3M Earnings Cheat Sheet: Gets Knocked Around but Holds Support

Oct.31.10 | About: 3M Company (MMM)

by David Gibbs

St. Paul, Minnesota based 3M Company (NYSE: MMM) is a diversified technology company with a global presence in the industrial and transportation; health care; consumer and office; safety, security and protection services; display and graphics, and electro and communications industries. The company carries a $60 billion market cap and a near-2.5% dividend, and has beaten analyst estimates ten of the past eleven quarters.

Earnings: Q3 profits of $1.11 billion ($1.53/share), up 16% YoY vs. 3Q09 profits of $957 million ($1.35/share).

Revenue: Up 11% YoY to $6.87 billion.

Actual vs. Wall St. Expectations: 3M beat Wall St. expectations in terms of both earnings and revenue, as the Street had forecasted earnings of $1.51/share on $6.83 billion in revenue.

Notable Stats: MMM’s electro and communications unit was among the company’s best performing during the Q, registering a 25% YoY pop in sales and a 49% jump in revenue. The display and graphics business, which supplies products for things like flat-screen TV’s, generated a 19% YoY increase in sales and a 37% increase in profit.

MMM’s largest business unit, industrial & transportation, reported YoY sales and income growth of 14%.

The company’s healthcare unit was a laggard for the Q, reporting sales growth of 1% on top of a 3% YoY drop in operating income. Management attributed the unit’s underperformance to anxiousness in the industry regarding healthcare reform.

Did You Hear That? CEO George Buckley noted during the company’s conference call that, ”things [in 2010] have played out pretty much as we anticipated,” adding that the company’s healthcare units, “distributors are wary and evidently running down inventories. We have no reason to believe that this is anything other than temporary and that it will pass.”

An analyst from Edward Jones noted that, overall, “it was a very strong quarter.”

Technicals: A cup-with-hanlde breakout in the area of the circle on the chart below proved to be a failure, as shares plunged below the breakout point in short order. However, all is not lost. Post-earnings selling, which came on greater volume than any other day in 2010, was not able to pressure shares below either their 200-day moving average or their trend-line dating back to mid-summer. So, if you’re bullish on shares, you can look to buy on a successful test of either one of those two markers.

Commentary: While MMM beat estimates, analysts were apparently expecting more in terms of guidance. The diversified industrial goods maker, which now does more than a third of its revenue overseas, announced that it expects an 11% YoY sales increase in 2011. This was likely the number that sent shares reeling, pushing them down nearly 6% on the day. Having traded below $80/share just a couple of months ago, shares may have gotten a bit ahead of themselves, but with a dividend now verging on 2.5%, we may be nearing a good entry point. Still, as noted above, make sure shares can hold their current trend-line or their 200-day MA before toeing the water.

Disclosure: No holdings in MMM.