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3M Company (MMM) Beats on Q3 Earnings, Revenues Down Y/Y

Zacks Equity Research

3M Company MMM reported earnings of $2.05 per share for third-quarter 2015, beating the Zacks Consensus Estimate of $2.01 and reflecting an increase of 3.5% year over year. The decline in shares outstanding for the latest quarter resulted in a boost in the earnings per share. However, net income came in at $1,296 billion million versus $1,303 million in the year-ago period.

 

 

Net sales during the quarter were $7,712 million, down 5.2% year over year and lagging the Zacks Consensus Estimate of $7,895 million. The year-over-year decrease in sales was driven by a significant negative foreign currency translation impact. However, the company achieved organic local-currency sales growth of 1.2%.

Operating income stood at $1,876 million in the reported quarter versus $1,901 million in the year-ago-quarter. Operating margin came in at 24.3% in the reported quarter, up 0.9% year over year.

Segment Results

Industrial segment sales decreased 7.1% year over year to $2.6 billion in the reported quarter, driven by unfavorable foreign currency impact. Organic local-currency sales increased 0.2% year over year due to strong sales in automotive, 3M purification, abrasives, and industrial adhesives and tapes.

Health Care segment sales decreased 3.2% to $1.3 billion in the reported quarter, driven by unfavorable foreign currency impact. Organic local-currency sales increased 3.7% year over year with growth in food safety, infection prevention, oral care and chronic care.

Consumer segment revenues were $1.2 billion in the reported quarter, down 1.2% year over year, driven by unfavorable foreign currency impact.. Organic local-currency sales increased 5.0%  driven by stationery and office supplies, home improvement and home care.

Safety and Graphics segment sales decreased 2.2% year over year to $1.4 billion, negatively impacted by foreign currency translation. The segment showed strong organic local-currency sales growth of 2.9%, benefited by growth in commercial solutions, roofing granules and personal safety.

Electronics and Energy segment revenues were $1.4 billion in the reported quarter, down 8.1% year over year. Organic local-currency sales declined 2.8%, dragged down by weakness in electrical markets and renewable energy markets.

Balance Sheet and Cash Flow    

Cash and cash equivalents as of Sep 30, 2015 were $1,605 million, compared with $1,929 million as of Sep 30, 2014. Long-term debt stood at $8,974 million at quarter end, compared with $5,225 million as of Sep 30, 2014. Free cash flow generated during the quarter was $1,310 million, down from $1,342 million in the prior-year period.  During the quarter, 3M paid $635 million in cash dividends and repurchased $1.5 billion of its shares. In third-quarter 2015, 3M converted 101% of net income to free cash flow.

During the quarter, 3M closed the acquisition of Capital Safety, a global provider of fall protection equipment for $2.5 billion and Polypore’s Separations Media business for $1 billion.

Outlook

3M revised its 2015 guidance. Excluding the announced restructuring charges, 3M  expects earnings per share in the  range of $7.73 to $7.78 versus a prior range of $7.73 to $7.93 per share. On a GAAP basis the company expects earnings per share  in the range of $7.60 to $7.65 per share.

Organic local-currency sales growth is expected to be in the range of 1.5% to 2.0%, versus the previous guidance of 2.5% to 4%. The company expects full-year free cash flow conversion to be in the range of 95% to 100%, versus a previous range of 90% to 100%.

3M continues to take actions to strengthen its portfolio, increase its scientific edge through research and development and transform its business processes through a new global ERP system. Also, 3M announced a restructuring plan as an effort to strengthen its competitiveness that will result in an expected reduction of 1,500 positions globally with estimated pre-tax savings of $130 million in 2016. Reductions will primarily be  focused on structural overhead, largely in the U.S. and slower-growing markets.

3M currently has a Zacks Rank #3 (Hold). Stocks that look promising in the industry include Compass Diversified Holdings CODI, Danaher Corp. DHR, and Graham Corporation GHM, each carrying a Zacks Rank #2 (Buy).

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