3M Posts In-Line Q1 Earnings, Grows Y/Y - Analyst Blog

3M Company MMM reported first quarter 2014 net income of $1,207 million or $1.79 per share compared with $1,129 million or $1.61 a share in the year-earlier quarter. The reported earnings were in line with the Zacks Consensus Estimate. The increase in earnings was driven by higher sales.
    
Net sales during the quarter were $7.8 billion, up 2.6 % year over year, but below the Zacks Consensus Estimate of $7.9 billion. The increase in sales was driven by 4.6% organic local currency sales growth. However, the positives were partly offset by currency impact of 2.0%. The company reported solid organic local-currency sales growth across all geographic regions.

Operating income for first quarter 2014 was $1.7 billion, while operating margin was 21.9%.

Segment Results

Industrial segment sales increased 3.1% year over year in U.S. dollars to $2.8 billion in the reported quarter driven by an increase in sales in all major geographies. Organic local-currency sales increased 4.9% year over year due to strong sales in 3M Purification, automotive OEM, advanced materials, abrasive systems, and aerospace and commercial transportation.

Health Care segment sales climbed 4.8% in U.S. dollars to $1.4 billion in the reported quarter, aided by positive growth in all major geographic regions. Organic local-currency sales increased 6.2% year over year with growth in drug delivery, health information systems, food safety, critical and chronic care, and infection prevention.

Consumer segment revenues were $1.1 billion in the reported quarter, down 0.2% year over year in U.S. dollars as divestitures and foreign currency translations reduced sales. Organic local-currency sales growth of 2.6% was attributable to consumer health care and home care business.
 
Safety and Graphics segment sales rose 1.7% year over year in U.S. dollars to $1.4 billion with strong performances in Asia Pacific and Latin America/Canada. Organic local-currency sales growth of 4.6% benefited from roofing granules and commercial solutions.

Electronics and Energy segment revenues were $1.3 billion in the reported quarter, up 2.7% in U.S. dollars as sales increased in Latin America/Canada and Asia Pacific. Organic local-currency sales edged up 4.1% driven by strong growth in optical systems.

Balance Sheet and Cash Flow

Cash and cash equivalents as of Mar 31, 2014 were $1,954 million compared with $2,928 million as of Mar 31, 2013. Long-term debt stood at $4,401 million compared with $4,864 million as of Mar, 31 2013. Free cash flow as of Mar 31, 2014 stood at $799 million versus $670 million in the prior-year period.

During the reported quarter, 3M converted 66% of net income to free cash flow. 3M returned $2.3 billion to shareholders via dividends and share repurchases and increased first-quarter per-share dividend by 34.6% to 85.5 cents.

Outlook    

3M maintained its EPS in the range of $7.30 to $7.55 with an organic local-currency sales growth of 3%–6% in 2014. Also foreign currency impacts are expected to reduce sales by 1% for the year. Going forward, the company's position will be strengthened through increased investments in innovation and more aggressive capital deployment.

Share prices dipped in pre-market trading as investors probably expected a more positive outlook from the company.

3M currently has a Zacks Rank #3 (Hold). Other stocks that look promising and are worth a look now include Noble Group Ltd. (NOBGY), Federal Signal Corp. FSS  and Icahn Enterprises, L.P. IEP, each having a Zacks Rank #1 (Strong Buy).