3M a Cent Below Estimate

3M Company ( MMM - Analyst Report ) announced third-quarter 2012 results before the market opened today, reporting earnings per share of $1.65; below the Zacks Consensus Estimate of $1.66 per share. Earnings per share surged 8.6% year over year.

Total Revenue

Total revenue in the quarter declined by 0.4% year over year to $7.5 billion. Acquisitions contributed 0.5% to total growth, and foreign exchange reduced sales by 3.1%. Sales growth of 10.5% in Latin America/Canada was the strongest in the quarter. US sales increased by 2.3%, was up 0.8% in EMEA and declined by 0.1% in Asia-Pacific.

Segment Results

Display and Graphics sales were flat year over year at $936 million, benefiting from architectural markets and optical films sales. Electro and Communication revenue was $820 million, down 2.1%, primarily due to declined sales of consumer electronics and telecom products, partially offset by sales increase in electrical market. The Industrial and Transportation segment sales declined by 0.5% to $2.6 million, due to a foreign currency translation effect of 3.8%. The segment benefited from strong sales in automotive OEM, aerospace and automotive aftermarket while renewable energy witnessed a weak sale.

Safety, Security and Protection Services revenue decreased by 2.9% to $926 mllion, led by a sales decrease in roofing granules and personal safety business, partially offset by an increase in infrastructure protection and personal safety sales.Consumer and Office revenue was $1.1 billion, up 1.6% attributable to growth in DIY and consumer health care businesses, partially offset by declined sales of stationery and office supplies. Healthcare sales increased by 1.4% to $1.3 billion, helped by increased sales in electrical markets, partially offset by a decline in both the telecom and consumer electronics-related businesses.

Income and Expenses

Operating income, for the quarter was $1.68 billion compared with $1.58 billion in the prior-year quarter. Selling and general expense was $1.49 billion compared with $1.53 billion in the prior-year quarter and research and development expense was $397 million compared with $389 million in the prior-year comparable quarter.

Balance Sheet

Cash and Cash equivalents were $3.03 billion at the end of the year with long-term debt of $4.9 billion and shareholders equity of $18.1 billion.

Outlook

The company revised its 2012 guidance based on the prevailing economic conditions. 3M expects full-year 2012 earnings to be in the range of $6.27-$6.35, down from the prior range of $6.35-$6.50. Organic sales growth is expected to be in the range of 2% – 2.5%. Operating income margins are expected to be between 21.5% – 22%.

The company believes it will continue to post good results despite the prevailing weak economies, which are challenging business growth. Investments in research and development (“R&D”), as well as sales and manufacturing are targeted by the company to achieve accelerated growth.

3M is globally recognized for its innovations, which are supported by some of its well-known brands, such as Nexcare, Post-it, Scotch, Scotch-Brite, and Scotchgard. We believe that continued capital expenditure with new product launches should bolster its prospects across most end markets.

However, the company’s growth objectives are largely dependent on timing and market acceptance of its new product offerings, including its ability to continually renew its pipeline of new offerings and bring those to the market at acceptable price points. Further, the results have been impacted by worldwide economic and capital market conditions.

3M Company, together with its subsidiaries, operates as a diversified technology company with manufacturing operations spread over 60 countries worldwide. It has more than 35 business units organized into six segments: Consumer and Office, Display and Graphics, Electro and Communications, Healthcare, Industrial and Transportation, and Safety, Security and Protection Services Business. The major competitors of 3M are Avery Dennison Corporation ( AVY - Analyst Report ) , EI DuPont de Nemours & Co. ( DD - Analyst Report ) and Johnson & Johnson ( JNJ - Analyst Report ) .

We continue to maintain a Neutral rating on 3M Company for the long term and a Zacks #2 Rank (Buy recommendation) over the next one-to-three months.