Conservative · Stocks to Consider and Updates

3M Beats Street Views on Lower Profits and Revenue

Diversified manufacturer 3M Co. (NYSE: MMM – $177.75) reported second-quarter year-over-year declines at the top and bottom lines, but both exceeded expectations. Adjusted earnings came in at $2.20 a share, down 12% from the year-earlier mark, but a dime ahead of the Wall Street consensus estimate. It was a similar story at the top line, as sales declined 2.6%, far better than the 4%-plus decrease that the investment community were modeling for. Organic local-currency sales dipped 0.9%, with currency translation a big drag. Geographically, the domestic operation was the best performer, posting a 1.7% total sales advance. However, the rest of the world did not fare as well, with Europe, Middle East and Africa inking a 9.4% decline, followed by a 3.5% fall off in Asia Pacific and a 2.9% decrease at Latin America/Canada. Segment wise, Safety and Industrial remained the main detractor, suffering a 9% sales drop. The Transportation and Electronics and Consumer businesses, meantime, reported lower sales of 2.9% and 0.5%, respectively. Health Care, on the other hand, was the standout, enjoying a 5.8% uptick. As expected, margins continued to trend lower in the June quarter. Inflationary pressure remained a problem, due to the ongoing trade war between the United States and China.

       For now, management left guidance intact. It continues to look for earnings of $9.25-$9.75 a share, the midpoint of which implies a roughly 5% year-over-year decline. Organic local-currency sales are forecast to be minus 1% to up 2%. This multi-national appears to be well positioned for the long haul. Although the global economic environment remains a near-term headwind, the company’s size and finances should help it to navigate the difficult waters. Hence, 3M will likely get back on track next year and post solid annual bottom-line gains thereafter out to early next decade. Street estimates are for earnings of $10.27 a share for 2020, representing an 8% advance, on a 3% sales increase. The high-quality shares can be held for recovery and investors can enjoy the 3.2% dividend yield while we wait this one out.

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