Many of the top U.S. companies derive a significant portion of their revenue and profit from only one or two products. In this article I’ll take a look at the top five products as ranked by one gauge of profitability — operating margin — and how those products affect the businesses that market them. The list was compiled by 24/7 Wall Street.
Ranked number five is Enfamil, which is distributed by Mead Johnson Nutrition CO (NYSE:MJN). Sales of the baby formula add $2.3 billion in annual revenue to the top line. After subtracting costs the operating margin works out to be 24%. Overall margin growth at the company has been flat recently. The product has 15% of the market share.
Baby formula is in a growth phase in some emerging markets, and in China, it is exploding. Expect continued earnings growth for the company going forward (it has averaged 17% over the last few years) if the company can maintain or increase the margin going forward.
Higher earnings may also allow the company to keep increasing its dividend, which they have been doing since 2010.
Let’s move up on the list to number four. The world’s top-selling soft drink, Coca-Cola, has an operating margin of 25%. Margins have been stable over the past few years. The product is distributed by The Coca-Cola Company (NYSE:KO). The Atlanta-based company sells $14.3 billion worth of Coke annually and controls 42% of the market.
With the world-wide market for sugary soft drinks expanding at a steady rate, expect earnings to grow as well because of the wide moat that the drink provides. Coke is the sixth most recognized brand name on the planet.
The cash flow Coke produces allows the company to regularly grow its dividend and buy back shares. Investors are rewarded every quarter with a payment of $0.28 a share.
The third most profitable product is another drink. Monster Energy has an operating margin of 27% which has also been stable recently. The high octane beverage provides nearly $2 billion towards sales for Monster Beverage Corp (NASDAQ:MNST).
The relatively new product, introduced in 2002, has helped drive strong double-digit revenue and earnings growth for the company. The key question is whether the trend will continue. The company needs to deal with a couple of issues: a backlash against the drink from consumer groups and the media and increasing production costs. If it succeeds then expect Monster to maintain the high operating margins and earnings growth.