Newspaper article Sarasota Herald Tribune

Sticking with 3M, Even When It Doesn't Live Up to Expectations

Newspaper article Sarasota Herald Tribune

Sticking with 3M, Even When It Doesn't Live Up to Expectations

Article excerpt

Market volatility has increased once again, and where there is volatility there is profit opportunity. If you are reticent to act, perhaps because you are still in mourning over some previous loss, remember that 40 years of statistical data confirm an average annual compounded total rate of return for the equities markets of about 11 percent.

Yes, I am eminently familiar with the statement by the famed economist John Maynard Keynes, "In the long run we are all dead." More pertinent is the phrase that every journey begins with a first step. Unfortunately, market volatility, when combined with a fear of the unknown, readily foments paranoia. Your task is to remain undeterred in your resolve to uncover true value.

Meanwhile, I have been accused of only revisiting companies for which I have successfully projected an annual performance. This is not true. Although I only discuss companies for which my analysis portends potential capital gain, not every idea is a winner, as 3M Corp. (MMM) clearly illustrates.

So why write about 3M again? The answer is simple; I still believe 3M has excellent potential going forward and I attribute a less-than-exemplary performance in large part to conditions beyond the company's control.

I resisted writing about 3M for a number of years, relenting last year because, as Barron's once pointed out, the world's population continually interacts with the company's products, from fiddling with Scotch tape, to leaving urgent messages on Post-its, to parking their posteriors on Scotchgarded furniture.

3M's sales of $29.6 billion in 2011 showed a gain of 11.1 percent. Five of the company's six business segments posted growth for the year, led by Industrial and Transportation, up 19.5 percent, and Safety, Security and Protection Services, up 15.2 percent. Latin America/Canada was the fastest-growing geographic region in 2011, posting a growth rate of 15.6 percent.

Full-year 2011 earnings were $5.96 per share, an increase of 5.9 percent; operating margins were 20.9 percent; and return on invested capital was 19.9 percent.

Although 3M recorded record sales and earnings per share in 2011, it had to achieve those results in the face of deteriorating demand in Western Europe. …

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