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Dow-30 Earnings: 3M Company - Third Quarter 2012
Diversified manufacturing and technology conglomerate 3M Company (MMM – Free 3M Stock Report) has reported third-quarter results. Sales were $7.5 billion, down $34 million from a year ago, $183 million shy of our estimate, and $133 million short of the consensus target. On the bright side, share earnings came in at $1.65, which was 9% better than the year-earlier figure and in line with both our call and Wall Street's expectations.
Both global economic softness and the stronger U.S. dollar hurt 3M's top line. Indeed, currency-neutral sales advanced just 2%, while acquisitions added another percentage point. These gains were below our forecasts. As expected, though, foreign exchange headwinds more than offset the growth, which lead to a modest top-line decline.
Industrial & Transportation revenues came in at $2.6 billion, down slightly in U.S. dollars and a bit shy of our target. Sales did, however, rise in all regions, thanks to growth in automotive OEM, aerospace, and aftermarket demand. Health Care sales inched up to $1.3 billion, which was short of our expectation. This segment notched gains in all the major geographies, too, owing to better wound-care and food safety sales. The Consumer & Office group was a solid performer in the period, reporting 2% top-line growth, which was in line with our forecast. Display & Graphics sales were essentially flat at $936 million, as organic growth and currency translation headwinds were essentially a wash. Current challenges to the world economy were noticeable here, as revenues in EMEA and the Asia/Pacific region were down year over year. The Safety, Security & Protection Services group surprised in a bad way, as sales came in 3% lower. Weakness on the home front in the security systems line was mostly to blame. Finally, Electro & Communications revenues dropped 2%, which was expected due to general weakness in the consumer electronics sector.
We have lowered our near-term targets to reflect both current global economic realities and the strengthening U.S. dollar. We cut $450 million from our 2012 sales estimate, meaning we think sales will be flat this year. We also trimmed $0.12 from our share-earnings call, which now stands at $6.33. This would still be a reasonably healthy 6% advance compared to the 2011 tally, and will likely be due to better manufacturing efficiencies, increased productivity, and cost controls. Our 2013 estimates are still under review for the most part, but we have tentatively cut $1.0 billion and $0.15 a share from our top- and bottom-line projections, respectively. Indeed, sales next year will likely advance around 4%, to $30.9 billion, while share net should climb 7%, to $6.80.
Investors on Wall Street sold off MMM shares in the hours following the earnings release, citing the weak top-line showing and reduced earnings guidance for 2012. We still like this blue chip as a long-term holding, especially for conservative investors, owing to the issue's Highest (1) rank for Safety, below-market Beta, and solid dividend yield.
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 (33.5% of 2011 revenues); Healthcare (16.7%); Display & Graphics (12.2%); Consumer & Office (13.8%); Safety, Security & Protection (12.7%); and Electro & Communications (11.0%).
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.