3M Company (MMM) reported second-quarter 2014 net income of $1,267 million or $1.91 per share compared with $1,197 million or $1.71 a share in the year-earlier quarter. The reported earnings per share were in line with the Zacks Consensus Estimate. The increase in earnings was driven by higher sales.
Net sales during the quarter were $8,134 million, up 4.9 % year over year, above the Zacks Consensus Estimate of $8055 million. The increase in sales was driven by 4.8% organic local currency sales growth and 0.1% impact of acquisitions. Operating income for second-quarter 2014 was $1.9 billion, while operating margin was 22.8%.
Segment Results
Industrial segment sales increased 4.9% year over year in local currency to $2.8 billion in the reported quarter driven by an increase in sales in all major geographies except Latin America/Canada, which was down marginally. Organic local-currency sales increased 4.7% year over year due to strong sales in 3M purification, aerospace and commercial transportation, abrasives and industrial adhesives and tapes.
Health Care segment sales climbed 5.9% in local currency to $1.4 billion in the reported quarter, aided by growth in all major geographic regions. Organic local-currency sales increased 5.1% year over year with growth in health information systems critical and chronic care and infection prevention.
Consumer segment revenues were $1.1 billion in the reported quarter up 3.7% year over year in local currency. Organic local-currency sales growth of 4.2% was attributable to consumer health care and home care business.
Safety and Graphics segment sales rose 4.1% year over year in local currency to $1.5 billion with strong performances in all major geographic regions. Organic local-currency sales growth of 4.7% benefited from personal safety and commercial solutions business.
Electronics and Energy segment revenues were $1.4 billion in the reported quarter, up 6.2% in local currency as sales increased in Latin America/Canada and Asia Pacific while sales remained flat in the U.S. Organic local-currency sales edged up 6.4% driven by strong growth in Electronics business and Energy business.
Balance Sheet and Cash Flow
Cash and cash equivalents as of Jun 30, 2014 were $2,125 million compared with $2,942 million as of Jun 30, 2013. Long-term debt stood at $5,323 million as of Jun 30, 2014 compared with $4,884 million as of Jun, 30 2013. Free cash flow as of Jun 30, 2014 stood at $1,299 million versus $1,285 million in the prior-year period.
During the reported quarter, 3M converted 103% of net income to free cash flow. 3M returned $2 billion to shareholders via dividends and shares repurchases.
Others
Subsequent to the end of the quarter, 3M announced the acquisition of the remaining 25% stake of its Sumitomo 3M subsidiary in Japan for $885 million.
Outlook
3M maintained its EPS guidance 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.
The market reacted positively as share price increased marginally in pre-market trading.
3M currently has a Zacks Rank #3 (Hold). Other stocks that look promising and are worth a look now include Noble Group Limited (NOBGY), having a Zacks Rank #1 (Strong Buy), CLARCOR Inc. (CLC) and Macquarie Infrastructure Company LLC (MIC), both having a Zacks Rank #2 (Buy).
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