3M Company
(
MMM
) reported modest results for the third quarter of 2011. The
company achieved year-over-year top-line growth of 9.6%, as five
out of six segments saw revenue growth. The bottom-line slipped 1%
however, missing our estimate by 9 cents.
Third Quarter Highlights
Total revenue in the quarter increased 9.6% year over year to
$7.5 billion. Acquisitions contributed 3.7% to total growth,
foreign exchange added 3.1%, organic volume growth 1.9% and higher
year-on-year selling prices 0.9%.
A weakness in electronic markets as well as declining growth in
developed economies negatively affected organic volume in the
quarter. Quite a number of customers reduced their inventories due
to expectations of lower demand from their customers, which
affected sales in the quarter.
The company reported third-quarter 2011 earnings per share of
$1.52, below the Zacks Consensus estimate of $1.61. Earnings per
share inched down 1% year over year. Profits were impacted by the
economic crisis prevailing in Europe and the rapid contraction of
the electronics end market.
The operating income for the quarter was also flat year over
year at $1.58 billion.
Agreement of Analysts
None of the 7 analysts covering the stock raised their fourth
quarter estimates in the last 7 days, although there was one
downward revision. There were no revisions to first quarter
estimates in the past 7 days.
For fiscal 2011 also, there was no revision in the estimates
(either upward or downward). However, for fiscal 2012, there was
one downward revision.
We believe that such negative sentiments are the result of the
ongoing sovereign credit risk prevailing in Europe and lower
underlying demand in the company's electronic end markets. These
negatives were exacerbated by the inventory destocking in the
optical business in the last quarter.
Some of the analysts also believe that 3M is currently not in a
position to outperform its competitors as well, as they see no
visible backlog or order rates and a general lack of consumer
confidence. In addition, the continuous downward pressure in the
company's Display & Graphics segment, which accounted for
approximately 13% of the company's total revenue for the third
quarter of 2011, will also tell on its results. The segment
continues to be impacted by price erosion and supplier/ product
consolidation.
The negative sentiment is expected to carry through into fiscal
2012 as well, as indicated by the 11 analysts that have lowered
their estimates in the past 30 days. This follows 3M's weak
guidance for fiscal 2012, which was impacted by lower expectations
for the Display & Graphics segment, the Industrial and
Transportation segment (33.7% of the company's total revenue for
the third quarter of 2011) and the Electronics and Communications
segment (11.0% of the company's total revenue for third quarter
2011).
Magnitude of Estimate Revisions
The Zacks Consensus Estimate for the upcoming fourth quarter
moved down a penny in the last 7 days to $1.31 while that for the
first quarter of 2012 remained unchanged at $1.51.
Again, the Zacks Consensus Estimate for fiscal 2011 remained
unchanged in the last 7 days, while that for 2012 lost a penny.
Earnings Surprises
The third quarter earnings surprise for 3M was a negative 9
cents or (5.59%). The surprise percentage over the last four
quarters is indicative of a negative trend. However, going by the
fact that estimates have been lowered recently, the company could
report in-line results for the fourth quarter.
Summary
3M expects to see continued slow growth until the end of 2011,
as weakening economies continue to challenge business growth. Lower
demand from customers will be mitigated by cost management and
regulated operation in developed economies. Developing markets are
seen as a prime benefactor.
3M is globally recognized for its innovations, which are
supported by some of its well-known brands, such as Nexcare,
Post-it, Scotch, Scotch-Brite and Scotchgard. We believe that the
expansion of facilities and new product launches should bolster its
prospects across most end markets.
3M Company together with its subsidiaries operates as a
diversified technology company with manufacturing operations spread
over 60 countries worldwide. It has more than 35 business units
organized into six segments: Consumer and Office, Display and
Graphics, Electro and Communications, Healthcare, Industrial and
Transportation, Safety, Security and Protection Services
Business.
The major competitors of 3M are
Avery Dennison Corporation
(
AVY
),
E.I. DuPont de Nemours & Co.
(
DD
) and
Johnson & Johnson
(
JNJ
).
The company currently holds a Zacks #4 Rank which indicates a
short term (1-3 months) Sell rating on the stock.
AVERY DENNISON (
AVY
): Free Stock Analysis Report
DU PONT (
EI
) DE (
DD
): Free Stock Analysis Report
JOHNSON & JOHNS (
JNJ
): Free Stock Analysis Report
3M CO (
MMM
): Free Stock Analysis Report
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