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Stock of the Day
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3M (MMM)
3M 2010 Projected Profit Below Estimates, Innovation Hurts?
3M (MMM: Charts, News, Offers) and its subsidiaries is a worldwide diversified technology company that operates in six segments: Industrial and Transportation; Health Care; Safety, Security and Protection Services; Consumer and Office; Display and Graphics; and Electro and Communications. 3M MMM is one of the most innovative companies in the world, and is known for its research and development. Currently, it has over 55,000 products that range from Post-It Notes to high tech equipment. Today, 3M provides its 2010 outlook that beats analyst revenue estimates by a cool billion, but fell short on the profit front. Is innovation getting too expensive in today's economy? Is 3M on the right path, or should it follows GE refocusing strategy?
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| Stock Analysis |
Today, 3M is the stock to watch and its shares are in the red at about $76.80 after the company management projected 2010 sales in a range of $24.5 billion to $25.5 billion, which is about $1 billion ahead of the average $24.5 billion estimate of analysts, but the profit forecast came in slightly below estimates. The company anticipates $4.82 to $5.00 in profit per share, in which the midpoint of $4.92 is a few pennies below the $4.94 estimate. So, 3M is growing its revenue, but not as profitably? What's going on here? Let's look at what happened in 2009. When the economic crisis struck in 2008, 3M didn't escape the wrath and laid off some of its workers through Q1 2009. However, this is offset by its fervent acquisition and partnership activities throughout 2009. Like its existing portfolio, these activities are just as diverse. Some examples include mobile technology, wafer bonding technology, paint preparation system, and systems to detect leaks in underground pipes. So it looks like 3M still have some digesting to do before it can turn more revenue into profit.
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When every management books in the world talks about focusing on core competencies, is 3M doing the right thing by going against the grain? Apparently, 3M has no plan to abandon its root where innovation got it out of many tight spots and grew the company from a struggling mining company to a world-renowned conglomerate. As per 3M chairman, president and CEO George Buckley: "Innovation is 3M's primary differentiator." But this doesn't mean that 3M will proceed aimlessly, Buckley continued, "We'll continue to invest aggressively in our core and at the same time continue to make modest acquisitions at about the same rate we've been making in recent years. As always, we will continue to carefully manage our costs as we invest."
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3M has a very successful history of making innovation and hugely diverse products work in its favor. And although the idea of focusing on core competencies is widely accepted, it doesn't mean focusing on less products and services. So in 3M case, it appears that it is doing the right thing. Judging by investors in various communities, not too many people are willing to bet against this company.
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