First-quarter earnings season is supposed to be a dud, but don’t tell that to Coca-Cola (KO), Johnson & Johnson (JNJ) or Charles Schwab (SCHW). These three blue chips delivered some market-pleasing results Tuesday, helping KO stock, JNJ stock and SCHW stock to take off.
Goodness knows the market can use the help. The S&P 500 looks to be working its way out of the April swoon, but heading into Tuesday it was up just 0.7% for the year-to-date.
The Dow Jones Industrial Average — of which JNJ and KO stock are constituents — is having an even rougher year. The blue-chip index was off 2.4% for the year before KO stock and JNJ stock rose after earnings.
Better-than-expected earnings of the type we saw from KO, JNJ and SCHW are the only hope for the S&P 500 if it’s to avoid a year-over-year decline in quarterly profits.
Analysts on average expect the broader market to post a 1.2% drop in first-quarter earnings, according to data from FactSet. That would be the first decrease in S&P 500 earnings since the third quarter of 2012.
Of course, not all of these names reported a year-over-year increase in net income. Right or wrong, the market doesn’t much care about that. Rather, it all comes down to adjusted earnings (which exclude things like one-time charges), and how those adjusted figures compare with expectations. That’s what’s driving KO stock, JNJ stock and SCHW stock after earnings.
Happily for anyone holding JNJ, SCHW stock or KO stock, the Street’s expectations were not disappointed. Here’s a look at the quarterly highlights for Coca-Cola, Johnson & Johnson and Schwab:
Coca-Cola has been having a rough time as people drink fewer carbonated beverages. Indeed, taste for fizzy drinks appears to be in secular decline. That’s a long-term threat to KO’s core business, and it’s already showing up in KO stock, which was down 3.6% for the year-to-date before Tuesday’s pop.
KO first-quarter profit fell more than 7% and revenue dropped 4%. So what’s the cheering about? Excluding charges, KO stock had earnings of 44 cents a share, which matched Wall Street’s forecast. Moreover, revenue of $10.58 billion exceeded analysts’ average projection.
In other good news for KO stock, global volume rose 2%, giving the market some hope that KO is building some momentum in a shrinking market for carbonated beverages. Another hopeful sign for KO stock is that revenue didn’t drop because of lower sales. Rather, it was all due to a stronger dollar. Strip out the effects of currency exchange, and KO would have had top-line growth of 2%.
No, it wasn’t a great quarter, but KO beat the Street’s low expectations, and that’s all it took to give KO stock some life.