Conservative · Stocks to Consider and Updates

3M Beats Earnings Estimate; Guidance Disappoints

3M Co. (NYSE: MMM – $161.87) released results for the third quarter, and while the diversified products manufacturer’s earnings exceeded expectations, not all the news was good. The global conglomerate posted adjusted earnings of $2.58 a share, equal to last year’s third period, but ahead of Street estimates of $2.49. However, sales missed the mark, coming in at $7.991 billion, 2% shy of the prior-year tally and well below the $8.225 billion analysts were looking for. Foreign currency headwinds were a problem, but so too was a less-than-ideal global economy. By segment, sales were strongest at Health Care and Consumer, increasing 4.7% and 1.7%, respectively. Meanwhile, the Transportation & Electronics and Safety & Industrial segments remained trouble spots, declining 4.4% and 5.7% in the period. Geographically, total sales increased 0.8% in the United States and 0.6% in Latin America/Canada. However, the rest of the world was more difficult, with mid-single-digit top-line declines from Europe, Middle East, Africa and Asia Pacific.

       The outlook for the remainder of the year seemed to irk investors, too. Management once again reined in its expectations, saying that it is now looking for full-year adjusted share earnings of $8.99-$9.09, down from its previous $9.25-$9.75 call and below Street estimates of $9.29. It pointed to the likely continuation of a challenging operating environment, tempering its organic local-currency sales expectation to a 1%-1.5% decline. It had been guiding for a 1% pull back to a 2% gain.

       The company is likely to continue to have a tough time from an operational standpoint, and there are significant legal issues still to be resolved. Remember, the government has been looking into safety concerns tied to some of the company’s products. While the exact dollar figure 3M will be on the hook for is unknown at this time, associated legal costs could be substantial. Regardless, the matter is likely to continue to hang over the stock until there is more clarity. Longer-term, the St. Paul-based company should return to its previous growth metrics, but for now MMM – down 4% in today’s trading – is indeed a stock to watch. The shares are yielding 3.4% and the finances remain in excellent shape for now.


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