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3M Company (MMM - Analyst Report) reported fourth quarter 2013 net income of $1,103 million or $1.62 per share compared with $991 million or $1.41 a share in the year-earlier quarter. The reported earnings beat the Zacks Consensus Estimate by a penny. The increase in earnings was driven by higher sales.

For fiscal 2013, the company reported net income of $4,659 million or $6.72 per share compared with $4,444 million or $6.32 a share in the year-earlier quarter. The reported earnings beat the Zacks Consensus Estimate of $6.71 per share.

Net sales during the quarter were $7,569 million, up 2.4 % year over year but below the Zacks Consensus Estimate of $7,683 million. The increase in sales was driven by 3.4% organic local currency sales growth and acquisition benefits of 0.7%. However, the positives were partly offset by currency impact of 1.7%. The company reported solid organic local-currency sales growth across all geographic regions.

For fiscal 2013, sales increased 3.2% to $30,871 million with organic local-currency growth of 3.4%. The reported sales missed the Zacks Consensus Estimate of $31,052 million. Acquisitions added 1.4% to sales and foreign currency reduced sales by 1.6%.

Operating income for fourth quarter 2013 was $1.6 billion, while operating margin was 20.9%.

Segment Results

Industrial segment sales increased 6.1% year over year in U.S. dollars to $2.6 billion in the reported quarter driven by an increase in sales in all major geographies. Organic local-currency sales increased 5.8% year over year due to strong sales in advanced materials, 3M Purification, aerospace and automotive aftermarket.

Health Care segment sales climbed 2.4% in U.S. dollars to $1.4 billion in the reported quarter, aided by positive growth in all major geographic regions. Organic local-currency sales increased 3.6% year over year with growth in health information systems and food safety, critical and chronic care and infection prevention.

Consumer segment revenues were $1.1 billion in the reported quarter, down 0.9% year over year in U.S. dollars as divestitures and foreign currency translations reduced sales. Organic local-currency sales growth of 1.3% was attributable to consumer health care and home care business.
 
Safety and Graphics segment sales rose 2.5% year over year in U.S. dollars to $1.3 billion with strong performances in Asia Pacific and Latin America/Canada. Organic local-currency sales growth of 4.8% benefited from roofing granules and personal safety, commercial graphics and architectural markets.

Electronics and Energy segment revenues were $1.3 billion in the reported quarter, down 1.0% in U.S. dollars as sales decreased in Latin America/Canada. Organic local-currency sales edged up 0.4% driven by sales growth in renewable energy and electrical markets.

Balance Sheet and Cash Flow

Cash and cash equivalents as of Dec 31, 2013 were $2.6 billion compared with $2.8 billion as of Dec 30, 2012. Long-term debt stood at $4,326 million compared with $4,916 million as of Dec, 30 2012. Free cash flow as of Dec 31, 2013 stood at $4,152 million versus $3,816 million in the prior-year period.

During the reported quarter, 3M converted 131% of net income to free cash flow. For fiscal 2013, 3M paid $1.7 billion in cash dividends to shareholders and repurchased $5.2 billion of its shares.

Outlook

3M expects EPS in the range of $7.30 to $7.55 with an organic local-currency sales growth of 3%–6% in 2014. 3M also expects free cash flow conversion to be in the range of 90 to 100%.

Going forward, the company’s position will be strengthened through increased investments in innovation and more aggressive capital deployment.

The market reacted positively as share price increased in pre-market trading with a healthy beat in earnings.    

3M currently has a Zacks Rank #3 (Hold). Other stocks that look promising and are worth a look include Carlisle Companies Inc. (CSL - Snapshot Report), Hutchison Whampoa Ltd. (HUWHY) and Crane Co. (CR - Snapshot Report).

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