3M COMPANY (New York symbol MMM; www.3m.com) makes over 60,000 consumer and industrial goods, including air purifiers, adhesives, bandages and components for medical devices. Its main brands include Post-it notes, Scotch tape, Scotch-Brite cleaning products, Scotchguard protection and Thinsulate insulation.
A wide variety of products shields 3M from a downturn in any one industry. The company’s broad geographic presence—3M’s products sell in over 200 countries—cuts risk.
Due to the company’s large size and customer base, investors feel 3M’s revenue and earnings growth are likely to match the growth of the overall economy. Given fears about slowing global growth and rising tariffs, the company’s shares have dropped 26% in the past year.
However, 3M’s outlook remains bright. It continues to sell its less-profitable businesses and use the cash to expand in faster-growing markets. In addition, the company is consolidating its various computer systems into a single platform. That should cut $500 million to $700 million from 3M’s annual expenses by the end of 2020.
Starting with the March 2019 payment, the company will raise its quarterly dividend by 5.9%, to $1.44 a share from $1.36. The new annual rate of $5.76 yields 2.8%. 3M has paid dividends continuously for 103 years and has increased that rate each year for the past 61 years.
In the three months ended December 31, 2018, overall sales fell 0.6%, to $7.95 billion from $7.99 billion a year earlier. Even so, that beat the consensus forecast of $7.87 billion. If you factor out currency rates and businesses that 3M bought and sold, sales improved 3.0% in the quarter. The company reported higher sales in all its businesses and regions.
Earnings rose 6.3%, to $1.37 billion from $1.29 billion. The company spent $1.3 billion on share buybacks in the latest quarter. Due to fewer shares outstanding, earnings per share rose at a faster rate of 10.0%, to $2.31 from $2.10.
Those figures exclude unusual items, among them a charge related to the new U.S. tax rules. On that basis, the latest earnings beat the consensus estimate of $2.28.
For all of 2019, 3M now expects its sales to rise 1% to 4%, which is below its earlier range of 2% to 4%. The decline is because of slowing sales in China due to the impact of U.S. tariffs. The company estimates those tariffs will reduce its full-year earnings by $70 million. However, that’s better than 3M’s earlier estimate of a $100 million reduction.
The company should also earn $10.45 to $10.90 a share for 2019. The stock trades at 18.7 times the midpoint of that range. That’s a reasonable multiple, as 3M continues to spend around 6% of its sales on research.
Over the past five years, the company has now raised its annual payout by an average of 11.0%.
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