3M Rolls On

As fellow Fool W.D. Crotty pointed out back in January, 3M (NYSE: MMM  ) seems perpetually beset by the "yeah-buts." No matter what the quarter's performance actually looks like, some analysts feel like they don't earn their pay if they don't find something to complain about.

Sometimes 3M misses earnings by a penny, sometimes management isn't as rip-roaring enthusiastic about the next quarter as an analyst would like, or sometimes the top-line number comes in a bit shy of the Wall Street consens-a-guess.

Whatever. Rather than indulging them, I'm just going to look at the quarter and see how the business at 3M is going (a novel concept, I know).

Sales were up about 4.6% for the first quarter, helped along by a nearly 2% increase in volume. While that admittedly doesn't sound so exciting, improvements in operating margin turn that 4.6% sales gain into a nearly 9.5% operating income gain. Moving further down the income statement, you see 12% net income growth and 14.4% EPS growth -- not too shabby for a company with more than $20 billion in annualized sales.

The company's three largest businesses -- health care, industrial, and display/graphics -- had mixed results. Health care managed to grow operating income by 18%, and industrial grew nearly 20%, but the display/graphics business experienced a nearly 3% decline in operating profits. In total, though, five of the company's seven units showed revenue growth, and five of seven (not the same five, though) showed growth in operating income as well.

3M also managed to generate about $768 million in free cash flow for the first quarter -- an amount that is more or less on par with the prior year. In addition, the company purchased more than $670 million of stock, and the dividend for this quarter is nearly 17% higher than it was for the year-ago period.

I'm not going to pretend that 3M is absolutely perfect. The P/E and enterprise value-to-free cash flow ratios are both a little high relative to growth, and I think the company needs to do more to accelerate cash flow growth. But we're still talking about a proven grower with a huge number of popular brands and a return on assets in excess of 15%.

What's more, 3M is well-positioned to continue to profit not only from boring products such as stethoscopes, Scotch tape, and packing materials but also from advanced products like fuel cells, LCD films, and new lighting technologies. So while analysts may continue to pick nits over 3M's performance, shareholders can just keep banking profits and cashing dividend checks.

For more on 3M, try these three takes:

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).


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