3M Company Reports Operating Results (10-Q)
3m Co has a market cap of $60.86 billion; its shares were traded at around $89.15 with a P/E ratio of 14.1 and P/S ratio of 2.1. The dividend yield of 3m Co stocks is 2.7%. 3m Co had an annual average earning growth of 8.4% over the past 10 years. GuruFocus rated 3m Co the business predictability rank of 3.5-star.
Highlight of Business Operations:Reclassification adjustments are made to avoid double counting in comprehensive income items that are also recorded as part of net income. Reclassifications to earnings from accumulated other comprehensive income including noncontrolling interest that related to pension and postretirement expense in the income statement were $153 million pre-tax ($96 million after-tax) for the three months ended September 30, 2012, $460 million pre-tax ($291 million after-tax) for the nine months ended September 30, 2012, $117 million pre-tax ($77 million after-tax) for the three months ended September 30, 2011, and $355 million pre-tax ($207 million after-tax) for the nine months ended September 30, 2011. These pension and postretirement expense pre-tax amounts are shown in the table in Note 8 as amortization of transition (asset) obligation, amortization of prior service cost (benefit) and amortization of net actuarial (gain) loss. Cash flow hedging instruments reclassifications are provided in Note 9. Reclassifications to earnings from accumulated other comprehensive income that related to realized losses due to sales or impairments (net of realized gains) for debt and equity securities were not material for the three months ended September 30, 2012, $1 million pre-tax ($1 million after-tax) for the nine months ended September 30, 2012, $4 million pre-tax ($2 million after-tax) for the three months ended September 30, 2011, and $2 million pre-tax ($1 million after-tax) for the nine months ended September 30, 2011. Income taxes are not provided for foreign translation relating to permanent investments in international subsidiaries, but tax effects within cumulative translation does include impacts from items such as net investment hedge transactions.
Currency Effects: 3M estimates that year-on-year currency effects, including hedging impacts, decreased net income attributable to 3M by approximately $42 million for the three months ended September 30, 2012 and decreased net income attributable to 3M by approximately $104 million for the nine months ended September 30, 2012. This estimate includes the effect of translating profits from local currencies into U.S. dollars and the impact of currency fluctuations on the transfer of goods between 3M operations in the United States and abroad. This estimate also includes year-on-year currency effects from transaction gains and losses, including derivative instruments designed to reduce foreign currency exchange rate risks and the negative impact of swapping Venezuelan bolivars into U.S. dollars, which 3M estimates increased net income attributable to 3M by approximately $3 million for the three months ended September 30, 2012 and increased net income attributable to 3M by approximately $38 million for the nine months ended September 30, 2012.
Net income attributable to 3M was $1.161 billion, or $1.65 per diluted share in the third quarter of 2012, compared to $1.088 billion, or $1.52 per diluted share, in the third quarter of 2011. Average diluted shares outstanding declined 1.7 percent year-on-year to 703.1 million, which increased earnings per diluted share by approximately 3 cents. The income tax rate was 28.2 percent in the third quarter, down 0.4 percentage points versus last years third quarter, which increased earnings by approximately 1 cent per diluted share.
Net income attributable to 3M was $3.453 billion, or $4.91 per diluted share in the first nine months of 2012, compared to $3.329 billion, or $4.61 per diluted share, in the first nine months of 2011. In addition to the third-quarter 2012 restructuring actions and net insurance gains discussed above, 3M incurred early retirement/restructuring costs of approximately 4 cents per diluted share in the first quarter of 2012. Of this amount, approximately 3 cents per diluted share related to special termination benefits for a voluntary early retirement incentive program in the United States (discussed in Note 8). The remainder related to selective restructuring in a few developed countries. These actions, in aggregate, are expected to be neutral to full-year 2012 earnings, with the costs incurred in the first quarter of 2012, and the associated benefits realized over the remainder of 2012. In the second quarter of 2012, 3M incurred expenses related to consolidating certain manufacturing and supply chain support activities within Western Europe, along with relocating a portion of its manufacturing operations from Western to Eastern Europe, which on a combined basis decreased earnings by approximately 3 cents per diluted share. In the second quarter of 2012, 3M recognized insurance recoveries related to the 2011 earthquake and tsunami in Japan, which increased earnings by approximately 2 cents per diluted share.
with higher September 2012 sales compared to December 2011 sales contributing to this increase. Inventories increased $426 million, or 12 percent, compared with December 31, 2011. At September 30, 2012 compared with December 31, 2011, the combination of currency translation and acquisitions increased accounts receivable by $50 million and inventories by $59 million. As indicated in the next section (cash flows from operating activities), accounts receivable increased at a lower level and inventories increased at a similar level when compared to the first nine months of 2011. Accounts payable increased $162 million compared with December 31, 2011, with currency translation and acquisitions accounting for $21 million of this increase and the balance primarily related to changes in business activity.
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