Markets at Record Levels; More Bad News for J.C. Penney

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More setbacks for J.C. Penney, and for the effort to develop an Alzheimer's drug.

Dow Jones Industrial average - AP
AP
The Dow Industrials closed yesterday above the 15,000 level for the first time, gaining 87 points on the day. It's the Dow's 16th record this year. The S&P 500 also set another record, rising 8 points, and the Nasdaq added 3.

Ron Johnson is gone as the head of J.C. Penney (JCP), but his legacy –- and his losses –- lives on. The retailer says sales for the quarter that just ended fell a steeper-than-expected 16 percent. The company blames the pricing and marketing strategies that are being tossed out, as well as major construction revamps in many stores.

Walt Disney's (DIS) profit jumped 32 percent, led by strong results from its theme parks. The entertainment giant also said it is developing stand-alone films based on various characters in the "Star Wars" series.

Rival News Corp. (NWS) reports after the closing bell.

Investors are finding plenty to snack on in Whole Foods' (WFM) report. Earnings rose 20 percent, the company boosted its forecast for the full year, and it declared a 2-for-1 stock split.

Baxter International (BAX) has suffered a setback in its effort to develop a drug to treat Alzheimer's. The company says a highly regarded drug in development had failed to halt the mental decline caused by the disease in a late stage trial.

Ford (F) says its sales in China jumped by 37 percent in April from a year ago, thanks to strong demand for the Focus and a new model, the Kuga, that's not available in the U.S.

Yahoo (YHOO) CEO Marissa Mayer has reportedly met with top execs at Hulu about acquiring the premium video service. There are also reports that Mayer is trying to get Yahoo out of a long-term deal with Microsoft (MSFT).

And shares of WebMD (WBMD) are set to jump after the company said it's in talks to partner with other companies. It also raised its earnings outlook for the current quarter and the full year.

-Produced by Drew Trachtenberg

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Markets at Record Levels; More Bad News for J.C. Penney
Operating margin: 15%
 Revenue: $1.2 billion
 Market share: Greater than 50%
 Industry: Consumer electronics

Garmin is a navigation device company, focusing on GPS technology. By far, the most profitable of the company's five divisions on a dollar basis (though other divisions have better margins) is the automotive/mobile group, which makes and sells Garmin's GPS units. This segment accounted for 55% of the company's sales in 2012 -- $221 million in operating profit on $1.5 billion in revenue. 

Much of the segment's success was due to Garmin's nüvi product line, which accounted for 43% of the company's total revenue in 2012. Garmin is by far the largest participant in the GPS market, with over a 50% market share, according to Consumer Reports.
Operating margin: 23.6%
 Revenue: $2.3 billion
 Market share: 11.8% (U.S.)
 Industry: Packaged foods and meats

Folgers is owned by the J.M. Smucker Company, which reported sales of $5.5 billion in 2012. Of those sales, $2.3 billion came from coffee. The company's U.S. retail coffee unit, of which Folger's is the top-selling brand, reported an operating margin of 23.6%, which is down from 27.8% in 2011 and 28.5% in 2010. We estimate that Folgers has an operating margin of at least that. The brand is the market leader for instant coffee in the U.S., commanding an 11.8% market share as of 2012. However, this is down from 13.2% in 2011. J.M. Smucker cut the price of coffee by 6% in 2012, which will affect the bottom line for both its Folgers brand and Dunkin' Donuts-licensed coffee.

That high profitability is even more impressive given that it was earned in a highly competitive market niche, vying against brands like Maxwell House and Starbucks.
Operating margin: 24%
 Revenue: $2.3 billion
 Market share: 15.1%
 Industry: Packaged foods and meats

The Mead Johnson Nutrition Company primarily sells infant formula and nutritional products for children, and formula accounted for 59% of its total sales in 2012. The vast majority of that came from Enfamil, one of the best-selling infant formula brands in the U.S. The product comes in several varieties designed for babies with different types of feeding problems, intolerances and nutritional needs.

According to Crain's Chicago Business, Mead Johnson had the second largest market share in infant formula as of mid-2012: 15.1%. The company was also the leader in the rapidly growing Chinese formula market. The company's operating margin in fiscal 2012 was 22.3%. We estimate Enfamil has a margin of at least 24%, thanks to the higher retail prices it can command due to its strong brand, as well as lower production costs due to economies of scale.
Operating margin: 25%
 Revenue: $14.3 billion
 Market share: 41.9%
 Industry: Soft drinks

Coca-Cola and Diet Coke were the two most popular sodas in the world as of 2011, Diet Coke having recently surpassed Pepsi to become the second-most popular soft drink in the U.S. Overall, trademark Coca-Cola products accounted for approximately 48% of all case sales of finished products sold by the company in fiscal 2012.

Given that Coke's finished products unit, which includes the Coca-Cola brand, accounted for 62% of total revenue for the company, Coca-Cola trademark drinks accounted for roughly 30% of the company's total revenue. Overall, the Coca-Cola Company reported 2012 sales of $48 billion and an operating profit of 22.4%. We estimate that the tremendous sales of the company's flagship brand push its operating margin to 25%. BrandZ reports that Coke is the world's sixth most valuable brand name, with an estimated value of $74.3 billion.
Operating margin: 26.7%
 Revenue: $1.9 billion
 Market share: 37.2%
 Industry: Soft drinks

Monster Beverage Corporation had net sales of roughly $2.1 billion in fiscal 2012, with an operating income of $551 million. According to market research company Symphony IRI, in the 52 weeks ending February 24, Monster-branded energy drinks accounted for 37.2% of the market, just behind rival Red Bull. In that period, the company sold approximately 1.2 billion cans of its Monster-branded products, including almost 776 million cans of its original Monster beverage. Because Monster-branded drinks accounted for 92.3% of total company revenue, we have treated the company's 26.7% operating margin as a proxy for the energy beverage.

However, business isn't entirely a fairy tale at Monster. The company has recently faced criticism and legal troubles, including a wrongful death suit and a Food and Drug Administration report that linked several deaths to Monster Energy beverages.
Operating margin: 30%
 Revenue: $19.0 billion
 Market share: 42.6%
 Industry: Tobacco

Marlboro cigarettes are sold by Altria Group in the U.S., and elsewhere by Philip Morris International -- which Altria spun off roughly five years ago. Marlboro branded cigarettes have made both companies extremely profitable. Altria's sales of smokeable products totaled roughly $22.8 billion in its most recent full year. That figure accounted for 90% of total company revenues, and 85% of units sold were Marlboros. Altria's smokeable products unit has an operating profit of 28%. Because Marlboro is the company's strongest and best-selling brand, it is 24/7's estimate that costs to produce those cigarettes are lower than the company's discount cigarette lines. As a result, we estimate that Marlboro has an operating margin of at least 30%. BrandZ calculates that Marlboro is the world's seventh most valuable brand at $73.6 billion.
Operating margin: 40%
 Revenue: $80.5 billion
 Market share: 20.9%
 Industry: Computer hardware

The iPhone is by far the most successful product Apple sells. Of the company's $156.5 billion in 2012 worldwide sales, $80.5 billion came from iPhones. Apple sold more than 125 million units last year, a 73% increase over 2011. In contrast, Apple sold 58.3 million iPads that year, generating just $32.4 billion in gross revenue. Each iPhone is far more profitable than each iPad, the company's second best-selling product. According to documents released as a result of the patent lawsuit between Apple and Samsung, Apple's gross margins on the iPhone were between 49% and 58% from April 2010 to April 2012, nearly double those of the iPad. This is partly because wireless carriers subsidize the iPhone heavily -- an average of $425 apiece, according to a recent Stifel Nicholaus analysis. Based on the available data, we calculate the iPhone's profit margin is 40% -- even higher than Apple's overall 35.3% margin.
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