Conservative · Stocks to Consider and Updates

3M Delivers Strong Results; Ups Guidance

 Diversified manufacturing giant 3M Co. (NYSE: MMM – $195.26) got off to a good start in 2017, with share earnings of $2.16, up 5.3% from last year, and surpassed consensus of $2.08. The biggest surprise, though, was a better-than-expected top-line performance. The company posted sales of $7.685 billion, which represented a nearly 4% year-to-year increase and exceeded both the Street forecast of $7.47 billion and the meager 0.4% advance recorded in the final quarter of 2016. The first-quarter revenue performance was driven by solid performances across nearly all 3M’s operating segments. The Industrial unit, the company’s largest segment, was up 4.2%, led by strong sales of automotive and aerospace solutions, advance materials, abrasives and industrial adhesives and tapes. This was followed by advances of 3.4% for Safety and Graphics, 2.3% in Health Care and 11.1% in the Electronics and Energy segment. The Consumer division (Scotch Tape, Post-It Notes, etc.), the company’s smallest segment, was the only detractor to the top line, with sales falling 0.7%.

       3M also noted that its recent investments across the business to boost growth and improve productivity are starting to deliver tangible results. In the March quarter, strategic investments in growth, productivity and portfolio actions added $136 million to the company’s operating income of $1.8 billion. Looking forward, 3M expects these initiatives to continue to support both sales and earnings. Meantime, the company is putting its strong cash flow generation to use, with a continued eye on enhancing shareholder value. MMM increased its dividend for the 59th-consecutive year (yield 2.4%) and remains very active on the share-repurchase front. The strong cash flow and ample $2.2 billion in cash-on-hand also gives it the flexibility to remain active on the acquisition front. To wit, 3M recently agreed to buy Scott Safety, which should bolster the company’s already strong position in the personal safety market.

       Management has upped its full-year organic sales guidance to 2%-5%, from its previous range of 1%-3%, and now expects earnings of between $8.70 and $9.05 a share vs. its prior bottom-line bracket of $8.45 to $8.80. The investment argument has not changed here, as I continue to think this high-quality industrial stock – that reached an all-time high following the earning’s news – continues to be an excellent choice for investors stressing safety and income.


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