3M's 2013 Outlook In Line With Expectations, Falls Short Of Long-Term Road Map

| About: 3M Company (MMM)

Shares of 3M Co (MMM) ended Wednesday's trading session with modest losses of 0.6%. The diversified technological and industrial company affirmed its full year outlook for 2012, and issued a road map for its 2013 performance.


3M on Wednesday confirmed its full year 2012 outlook, of earnings per share of $6.27-$6.35 per share. Performance in the fourth quarter is on track with expectations, and the company has no reasons to adjust its full year outlook.

Looking into 2013, 3M expects earnings to come in between $6.70 to $6.95 per share. At the midpoint of the range, this guides for an increase of annual earnings per share by roughly 8%. The outlook is in line with analysts forecasts of $6.85 per share.

The earnings growth is driven by organic local currency sales of 2 to 5% for the coming year. Free cash flow conversion is expected to come in between 90 to 100%.

CEO and Chairman Inge G. Thulin commented on the outlook, "I look forward to another strong year for 3M. Our unique combination of technology, manufacturing prowess and global capability - along with inherent operational excellence - will enable us to once again grow sales and profits."


3M ended its third quarter of 2012 with $5.0 billion in cash and equivalents. The company operates with $6.4 billion in short and long term debt, for a net debt position of roughly $1.4 billion.

For the first nine months of the year, 3M generated revenues of $22.5 billion. Net earnings came in at $3.5 billion, or $4.91 per diluted share, attributable to the company's shareholders. Full year revenues could come in around $30 billion, on which 3M could earn $4.4 billion, or $6.31 per diluted share.

The market currently values 3M at $64.4 billion. This values 3M at 2.1 times annual revenues and 14-15 times annual earnings.

3M currently pays a quarterly dividend of $0.59 per share, for an annual dividend yield of 2.5%

Some Historical Perspective

Year to date, shares of 3M have risen some 14%. Shares started the year around $80 per share and steadily rose to highs of $95 in October. Shares fell back to $88 after the company reported poor third quarter earnings, falling short of expectations. Shares recovered and are currently exchanging hands at $93 per share.

Shares have more than doubled from lows of around $40 in 2009. Between 2008 and 2012, 3M increased revenues by roughly 20% from $25.3 billion to an estimated $30 billion in 2012.

Investment Thesis

3M announced on Wednesday its guidance for 2013. The outlook falls short compared to 3M's five year objectives. In November, the company guided for 9 to 11 percent growth in earnings per share for the coming five years, based on organic sales growth of 4 to 6%.

While the results fall short of the long term plan, issued just a month ago, investors are forgiving. Investors know that 3M is struggling as slow economic growth, and uncertainty caused by the fiscal cliff discussions, are resulting in companies delaying spending decisions.

3M continues to makes selective acquisitions, including the purchase of Ceradyne (CRDN). The deal was closed on November 28, and the integration process immediately started. The firm has earmarked another $1 to $2 billion for more acquisitions in 2013.

The long term prospects remain good. 3M continues to invest in its future, committing itself to R&D investments totaling 6% of total sales by 2017. The company will open a new laboratory facility at its headquarters which will open in 2015, providing a new home to 700 scientists. With the additional investments, 3M hopes to develop new long term success products like it did in the past with post-its and scotch tape.

The valuation multiples remain fair, valuing the firm at roughly 2 times 2013's annual revenues and 13-14 times annual earnings. Don't expect miracle returns in the short term, but long term investors should expect modest capital gains and a fair dividend yield.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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