3M Beats Estimates in 2Q - Analyst Blog

By Zacks | July 26, 2012 AAA

3M Company (MMM) has reported its earnings per share of $1.66 in the second quarter of 2012, compared to $1.60 in the second quarter of 2011 and $1.59 in the earlier quarter. The earnings in the reported quarter were above the Zacks Consensus Estimate of $1.65 per share.

The company's improved productivity and effective cost-control strategy caused the earnings to augment further.

Total Revenue

Total revenue in the quarter declined 1.9% year over year to $7.5 billion, owing to the negative foreign exchange, which reduced sales by 4.3% and weak macro-economic condition.

Sales growth of 4.0% in U.S. was strongest in the quarter. The sales in Latin America/Canada slightly upped 0.5%. However, sales in the EMEA and Asia-Pacific regions reduced by 10.9% and 2.1%, respectively.

Segment Results

The Industrial and Transportation segment's sales decreased 0.6% year over year, amounting to $2.6 billion. Acquisitions positively impacted the segment's sales by 0.2%, but foreign exchange adversely affected sales by 5.0%.

Healthcare sales of $1.3 billion surged 1.1% from the prior-year quarter. Consumer and Office revenue climbed up by 2.3% year over year to $1.1 billion. While acquisitions positively impacted the segment's sales by 2.7%, foreign exchange affected the sales adversely by 3.5%.

Safety, Security and Protection Services revenue decreased 1.9% from the prior-year quarter to $991 million. Display and Graphics sales declined 9.3% from the year-earlier quarter to $882 million. Electro and Communication revenue was $824 million, down 4.7% from the year-ago quarter.

Income and Expenses 

Operating income, for the quarter, was $1.73 billion compared with $1.66 billion in the prior-year quarter. Selling and general expense was $1.53 billion compared with $1.58 billion in the year-earlier quarter and research and development expense was $408 million compared with $404 million in the prior-year quarter.

BalanceSheet

Cash and cash equivalents were $3.3 billion at the end of the quarter versus $2.3 billion at the end of the previous quarter. Long-term debt was $5.7 billion at the end of the quarter versus $4.5 billion at the end of the previous quarter. Shareholders equity was $16.9 billion versus $16.6 billion at the end of the previous quarter.

Outlook

3M maintained its full-year 2012 earnings guidance of $6.35 - $6.50 per share. Organic local-currency sales growth is expected to be in the range of 2% - 5%. However, the foreign currency translation is likely to negatively affect sales by 3%. Operating income margins are anticipated to be between 21.5% - 22.5%.

The company is confident that it will continue to post good results despite the prevailing weak economies. Investments in manufacturing, innovation and commercialization are targeted by the company to achieve accelerated growth.

3M is globally recognized for its innovations, which are supported by some of its well-known brands, such as Nexcare, Post-it, Scotch, Scotch-Brite and Scotchgard. We believe that continued capital expenditure with new product launches should bolster its prospects across most end-markets.

However, the company's growth objectives are largely dependent on timing and market acceptance of its new product offerings, including its ability to continually renew its pipeline of new offerings and bring those to the market at acceptable price points. Further, the results have been impacted by worldwide economic and capital market conditions.

3M Company, together with its subsidiaries, operates as a diversified technology company with manufacturing operations spread over 60 countries worldwide. It has more than 35 business units organized into six segments: Consumer and Office, Display and Graphics, Electro and Communications, Healthcare, Industrial and Transportation, and Safety, Security and Protection Services Business. The major competitors of 3M are Avery Dennison Corporation (AVY), EI DuPont de Nemours & Co. (DD) and Johnson & Johnson (JNJ).

We continue to maintain a Neutral rating on 3M Company for the long term and a Zacks #3 Rank (Hold recommendation) over the next one-to-three months.

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