Geopolitical volatility & elevated freight rates suggest margin pressures ahead

Geopolitical conflicts in the Middle East and oil flow disruptions in the Strait of Hormuz have intensified commodity volatility, with crude oil prices tracking well above 2025 levels. Year-to-date costs have surged: retail gas rose ~50%, while diesel and freight rates both spiked ~80%. We believe elevated commodity and freight costs will likely pressure margins for Staples companies through 2H26 and 1H27, before easing on a year-over-year basis in 2H27. Although several companies reported higher transportation/logistics costs during CQ2, the financial impact was temporarily muted by one-time tariff refunds that will not continue into 2H26, creating near-term downside risk to gross margins. Based on our sensitivity analysis, SAM and PRMB face the highest gross margin and EPS risks, while we reiterate our Buy ratings on PM, MO and MNST, which remain relatively insulated with lower EPS sensitivity. Our bottom-up COGS trackers indicate accelerating CY26 inflation for HPC and Beverages. Co