Despite Earnings Beats, Netflix and Coca-Cola Sink

After reporting better than expected earnings, both Netflix and Coca Cola fell in Tuesday trading. Here's what's driving these companies today.

Jul 22, 2014 at 1:00PM
Take The Long View

The Dow Jones Industrial Average (DJINDICES:^DJI) was up 59 points, to 17,110, at 1 p.m. EDT Tuesday as tensions in Eastern Europe took a back seat to positive inflation data from the Labor Department and some major earnings wins for U.S. corporations.

Positive signs for the U.S. economic recovery
The Labor Department reported today that the Consumer Price Index rose 0.3% in June, a deceleration from the trend so far this year. Core CPI, which excludes more volatile items such as food and energy, rose just 0.1%. 

The markets welcomed this news, as lower inflation gives the Federal Reserve more leeway to hold interest rates lower for longer. As an explicit component of the Fed's dual mandate on monetary policy, inflation is a primary driver in the central bank's decision-making process. With inflation in check, Fed Chairwoman Janet Yellen and her colleagues can continue to focus on the labor market and promoting broader economic growth. 

US Core Inflation Rate Chart

US Core Inflation Rate data by YCharts.

The National Association of Realtors also said today that existing home sales rose 2.6% in June on an annualized basis. The 5.04 million homes sold is the largest monthly total since October of last year, but still represents a year-over-year sales decline.

The report painted an optimistic picture, citing improving inventory levels and stable price appreciation as factors that should support continued improvement in the real estate markets.

Strong earnings and a fickle market
The broad markets were driven higher by the macro news today, while several individual stocks bucked the trend for specific reasons. Take Netflix (NASDAQ:NFLX), for example.

Last night after the closing bell, the video streaming and DVD rental company reported strong second-quarter results. Netflix surpassed the 50-million subscriber level for the first time as viewers binge-watched hits including House of Cards and Orange Is the New Black.

Netflix On Iphone

Netflix added 570,000 new U.S. subscribers in the quarter, alongside a very impressive 1.1 million additional subscribers in foreign markets. Both growth areas outpaced even management's expectations.

The company reported net income of $71 million for the quarter, more than doubling last year's second-quarter mark of $29 million.

But the stock dropped 5.6% by early Tuesday afternoon in spite of the positive earnings report. Investors sold shares on anticipation that further growth into the European market would erode margins. Other investors claimed that the company's growth upside was already priced into the stock's price. 

Even with today's decline, the stock is up about 17% year to date, far outpacing the Dow's 3.3% gain over the same period.

Coke fizzles
The news also wasn't positive for Dow component Coca-Cola (NYSE:KO), which traded down 3%. Coke reported second-quarter results today, and the market largely did not like what it saw.

The beverage giant beat earnings estimates by a paltry $0.01 per share, and investors turned their focus to a big decline in top-line sales. 

Analysts had expected $12.83 billion in quarterly sales. Instead, Coca-Cola reported $12.57 billion, a 1% decline from the year-ago quarter.

The miss was primarily driven by stagnant sales in North America, the company's largest market. This release marks the second consecutive quarter in which Coke has struggled for any growth in this key region. Strong growth in the Asia-Pacific and Eurasia/Middle East regions failed to overcome the North American weakness.

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Jay Jenkins has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and Netflix. The Motley Fool owns shares of Netflix and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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