Despite a challenging macroeconomic environment, 3M Company (MMM - Free Report) reported relatively modest second-quarter 2016 results with GAAP earnings of $1,291 million or $2.08 per share compared with $1,300 million or $2.02 per share in the year-earlier quarter. The year-over-year improvement in earnings per share, despite lower net income, was largely due to a decline in outstanding shares. The reported earnings matched the Zacks Consensus Estimate.
Net sales during the quarter were $7,662 million, down 0.3% year over year and missed the Zacks Consensus Estimate of $7,725 million. The year-over-year decrease in sales was driven by a significant negative foreign currency translation impact, which reduced sales by 1.5%. Organic local-currency sales declined 0.2%, while inorganic growth added 1.4% to sales.
On a geographic basis, organic sales increased 4.8% in Latin America/Canada, 3.0% in EMEA (Europe, Middle East and Africa) and 0.4% in the U.S., offset by a 5.4% decline in Asia Pacific. Operating income in the reported quarter was $1,866 million versus $1,840 million in the year-ago-quarter, resulting in respective operating margins of 24.4% and 23.9%.
Segment Results
Industrial segment sales remained flat year over year at $2,631 million as sales growth in automotive OEM, automotive aftermarket, and abrasives businesses was offset by decline across the rest of the portfolio. Operating income increased 1.2% year over year to $615 million, while operating margin improved 0.3% to 23.4%.
Health Care segment sales increased 3.0% to $1,404 million in the reported quarter, driven by growth across all businesses. Organic local-currency sales increased 4.9% year over year while adverse foreign currency translation partially reduced segment sales by 1.9%. Operating income improved 4.3% year over year to $460 million, while operating margin was up 0.4% to 32.7%.
Consumer segment revenues were $1,130 million, up 1.7% year over year, driven by home improvement and consumer healthcare businesses. Operating income was $281 million, up 8.8% year over year. Operating margin was 24.9% for the reported quarter compared to 23.3% in the year-ago quarter.
Safety and Graphics segment sales increased 4.7% year over year to $1,499 million, owing to sales growth in roofing granules and commercial solutions. The segment recorded organic local-currency sales growth of 2.3%. However, foreign currency translation reduced sales by 2.2%. Operating income increased 12.8% to $411 million, while operating margin improved 2% to 27.4%.
Electronics and Energy segment revenues were $1,181 million, down 10% year over year due to decline in electronics material solutions and display materials and systems. Organic local-currency sales declined 9.1%, dragged down by weakness in electrical markets and renewable energy markets. Operating income was down 18.1% year over year to $229 million, while operating margin was down 2% to 19.3%.
Balance Sheet and Cash Flow
Cash and cash equivalents as of Jun 30, 2016 were $1,688 million, compared with $2,983 million as of Jun 30, 2015. Long-term debt stood at $9,299 million at quarter end, compared with $8,398 million in the year-ago period. Cash flow from operating activities for the first half of the year was $2,545 million compared with $2,418 million in the year-earlier period. Free cash flow generated during the quarter was $962 million, marginally down from $968 million in the prior-year period.
During the reported quarter, 3M paid $672 million in cash dividends and repurchased $828 million worth of shares. 3M converted 75% of net income to free cash flow during the quarter.
Outlook Trimmed
3M narrowed its earlier guidance for 2016. For 2016, the company anticipates GAAP earnings in the range of $8.15 to $8.30 per share compared to earlier projections of $8.10 to $8.45. Organic local-currency sales growth is expected to be 0%-1%, 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 2016 and beyond. 3M currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Honeywell International Inc. (HON - Free Report) , Leucadia National Corporation and Swire Pacific Limited (SWRAY - Free Report) , each carrying a Zacks Rank #2 (Buy).
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Despite a challenging macroeconomic environment, 3M Company (MMM - Free Report) reported relatively modest second-quarter 2016 results with GAAP earnings of $1,291 million or $2.08 per share compared with $1,300 million or $2.02 per share in the year-earlier quarter. The year-over-year improvement in earnings per share, despite lower net income, was largely due to a decline in outstanding shares. The reported earnings matched the Zacks Consensus Estimate.
Net sales during the quarter were $7,662 million, down 0.3% year over year and missed the Zacks Consensus Estimate of $7,725 million. The year-over-year decrease in sales was driven by a significant negative foreign currency translation impact, which reduced sales by 1.5%. Organic local-currency sales declined 0.2%, while inorganic growth added 1.4% to sales.
On a geographic basis, organic sales increased 4.8% in Latin America/Canada, 3.0% in EMEA (Europe, Middle East and Africa) and 0.4% in the U.S., offset by a 5.4% decline in Asia Pacific. Operating income in the reported quarter was $1,866 million versus $1,840 million in the year-ago-quarter, resulting in respective operating margins of 24.4% and 23.9%.
Segment Results
Industrial segment sales remained flat year over year at $2,631 million as sales growth in automotive OEM, automotive aftermarket, and abrasives businesses was offset by decline across the rest of the portfolio. Operating income increased 1.2% year over year to $615 million, while operating margin improved 0.3% to 23.4%.
Health Care segment sales increased 3.0% to $1,404 million in the reported quarter, driven by growth across all businesses. Organic local-currency sales increased 4.9% year over year while adverse foreign currency translation partially reduced segment sales by 1.9%. Operating income improved 4.3% year over year to $460 million, while operating margin was up 0.4% to 32.7%.
Consumer segment revenues were $1,130 million, up 1.7% year over year, driven by home improvement and consumer healthcare businesses. Operating income was $281 million, up 8.8% year over year. Operating margin was 24.9% for the reported quarter compared to 23.3% in the year-ago quarter.
Safety and Graphics segment sales increased 4.7% year over year to $1,499 million, owing to sales growth in roofing granules and commercial solutions. The segment recorded organic local-currency sales growth of 2.3%. However, foreign currency translation reduced sales by 2.2%. Operating income increased 12.8% to $411 million, while operating margin improved 2% to 27.4%.
Electronics and Energy segment revenues were $1,181 million, down 10% year over year due to decline in electronics material solutions and display materials and systems. Organic local-currency sales declined 9.1%, dragged down by weakness in electrical markets and renewable energy markets. Operating income was down 18.1% year over year to $229 million, while operating margin was down 2% to 19.3%.
Balance Sheet and Cash Flow
Cash and cash equivalents as of Jun 30, 2016 were $1,688 million, compared with $2,983 million as of Jun 30, 2015. Long-term debt stood at $9,299 million at quarter end, compared with $8,398 million in the year-ago period. Cash flow from operating activities for the first half of the year was $2,545 million compared with $2,418 million in the year-earlier period. Free cash flow generated during the quarter was $962 million, marginally down from $968 million in the prior-year period.
During the reported quarter, 3M paid $672 million in cash dividends and repurchased $828 million worth of shares. 3M converted 75% of net income to free cash flow during the quarter.
Outlook Trimmed
3M narrowed its earlier guidance for 2016. For 2016, the company anticipates GAAP earnings in the range of $8.15 to $8.30 per share compared to earlier projections of $8.10 to $8.45. Organic local-currency sales growth is expected to be 0%-1%, 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 2016 and beyond. 3M currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Honeywell International Inc. (HON - Free Report) , Leucadia National Corporation and Swire Pacific Limited (SWRAY - Free Report) , each carrying a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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