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3M Company (MMM) Beats on Q3 Earnings, Revenues Down Y/Y

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3M CompanyMMM reported earnings of $2.05 per share for third-quarter 2015, beating the Zacks Consensus Estimate of $2.01 and reflecting an increase of 3.5% year over year. The decline in shares outstanding for the latest quarter resulted in a boost in the earnings per share. However, net income came in at $1,296 billion million versus $1,303 million in the year-ago period.

Net sales during the quarter were $7,712 million, down 5.2% year over year and lagging the Zacks Consensus Estimate of $7,895 million. The year-over-year decrease in sales was driven by a significant negative foreign currency translation impact. However, the company achieved organic local-currency sales growth of 1.2%.

Operating income stood at $1,876 million in the reported quarter versus $1,901 million in the year-ago-quarter. Operating margin came in at 24.3% in the reported quarter, up 0.9% year over year.

Segment Results

Industrial segment sales decreased 7.1% year over year to $2.6 billion in the reported quarter, driven by unfavorable foreign currency impact. Organic local-currency sales increased 0.2% year over year due to strong sales in automotive, 3M purification, abrasives, and industrial adhesives and tapes.

Health Care segment sales decreased 3.2% to $1.3 billion in the reported quarter, driven by unfavorable foreign currency impact. Organic local-currency sales increased 3.7% year over year with growth in food safety, infection prevention, oral care and chronic care.

Consumer segment revenues were $1.2 billion in the reported quarter, down 1.2% year over year, driven by unfavorable foreign currency impact.. Organic local-currency sales increased 5.0% driven by stationery and office supplies, home improvement and home care.

Safety and Graphics segment sales decreased 2.2% year over year to $1.4 billion, negatively impacted by foreign currency translation. The segment showed strong organic local-currency sales growth of 2.9%, benefited by growth in commercial solutions, roofing granules and personal safety.

Electronics and Energy segment revenues were $1.4 billion in the reported quarter, down 8.1% year over year. Organic local-currency sales declined 2.8%, dragged down by weakness in electrical markets and renewable energy markets.

Balance Sheet and Cash Flow

Cash and cash equivalents as of Sep 30, 2015 were $1,605 million, compared with $1,929 million as of Sep 30, 2014. Long-term debt stood at $8,974 million at quarter end, compared with $5,225 million as of Sep 30, 2014. Free cash flow generated during the quarter was $1,310 million, down from $1,342 million in the prior-year period. During the quarter, 3M paid $635 million in cash dividends and repurchased $1.5 billion of its shares. In third-quarter 2015, 3M converted 101% of net income to free cash flow.

During the quarter, 3M closed the acquisition of Capital Safety, a global provider of fall protection equipment for $2.5 billion and Polypore's Separations Media business for $1 billion.

Outlook

3M revised its 2015 guidance. Excluding the announced restructuring charges, 3M expects earnings per share in the range of $7.73 to $7.78 versus a prior range of $7.73 to $7.93 per share. On a GAAP basis the company expects earnings per share in the range of $7.60 to $7.65 per share.

Organic local-currency sales growth is expected to be in the range of 1.5% to 2.0%, versus the previous guidance of 2.5% to 4%. The company expects full-year free cash flow conversion to be in the range of 95% to 100%, versus a previous range of 90% to 100%.

3M continues to take actions to strengthen its portfolio, increase its scientific edge through research and development and transform its business processes through a new global ERP system. Also, 3M announced a restructuring plan as an effort to strengthen its competitiveness that will result in an expected reduction of 1,500 positions globally with estimated pre-tax savings of $130 million in 2016. Reductions will primarily be focused on structural overhead, largely in the U.S. and slower-growing markets.

3M currently has a Zacks Rank #3 (Hold). Stocks that look promising in the industry include Compass Diversified Holdings CODI , Danaher Corp. DHR , and Graham Corporation GHM , each carrying a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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