Why Coca-Cola and Johnson & Johnson Will Move the Dow Tomorrow

Earnings season continues for the Dow Jones Industrials. Will Coca-Cola and Johnson & Johnson keep Monday's positive momentum going?

Dan Caplinger
Dan Caplinger
Apr 14, 2014 at 4:30PM

On Monday, the Dow Jones Industrials (DJINDICES:^DJI) bounced back from a poor performance last week, closing up almost 150 points as investors took comfort in signs that the U.S. economy remains strong in the face of rising challenges elsewhere in the world. Yet as important as macroeconomic conditions are to the stock market, individual stocks have to prove themselves during earnings season; Tuesday morning's quarterly releases from Coca-Cola (NYSE:KO) and Johnson & Johnson (NYSE:JNJ) should give investors two very valuable readings on how some of America's best-known corporations are holding up even as many experts have started predicting a possible correction for the Dow.

Johnson & Johnson has scheduled a conference call for 8:30 a.m. EDT following the release of its earnings report, which could come around 7:45 a.m. EDT if the company follows its practice from previous quarters. Coca-Cola might actually beat Johnson & Johnson to the punch with its quarterly report, with investors likely to get the news at around 7:30 a.m. EDT based on release times from past quarters. Coca-Cola will then follow up with a conference call scheduled to begin at 9:30 a.m. EDT.

Source: Johnson & Johnson.

Johnson & Johnson has posted a strong run of better than expected quarterly results, with the company's pharmaceuticals division leading the way with strong growth prospects. Recent quarters have seen substantial gains both for well-established drugs and its up-and-coming stable of newly approved treatments. Unlike its pharma peers in the Dow Jones Industrials, Johnson & Johnson hasn't faced a monumental patent cliff that has threatened devastating sales declines. Investors would prefer that Johnson & Johnson's medical device and consumer health products businesses improve, but all told, the stock makes a good defensive play in a choppy market.

Meanwhile, Coca-Cola shareholders are bracing for another quarter of declining revenue and earnings, with the beverage giant facing ongoing trends away from carbonated soda toward energy drinks, sports drinks, and tea. After taking heat for its sugary drinks, Coca-Cola more recently has had to deal with studies linking customers who drink its diet beverages with heart-related ailments. The drink maker has made strategic moves aimed at bolstering its noncarbonated business lines, but with so much of its brand identity wrapped up in its namesake products, it'll be hard for Coca-Cola to adapt if the bottom really falls out of the soda market. Coca-Cola also has to prove to investors that the company can overcome economic headwinds abroad, especially in emerging markets where so much of the promise of its 2020 Vision strategic plan lies. Shareholders will be hungry for details on Coca-Cola's new partnership with the maker of the Keurig home-brew machine, especially given the massive investment that the company made to seal the 10-year deal.

Even though Coca-Cola and Johnson & Johnson are in very different industries, they serve the same consumers and rely on many of the same things for their success. If you look closely at their respective earnings reports, Johnson & Johnson and Coca-Cola will offer valuable lessons to take away from their first-quarter results.