When it comes to investing, details really matter. This morning, Coca-Cola (KO) reported last quarter’s earnings. The subsequent investor reaction, and stock price jump, is a great example of how reading just the headline, or relying on analysts, can be misleading.

To explain what I mean, let’s do a comparison of the headline version and the detailed version of the earnings report.

Headline version: Coca-Cola beats analyst earnings estimates! Yay!

  • Stock reaction: Price goes up 3% after the earnings announcement.

The problem is, there’s more to the story. While it’s possible other investors just know something I don’t, the stock price jump no longer makes sense when we look at the earnings report details.

Detailed Version: Coca-Cola beats analyst earnings estimates, BUT…

net income and revenues declined significantly from last year. You see, if analyst expectations are low, it is quite possible to beat analyst expectations while also having a negative earnings performance. That was the case with Coca-Cola.

Coca-Cola adjusted earnings per share (EPS) were slightly higher than expected, at $0.44 vs. an expected $0.42. But that’s still lower than last year’s adjusted EPS of $0.46. And without the adjustments for currency fluctuations, real net income fell an insane 55% year over year, to $770 million for the quarter.

Revenues fell victim to the same good news/bad news situation. Revenue was somewhat higher than Wall Street had expected, but fell 2 percent year over year, to $10.9 billion. For the year, Coke’s sales fell slightly to $46 billion, vs. $46.9 billion in 2013, while earnings tumbled 17 percent from 2013, to $7.1 billion.

The scary thing is, these slumps in earnings and revenue have been going on for years at Coca-Cola. Why? They aren’t adapting to increasingly health conscious consumers. I’ll reference part of a still-applicable post I wrote back in July on what Crumbs’ demise (RIP “Good Guy” cupcake) indicated for Coca-Cola:

“Much of the reason for Crumbs’ demise was the shifting preference for health-conscious choices. As a company mostly known for sugary soda (considered one of the devils in the health world, even the diet version) Coca-Cola doesn’t do well in this healthier environment. Granted, Coca-Cola is buffered a bit by its large presence in the developing world, but it’s still being hit. The company’s net income is down a whopping 27% from 2010 to 2013.

Up until now, it’s seemed like Coca-Cola’s version of ‘innovation’ in the face of healthier preferences has been to make new diet versions of its sodas. The thing is, diet still isn’t healthy. Health proponents don’t want chemical laden diet versions, they want low-calorie AND all natural. Coca-Cola needs serious innovation for healthier, natural drinks or it could be in for trouble down the line.”

The issue is that while Coca-Cola is committed to improving profits, it’s planning to do so through cost-cutting measures, not through innovation and adapting to consumer preferences. Until Coca-Cola starts showing a commitment to the latter, I’m staying far away, and even considering shorting the stock.

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