Cigarettes
The runner up on the list is Marlboro brand cigarettes. It has a 30% margin, which has been increasing , and provides $19 billion in sales for Altria Group Inc (NYSE:MO). Marlboro also provides a wide moat for the company as it is the world’s 7th most recognizable brand and has a 42% market share.
Just like at Mead Johnson Nutrition CO (NYSE:MJN) and The Coca-Cola Company (NYSE:KO), future growth prospects for Altria lie mostly in overseas markets.
And as was the case of Monster, whether or not the growth trend continues depends in part on acceptance of the product by the general public in the face of health advocacy efforts.
And the winner is …..
The most profitable product, and probably not a big surprise to many, is Apple Inc. (NASDAQ:AAPL)‘s iPhone. The device has an incredible 40% operating margin, which admittedly has been declining over the past year in the face of stiff competition. Nonetheless, iPhone sales comprise more than half of Apple’s total revenue of $156 billion and earnings of $55 billion.
Apple sold 125 million iPhones in 2012, a 73% increase over the previous year. The device has about 20% of the market.
Despite the huge success of the device and other great products that Apple has developed (such as the iPad), the stock has taken a beating recently. It is down 25% year to date and is off nearly 43% from its all-time high reached last September. Investors are betting that the company has run out of ideas and earnings growth will stumble unless they innovate and release the “next big thing”.
Apple is attempting to stem the sell-off using financial engineering. It has announced a 15% dividend increase and will expand its stock buyback program. The company will fund the expenditures by issuing debt. I expect the strategy to help in the long run although it is also very important for Apple is to release a new product like iTV or some type of wearable device. I wouldn’t be surprised if the stock really took off if that happened.
Conclusion
There is something to be said for companies that develop products that have large (and increasing) operating margins.
Of the five companies I highlighted above, only Altria has been able to significantly grow its margins recently. The others have reported relatively flat or declining numbers.
Big market share numbers in the cases of The Coca-Cola Company (NYSE:KO) and Monster help these firms overcome the lack of margin growth. Mead Johnson Nutrition CO (NYSE:MJN) needs to succeed in high growth markets to continue to be successful.
Apple needs to overcome lots of competition in order to reverse declining margins. A new product release to compliment the iPhone is badly needed.
Mark Morelli owns shares of Apple and The Coca-Cola Company (NYSE:KO). The Motley Fool recommends Apple, Coca-Cola, and Monster Beverage. The Motley Fool owns shares of Apple and Monster Beverage.
The article The 5 Most Profitable Products on the Market originally appeared on Fool.com.
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