Johnson & Johnson (JNJ) & The Coca-Cola Company (KO): Currency Headwinds Won’t Stop These Stalwarts

Coca-Cola earnings highlights

The Coca-Cola Company (NYSE:KO) has had difficulty with investors today. Not only have top line revenues declined, the bottom line net income has declined as well. The issue The Coca-Cola Company (NYSE:KO) faces can be summarized by European austerity putting a ceiling economic recovery and the Asia Pacific experiencing headwinds from China. The dollar appreciation was the added nail in the coffin.

The Coca-Cola Company (NYSE:KO) estimates that the currency headwinds caused a 6% decline in revenues, which directly translates into earnings deterioration. The company was able to offset some of this decline with price increases on its beverages paired with improvements in case volume.

Total operating revenue declined by 2% year-over-year. The company cut back on operating costs by 1% year-over-year. The company could not off-set the lost revenue with operating cost cuts. Because of this, the lost revenue resulted in an 8% year-over-year decline in net income.

Johnson & Johnson earnings highlights

It turns out that Johnson & Johnson (NYSE:JNJ) had a fairly strong quarter. This was mostly driven by the strength in its pharmaceutical segment (12.9% year-over-year growth) and its med devices & diagnostic segment (12% year-over-year growth).

The growth in the two segments contributed to Johnson & Johnson (NYSE:JNJ)’s consolidated 8.5% year-over-year revenue growth. The company reported a 17.7% year-over-year improvement in net earnings. The substantial improvement in earnings was due to costs increasing at a slowing rate while revenues improved at a faster rate.

Johnson & Johnson (NYSE:JNJ) should be able to sustain reasonable rates of growth so as long as it manages costs effectively and continues to develop and market new pharmaceutical drugs. The company pays a 2.92% dividend yield and is trading at a 24.6 earnings multiple.

The multiple is fairly high, but the company’s dividend, earnings growth, and competitive moat (patents) help to justify the rich valuation.

Conclusion

I believe the currency effects will continue to have an impact on the earnings of multinational companies going forward. The effects should be temporary, and will eventually be offset by emerging market growth, price hikes on products and services, along with better management of expenses.

Johnson & Johnson (NYSE:JNJ) may have more growth potential than The Coca-Cola Company (NYSE:KO) over the short-term. Longer-term both companies should be able to generate stable returns.

The article Currency Headwinds Won’t Stop These Stalwarts originally appeared on Fool.com.

Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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