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Why Coca-Cola Will Move the Dow Next Tuesday

By Dan Caplinger – Feb 14, 2014 at 4:30PM

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The Dow is nearly back to record levels, but will the long-suffering soda giant's earnings report next Tuesday hold it back? Find out whether a big partnership could help Coca-Cola grow and send the Dow to new all-time highs.

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

The Dow Jones Industrials (^DJI) closed the week with a bang Friday, climbing almost 127 points to bring its total gain for the week to about 2.3%. Yet even though the Dow has recovered a huge part of the losses it suffered during January, some stocks haven't really participated strongly in the bounce. Coca-Cola (KO -0.05%) has delivered less than impressive performance to shareholders for a while now. With its earnings report due next Tuesday after the Presidents Day holiday, Coca-Cola will have many investors watching to see if its recent partnership deal with Green Mountain Coffee Roasters (GMCR.DL) could send it vaulting past rival PepsiCo (PEP -0.81%) in producing new growth.

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Coca-Cola will release its earnings report before the market opens Tuesday morning, with investors expecting to see results shortly after 7:30 a.m. EST. The company will follow up the release with a conference call scheduled to begin at 9:30 a.m. EST.

Coca-Cola has a lot to prove in its fourth-quarter earnings report, as its stock has lagged considerably behind the Dow Jones Industrials over the past year. Since last spring, investors have been concerned about the soft-drink maker's growth prospects, as sales growth has decelerated not only in its important North American market but also in several more promising areas of the world. PepsiCo has seen some of the same struggles in its business, but its stock has performed much better as some investors have taken comfort from the diversification offered by its snack foods division. Just yesterday, PepsiCo earnings came in stronger than expected, as snack foods revenue climbed at three times the growth rate of its beverage segment.

Yet Coca-Cola's recent partnership with Green Mountain will inevitably get a lot of investor attention during the conference call as well. The press release last week announcing the deal included some of its terms, including Green Mountain gaining exclusive rights to produce and sell pod-based Coke beverages that would be served using the planned Keurig Cold at-home beverage system. Less clear is what Coca-Cola gets out of the deal, as there's nothing in the press release that suggests that PepsiCo could not offer its drinks on the Keurig Cold system when it comes out at some point during Green Mountain's 2015 fiscal year.

For Coca-Cola shareholders, Tuesday's release should provide many answers to tough questions about the company's future direction. But if Coke's fundamental business doesn't start producing more impressive growth, especially in emerging markets, then the rest of the Dow might well see that as a sign of weakness in the global economy more broadly.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola, Green Mountain Coffee Roasters, and PepsiCo. The Motley Fool owns shares of Coca-Cola and PepsiCo. 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.

Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$33,947.10 (%)
Coca-Cola Stock Quote
$63.44 (-0.05%) $0.03
Keurig Green Mountain, Inc. Stock Quote
Keurig Green Mountain, Inc.
PepsiCo Stock Quote
$181.63 (-0.81%) $-1.49

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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