This summary is based on the third quarter fiscal 2007 earnings call conducted by 3M Company (MMM) on October 19, 2007.
Management:
VP, IR and Financial Planning & Analysis: Matt Ginter
Chairman, President and CEO: George W. Buckley
Sr. VP and CFO: Patrick D. Campbell
Key Investors Issues
- EPS were $1.32 per share compared to $1.18 a share last year.
- Net income grew to $960 million from $894 million in the third quarter of 2006.
- Revenue was $6.18 billion compared to $5.86 billion a year ago.
Third Quarter Highlights
Sales were $6.2 billion.
- Other preferred growth was above 9.4%, absence sales lost in divestitures, which the company saw in the third quarter, but it moves in the right direction.
- Healthcare grew 20.6%. Europe and Latin America exhibited similar strength, with both regions posting double-digit sales growth.
Earnings per share were $1.32.
Included in this result are two special items. First, the company made the strategic decision to consolidate global Flexible Circuits manufacturing operations from two plants, one in Columbia, Missouri, the other in Singapore, and to Singapore plant, to better serve customers who are primarily in Asia. Second, then company expects to have a handful of real estate sales over the next several quarters, as it actively manages real-estate portfolio.
EPS growth was more than 10%, especially in the context of the extra investments that the company has been making in R&D supply chain and in advancing brands. The company has shown that, it is able to maintain premium margins while accelerating r investments, giving additional confidence that longer-term plan is on-track.
The company is working hard to drive international growth through brand building and making use of local and regional brands where they make sense.
Supply chain is being strengthened and streamlined. The company is investing 35% more in CapEx than last year and so far have brought on-stream this year five new plants outside the United States. The company announced two further acquisitions in the month of September.
The company maintained strong operational discipline while at the same time continues to invest in the business to drive long-term sustainable shareholder value.
The company sold current lab facility located in Swan, Korea, which happen to be located on a valuable piece of property. The company is currently building a new state-of-the-art customer-oriented R&D facility closer to Seoul, and many of major customers for only 40% of what it sold the property for. After addressing for these two items, the earnings for the third quarter were $1.29 per share.
Pharmaceutical business revenues were $201 million and operating income, excluding special items, were $73 million, or 7 cents per share.
Adjusting for Pharma and special items, earnings per share increased 17.3% year-on-year.
The company compares third quarter P&L versus last year''s third quarter. Results this quarter are much in line with overall goals of accelerating top line growth, maintaining strong operating margin position, while at the same time investing in growth for the future to drive long-term shareholder value. Excluding special items, earnings per share were $1.29, a year-on-year increase of 10.3% on sales growth of 5.5%. Earnings increased 17.3% on sales growth of 9.4%.
Operating income was up 3.3% to $1.4 billion, or up 9.3% excluding divestures.
- Gross margin and operating income margin were 47.8% and 22.6% respectively, were in line with last year''s third quarter after adjusting for the impact of divestures.
- R&D and related expenditures were up 10% year-over-year, excluding divestures to support overall strategy to reinvigorate business core.
- SG&A expense was up 3.8% year-on-year at $1.2 billion, or up over 9% adjusted for divestures, as the company stepped up investments in sales and marketing including an increase in advertising and merchandizing, to drive growth in many of businesses.
- Tax rate was 30.8% and down 1.9 percentage points versus last year. The lower tax rate was principally due to a one-time cumulative impact of tax rate changes for several of European subsidiaries.
