The industrial conglomerate
earned more than expected in the fourth quarter. That’s a good thing for shareholders, but also for investors in other companies, given that 3M touches nearly every segment of the industrial economy.
Another positive factor is that management gave guidance for 2021. Many industrial companies either withdrew their forecasts, or stopped giving new ones, during the depths of the pandemic back in April. Just offering a forecast shows that things are slowly getting back to normal.
Management expects 3M to earn about $9.50 a share in 2021. That’s in line with analysts’ projections and about 75 cents a share more than in the difficult year 2020.
For the fourth quarter, 3M generated $8.6 billion in sales, up 5.8% year over year, and $2.38 in per-share earnings. Wall Street projected $2.15 cents in adjusted earnings per share and $2.13 under generally accepted accounting principles.
Typically, there isn’t a big difference between GAAP and adjusted earnings with 3M. For the fourth quarter, 3M’s GAAP and adjusted earnings were the same.
3M shares were up about 0.4% in premarket trading, while futures on the
Dow Jones Industrial Average
were both roughly flat.
The $9.50 in 2021 per-share earnings guidance very closely approximates the forecast management gave in early 2020, before pandemic. It’s as if 2020 was a lost year.
The same applies for the stock’s performance. 3M ended up earning $8.74 a share in 2020, but the stock finished the year slightly lower. Total return was positive, thanks to dividends. Shares haven’t done much recently, either. They were up about 3% over the past three months as of Monday’s close, while the
Industrial Select Sector SPDR ETF
(XLI) was up about 11% over the same span.
The stock is stuck. The problem for 3M could be that things are too stable. Its dividends were maintained and raised through the financial crisis circa 2010, and through the pandemic. At the same time, the company generates about 60% of sales in international markets and its largest business segment, safety and industrial products, accounts for a little more than one-third of sales, so it isn’t too dependent on any one area.
One implication of all that stability is that when the economy is improving, investors will look for stocks with more potential to benefit from the healthier climate. When things are improving, they don’t want haven stocks.
Too much stability isn’t the only issue, though. 3M has also been dogged by concern about the company’s liability for costs related to chemicals known as PFAS, manufactured by 3M and others a generation ago, that have gotten into ground water. The company may face additional cleanup costs, as well as personal-injury claims.
The company took a $752 million charge against earnings in 2019 to recognize the liability, but investors still don’t know if that is the final amount. The company didn’t include an update on its PFAS liability in the quarterly press release. The issue is likely to come up on an earnings conference call scheduled for 9 a.m. Eastern time.
Analysts and investors will also ask about the outlook for the auto and industrial end markets. Safety and Industrial sales grew 11.4% year over year in the fourth quarter, while transportation and electronics sales grew 1.4%. Automotive sales grew in the fourth quarter, which is another good sign for stocks of auto manufacturers and their suppliers.
Write to Al Root at [email protected]