Conservative · Stocks to Consider and Updates

3M Reports Inline; Lowers Top-End of Guidance.

Diversified industrial 3M Co. (NYSE: MMM – $198.53) had a strong second quarter, including organic growth of 6% that was broad-based across all business groups and geographic areas. Total revenue was up 7.4% to $8.4 billion vs. last year. By business segment: Sales grew 15.8% in Safety and Graphics, 6.8% in Industrial, 4.9% in Health Care, 4.6% in Consumer and 3.6% in Electronics and Energy. On a geographic basis, total sales grew 9.5% in EMEA (Europe, Middle East and Africa), 7.9% in Asia-Pacific, 7.1% in the U.S. and 3.1% in Latin America/Canada. Adjusted earnings per share was pretty much inline with estimates at $2.59 and one cent above last year’s total. Excluding the full-year impacts from the communication markets business divestiture gain and related actions, a first-quarter legal settlement. tax cuts and Jobs Act-related expense, 3M now expects its adjusted 2018 earnings to be in the range of $10.20 to $10.45 per share versus prior expectation of $10.20 to $10.55. Full-year sales growth was maintained at between 3% to 4%.

       The shares pulled-back a bit on the news, as traders always expect more. However, despite near-term margin concerns, MMM has several tailwinds working in its favor, including solid cash flow generation, which management has historically used to reward shareholders. The annual dividend of $5.44 has grown about 14% annually over the past five years and currently yields 2.7%. Future hikes are also likely in the years to come. The company also re-purchased $1.6 billion of its shares. All things considered, 3M should be able to deliver solid, risk-adjusted 3- to 5-year total return potential and remains a core conservative holding.

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