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When Good Isn’t Good Enough

Both Coca-Cola and Yum! Brands recently reported very similar quarters, with earnings driven by strong international sales while domestic business was weak, but investors took YUM higher, not Coke. Why?

Expectations, Cramer said.

“When the expectations are really high,” he said, “stocks can get creamed even on good news, just because it wasn’t good enough.”

That’s what happened to KO . This was an A student that reported an A-grade quarter. But YUM was much closer to a C student that reported an A quarter, and the Street always rewards that kind of upside surprise. For Coke, they shrugged at the good numbers they’d expected all along.

Here are some of those numbers in comparison: In the previous quarter, YUM’s same-store sales in China dropped 3%, only to climb 4% this time around. And that gain came just as analysts were expecting negative comps for China. At the same time, Coke saw its China sales volume climb 6%. While that looks good at first, it’s far less impressive when compared to the quarter before, where the company delivered 29% growth. Even Coke’s overall volume declined to a 3% increase this quarter versus a 5% jump during the last one.

And here in the US, where both companies are arguably weaker, YUM still outperformed Coca-Cola on a relative basis. YUM’s same-store sales were down 1% in the States, but that’s much better than the previous quarter when the dip registered at 8%. Plus, YUM predicted their US business would pick up, especially as they come around to some easy comparisons from last year.

Coke, on the other hand, saw its North American Group’s unit case volume this quarter decline 2% with net revenues down 6%. But last quarter’s numbers were better, down 1% and 4%, respectively. As strong as the company’s earnings per share were, Cramer said the details showed the quarter to be good, not great.

Competition is also a factor here. YUM has virtually none, especially in the emerging markets that are so important to its business. Coke, though, has Pepsico gunning for its share of the Chinese business.

This, of course, doesn’t mean Cramer doesn’t like Coca-Cola. He still thinks it’s a buy, especially with that Coca-Cola Enterprises bottling consolidation coming soon and the 3% dividend yield. And Coke just boosted that dividend 7% in February, which Cramer sees as a sign the stock is going higher.

But now you know why YUM shot higher while KO did not. Sometimes a good company can deliver a quarter that’s just not – at least to Wall Street – good enough.

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