3M (MMM – Free 3M Stock Report) released its third-quarter results, and while the diversified products manufacturer's earnings exceeded expectations, not all the news was good. Indeed, Wall Street sent the stock lower, due to a top-line miss and tough outlook.
The global conglomerate posted earnings of $2.72 a share, well ahead of the $2.58-a-share year-earlier tally, as well as Wall Street's $2.50 consensus estimate. For perspective, we were looking for a gain of $2.55. However, sales missed the mark, coming in at $7.991 billion, 2% shy of the prior-year tally and below the $8.225 billion we were forecasting. Foreign currency headwinds were a problem, but so too was a less-than-ideal global economy. While a lower share count and tax rate were bottom-line boons, much of this was accounted for in our model, and the beat was thus predominantly a result of a better-than-anticipated operating margin, thanks to streamlining efforts.
By segment, sales were strongest at Health Care and Consumer, increasing 4.7% and 1.7%, respectively, in total. Meanwhile, Transportation and Electronics and Safety and Industrial 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, and Africa and Asia Pacific.
Guidance seemed to irk investors, too. Leadership 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. 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. Our full-year 2019 estimates have been lowered accordingly. We now look for 3M to report adjusted earnings of $9.05 a share on sales of $31.75 billion.
We remain cautious here and advise most investors to steer clear of 3M stock for now. 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 United States 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 over time. Regardless, the matter is likely to continue to hang over the stock until there is more clarity.
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 (37.2% of 2018 sales); Safety & Graphics (19.8%); Health Care (19.1%); Electronics & Energy (16.9%); and Consumer (15.2%). (Elimination of Dual Credit was an 8.2% drag.)
– Andre J. Costanza
