Tags: 3M | MMM | conglomerates | stocks

3M: Big but Innovative, Efficient

By    |   Tuesday, 20 Sep 2011 08:30 PM

3M (MMM) is a streamlined consumer-industrial conglomerate. It sells thousands of products in numerous sectors but has only a few dozen technological platforms. So it’s a company that thrives on innovation and efficiency, which has done 3M quite well over its 109-year history.

As for innovation, 3M invented Post-It Notes, Scotch tape, and masking tape. It also was at the forefront of digital audio recording machines. As for efficiency, 3M registered a profit margin of 21.6 percent in the second quarter. The company’s free cash flow averaged a whopping 15 percent of sales over the past 10 years, according to Morningstar data.

3M calls itself a science company. It has a strong presence in healthcare and highway safety products, office products, abrasives, and adhesives. It has grown over the past six years through acquisitions, including 12 in the year through June 30, and intends to keep doing so.

The company is expanding overseas, too. Foreign sales accounted for 65 percent of revenue in 2010, up from 53 percent in 2000, according to Morningstar. 3M’s operations in Latin America and Asia are particularly profitable.

In the second quarter, 3M recorded profit of $1.16 billion, up 3.6 percent from a year earlier. Revenue rose 14 percent to $7.68 billion

Strong returns

Standard & Poor’s analyst Matthew Christy has a hold rating on 3M shares. “We view 3M's ability to generate strong returns on capital and free cash flows positively,” he writes.

“In addition, we like the company's innovative, consumable-product business mix and believe its strategy of marketing new and innovative products to capture global market share and increase operating margins will continue to drive results.”

But there are risks for 3M on the cost side, Christy says. That includes pension and raw goods costs. Still, he expects a 13.3 percent revenue increase this year, after a 15 percent gain in 2010. That’s based on organic growth and gains from 3M’s recently completed acquisitions of companies, including Arizant, Attenti, and Cogent.

3M next reports around Oct. 26.

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3M (MMM) is a streamlined consumer-industrial conglomerate. It sells thousands of products in numerous sectors but has only a few dozen technological platforms. So it s a company that thrives on innovation and efficiency, which has done 3M quite well over its 109-year...
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2011-30-20
Tuesday, 20 Sep 2011 08:30 PM
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