3M Company (NYSE:MMM): Should The Recent Earnings Drop Worry You?
After reading 3M Company’s (NYSE:MMM) latest earnings update (30 September 2018), I found it beneficial to look back at how the company has performed in the past and compare this against the most recent numbers. As a long-term investor I tend to pay attention to earnings trend, rather than a single number at one point in time. I also like to compare against an industry benchmark to understand whether MMM has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways.
Check out our latest analysis for 3M
Despite a decline, did MMM underperform the long-term trend and the industry?
MMM’s trailing twelve-month earnings (from 30 September 2018) of US$4.5b has declined by -18% compared to the previous year.
Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of -0.03%, indicating the rate at which MMM is growing has slowed down. What could be happening here? Well, let’s look at what’s transpiring with margins and whether the whole industry is feeling the heat.
In terms of returns from investment, 3M has invested its equity funds well leading to a 44% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 13% exceeds the US Industrials industry of 8.6%, indicating 3M has used its assets more efficiently. However, its return on capital (ROC), which also accounts for 3M’s debt level, has declined over the past 3 years from 27% to 23%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 32% to 144% over the past 5 years.
What does this mean?
3M’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Typically companies that experience an extended period of reduction in earnings are going through some sort of reinvestment phase with the aim of keeping up with the latest industry expansion and disruption. You should continue to research 3M to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for MMM’s future growth? Take a look at our free research report of analyst consensus for MMM’s outlook.
Financial Health: Are MMM’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 30 September 2018. This may not be consistent with full year annual report figures.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.