Saturday, July 27, 2013

Earnings Commentary: 3M (MMM)




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*Price per share info*
Adjusted closing price night before earnings call (07/24): $116.33
Adjusted closing price night AFTER earnings announcement: $116.55
Current price (as I type this): $116.91
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Have you ever used a post-it before? Yeah, a post-it:


 
Well, when I first ever heard about 3M corporation that is the very first thing that came to mind (and that's usually what still comes to mind). However, as I did more research and listened to analysts commentaries about the company I realized how powerful the 3M Corporation really is. They have multiple segments which tailor products to an extensive amount of industries at an international level. Click here for a brief summary on Yahoo! Finance about what this company is all about.

I purchased 3M as I was putting together a quality dividend-focused portfolio for my sister (Hi! Marlenne!! ). We bought a few stocks at around $90 per share less than a year ago and it has gone up over 20% since then!

3M announced earnings this past Thursday July 25th. And here is a general overview:
  • Second-quarter earnings of $1.71 per share, an increase of 3.0 percent in comparison to second quarter of 2012. 
  • Sales growth of 2.9 percent year-on-year to a record $7.8 billion. Organic local-currency sales grew 2.3 percent and acquisitions added 1.9 percent to sales. 
  • The impact of currency exchanged rates reduced sales by 1.3 percent year-on-year.
  • Operating income was $1.7 billion, second-quarter net income was $1.2 billion and free cash flow was $1.3 billion.
  • The company paid $436 million in cash dividends to shareholders and repurchased $1.2 billion of its own shares during the quarter.
  • Organic local-currency sales growth was 5.7 percent in Health Care, 3.3 percent in Industrial, 2.9 percent in Consumer and 2.0 percent in Safety and Graphics; Electronics and Energy declined 2.1 percent year-on-year. (Quick Concept Lesson: Organic sales growth refers to the growth rate that a company can achieve by increasing production of products and enhancing sales of said products. "organic growth" excludes any profits or growth acquired from takeovers, acquisitions or mergers. It is a solid measure that can help us understand how well the company is performing internally, its core competency, and how well management is using internal resources to increase sales!)
  • Geographically, organic local-currency sales also presented significant growth. 8.5 percent growth in Latin America/Canada, 2.2 percent in Asia Pacific, 1.9 percent in EMEA (Europe, Middle East and Africa) and 0.8 percent in the U.S.
 One thing I really enjoyed hearing in their conference call is that any minor losses they may have had were already anticipated and mentioned in the previous conference call to investor. It shows the company has a solid management team that is forward thinking in terms of any weaknesses they may encounter, lets the investors know, and shows they are well prepared to weather the storm, even if minor. 

DIVIDEND INFO: By the way, 3M has a dividend yield of 2.17% which translates in to anual dividend payout of $2.54 per share. They have been paying and increasing dividends at least once per year since 1959!(source: dividend.com).

So, with all these wonderfully solid results, are there any risks to look out for 3M? Well, considering I have to play devils advocate sometimes when it comes to my stocks. I decided to go out there and see if there is anything to watch for. I found a quick video at the Montley Fool website where one of their analysts points out the following:

1. Look out for innovation! Is 3M's research and development team remaining innovative in creating new prodcuts and new ways to enhance sales? We all know that businesses that are product-focused need to entice their customers with new and exciting products that motivate said customers to buy! The innovation should go hand in hand with organic sales growth. So, going forward, it will be good to see how 3M remains competitive through innovation. 

2.Keep an eye on operating margin which is 21.6% right now. It is wonderfully high but the ongoing success of the stock will depend in part to this number remaining strong. (Quick Concept Lesson: Operating Margins gives us an idea of how much money a company makes for each dollar of sales. For 3M, they make about $21.6 cents for every dollar of sales! This is before taxes. You can use operating margins as one tool when you are determining a company's quality. If the margin is increasing, this means it is earning more per dollar of sales and the higher the better! )

Thank you for reading and have a GREAT weekend!

Did you know post-its were made by 3M before? Did you know 3M was more than a post-it company? 


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Sources:
Investopedia.com

Yahoo Finance
3M Investor Relations
Montley Fool


Disclosure: This is not a recommendation to buy MMM. Do not invest or cease to invest based solely on this post.