Shares of diversified manufacturer 3M Co. (NYSE: MMM – $188.06) are trading sharply lower after reporting disappointing third-quarter results. The company said that adjusted share earnings were ahead by 11% to $2.58 from last year, but consensus estimates were twelve cents higher. Behind the earnings miss was a 0.2% drop in total sales and a negative foreign exchange translation impact equal to $0.05 per share. The most troubling aspect of the quarterly earnings release was the 0.2% decline in total revenue to $8.2 billion vs. Street views of more than $8.4 billion. The company’s international operations were at the root of the problem. During the period, sales fell 3.9% in Europe, the Middle East and Africa and 5.5% in Latin America/Canada. Sales in Asia rose 1.6% and 1.3% in the U.S. By division, sales were flat in the Industrial segment and advanced 7.0% in the Safety and Graphics unit. Those results were offset by respective top-line declines of 2.8%, 4.8%, and 3.4% in the Health Care, Electronics and Energy and Consumer segments.
Looking ahead, management has lowered both its top and bottom-line expectations for this year and now expects adjusted share earnings to be in the range of $9.90 to $10.00, versus its previous call of $10.20 to $10.45. The recent operating sluggishness aside, the company remains very shareholder friendly as it has paid $794 million in cash dividends and repurchased $1.1 billion of common stock during the third quarter. I expect this trend to continue given the company’s stellar cash flow generation and healthy balance sheet, which includes over $3 billion of cash on hand. From an investment perspective, I don’t see many catalysts to drive this stock higher in the near-term. The company continues to face a challenging operating landscape, particularly overseas. That said, this issue should continue to appeal to conservative accounts and the company’s dividend yields 2.7%, which has seen annual increases for many decades, even during the lean years of the last recession. While the stock is trading at a 52-week low, shares of 3M have returned about 17% on an annualized basis including dividends since entering the conservative list.