This summary is based on the third quarter fiscal 2008 earnings call conducted by 3M Co. (MMM) on October 21, 2008.
Management:
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Sr. VP and CFO: Patrick D. Campbell
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Chairman, President and CEO: George W. Buckley
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Treasurer: Janet L. Yeomans
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VP, IR and Financial Planning and Analysis: Matt Ginter
Key Investors Issues
- Sales were up 6.2% to $6.6 billion from $6.2 billion in 2007.
- Earnings were $991 million or $1.41 a share, up 3.2%.
- The firm paid out $348 million as dividends and repurchases totaled $515 million.
Year to Date Highlights:
- Sales were up 8% to $19.8 billion from $18.3 billion in the prior year.
- Earnings were $2.9 billion or $4.11 a share, down 9.8%.
- Free cash flow was up 8% versus the prior year.
Third Quarter Highlights
Sales increased 6.2% to $6.6 billion from $6.2 billion in 2007 led by double-digit growth in Safety, Security and Protection, Health Care and Industrial and Transportation.
- Sales growth was balanced across the globe with the U.S. growing 6.5% and International posting growth of 6%.
- International sales were led by double-digit increases in Latin America and in the Asia Pacific region excluding the Optical Systems business.
- Operating income increased almost 9% to more than $1.5 billion as all six segments posted greater than 20% operating margins and three segments saw double-digit, year-on-year operating income percent gains.
Gross margins increased 30 basis points due to a combination of selling price increases, foreign currency translation and a continuous focus on driving operational excellence, offsetting raw material inflation of nearly 5%.
- Total overhead spending was down $33 million year-on-year, $15 million of which resulted in a gain in Corporate and Unallocated.
- The firm is experiencing a reduction in pension expense in 2008 versus 2007 to the tune of approximately $24 million per quarter.
- Operating income margins were 23.2%, up 60 basis points versus last year.
- Net interest expense was $24 million, up $8 million year-on-year, primarily due to higher net debt balances.
- Earnings were $991 million or $1.41 a share, up 3.2% from $960 million or $1.34 a share in the prior year driven by revenue growth.
Free cash flow was a strong $792 million, which included a $200 million U.S. pension contribution.
- Capital expenditures totaled $376 million, which was about flat year-on-year and up $42 million sequentially.
- Dividend payments were $348 million and share repurchases totaled 515 million, both consistent with recent quarters.
- Firm had $3.6 billion of cash and marketable securities on hand, short-term debt was $2.3 billion including $1.7 billion of outstanding commercial paper and long-term debt was $4.8 billion.
- The majority of longer term debt balance of $4.8 billion does not mature until 2012 or later.
Segment Highlights:
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Industrial & Transportation sales were up 10% to almost $2 billion led by industrial adhesives and tapes business, followed by the automotive aftermarket, abrasives and closure systems for personal hygiene products.
- Local currency sales increased 7.1%, including 4.2% from acquisitions.
- Operating income rose 8% versus the same quarter last year.
- All geographic regions drove sales growth, led by double-digit growth in Asia Pacific and Latin America.
- The firm continues to drive strong market penetration in emerging economies, especially the high growth BRICP countries where the business drove strong double-digit local currency growth.
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Health Care drove strong sales growth of 10.7%, led by oral care and medical with double-digit growth in Asia Pacific and Latin America and mid single-digit sales growth in both the U.S. and Europe
- Local currency growth was 9.2% with 2.7% coming from acquisitions.
- Profits in the quarter rose 17.2% to $304 million.
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Safety, Security and Protection Services sales rose 27% to $1 billion with the recent acquisition of Aearo Technologies contributing 19 points of growth.
- Organic sales was 9%, led by growth in personal protection solutions, protective window films, and cleaning solutions for commercial buildings.
- Operating income rose 42% while margins increased 2.3 points year-on-year to 22.8%.
- Sales were strong across the globe, led by double-digit sales increases in the U.S. and Asia Pacific.
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Consumer and Office business increased 5.2% to $946 million with local currency sales up 3.7% with 0.5% from acquisitions.
- Profits were up 12.7% with operating income margins of 22.9%.
- International subsidiaries continued to drive growth with double-digit sales increases in Latin America and Asia Pacific.
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Display and Graphics sales of $853 million declined 16%, but were up 2% excluding optical.
- Positive sales growth was driven in both Traffic Safety and Systems and Commercial Graphics while Optical Systems declined 34% year-on-year, but improved by 5% sequentially.
- On the new product front, 3M''s MPRO 110, an ultra compact, LED-based projection engine for business and entertainment use is now in production with sales beginning in October.
