3M‘s (NYSE:MMM) third quarter sales growth accelerated to 6% year-over-year from a 2% year-over-year growth in the first half, on recovery in the electronics market and continued improvement in sales from Europe.  In the first half of this year, the company’s growth from developing markets was tempered by a weak electronics market and very low growth from Europe, the Middle-East and Africa (EMEA). However, in the third quarter, as the electronics market recovered especially in the Asia-Pacific region and organic sales from EMEA rose by over 4%, 3M’s double-digit organic sales growth from developing markets wasn’t tempered much. Overall, the company’s top line rose by 6% annually to $7.9 billion and its earnings rose by 8% annually to $1.78 per share, with margins remaining above 20% in the third quarter. 
Looking ahead, with only a quarter remaining in the year and business performing as per expectations, 3M narrowed its guidance for 2013. The company now forecasts its 2013 organic sales, which exclude the impact from currency fluctuations and acquisitions, to grow by 3-4% annually, compared to 2-5% annual growth guided earlier. Its 2013 earnings are expected to be around $6.65-6.75 per share, from $6.60-6.85 per share guided earlier.  The new earnings forecast represents an annual growth of 5-7%.  However, it is important to note here that this expected 2013 earnings growth is well below the company’s guidance of 9-11% annual earnings growth over the 2013-17 period.  During its third quarter earnings meet, 3M reiterated that it expects to achieve the guided earnings growth over the coming years, but that this should be difficult to achieve in the current year due to large investments in ERP.
We are in the process of incorporating the company’s third quarter earnings and shall update our analysis shortly.
Emerging Markets Continue to Drive Growth
In the third quarter, developing markets such as Latin America and Asia-Pacific continued to drive growth in 3M’s sales. In the third quarter, the company’s organic local currency sales from Latin America rose by 11% annually and those from Asia-Pacific rose by 7% annually.  3M’s sales from these developing regions increased across all its segments with especially strong growth in the healthcare and consumer segments.
In healthcare where 3M provides products such as medical and surgical supplies, skin infection prevention products, dental products and health information systems, sales from developing regions are rising due to sharply rising income levels of people in these regions. The same factor is driving growth in the company’s consumer segment sales from developing regions. In the consumer segment, 3M sells stationery products such as Post-It notes and Scotch tapes, home air filtration systems and consumer bandages.
Overall, the high growth from developing regions lifted 3M’s results significantly as Asia-Pacific and Latin America constitute nearly 40% of 3M’s worldwide sales.Notes:
- 3M’s 2013 Q3 earnings transcript, October 24 2013, www.3m.com [↩]
- 3M’s 2013 Q3 earnings form 8-K, October 24 2013, www.3m.com [↩] [↩]
- 3M’s 2013 Q3 earnings presentation, October 24 2013, www.3m.com [↩]
- 3M’s 2012 10-K, February 14 2013, www.3m.com [↩]
- 3M at Jefferies Global Industrials Conference, August 14 2013, www.3m.com [↩]