U.S. Market Boosts 3M’s Sales; Latin America Disappoints

3M (NYSE:MMM) reported a moderate growth of 2.4% year-on-year in its sales for the fourth quarter of 2013 driven by growth in the U.S. market, which posted the highest organic local currency growth. ^[1] Organic local currency sales do not include the impact of acquisitions or currency fluctuations. Sales from Latin America and Canada grew a weak 2.2% in the fourth quarter, compared to 8.8% growth in organic local currency sales in the first three quarters of 2013. For the full year, 3M’s sales were nearly $31 billion, a growth of 3.2% compared to 2012.

In the fourth quarter, 3M’s net profits grew 11% to reach $1.1 billion driven by reduced cost of raw materials, higher selling price and volume growth. ^[1] This led to an increase of 15% in its earnings per share. 3M’s full year net profits grew 4.6%.

During its fourth quarter meet, 3M announced its guidance for the full year of 2014, forecasting its earnings per share to be in the range of $7.30 to $7.55 with organic local currency sales growth of 3%-6%. ^[2] 3M also reiterated its plan to repurchase $17 billion to $22 billion of shares over 2013 to 2017. It also intends to invest $5 billion to $10 billion in acquisitions through 2017.

We currently have a stock price estimate of $129 for 3M, almost in line with its current market price.

See our complete analysis of 3M here

U.S. Posts Highest Growth Driving Up 3M’s Sales

U.S. is a very important market for 3M since it accounts for more than a third of 3M’s sales. In the fourth quarter of 2013, organic local-currency sales from U.S. grew 4.5% driven by 3.1% growth in volumes and 1.4% increase in price. ^[1]  Leading the growth was 3M’s Industrial business segment, with growth of 8%, followed by a 6% growth in Safety & Graphics business. ^[2] 3M’s other business segments also posted positive growth in U.S.

Slower Than Expected Growth In Latin America and Canada

3M’s sales from Latin America & Canada have been growing more than 8% every quarter since 2010. However in the fourth quarter of 2013, organic local currency growth slowed down to 2.2% due to fewer government tenders and low retail demand. ^[2] Political unrest and weak economic conditions in some South American countries like Venezuela and Argentina also impacted sales. However, pricing gains of 6.5% more than offset the 4.3% decline in volume for the region. ^[1] In spite of a weak performance in the fourth quarter, sales from the Latin America and Canada region posted 7% growth, the highest among 3M’s reported regions.

3M’s Healthcare Segment Grows Driven By Demand From Developing Markets

Driven by sales from developing markets, 3M’s Health Care segment outperformed all other segments with growth of 5% in 2013. ^[3] Rising income levels of consumers in developing markets encourages them to focus on improving living standards and healthcare. In the fourth quarter of 2013, sales of 3M’s Health Care products, like medical and surgical supplies, skin infection prevention products, dental products and health information systems, grew 10% in developing markets. ^[2] In 2014, 3M expects its sales from Healthcare segment to grow 3%-6%.

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1. 3M Announces Fourth-Quarter Results, January 30 2014, www.3m.com [↩] [↩] [↩] [↩]
2. 3M’s CEO Discusses Q4 2013 Results – Earnings Call Transcript, January 30 2014, www.seekingalpha.com [↩] [↩] [↩] [↩]
3. 3M Announces Fourth-Quarter Results, January 30 2014, www.3m.com [↩]