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.
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? Let’s examine what’s occurring with margins and if the whole industry is facing the same headwind.
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 22%. 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?
While past data is useful, it doesn’t tell the whole story. Usually companies that face a drawn out period of reduction in earnings are undergoing some sort of reinvestment phase with the aim of keeping up with the recent industry growth and disruption. I suggest you continue to research 3M to get a better picture 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 firstname.lastname@example.org.