3M Ends Its Financial Year On A High

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3M Company

3M (NYSE:MMM) ended its FY 2017 on a high note, posting robust organic growth across all business groups and all geographic areas, and handily beating consensus estimates on both earnings and revenues, even after excluding the benefit received from the recent tax reform enacted by the Trump administration. Impressive organic growth of 6% was noted for the company as a whole, including 11% in both Safety & Graphics and Electronics & Energy segments.

The company’s biggest segment – Industrials – also reported a strong 4% organic growth. The sales growth, together with raw materials and price benefit, and divestiture gains, helped to expand the operating margins to 24.7% for the year. Given the robust performance, as well as the impact of the tax reform, 3M provided an updated guidance for 2018. Earnings of $10.20 to $10.70 per share are now anticipated, up from the previous range of $9.60 to $10.00, with the tax rate expected to be 20% to 22%, versus the prior range of 26% to 27%. Organic sales growth forecast, at 3% to 5%, remains the same. Below we’ll highlight the performances of the key segments in the fourth quarter.

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We have a $210 price estimate for 3M, which is below the current market price. The charts below have  been made using our new, interactive platform. You can click here to modify the different drivers to see the impact on 3M’s valuation and its price per share metric.

Industrials

As mentioned earlier, Industrials is the largest sales contributor for 3M, and posted organic growth of 3.9% in Q4 and 4.9% for the year. The division benefited from increased demand from automotive, aerospace, and industrial adhesives and tapes customers. The growth was led by a high single-digit increase in Asia-Pacific, followed by mid-single digit growth in both EMEA and Latin America/Canada. Even in the future, the growth in this segment is set to be driven by its presence in the developing markets, particularly China and India.

Electronics & Energy

For much of 2016, the Electronics & Energy (E&E) segment posted weak results due to soft end market demand and high channel inventory. In 2017, on the other hand, the segment posted the highest organic sales growth of the company’s five segments. Revenue growth of 12.5%, organic sales improvement of 11%, and a rise in operating income of 2.6% were reported in the final quarter. Increasing demand for electronics and display materials were the key drivers for the sales rise in the quarter, with growth again led by the Asia Pacific region (15%), followed by the US (7%) and EMEA (6%). Looking ahead, the growth can be expected to continue to remain strong, as a result of strong growth of electronic-related sales, as well as the increased demand for renewable sources of energy.

Safety & Graphics

While E&E posted the highest organic sales growth of all segments, the Safety & Graphics (S&G) division reported the highest reported sales growth. The segment’s revenues increased 15% year-on-year in Q4, with growth reported in all businesses, led by personal safety, roofing granules, and transportation safety. Asia-Pacific continues to be the star performer, with sales growth of 18% recorded in the region, followed by 12% in EMEA and 9% in the US. The company enhanced its S&G portfolio with the acquisition of Scott Safety from Johnson Controls during FY 2017.  3M also announced several divestitures in the division, including that of its Identity Management business, its Tolling and Automated License/Number Plate Recognition business, and its Electronic Monitoring Business. 3M has built a good momentum into the business, which should bode well in the future, also.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions in the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for 3M.
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