Industrial stock, 3M (MMM, Financial) recently reported its earnings results for the third quarter of 2015. For the quarter the firm missed analysts’ average revenue estimate by $140 million while also reporting a restructuring that would cut 1,500 jobs. As the industrial sector continues to see reduced revenue in tandem with declining energy sector profits, 3M is yet another large industrial corporation lagging in revenue growth and requiring expense reductions through employee layoffs.
For the third quarter 3M reported revenue of $7.71 billion resulting in earnings per share of $2.05. While up from the previous quarter, 3M posted another comparable quarter revenue decline with revenue down 5% following a decrease of 6% in the second quarter. Earnings per share continued to climb as sales costs decreased and tax provisions declined. EPS for 3M was up 4% from the comparable quarter and followed a comparable quarter increase in the second quarter of 6%.
In the firm’s Industrial segment which represents the greatest majority of sales, revenue was down 7% from the comparable quarter. During the quarter, 3M completed its acquisition of Separations Media which will be integrated within its Industrial business segment. It also saw a slight increase in organic revenue growth specifically led by original equipment manufacturing in the automotive sector. On a comprehensive basis 3M’s Advanced Materials group which is substantially focused on sales to the oil and gas market was the lead contributor to the segment’s decline overall.
Electronics and Energy posted the firm’s greatest comparable quarter sales decline, down 8% from the third quarter of 2014. Electronics and Energy lagged on both an organic and comprehensive comparison. Within the segment, electrical markets and renewable energy represented the greatest revenue drag.
The firm’s three remaining segments, Healthcare, Safety and Graphics and Consumer, also posted negative comparable revenue growth for the quarter. At 17% of total revenue, Healthcare sales were down 3% from the comparable quarter. Safety and Graphics, which comprised 18% of the firm’s total revenue for the quarter, reported a 2% decrease in revenue. Consumer at 15% of quarterly revenue reported the least decline in revenue at -1%.
Overall, 3M’s brand portfolio continues to remain strong with global consumer brands such as Post It and Scotch tape continuing to generate considerable brand recognition. Downtrends in the energy markets are continuing to cause significant repercussions for large industrial manufacturers. Combined with substantial global currency headwinds from sales overseas the industrial sector overall has been suffering.
Year to date both 3M and its close Dow Jones Industrial Average competitor Caterpillar (CAT, Financial) have seen substantial decreases in their stock price. For the year, 3M is down 4.87% while Caterpillar is down 21.42%. Within the industry Caterpillar also recently announced a restructuring which would include layoffs of approximately 5,000 people through 2016. As the energy sector continues to struggle and industrial companies continue to work through large corporate restructurings, investors can likely expect to see continued stagnation in the sector.
Investment manager trades in the industrial sector overall have been reflective of the value losses. First Eagle Investment (Trades, Portfolio) and Tweedy Browne (Trades, Portfolio) which both hold large positions in 3M have been downsizing their shares in recent quarters. In the second quarter First Eagle Investment (Trades, Portfolio) sold 105,896 shares of 3M while Tweedy Browne (Trades, Portfolio) sold a total of 5,732 shares in the first half of the year.
