3M: This Industrial Giant Is Getting Better

3M's (MMM, Financial) performance has gradually improved as the company has benefited from several trends in the end markets. For example, during the previous quarter, 3M announced a 5.8% rise in profit primarily due to higher sales of water-filtration products and respiratory face masks in China and other major countries fearing pollution.

Segments are getting better

All the business groups of 3M are accepting rising investment in 2014 for ERP implementation and business transformation. 3M witnessed 5% organic growth in Safety and Graphics sales recording 1.5 billion during the quarter.

There was impressive growth in Traffics and in Commercial Solutions, Safety and Security systems. Safety and Graphics expanded organically in all key geographic regions followed by U.S. at 5% and EMEA at 7%.

The Electronics and Energy business segment also illustrated robust performance in second quarter. Sales increase by 6% organically to 1.4 billion. The business related to electronics registered 11% organic growth. There was solid growth in electronics materials and solutions as well as in both systems and display materials. The sales for energy-related businesses expanded 1% organically.

The consumer business group recorded sales of 1.1 billion. There was also solid double-digit organic growth for construction in home development business along with impressive growth registered in home care, healthcare and consumer businesses.

More positive trends

Global organic local currency growth is seen to be 4.8% with 3.5% increase in volumes and 1.3% increase in selling prices. The company’s businesses are successfully executing under its growth strategy. Sales growth jumped by 10 basis points primarily due to acquisitions.

The organic growth for Asia Pacific was 6.6%. Japan grew 7% organically. China and Hong Kong grew 6% each during the second quarter. EMEA grew 4.8% in the second quarter. Middle East/Africa expanded in double digits, West Europe grew 3.5% and Europe grew high single-digits. Latin America/Canada grew organically at 2.7% with healthcare, energy and electronics leading the growth. Mexico grew in double digits, and Brazil declined slightly.

The enhanced plant productivity is releasing greater capacity with the company’s successful efforts to develop its plant efficiency as well as and additional capability with time.

3M is keen on improving and expanding its businesses coupled with enhancing the cash return to its shareholders. The company also delivered cash dividends worth $1.1 billion during the first half of 2014, an increase of $246 million on a year-over-year basis. Gross share repurchases accounted for $3.1 billion for the same period.

Valuation

The trailing P/E and forward P/E ratios of 21.03 and 17.52, respectively, indicate the successful cost cutting efforts of the company and are comparable to the industry’s average P/E of 21.21. The PEG ratio of 1.62, above 1, signifies slower growth and weaker than the industrial growth having an average of 1.44.

However, the profit margin of 15.29% is satisfactory. The revenue per share and diluted EPS of 47.26 and 6.90, respectively, represent healthy shareholder earnings. The quarterly revenue growth and quarterly earnings growth of 4.90% and 5.80%, respectively, is satisfactory. The current ratio of 1.87 suggests the robustness of the company’s balance sheet. Finally, investors are advised to invest into 3M looking at the solid long-term growth prospects, indicated by the CAGR for the next 5 years per annum of 11.97% comparable to the industry’s average of 14.26% and expect promising returns in a long run.