3M COMPANY $88 (New York symbol MMM; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 694.5 million; Market cap: $61.1 billion; Price-to-sales ratio: 2.1; Dividend yield: 2.7%; TSINetwork Rating: Above Average; www.3m.com) makes over 55,000 different products. It was formerly known as Minnesota Mining & Manufacturing.
The company owns a range of well-known brands, including Post-it notes, Scotch tape, Scotch-Brite household cleaning products, Scotchguard protection and Thinsulate insulation.
3M has six main business segments: industrial and transportation (roughly 33% of sales and 31% of earnings), health care (17%, 22%), consumer and office (14%, 12%), safety, security and protection (13%, 12%), display and graphics (12%, 12%), and electronics and communications (11%, 11%).
Global scope tempers risk
The company’s broad product base cuts its reliance on a single industry or customer. Its geographic risk is also low, since it sells its products in over 200 countries, and sales outside the U.S. account for about two-thirds of its overall sales.
3M’s sales rose 3.3%, from $24.5 billion in 2007 to $25.3 billion in 2008. The recession cut its 2009 sales by 8.5%, to $23.1 billion. However, sales rose 28.1%, to $29.6 billion, in 2011. Earnings fell from $5.60 a share (or a total of $4.1 billion) in 2007 to $4.52 a share (or $3.2 billion) in 2009. Earnings recovered to $5.96 a share (or $4.3 billion) in 2011.
A big part of the company’s success is its ability to develop innovative new products. In 2011, it spent $1.6 billion (or 5.3% of its sales) on research. That’s up 9.5% from $1.4 billion (or 5.4% of sales) in 2010.
Some examples of new products from this spending include a new medical silicone tape that is easier to remove from skin than competing products. 3M also recently started selling a new system that helps food producers quickly detect harmful pathogens.
Careful acquisitions play a key role
In January 2012, 3M agreed to pay $550 million for the office and consumer division of Avery Dennison Corp. (New York symbol AVY). This business makes pens, markers, highlighters, labels and binders.
Expanding by acquisition adds risk. However, many of Avery’s products are market leaders, and they will greatly expand 3M’s existing lineup of office supplies. Excluding integration costs, the new operations should add $0.03 a share to 3M’s earnings in the first year.
The company’s strong balance sheet will continue to let it develop new products and make acquisitions. Its long-term debt of $4.5 billion is a low 7% of its market cap. As well, 3M holds cash of $3.7 billion, or $5.30 a share.
54 years of rising dividends
3M will probably earn $6.31 a share in 2012. The stock trades at just 13.9 times that figure. As well, the company just raised its dividend by 7.3%, to $0.59 a share from $0.55. The new annual rate of $2.36 yields 2.7%. 3M has raised its dividend every year for the past 54 years.
3M is a buy.
