3M Company (MMM) reported second-quarter 2011 results before the market opened today, reporting earnings per share from continuing operations of $1.60, in line with the Zacks Consensus estimate. Earnings per share increased by 3.9% year over year.
Total Revenue
Total revenue in the quarter increased by 14.1% year over year to $7.7 billion. In March 2011, the earthquake in Japan negative affected sales growth by 2.4 percentage points. The company’s sales increased in all regions, with 24.1% growth in Europe, 20.2% in Latin America/Canada, 11.0% in Asia Pacific and 8.7% in the US.
Segment Results
Sales increased in all segments of the company, except Display and Graphics, which witnessed a year-over-year decline in sales by 10.6% in local currency to $973 million. Industrial and Transportation witnessed highest growth of 17.5% to 2.6%, led by increased sales of renewable energy, abrasives systems, aerospace, industrial adhesives and tapes, energy and advanced materials and automotive aftermarket.
Healthcare sales increased by 7.8% to $1.3 billion, driven by increased sales of infection prevention products, which was helped by the Arizant acquisition. Consumer and Office revenue was $1.0 billion, up 4% due to good business in home care, consumer health care and stationery products. Safety, Security and Protection Services revenue increased by 12.4% to $1.0 billion while Electro and Communication revenue was $864 million, up 8.2%.
Income and Expenses
Operating income, for the quarter, was $1.66 billion compared with $1.60 billion in the prior-year period. Selling and general expense was $1.58 billion compared with $1.35 billion and research and development expense was $404 million compared with $350 million.
Balance Sheet
Cash and Cash equivalents was $3.38 billion at the end of the quarter with long-term debt of $4.48 billion and shareholders equity of $17.74 billion.
Outlook
3M expects sales growth for full-year 2011 to be negatively impacted by the Japan earthquake by approximately one percentage point, operating margins by 30 basis points and earnings by $0.11 to $0.12 per share.
The company generated significant free cash flow in second-quarter 2011. A strong cash flow position and continuously expanding sales revenue provide 3M ample resources to expand through acquisition and innovation of new products.
3M is globally recognized for its innovations, which is supported by some of its well-known brands, such as Nexcare, Post-it, Scotch, Scotch-Brite, and Scotchgard leading the market. We believe that continued capital expenditure with new product launches should bolster its prospects across most end markets.
However, the company’s growth objectives are largely dependent on timing and market acceptance of its new product offerings, including its ability to continually renew its pipeline of new offerings and bring those to the market at acceptable price points.
Further, the results have been impacted by worldwide economic and capital market conditions. Negative consumer sentiment is affecting the retail store traffic. On the corporate side, lower employment levels are negatively reducing office supply purchases in most companies.
3M Company, together with its subsidiaries operates as a diversified technology company with manufacturing operations spread over 60 countries worldwide.
It has more than 35 business units organized into six segments: Consumer and Office, Display and Graphics, Electro and Communications, Healthcare, Industrial and Transportation, Safety, Security and Protection Services Business. The major competitors of 3M are Avery Dennison Corporation (AVY), EI DuPont de Nemours & Co. (DD) and Johnson & Johnson (JNJ).
We continue to maintain a Neutral rating on 3M Company for the long term. The company, however, has a Zacks #4 Rank (Sell recommendation) over the next one-to-three months.
