3M Company MMM reported disappointing results for third-quarter 2018 with both earnings and revenues missing estimates. The company’s adjusted earnings in the reported quarter were $2.58 per share, missing the Zacks Consensus Estimate of $2.70. However, earnings recorded an increase of 10.7% from the year-ago tally of $2.33.

In the third quarter, 3M Company’s net sales were $8,152 million, reflecting a decline of 0.2% from the year-ago quarter. The decrease was due to 1.5% negative impact from divestitures and 1.7% negative impact from foreign currency translation. This was partially offset by 1.2% gain from pricing, 1.7% gain from acquired assets and 0.1% favorable impact from volume growth.

Notably, the top line missed the Zacks Consensus Estimate of $8,421 million.

3M Company Price, Consensus and EPS Surprise

3M Company Price, Consensus and EPS Surprise | 3M Company Quote

On a geographical basis, sales in the United States increased 1.3% year over year, while that generated in the Asia-Pacific grew 1.6%. Europe, Middle East and Africa’s sales declined 3.9% and that from Latin America/Canada decreased 5.5%.

Segmental Details

The company reports net sales under five segments — Industrial, Safety and Graphics, Health Care, Electronics and Energy, and Consumer. The segmental information is briefly discussed below:

Revenues from the Industrial segment came in at $3,023 million, flat year over year. Results were driven by 2.2% growth in organic sales, offset by 2.1% negative impact from foreign currency translations and 0.1% negative impact from divestitures.

Revenues from the Safety and Graphics segment totaled $1,660 million, increasing 7% year over year. The improvement came on the back of 2.2% gain from organic sales growth as well as 7% gain from acquisitions, net of divestitures. This was partially offset by 2.2% negative impact from foreign currency translations.

Revenues from the Health Care segment were $1,445 million, reflecting a decline of 2.7% year over year. The decline was attributable to 1.1% fall in organic sales and 1.7% negative impact from foreign currency translations.

Revenues from the Electronics and Energy segment totaled $1,443 million, decreasing 4.8% year over year. The decline was due to 6.1% negative impact from divestitures and 1% negative impact from foreign currency translations. This was partially offset by 2.3% gain from organic sales growth.

Revenues from the Consumer segment fell 3.4% year over year to $1,235 million. The decrease was attributable to 2% fall in organic sales and 1.4% negative impact from foreign currency translations.

Margin Profile

In the quarter under review, 3M Company’s cost of sales increased 2.5% year over year to $4,159 million. It represented 51% of net sales compared with 49.7% in the year-ago quarter. Selling, general and administrative expenses decreased 5.5% to $1,547 million. It represented 19% of net sales versus 20% in the year-ago quarter. Research, development and related expenses were $430 million. It represented 5.3% of net sales versus 5.7% in the year-ago quarter.

Operating income in the quarter under review increased 0.4% year over year to $2,016 million. Operating margin grew 10 basis points to 24.7%.

Balance Sheet and Cash Flow

Exiting the third quarter, 3M Company’s cash and cash equivalents were $3,185 million, up 13.7% from $2,801 million at the end of the last-reported quarter. Long-term debt balance increased 19.9% sequentially to $13,539 million.

In the reported quarter, the company generated net cash of $2,139 million, increasing 22.2% from the year-ago tally of $1,750 million. Capital used for purchasing property, plant and equipment increased 16% year over year to $377 million. Free cash flow generated was $1,762 million, increasing 23.6%.

During the third quarter, the company used $794 million for paying dividends to shareholders while repurchased $1.1 billion shares.

Outlook

3M Company has revised down its adjusted earnings guidance for 2018 from $10.20-$10.45 to $9.90-$10.00 per share.

Organic sales growth guidance has been revised to about 3% from 3-4% projected earlier. Free cash flow conversion has been revised to 90-95% from 90-100% projected earlier. Effective tax rate is anticipated to be 20-21%.

Zacks Rank & Stocks to Consider

3M Company currently has a Zacks Rank #4 (Sell).

Some better-ranked stocks are Macquarie Infrastructure Co. MIC, Anthem, Inc. ANTM and Ameren Corp. AEE. While Macquarie Infrastructure sports a Zacks Rank #1 (Strong Buy), Anthem and Ameren carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Macquarie Infrastructure surpassed estimates twice in the trailing four quarters with an average beat of 8.05%.

Anthem exceeded estimates in each of the trailing four quarters with an average beat of 6.65%.

Ameren surpassed estimates thrice in the trailing four quarters with an average beat of 9.76%.