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3M's Growth In Emerging Economies And U.S. Offsets A Decline In Europe
1/30/2013 9:47:00 AM
3M's ( MMM ) fourth quarter earnings grew 4.4% year-over-year to $1.41 per share on strong growth in emerging markets and the U.S. offsetting a decline in Europe. Revenues also increased 4.2% y-o-y to $7.4 billion in the fourth quarter.
For full year 2012, earnings increased 6% y-o-y to $6.32 per share and revenues increased 1% y-o-y to $29.9 billion. For 2013, the company projects higher sales and earnings driven by continued growth in Asia-Pacific and Latin America, partially offset by a decline in Europe. 3M projects 2013 earnings to be in the range of $6.70-$6.95 per share with organic local currency sales growth of 2% to 5%.
Latin America and Asia-Pacific
In the fourth quarter, 3M's organic local currency sales increased 9.7% y-o-y in Latin America, the highest among all major geographies. This was followed by 5.8% growth in the Asia-Pacific region. Additionally, sales from these two regions increased in all six segments, namely Industrial, Health Care, Consumer and Office, Safety and Security, Display, and Electronics & Communications.
The fast growing economies of Latin America and Asia-Pacific are driving growth at 3M whose products serve several sectors of an economy. In particular, healthcare sales in these regions posted double-digit growth on rising healthcare spending in both Asia-Pacific and Latin America. 3M serves healthcare markets with medical and surgical supplies, skin infection prevention products, dental products and health information systems.
Asia-Pacific and Latin America constitute approximately 30% and 12%, respectively, of 3M's global sales.
In the U.S., 3M's sales increased in all segments except Safety and Security Services. Sales growth in the country was the highest in the Consumer and Office segment that sells office stationery products like Post-It notes, Scotch Magic Tape and Scotch Glue Sticks, home care products like Scotch-Brite sponges, and personal safety products like ACE bandages.
In all, in the fourth quarter, organic sales growth in the U.S. was 5.2% y-o-y. Acquisitions, primarily that of Ceradyne, added another 1.9 points to drive 7.1% y-o-y sales growth in the country. The U.S. constitutes nearly a third of 3M's total sales.
Europe, Middle-East and Africa
On the flip side, growth in emerging markets and the U.S. was partially offset by the decline in Europe, Middle-East and Africa (EMEA). Sales in the EMEA region declined in Safety and Security, Display, and Electro segments, were flat in the Industrial segment and rose marginally in Healthcare and Consumer & Office segments. In all, organic sales in EMEA declined 1% y-o-y in local currency terms. Currency translation lowered this growth 1.8 points while acquisitions added 0.6 points of growth. As a result, 3M's sales in EMEA declined 2.2% y-o-y in Q4.
EMEA constitutes approximately 22% of 3M's global sales.
We currently have a stock price estimate of $93.36 for 3M , approximately 10% below its current market price. We are in the process of incorporating fourth quarter earnings and will update our analysis shortly.