Big Retailers: Walmart Puts Pressure on Consumer Goods Companies

Large retailers like Walmart have been ditching the periodic sales and promotions, and making an effort to keep prices low to attract more customers. But this has put pressure on their suppliers’ profit margins. The suppliers will need to start cutting other costs to keep prices low, or risk hurting their relationship with Walmart. (STAY AHEAD OF THE CURVE: Follow Kapitall on Twitter)

Walmart had already lost customers to dollar stores in the recent economic recession, so Walmart hopes that lowering their prices could bring that market share back. Since consumers are struggling with the increase in fuel prices, Walmart wants to be able to offer their goods at a price that nobody else can, according to Reuters.

“I think we reached the wall in terms of raising price. Consumers can’t take any more,” said Jack Russo, analyst at Edward Jones. This limit of what consumers are willing to pay puts a restriction on the margins Walmart is able to make, so the suppliers will have to innovate and take advantage of rare cost breaks to deliver products that customers are willing to pay for.

Business Section: Investing Ideas

We started this screen with consumer goods companies located in the U.S., and then we compared their profitability to their respective industries to find those with higher gross, operating, and pretax margins than their industry peers.

The list below contains the top names from that list. Do you think these companies can beat the margin push?

Interactive Chart: Use the Compar-O-Matic to compare analyst ratings for the stocks mentioned below:

List sorted by market cap.

1. The Coca-Cola Company (KO, Earnings, Analysts, Financials): Distributes, and markets nonalcoholic beverages worldwide. Market cap at $156.68B. TTM gross margin at 65.14% vs. industry average at 59.22%. TTM operating margin at 23.47% vs. industry average at 23.35%.TTM pretax margin at 24.57% vs. industry average at 21.74%.

2. Philip Morris International, Inc. (PM, Earnings, Analysts, Financials): Engages in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States. Market cap at $147.08B. TTM gross margin at 68.54% vs. industry average at 61.8%. TTM operating margin at 43.22% vs. industry average at 35.7%.TTM pretax margin at 40.3% vs. industry average at 31.77%.

3. Colgate-Palmolive Co. (CL, Earnings, Analysts, Financials): Manufactures and markets consumer products worldwide. Market cap at $44.77B. TTM gross margin at 60.09% vs. industry average at 51.82%. TTM operating margin at 23.22% vs. industry average at 18.5%.TTM pretax margin at 22.64% vs. industry average at 16.5%.

4. General Mills, Inc. (GIS, Earnings, Analysts, Financials): Manufactures and markets branded consumer foods worldwide. Market cap at $24.88B. TTM gross margin at 40.26% vs. industry average at 31.82%. TTM operating margin at 16.1% vs. industry average at 11.52%.TTM pretax margin at 14.55% vs. industry average at 9.07%.

5. Estee Lauder Companies Inc. (EL, Earnings, Analysts, Financials): Engages in the manufacture, marketing, and sale of skin care, makeup, fragrance, and hair care products worldwide. Market cap at $22.82B. TTM gross margin at 82.13% vs. industry average at 71.26%. TTM operating margin at 14.73% vs. industry average at 13.25%.TTM pretax margin at 13.2% vs. industry average at 10.59%.

6. Coach Inc. (COH, Earnings, Analysts, Financials): Engages in the design and marketing of accessories and gifts for men and women in the United States and internationally. Market cap at $21.92B. TTM gross margin at 75.17% vs. industry average at 53.66%. TTM operating margin at 32.02% vs. industry average at 16.32%.TTM pretax margin at 30.87% vs. industry average at 15.49%.

7. Kellogg Company (K, Earnings, Analysts, Financials):Manufactures and markets ready-to-eat cereal and convenience food products primarily in North America, Europe, Latin America, and the Asia Pacific. Market cap at $18.60B. TTM gross margin at 44.19% vs. industry average at 31.99%. TTM operating margin at 15.28% vs. industry average at 11.63%.TTM pretax margin at 13.12% vs. industry average at 9.23%.

8. HJ Heinz Co. (HNZ, Earnings, Analysts, Financials): Manufactures and markets food products for consumers, and foodservice and institutional customers in North America, Europe, the Asia Pacific, and internationally. Market cap at $16.98B. TTM gross margin at 38.75% vs. industry average at 31.82%. TTM operating margin at 14.45% vs. industry average at 11.52%.TTM pretax margin at 11.09% vs. industry average at 9.07%.

9. Hershey Co. (HSY, Earnings, Analysts, Financials): Engages in manufacturing, marketing, selling, and distributing various chocolate and confectionery products, pantry items, and gum and mint refreshment products worldwide. Market cap at $13.74B. TTM gross margin at 45.93% vs. industry average at 31.82%. TTM operating margin at 17.88% vs. industry average at 11.52%.TTM pretax margin at 15.83% vs. industry average at 9.07%.

10. Mattel Inc. (MAT, Earnings, Analysts, Financials): Engages in the design, manufacture, and marketing of various toy products worldwide. Market cap at $11.20B. TTM gross margin at 52.56% vs. industry average at 43.5%. TTM operating margin at 16.97% vs. industry average at 12.43%.TTM pretax margin at 15.49% vs. industry average at 10.52%.

(Written by Danny Guttridge)

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