:MT) and U.S. Steel Corp. (NYSE:X).

(Logo: http://photos.prnewswire.com/prnh/20101027/ZIRLOGO)

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Here are highlights from Thursday's Analyst Blog:

Dr. Pepper Snapple Still at Neutral

We have maintained a Neutral recommendation on Dr Pepper Snapple Group
Inc. (NYSE:DPS) following appraisal of third quarter 2012 results.

Dr Pepper Snapple's third quarter 2012 adjusted earnings of 79 cents per share
increased 7.0% year over year as flat sales growth was partially offset by
decent margins. The company's quarterly earnings also surpassed the Zacks
Consensus Estimate of 77 cents per share.

During the quarter, Dr Pepper's net sales were flat (both including and
excluding currency impact) year over year at $1.528 billion as gains from
pricing were offset by volume declines and unfavorable segment mix. Net sales
slightly missed the Zacks Consensus Estimate of $1.568 billion. Overall, sales
were down from second quarter levels. Dr Pepper maintained its full year 2012
earnings guidance, while it trimmed the sales outlook.

Overall, we are encouraged by Dr Pepper's strong position in the flavored
carbonated soft drinks (CSD) market. Dr Pepper owns some of the most popular
CSD and non carbonated beverages (NCB) brands. The company holds the #1
position in the flavored non-cola CSD market in the U.S. with a market share
of 40% in 2011. Dr Pepper soft drink, the most popular CSD brand, holds the #2
position in the flavored CSD market in the U.S. The company's portfolio of
well-established flagship brands offers a strong competitive advantage and
strengthens its position in the market. Further, the company makes regular
marketing investments to build brand value. Over the last three years, the
company has made over $100 million of marketing investment in popular brands.

In 2010, Dr Pepper launched its Rapid Continuous Improvement (RCI) program
under which the company is working to free up critical resources, people, time
and money so that these can be used to build brand value. Therefore, the
company has been able to reduce inventory and storage costs and improve cash
flows, which can in turn be returned to shareholders via dividends and share
repurchases. Dr Pepper anticipates that the program will lead to productivity
savings of at least $150 million through 2013.

Though the commodity cost pressures have subsided, of late, the company's weak
volume growth and lack of exposure outside U.S. keep us on the sidelines.
Further, changing consumer preferences toward healthier drinks, as a result of
heightened awareness, are affecting the company's CSD volumes. Moreover, the
company mainly operates its business in the U.S., Canada and Mexico, which are
experiencing saturation. It thus lacks exposure in the fast growing emerging
markets where demand is growing and health consciousness is comparatively
less. This is a significant competitive disadvantage for Dr Pepper versus its
peers like The Coca Cola Company (NYSE:KO) and PepsiCo, Inc. (NYSE:PEP), which
have significant exposure overseas.

ArcelorMittal to Incur Hefty Charge

Steel maker ArcelorMittal (NYSE:MT) announced that it will incur a goodwill
write down amounting to $4.3 billion for its European businesses in the fourth
quarter of 2012. The charge is in accordance with the results of its goodwill
impairment test as per the IFRS accounting standards. The write down will be
in the form of a non-cash impairment charge.

ArcelorMittal considered weak market conditions in Europe to be responsible
for the impairment charge. Steel demand in Europe fell about 8% this year,
bringing the cumulative decline in demand to approximately 29% since 2007.
However, the company's U.S. business is performing well where apparent steel
consumption is up almost 8% this year and lagging the 2007 level by only 10%.

ArcelorMittal is wary of the situation in Europe and the domino effect it
might have on other markets. As a result, the company is focusing on improving
its efficiency, productivity, assets optimization and net debt reduction.

Last month, ArcelorMittal posted a net loss of $709 million or 46 cents per
share in the third quarter of 2012 compared with a net income of $659 million
or 19 cents per share a year ago. The bottom line was hurt by the challenging
economic conditions including the slowdown in China as well as lower steel
pricing and shipments.

The company's adjusted loss of 31 cents a share missed the Zacks Consensus
Estimate of earnings of 6 cents. The adjusted loss excluded one-time items –
impairment and restructuring charges.

Revenues declined 18.5% year over year to $19,723 million, trailing the Zacks
Consensus Estimate of $21,189 million. Sales also declined 12.3% on a
sequential basis due to lower steel shipment volumes and lower average steel
selling prices. Shipments declined 5.7% to 19.9 million metric tons in the
quarter.

The company, which competes with U.S. Steel Corp. (NYSE:X) and Tata Steel
Limited, maintains a Zacks #5 Rank, which translates into a short-term (1 to 3
months) Strong Sell rating. We currently have a long-term (more than 6 months)
Underperform recommendation on the shares of ArcelorMittal.

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