3M Company (MMM – Free 3M Stock Report), a diversified manufacturer and technology conglomerate with operations in more than 70 countries, recently reported first-quarter results. The Dow-30 staple posted a sales increase of 3% from the year-earlier mark, to $7.8 billion, which was a bit more than $100 million short of both our target and the consensus estimate. Share earnings climbed 11%, to $1.79, which was a penny shy of the $1.80 that most were looking for. Overall, it was a solid performance for 3M, as the company was able to achieve organic growth in all business groups and geographies while returning $2.3 billion to shareholders via dividends and stock repurchases. Investors were seemingly expecting more than a merely solid performance, and this blue chip traded lower following the earnings announcement. (Prior to the first-quarter report, the stock was trading just shy of its 52-week high.)
The Industrial segment notched a top-line advance of 3% (or 5% before the negative effects of currency translation). Sales grew in all areas, with the largest gains seen in EMEA, Latin America, Canada, and Asia/Pacific. 3M's Purification, automotive OEM, advanced materials, abrasive systems, and aerospace and commercial transportation divisions all boosted the top line in the quarter.
Safety & Graphics reported local-currency sales growth of 5%, although unfavorable foreign exchange reduced the total to 2%. Here, personal safety, roofing granules, and commercial solutions posted growth, while the traffic safety and security divisions experienced revenue declines. Again, segment sales expanded across all geographies.
Health Care posted the largest top-line increase, at 5%, after currency translation headwinds of about 1%. The entire portfolio of businesses reported favorable conditions, with the strongest revenue advances in drug delivery, information systems, food safety, critical care, and infection prevention. Sales also rose in all regions, with Latin America, the U.S. Canada, and Asia/Pacific leading the charge.
The Electronics & Energy group reported all-in sales growth of 3%, as electronics- and energy-related organic revenues gained 5% and 2%, respectively. The top line rose in Latin America, Canada, and Asia/Pacific, but dropped in the U.S. and EMEA.
Finally, the Consumer business reported flat revenues, as divestitures and unfavorable foreign exchange reduced the total by 3%. Management said that trends were positive in DIY, consumer health care, and home care, while stationary and office supplies struggled to post gains. Sales were up worldwide, with the largest increases reported in Asia/Pacific, Latin America, and Canada.
Our near-term estimates, long-term outlook, and investment conclusion have not changed much since our last full-page review. We still think 2014 share earnings will be in the neighborhood of $7.45, right near the middle of management's guidance ($7.30-$7.55). Profit growth should remain strong between now and 2017-2019, too, thanks to 3M's heavy investment in R&D and commercialization. The dividend yield is also above average relative to the Value Line median, thanks to the board's recent decision to jack up the payout by 35%. So, we think most conservative, income-oriented types will do well investing in this high-quality issue.
About the Company: 3M, a component of the Dow Jones Industrial Average, is a diversified manufacturer that sells more than 50,000 products in 65 countries. Its six business segments include: Industrial & Transportation (34.6% of 2012 revenues); Healthcare (17.3%); Display & Graphics (11.9%); Consumer & Office (14.4%); Safety, Security & Protection (12.7%); and Electro & Communications (10.8%).
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.