Big Retailers: Walmart Puts Pressure on Consumer Goods Companies

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Large retailers like Wal-Mart (NYS: WMT) 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.

Walmart had already lost customers to dollar stores in the recent economic recession, so Walmart hopes that lowering its 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 pre-tax 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?

List sorted by market cap. (Click here to access free, interactive tools to analyze these ideas.)

1. Coca-Cola (NYS: KO) : 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 pre-tax margin at 24.57% vs. industry average at 21.74%

2. Philip Morris International (NYS: PM) : 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 pre-tax margin at 40.3% vs. industry average at 31.77%

3. Colgate-Palmolive: Together with its subsidiaries, 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 pre-tax margin at 22.64% vs. industry average at 16.5%

4. General Mills: 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 pre-tax margin at 14.55% vs. industry average at 9.07%

5. Estee Lauder: 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 pre-tax margin at 13.2% vs. industry average at 10.59%

6. Coach (NYS: COH) : 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 pre-tax margin at 30.87% vs. industry average at 15.49%

7. Kellogg (NYS: K) : And its subsidiaries manufacture and market 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 pre-tax margin at 13.12% vs. industry average at 9.23%

8. HJ Heinz: 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 pre-tax margin at 11.09% vs. industry average at 9.07%

9. Hershey: 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 pre-tax margin at 15.83% vs. industry average at 9.07%

10. Mattel: 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 pre-tax margin at 15.49% vs. industry average at 10.52%

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


Kapitall's Daniel Guttridge does not own any of the shares mentioned above.

At the time this article was published The Motley Fool owns shares of Wal-Mart Stores and Coca-Cola. Motley Fool newsletter services have recommended buying shares of Wal-Mart Stores, Mattel, Coca-Cola, H. Heinz, Philip Morris International, and Coach. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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