Diversified manufacturer 3M Company (MMM - Free 3M Stock Report) announced its fourth-quarter financials this morning, and apparently the investment community was none too pleased with the results. Indeed, MMM is down a couple of percentage points in early market trading on the news. Specifically, the company said that it earned $1.88 a share, 13% better than the year-earlier tally and a couple of pennies ahead of the consensus estimate, but $0.02 shy of our forecast. The top line was a similar story, with the 0.4% year-over-year advance topping Wall Street's call, but coming up just shy of our 0.6% assumption.
As was the case in the first three quarters of 2016, the aforementioned share-earnings improvement was largely driven by aggressive stock repurchases. In fact, on an apples-to-apples basis, earnings advanced a much more moderate 2% in the December quarter. Meanwhile, strict cost management continued to lend a hand, with divestitures and layoffs helping trim operating costs by 2.3%.
The top line remained uninspiring at $7.329 as currency headwinds and the sale of businesses added to the problems of still sluggish organic local-currency growth. All told, the 0.4% uptick in sales was a product of a 1.6% organic local-currency increase, and a 0.8% and 0.4% respective drag by foreign currency translation and divestitures. Uneven global economies continued to be a big problem, with a decline in organic local-currency sales in EMEA (Europe, Middle East, and Africa), offsetting some of the gains from the Latin America/Canada and Asia Pacific regions. Domestic sales were up 1.2%.
From a business unit perspective, Industrial was the best performer, posting a 3.0% sales gain, followed by Safety and Graphics (+0.6%). All was not well, however, as sales were down 1.0% for Electronics and Energy, 0.7% lower in the Consumer segment, and dipped 0.1% in Health Care.
For the full year, earnings reached $8.16 a share, a 7.7% year-to-year increase. Sales pulled back 0.5%, to approximately $30.1 billion.
Looking forward, management essentially kept intact its 2017 guidance. It looks for $8.45 to $8.80 a share in earnings and a 1% to 3% increase in organic local-currency sales. All things considered, we've decided to maintain our stance, calling for $8.60 in share earnings and $30.45 billion in sales. Share repurchases are expected to remain the primary catalyst, with ongoing margin expansion pitching in.
As for the stock, we continue to think that it is overpriced. Indeed, despite today's share-price weakness, MMM continues to trade near its all-time high and sport a still-lofty price-to-earnings multiple, in our view. While the stock's Safety profile and income component likely add appeal for risk-averse parties, we advise that investors await a more substantial pull back in price before initiating a position here. We would like to see management find success on the product development front and deliver another game changer as a means to drive future growth rather than rely on stock buybacks and cost cutting.
About the Company: 3M, a component of the Dow Jones Industrial Average, is a diversified manufacturer that sells more than 50,000 products in more than 70 countries. Its five business segments include: Industrial (34% of 2016 sales); Safety & Graphics (18%); Healthcare (18%); Electronics & Energy (17%); and Consumer (15%).
