3M 2nd Quarter Earnings Increase; Reduces Full-Year Sales Outlook
Diversified products maker 3M Co. (NYSE: MMM – $176.85) reported second-quarter results that did not live up to expectations. Share earnings came in at $2.08, 3% better than the year-earlier tally of $2.02 and a penny above Street estimates. Management was able to keep operating costs in check, but the top line remained under significant pressure. Revenue dipped 0.3%, to $7.66 billion, due to ongoing foreign currency headwinds and global economic uncertainty. 3M derives more than half of its sales overseas. Geographically, the Asia/Pacific region was the weakest performer, with sales there declining 5.4% on an organic local-currency basis. This setback offset gains from Latin America/Canada, Europe, Middle East and Africa, and to a lesser degree, the U.S. From a business sector standpoint, the company’s Electronics and Energy operation remained the biggest problem. Sales in that group fell 9.1%, as a result of weaker demand and softer pricing. Elsewhere, the Industrial segment struggled too, helping to offset advances in the Health Care, Consumer and Safety and Graphics businesses.
Making matters worse, management tempered its full-year top-line expectation and reined in the upper end of its earnings guidance. It now looks for organic local-currency sales growth to be flat to up 1%, down from the company’s previous guidance of a 1% to 3% advance. Meanwhile, the company said that it now expects to earn between $8.15 and $8.30 a share for the full year, versus its earlier call for earnings, which ranged from $8.10 to $8.45 a share, but still within the range of analysts’ estimates. The shares are up about 20% over the past year despite today’s setback on the earnings and business outlook news. However, I continue to like MMM for investors with a long-term investment horizon, although the stock is bit pricey at this juncture. Moreover, 3M has a well-covered – and growing – stock dividend yielding 2.5% at current levels and the company receives top marks for stability and for its gilt-edged finances.