Shares of 3M Company (MMM – Free 3M Stock Report) are trading higher today after the global conglomerate released its fourth-quarter financial results. Ironically, the upward momentum comes despite management's decision to temper its full-year 2019 guidance. Investors were obviously anticipating a worse reduction.
December-quarter results were decent, at first blush. The company posted adjusted earnings of $2.31 a share, 10% above the year-earlier tally and in-line with our forecast. However, the figure was a few cents ahead of the Wall Street consensus. Sales came in at $7.945 billion for the period, slipping 0.6% on a year-over-year basis, but edging past estimates. While divestitures took a 1.3% bite out of the overall result, organic local-currency sales increased 3.0%
On a segment basis, total sales improved 2.4% at Health Care, 0.3% at Safety and Graphics, and 0.1% at the Consumer division. On the flip side, the top line was down 4.5% and 0.3%, respectively, at the Electronics and Energy and Industrial units.
Geographically, the domestic side of the coin was a bright spot, with U.S. sales increasing 3.3%. The rest of the world, however, did not fare as well, posting respective sales declines of 6.4%, 2.8%, and 0.8% in Europe, Middle East and Africa, Latin America/Canada, and Asia Pacific.
Meantime, profitability was aided by below-the-line items. Indeed, a far lower share count and effective tax rate helped pick up the slack for the ongoing top-line softness and stagnant margins.
Management's outlook suggests that the operating environment is to remain difficult. Leadership trimmed its full-year 2019 share-net expectation to between $10.45 and $10.90, down from its earlier $10.60 to $11.05 range. It also lowered its organic local-currency sales growth forecast to a range of 1% to 4%, down from its previous 2%-4% call, with the primary reason being expectations of a slowdown in global demand, specifically in China. Part of the reason for the bottom-line reduction was blamed on the likelihood of integration costs from the recent purchase of M*Modal.
We have decided to rein in our expectations, accordingly. Owing to management's warnings, we've shaved $0.15 from our share-earnings estimate, now at $10.70. While this would represent a 7% annual uptick, it is important to note that share repurchases are likely to drive a fair share of that earnings growth, as top-line expansion remains under wraps.
Nevertheless, we continue to recommend these shares to long-term accounts. The company's solid finances and dedication to driving shareholder returns, via dividend increases and stock buybacks, continues to be valued by investors. Likewise, the stock's relatively steady trading history and 1 (Highest) Safety rank add to its risk-adjusted appeal. We also think that management's willingness to reposition the business via the M&A market augurs well for sustained long-term gains.
About the Company: 3M, a component of the Dow Jones Industrial Average, is a diversified global manufacturer, technology innovator, and marketer of a wide variety of products and services. Its five business segments include: Industrial (34.5% of 2017 sales); Safety & Graphics (19.4%); Health Care (18.4%); Electronics & Energy (16.3%); and Consumer (14.5%). (Elimination of Dual Credit was a 3.1% drag.)
- Andre J. Costanza
