A:

Food and beverage companies represent an attractive investment option for investors since these companies belong to a consumer staples segment, which tends to be non-cyclical and subject to smaller market fluctuations. One metric that investors use to evaluate companies and industries is profit margin, which speaks of the company's ability to manage its cost and effectively price its products. In May 2015, the profit margin for companies in the food and beverage sector ranged from -24.1% to 24%. The average profit margin was 5.2%.

Profit margin is calculated as net income divided by the company's total revenues. If the company does not generate any revenues or the earnings are negative, the profit margin is either meaningless or negative. Investors often calculate companies' profit margins and then compare them across sector and industry averages to determine where a particular company stands in the overall distribution of margins.

The profit margin for the food and beverage sector ranged from -24.1% for Boulder Brands, a producer of natural consumer packaged food, to 24% for Anheuser Busch Inbev SA, a well-known brewing company. Beverage companies tend to have a slightly higher average profit margin of 5.8%, compared to the average profit margin of 4.6% for food companies, since a few food producers have large negative earnings.

Investors often look at other statistical measures to get a sense of the typical profit margin in a particular sector. One such measure is the median, which is especially helpful for a highly skewed distribution of profit margins. In May 2015, the food and beverage sector had a very low degree of skewing, and the median profit margin for the sector was 5.5%.

RELATED FAQS
  1. Profit margin versus operating margin: What's the difference?

    There are some distinctions between profit margin and operating margin. Both measure efficiency of a firm, but one takes ... Read Answer >>
  2. What profit margin is average for a company in the electronics sector?

    Learn what the average profit margin is for a company in the electronics sector and what to look for when interpreting high ... Read Answer >>
  3. How do gross profit margin and operating profit margin differ?

    Gross profit margin and operating profit margin both measure profitability for a company, but they have distinct differences ... Read Answer >>
  4. What is the average profit margin range for a financial services company?

    Learn why a company's profit margin is important in analyzing its worth and how companies within the financial services sector ... Read Answer >>
  5. What is the average price-to-earnings ratio in the food and beverage sector?

    Learn what the average price-to-earnings ratio is in the food and beverage sector and why other measures such as median should ... Read Answer >>
  6. How do gross margin and contribution margin differ?

    Gross margin and the contribution margin are metrics used to measure profitability, but each uses a different method. Read Answer >>
Related Articles
  1. Managing Wealth

    What’s a Good Profit Margin for a New Business?

    Surprisingly, the younger your company is, the better its numbers may look.
  2. Investing

    The Difference Between Gross and Net Profit Margin

    To calculate gross profit margin, subtract the cost of goods sold from a company’s revenue; then divide by revenue.
  3. Investing

    Parched For Profits? Try Beverage Stocks

    For diversification and profit potential, add a different kind of "liquidity" to your portfolio.
  4. Insights

    Do Declining Corporate Margins Point To Recession in 2016?

    Learn how declining profit margins have foretold nearly every recession of the past 50 years, and analyze whether they may signal economic contraction in 2016.
  5. Investing

    Read This Before You Sell Your Whole Foods Stock (WFM)

    While Whole Foods Market (NASDAQ: WFM) stock may have pulled back about 9% in the past month, shares are still up a nice 36% in the past six months. With such impressive gains over a short period, ...
  6. Insights

    Whole Foods, Price Gouging And Sky-High Margins

    Over the years Whole Foods Market has grown to have more than 360 stores in the US and abroad. However, this company is not without its critics.
  7. Investing

    Finding Your Margin Investment Sweet Spot

    Borrowing to increase profits isn't for the faint of heart, but margin trading can mean big returns.
  8. Investing

    6 Stocks to Outperform The Late Bull Market

    Stocks with high and stable gross profit margins will outperform, says Goldman Sachs.
RELATED TERMS
  1. Marginal Profit

    Marginal profit is the profit earned by a firm or individual ...
  2. Margin

    Margin is borrowed money that is used to purchase securities. ...
  3. Profitability Ratios

    Profitability ratios are a class of financial metrics that are ...
  4. Marginalism

    Marginalism covers the study of marginal theories and relationships ...
  5. EBITDA Margin

    EBITDA margin is a measurement of a company's operating profitability ...
  6. Maintenance Margin

    Maintenance margin is the minimum amount of equity that must ...
Trading Center