3M Company (MMM) reported third-quarter 2014 net income of $1,303 million or $1.98 per share compared with $1,230 million or $1.78 a share in the year-earlier quarter. The reported earnings per share beat the Zacks Consensus Estimate of $1.96. The increase in earnings was driven by higher sales.
Net sales during the quarter were $8,137 million, up 2.8 % year over year but below the Zacks Consensus Estimate of $8,234 million. The year-over-year increase in sales was driven by 3.9% organic local currency sales growth and 0.1% impact of acquisitions, partially offset by currency impacts of 1.2%. Operating income for third-quarter 2014 was $1.9 billion, while operating margin was 23.4%.
Segment Results
Industrial segment sales increased 3% 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 4.2% year over year due to strong sales in 3M purification, automotive, advanced materials, industrial adhesives and tapes.
Health Care segment sales climbed 4.7% in local currency to $1.4 billion in the reported quarter, aided by growth in all major geographic regions. Organic local-currency sales increased 5.4% year over year with growth in health information systems and drug delivery systems.
Consumer segment revenues were $1.2 billion in the reported quarter, up 2.1% year over year in local currency. Organic local-currency sales growth of 3.1% was attributable to consumer health care and home care businesses.
Safety and Graphics segment sales rose 1.3% year over year in local currency to $1.4 billion with strong performances in the U.S. and EMEA regions. Organic local-currency sales growth of 3.1% benefited from personal safety and traffic safety and security.
Electronics and Energy segment revenues were $1.5 billion in the reported quarter, up 3.5% in local currency as sales increased in the Asia Pacific and U.S. Latin America/Canada was flat while EMEA declined year on year Organic local-currency sales edged up 4.3% driven by strong growth in display materials and systems and in electronics materials solutions.
Balance Sheet and Cash Flow
Cash and cash equivalents as of Sep 30, 2014 were $1,929 million compared with $2,340 million as of Sep 30, 2013. Long-term debt stood at $5,225 million as of Sep 30, 2014 compared with $3,533 million as of Sep, 30 2013. Free cash flow as of Sep 30, 2014 stood at $1,342 million versus $747 million in the prior-year period.
During the reported quarter, 3M converted 103% of net income to free cash flow. 3M paid $550 million in cash dividends and repurchased $1.2 billion of its own shares during the quarter.
Others
During the quarter, 3M acquired the remaining 25% stake in its Sumitomo 3M subsidiary in Japan for $865 million.
Outlook
3M revised its full year 2014 earnings per share guidance in the range of $7.40 to $7.50 versus the prior guidance of $7.30 to $7.55. Organic local-currency sales growth is expected to be in the range of 4% to 5% in comparison to 3% to 6% expected previously. Foreign currency impacts are expected to reduce sales by 1.5% in the year. The company also updated its full-year free cash flow conversion expectation in the range of 95% to 100% from 90% to 100% previously.
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 prices went up in pre-market trading.
3M currently has a Zacks Rank #3 (Hold). Better-ranked that are worth a look include CLARCOR Inc. (CLC), Compass Diversified Holdings (CODI) and Noble Group Ltd. ( NOBGY), each carrying a Zacks Rank #2 (Buy).
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