Market Overview

Earnings Analysis: 3M

Share:

3M (NYSE: MMM) reports preliminary financial results for the quarter ended 2012-09-30.

3M Co. recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company's performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.

3M Co.'s analysis versus peers uses the following peer-set: General Electric Co. (GE), Johnson & Johnson (JNJ), Honeywell International Inc. (HON), Danaher Corp. (DHR), Illinois Tool Works Inc. (ITW) and Tyco International Ltd. (TYC). The table below shows the preliminary results along with the recent trend for revenues, net income and returns. CapitalCube published its Earnings Analysis on Honeywell International Inc. (HON) on Tuesday.

Quarterly (USD million) 2012-09-30 2012-06-30 2012-03-31 2011-12-31 2011-09-30
Revenues 7,497.0 7,534.0 7,486.0 7,089.0 7,531.0
Revenue Growth % (0.5) 0.6 5.6 (5.9) (1.9)
Net Income 1,161.0 1,167.0 1,125.0 954.0 1,088.0
Net Income Growth % (0.5) 3.7 17.9 (12.3) (6.2)
Net Margin % 15.5 15.5 15.0 13.5 14.4
ROE % (Annualized) 26.9 28.6 28.5 23.6 25.4
ROA % (Annualized) 13.7 14.3 14.1 12.0 13.5

Valuation Drivers

3M Co.'s current Price/Book of 3.5 is about median in its peer group. MMM-US's operating performance is higher than the median of its chosen peers (ROE of 25.1% compared to the peer median ROE of 13.8%) but the market does not seem to expect higher growth relative to peers (PE of 14.8 compared to peer median of 16.0) but simply to maintain its relatively high rates of return.

The company has a successful operating strategy with above median net profit margins of 14.9% (vs. peer median of 10.9%) and relatively high asset turns of 0.9x (vs. peer median of 0.7x). This suggests that the company has a dominant operating model relative to its peers. MMM-US's net margin is similar to its five-year average net margin of 14.8%.

Economic Moat

MMM-US's revenues have changed in-line with its peers (year-on-year change in revenues is 11.1%) but its earnings have lagged (annual reported earnings have changed by 4.8% compared to the peer median of 7.9%), implying that the company has less control over its costs relative to its peers. MMM-US is currently converting every 1% of change in revenue into 0.4% change in annual reported earnings.

MMM-US's return on assets is above its peer median both in the current period (13.2% vs. peer median 7.1%) and also over the past five years (14.4% vs. peer median 7.5%). This performance suggests that the company's relatively high operating returns are sustainable.

The company's gross margin of 50.8% is around peer median suggesting that MMM-US's operations do not benefit from any differentiating pricing advantage. However, MMM-US's pre-tax margin is more than the peer median (21.2% compared to 15.2%) suggesting relatively tight control on operating costs.

Growth & Investment Strategy

While MMM-US's revenues have grown faster than the peer median (5.4% vs. 0.7% respectively for the past three years), the market gives the stock an about peer median PE ratio of 14.8. This suggests that the market has some questions about the company's long-term strategy.

MMM-US's annualized rate of change in capital of 7.5% over the past three years is around the same as its peer median of 7.3%. This investment has generated a better than peer median return on capital of 19.7% averaged over the same three years. The greater than peer median rate of return suggest that the company may be under investing in growth.

Earnings Quality

MMM-US has reported relatively strong net income margin for the last twelve months (14.9% vs. peer median of 10.9%). This margin performance combined with relatively low accruals (3.0% vs. peer median of 7.4%) suggests possible aggressive accounting and an overstatement of its reported net income.

MMM-US's accruals over the last twelve months are positive suggesting a buildup of reserves. But this level of accruals is less than the peer median -- which suggests that while the company is building reserves, it is doing so in a relatively modest manner compared to its peers.

Trend Charts

Graph of Revenues Trend for 3M Co. (NYSE: <a class=
Graph of Revenues Trend for 3M Co. (NYSE: <a class=
Graph of Net Margin Trend for 3M Co. (NYSE: <a class=
Graph of Net Margin Trend for 3M Co. (NYSE: <a class=
Graph of Accruals Trend (% revenues, Quarterly) for 3M Co. (NYSE: <a class=
Graph of Accruals Trend (% revenues, Annual or TTM) for 3M Co. (NYSE: <a class=

Company Profile

3M Co. is a diversified technology company serving customers and communities with innovative products and services. The company operates its business through the following segments: Industrial and Transportation; Health Care; Consumer and Office; Safety, Security and Protection Services; Display and Graphics; and Electro and Communications. Products in Industrial and Transportation segment include tapes, a wide variety of coated and non-woven abrasives, adhesives, specialty materials, filtration products, energy control products, closure systems for personal hygiene products, acoustic systems products, and components and products that are used in the manufacture, repair and maintenance of automotive, marine, aircraft and specialty vehicles. The Industrial and Transportation segment serves a broad range of markets, such as automotive original equipment manufacturer and automotive aftermarket, renewable energy, electronics, paper and packaging, food and beverage, and appliance. Products and services in Health Care segment provided to the markets include medical and surgical supplies, skin health and infection prevention products, inhalation and transdermal drug delivery systems, dental and orthodontic products, health information systems, and food safety products. The Health Care segment serves markets that include medical clinics and hospitals, pharmaceuticals, dental and orthodontic practitioners, and health information systems. Products in Consumer and Office segment include office supply products, stationery products, construction and home improvement products, home care products, protective material products, certain consumer retail personal safety products, and consumer health care products. The Consumer and Office segment serves markets that include consumer retail, office retail, home improvement, building maintenance and other markets. Product offerings in Safety, Security and Protection Services segment include personal protection products, cleaning and protection products for commercial establishments, safety and security products, roofing granules for asphalt shingles, corrosion protection products used in the oil and gas pipeline markets, and track and trace solutions. The Safety, Security and Protection Services segment serves a broad range of markets that increase the safety, security and productivity of workers, facilities and systems. The Display and Graphics segment includes optical film solutions for LCD electronic displays; computer screen filters; reflective sheeting for transportation safety; commercial graphics sheeting and systems; architectural surface and lighting solutions; and mobile interactive solutions, including mobile display technology, visual systems products, and computer privacy filters. The Display and Graphics segment serves markets that include electronic display, traffic safety and commercial graphics. Products in Electro and Communications segment include electronic and interconnect solutions, microinterconnect systems, high-performance fluids, high-temperature and display tapes, telecommunications products, electrical products, and touch screens and touch monitors. The Electro and Communications segment serves the electrical, electronics and communications industries, including electrical utilities; electrical construction, maintenance and repair; original equipment manufacturer electrical and electronics; computers and peripherals; consumer electronics; telecommunications central office, outside plant and enterprise; as well as aerospace, military, automotive and medical markets; with products that enable the efficient transmission of electrical power and speed the delivery of information. The company was founded by Henry S. Bryan, Hermon W. Cable, John Dwan, William A. McGonagle and J. Danley Budd in 1902 and is headquartered in St. Paul, MN.

Disclaimer

The information presented in this report has been obtained from sources deemed to be reliable, but AnalytixInsight does not make any representation about the accuracy, completeness, or timeliness of this information. This report was produced by AnalytixInsight for informational purposes only and nothing contained herein should be construed as an offer to buy or sell or as a solicitation of an offer to buy or sell any security or derivative instrument. This report is current only as of the date that it was published and the opinions, estimates, ratings and other information may change without notice or publication. Past performance is no guarantee of future results. Prior to making an investment or other financial decision, please consult with your financial, legal and tax advisors. AnalytixInsight shall not be liable for any party's use of this report. AnalytixInsight is not a broker-dealer and does not buy, sell, maintain a position, or make a market in any security referred to herein. One of the principal tenets for us at AnalytixInsight is that the best person to handle your finances is you. By your use of our services or by reading any our reports, you're agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that AnalytixInsight, its directors, its employees, and its agents will not be liable for any investment decision made or action taken by you and others based on news, information, opinion, or any other material generated by us and/or published through our services. For a complete copy of our disclaimer, please visit our website www.analytixinsight.com.

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Earnings News

 

Related Articles (MMM)

View Comments and Join the Discussion!