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Despite a challenging macroeconomic environment, 3M Company (MMM - Free Report) reported relatively healthy fourth-quarter 2016 results with GAAP earnings of $1,155 million or $1.88 per share compared with $1,038 million or $1.66 per share in the year-earlier quarter. The year-over-year improvement in earnings was largely due to higher sales and lower operating expenses. The reported earnings exceeded the Zacks Consensus Estimate by a penny.
For full year 2016, 3M reported GAAP earnings of $5,050 million or $8.16 per share compared with $4,833 million or $7.58 per share in 2015. The year-over-year increase in GAAP earnings despite lower sales was primarily due to lower operating expenses.
Net sales during the quarter were $7,329 million, up from $7,298 million in the year-ago quarter but missing the Zacks Consensus Estimate of $7,368 million. Foreign currency translation impact and divestures decreased sales by 0.8% and 0.4%, respectively, while organic local-currency sales improved 1.6%. For full year 2016, 3M recorded net sales of $30,109 million compared with $30,274 million in 2015.
On a geographic basis, organic sales increased 4.1% in the reported quarter in Latin America/Canada, 2.4% in Asia Pacific and 1.2% in the U.S., partially offset by a 2.4% decline in EMEA (Europe, Middle East and Africa). From a segment perspective, organic local-currency sales increased 4.6% in Industrial, 2.2% in Safety and Graphics, and 1.3% in Health Care, somewhat offset by decrease of 0.6% in Electronics and Energy, and 0.7% in Consumer. Operating income in the reported quarter improved to $1,665 million from $1,500 million in the year-ago-quarter, resulting in respective operating margins of 22.7% and 20.5%.
Industrial segment sales increased 3% year over year to $2,524 million as sales growth in automotive OEM, advanced materials, separation and purification and automotive aftermarket was partially offset by decline in aerospace. Operating income increased 16.8% year over year to $553 million, while operating margin was 21.9% compared with 19.3% in fourth-quarter 2015.
Health Care segment sales declined 0.1% to $1,379 million in the reported quarter, driven by lower oral care and health information systems sales. Adverse foreign currency translation reduced segment sales by 1.4% year over year. Operating income decreased 7.3% year over year to $410 million, while operating margin was 29.8% compared with 32.1% in the prior-year period.
Consumer segment revenues were $1,094 million, down 0.7% year over year, driven by decline in stationery and office businesses. Operating income was $228 million, down 10.5% year over year. Operating margin was 20.9% for the reported quarter compared with 23.1% in the year-ago period.
Safety and Graphics segment sales increased 0.6% year over year to $1,301 million, owing to sales growth in roofing granules and commercial solutions. Operating income decreased 4.1% to $270 million, while operating margin was 20.8% compared with 21.8% in fourth-quarter 2015.
Electronics and Energy segment revenues were $1,208 million, down 1% year over year due to decline in electronics material solutions and display materials and systems. Organic local-currency sales declined 0.6%, dragged down by weakness in electrical markets and renewable energy markets. Operating income was up 61.3% year over year to $326 million, while operating margin was 26.9% compared with 16.6% in the year-ago quarter.
Balance Sheet and Cash Flow
Cash and cash equivalents at year end 2016 were $2,398 million, compared with $1,798 million in the prior-year period. Long-term debt stood at $10,678 million at year end, compared with $8,753 million in the year-ago period. Cash flow from operating activities for 2016 was $6,662 million compared with $6,420 million in 2015. Free cash flow generated during 2016 was $5,242 million, up from $4,959 million in the prior-year period.
During the reported quarter, 3M paid $664 million in cash dividends and repurchased $924 million worth of shares. 3M converted 104% of net income to free cash flow during 2016, while return on invested capital was 23%.
Outlook Reaffirmed
3M reiterated its earlier guidance for 2017. The company anticipates 2017 GAAP earnings in the range of $8.45 to $8.80 per share, representing year-over-year growth of 4–8%. Organic local-currency sales are expected to be up 1–3%, while free cash flow conversion rate is anticipated to be 95–105%.
Hitachi has a long-term earnings growth expectation of 13% and is currently trading at a forward P/E of 14.2x.
Barloworld has a long-term earnings growth expectation of 12.8% and is currently trading at a forward P/E of 11.5x.
Swire Pacific is currently trading at a forward P/E of 16.2x.
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3M (MMM) Marginally Beats Q4 Earnings, Affirms 2017 View
Despite a challenging macroeconomic environment, 3M Company (MMM - Free Report) reported relatively healthy fourth-quarter 2016 results with GAAP earnings of $1,155 million or $1.88 per share compared with $1,038 million or $1.66 per share in the year-earlier quarter. The year-over-year improvement in earnings was largely due to higher sales and lower operating expenses. The reported earnings exceeded the Zacks Consensus Estimate by a penny.
For full year 2016, 3M reported GAAP earnings of $5,050 million or $8.16 per share compared with $4,833 million or $7.58 per share in 2015. The year-over-year increase in GAAP earnings despite lower sales was primarily due to lower operating expenses.
Net sales during the quarter were $7,329 million, up from $7,298 million in the year-ago quarter but missing the Zacks Consensus Estimate of $7,368 million. Foreign currency translation impact and divestures decreased sales by 0.8% and 0.4%, respectively, while organic local-currency sales improved 1.6%. For full year 2016, 3M recorded net sales of $30,109 million compared with $30,274 million in 2015.
On a geographic basis, organic sales increased 4.1% in the reported quarter in Latin America/Canada, 2.4% in Asia Pacific and 1.2% in the U.S., partially offset by a 2.4% decline in EMEA (Europe, Middle East and Africa). From a segment perspective, organic local-currency sales increased 4.6% in Industrial, 2.2% in Safety and Graphics, and 1.3% in Health Care, somewhat offset by decrease of 0.6% in Electronics and Energy, and 0.7% in Consumer. Operating income in the reported quarter improved to $1,665 million from $1,500 million in the year-ago-quarter, resulting in respective operating margins of 22.7% and 20.5%.
3M Company Price, Consensus and EPS Surprise
3M Company Price, Consensus and EPS Surprise | 3M Company Quote
Segment Results
Industrial segment sales increased 3% year over year to $2,524 million as sales growth in automotive OEM, advanced materials, separation and purification and automotive aftermarket was partially offset by decline in aerospace. Operating income increased 16.8% year over year to $553 million, while operating margin was 21.9% compared with 19.3% in fourth-quarter 2015.
Health Care segment sales declined 0.1% to $1,379 million in the reported quarter, driven by lower oral care and health information systems sales. Adverse foreign currency translation reduced segment sales by 1.4% year over year. Operating income decreased 7.3% year over year to $410 million, while operating margin was 29.8% compared with 32.1% in the prior-year period.
Consumer segment revenues were $1,094 million, down 0.7% year over year, driven by decline in stationery and office businesses. Operating income was $228 million, down 10.5% year over year. Operating margin was 20.9% for the reported quarter compared with 23.1% in the year-ago period.
Safety and Graphics segment sales increased 0.6% year over year to $1,301 million, owing to sales growth in roofing granules and commercial solutions. Operating income decreased 4.1% to $270 million, while operating margin was 20.8% compared with 21.8% in fourth-quarter 2015.
Electronics and Energy segment revenues were $1,208 million, down 1% year over year due to decline in electronics material solutions and display materials and systems. Organic local-currency sales declined 0.6%, dragged down by weakness in electrical markets and renewable energy markets. Operating income was up 61.3% year over year to $326 million, while operating margin was 26.9% compared with 16.6% in the year-ago quarter.
Balance Sheet and Cash Flow
Cash and cash equivalents at year end 2016 were $2,398 million, compared with $1,798 million in the prior-year period. Long-term debt stood at $10,678 million at year end, compared with $8,753 million in the year-ago period. Cash flow from operating activities for 2016 was $6,662 million compared with $6,420 million in 2015. Free cash flow generated during 2016 was $5,242 million, up from $4,959 million in the prior-year period.
During the reported quarter, 3M paid $664 million in cash dividends and repurchased $924 million worth of shares. 3M converted 104% of net income to free cash flow during 2016, while return on invested capital was 23%.
Outlook Reaffirmed
3M reiterated its earlier guidance for 2017. The company anticipates 2017 GAAP earnings in the range of $8.45 to $8.80 per share, representing year-over-year growth of 4–8%. Organic local-currency sales are expected to be up 1–3%, while free cash flow conversion rate is anticipated to be 95–105%.
With continued restructuring activities for a focused portfolio, 3M expects to report relatively healthy results in 2017. 3M currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Hitachi, Ltd. (HTHIY - Free Report) , Barloworld Limited (BRRAY - Free Report) and Swire Pacific Ltd. (SWRAY - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Hitachi has a long-term earnings growth expectation of 13% and is currently trading at a forward P/E of 14.2x.
Barloworld has a long-term earnings growth expectation of 12.8% and is currently trading at a forward P/E of 11.5x.
Swire Pacific is currently trading at a forward P/E of 16.2x.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>