What happened
Shares of industrial giant 3M (MMM 0.86%) rose a paltry 1.6% in 2021, managing to underperform the S&P 500 by 25.2% over the year. The result reflects a disappointing year due to a combination of forces beyond 3M's control, and a failure to convince the market that management's restructuring actions are achieving tangible performance improvements.
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The following table showing the progression of management's full-year guidance gives a flavor of 3M's year. Further to the data in the table, management recently told investors that its fourth-quarter revenue would come to be in the bottom half of its guidance, implying full-year sales growth closer to 8% than 9%.
In a nutshell, economic growth was trending above most observers' initial 2021 expectations in the spring and summer -- which is why 3M's management raised sales guidance in the summer. However, by the autumn it became clear that the extra growth created soaring raw material cost increases and supply chain issues that ate into industrial companies' profit margins. Note that 3M lowered its earnings guidance in October.
| 3M Full-Year Guidance | As of October | As of July | As of April | As of January |
|---|---|---|---|---|
| Organic local-currency sales growth | 8%-9% | 6%-9% | 3%-6% | 3%-6% |
| Earnings per share | $9.70-$9.90 | $9.70-$10.10 | $9.20-$9.70 | $9.20-$9.70 |
Data source: 3M presentations.
So what
The discussion above focuses on the end market conditions for 3M. The company's product portfolio spans various industries, including automotive, healthcare, consumer health, office products, and electronics.
However, it's important to note that 3M is in the middle of a concerted restructuring effort involving changing its organizational structure, restructuring the business portfolio through acquisitions and divestitures, and streamlining its organization.
As such, it's reasonable to expect some benefits from these actions, even in a challenging environment. However, the reality is that 3M has largely failed to offset its cost pressures with pricing increases, and it's understandable if investors have doubts over management's execution.
Now what
3M's performance has been disappointing, and investors will be focused on its margin outlook for 2022 when management next gives results. On the other hand, the stock remains a good value, and its dividend (current yield 3.3%) is sustainable and capable of growth. Meanwhile, management has a significant opportunity to demonstrate some improvement in 2022.
All told, 3M remains a decent, if uninspiring, investment option for value-seeking investors.
