Conservative · Stocks to Consider and Updates

3M Misses Estimates; Reigns in Guidance

Shares of 3M Co. (NYSE: MMM – $192.10) are tumbling about 12% after the diversified manufacturer announced disappointing first-quarter financial results and slashed guidance. The company earned $2.23 a share for the March quarter, 11% off the year-earlier tally and well below the Street $2.49 estimate. A top-line miss was a big reason for the shortfall, as sales came in at $7.863 billion, 5.3% below the previous year total and equally shy of expectations. Management placed a fair share of the blame on slowing end-market demand, as organic sales declined 1.1% for the period. That said, divestitures and foreign currency translation played a role, too. 

       Segment wise, only Health Care was able to eke out a gain to the tune of 0.3%. Energy and Electronics, Industrial, Safety and Graphics, and Consumer reported pull backs of 11.8%, 6.6%, 4.2%, and 1.9%, respectively. Geographically, Europe, Middle East, and Africa was the biggest trouble spot, posting a 9.4% sales decline. Asia-Pacific and Latin America/Canada did not fare much better, however, falling 7.4% and 6.5%, respectively. Sales inched 0.1% higher in the United States. While stock repurchases continued to aid share-net comparisons, ongoing margin pressures and a higher tax rate posed further headwinds.

Guidance probably played a major role in the stock’s pullback, also. Management now expects to earn between $9.25 and $9.75 a share for all of 2019, down from its previous $10.45-$10.90 range. In doing so, management now looks for organic local-currency sales of minus 1% to plus 2%, versus its earlier call for a 1% to 4% gain. Today’s pullback provides risk-averse investors with a long-term investment horizon a decent entry point and its total-return potential is more appealing on a risk-adjusted basis. Plus, the company’s cash flow, along with management’s willingness to alter the business model via the mergers and acquisitions game, make it possible that 3M should continue deliver relatively steady gains over time. 

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