Seasoned investors know that a stock's performance can be driven as much by relative expectations as it is by the company's actual results, and that was clearly the case for 3M (MMM 0.34%) stock Tuesday morning in the wake of the company's third-quarter earnings report.
While the results were far from stellar, the industrial conglomerate was up against muted expectations as it has struggled all year, and the numbers easily topped Wall Street estimates. 3M also raised its guidance on the bottom line.
As of 11:57 a.m. ET, the stock was up by 4.8%.
Image source: 3M.
3M wows Wall Street
3M is still reeling from a pair of multibillion-dollar lawsuit resolutions earlier this year, but the company's cost-cutting efforts -- among them, multiple rounds of layoffs, cost controls in its factories, and other moves to drive efficiencies -- seem to be paying off.
On the top line, revenue fell 3.6% to $8.31 billion, but that topped the analysts' consensus estimate of $7.98 billion. After adjustments that excluded revenue from PFASs, the class of toxic chemicals that 3M has promised to phase out after a $12 billion legal settlement, the company reported revenue of $8.02 billion, which still edged out the consensus.
Organic sales fell in all four of its business segments except healthcare, where they rose by 2.4%.
On the bottom line, the company benefited from cost-cutting measures. Adjusted earnings per share improved from $2.60 to $2.68, ahead of the consensus at $2.34. Adjusted operating margin increased by 160 basis points to 23.2%.
Key Data Points
Is 3M stock a buy now?
Investors were also pleased that management boosted its guidance for earnings. The company now expects adjusted earnings per share (EPS) of $8.95 to $9.15 for the year, up from a previous range of $8.60 to $9.10. It did modestly lower its revenue guidance, calling for an organic sales decline of about 3%. Previously, it had been pointing to a result at the lower end of the flat to down 3% range.
At its current share price and payout, 3M offers a dividend yield of nearly 7%, and there have been concerns that a dividend cut might be coming, given the billions it will have to pay due to the lawsuits over its PFASs and faulty military earplugs. However, the company did not comment on the dividend in the press release, a signal that the payout is safe for now.
The company is expected to declare its next dividend in November. It's also set to complete the spinoff its healthcare unit by the end of the year.
A dividend cut would likely sink the stock, so investors may want to wait for more clarity on 3M's payout before they scoop up some shares. We'll learn more when the next dividend is declared in November.
