On Mar 5, we updated the research report on diversified industrial goods manufacturer, 3M Company (MMM - Free Report) .
3M remains focused on three key metrics namely, portfolio management, investment in innovation and business transformation. For portfolio management, 3M intends to concentrate on its most profit-making and fastest-growing businesses. To this effect, the company has taken steps to prune its businesses from 40 to 24. Since 2012, 3M had done significant portfolio restructuring — divesting assets that no longer fit in its strategy and making newer investments in more lucrative markets.
The company is also investing in capital expenditures and research and development to support organic growth as it aims at a prudent capital structure and increased capital deployment. 3M's global footprint, diversified product portfolio and the ability to penetrate in different markets have been its forte. For the five-year period of 2016-2020, 3M expects 8-11% growth in earnings per share driven by an organic sales growth of 2-5%. The company expects about 20% return on invested capital during this tenure with a free cash flow conversion rate of 100%. Furthermore, 3M is standardizing its business processes through a new, global ERP system. It expects these efforts to result in $500 million to $700 million in annual operational savings by 2020, and an additional $500 million reduction in working capital. Such focused attempts to maintain growth momentum is commendable.
Driven by broad-based organic growth across all segments and geographies, 3M reported strong fourth-quarter 2017 results with healthy year-over-year increase in adjusted earnings and revenues. Excluding non-recurring items, adjusted earnings for the quarter were $2.10, which comfortably beat the Zacks Consensus Estimate of $2.03. Net sales were record high for the fourth quarter at $7,990 million, up from $7,329 million in the year-ago quarter. The top line also exceeded the Zacks Consensus Estimate of $7,878 million. Foreign currency translation impact increased sales by 2.7%, organic local-currency sales improved it by 6% and acquisitions (net of divestitures) increased sales by 0.3%.
With a diligent execution of operational plans, 3M has outperformed the industry in the last six months with an average return of 14.6% against a decline of 6.6% for the latter.
Moving forward, 3M raised its earlier guidance for 2018 on strong quarterly results and improved business outlook. The company anticipates 2018 GAAP earnings in the range of $10.20 to $10.70 per share, up from prior projection of $9.60-$10.00. Organic local-currency sales are expected to be 3-5%.We remain bullish on such healthy growth outlook.
3M has a Zacks Rank #2 (Buy). Other stocks worth considering in the industry include Crane Co. (CR - Free Report) , Bunzl PLC (BZLFY - Free Report) and Federal Signal Corporation (FSS - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Crane has an expected long-term earnings growth rate of 13%. It exceeded estimates in each of the trailing four quarters with an average beat of 2.6%.
Bunzl PLC has an expected long-term earnings growth rate of 2%.
Federal Signal exceeded estimates in each of the trailing four quarters with an average beat of 16.5%.
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