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

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).

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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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