Diversified products company 3M (NYSE:MMM) may be best known for Scotch tape and Post-it Notes, but it's a true conglomerate. In fact, the lower-profile health-care and display/graphic businesses generate half the company's profits. And profitable it is.

In the first quarter, net income shot up an impressive 29% on a 14.4% year-over-year jump in sales. Indeed, aside from some lukewarm comments on the global recovery from the CEO, those looking for bad news will have to do some digging.

U.S. unit sales volume, which barely rose in 2003, was up an impressive 4%. Free cash flow increased 21.7% to $0.98 a share, while operating margins remained strong at 22.6%. Compared to the first quarter last year, both short-term borrowing and long-term debt declined, while cash rose to where it exceeds long-term debt. Bravo!

Just as important, 3M shares the wealth with its owners. A current 1.7% dividend yield returns more than $1.1 billion annually to shareholders, and the company plans to repurchase $1.5 billion of its shares to offset dilution from stock options. Did I mention that the company upped its earnings outlook for 2004 by $0.08 to $3.60-$3.70 a share?

As for the competition, Avery Dennison (NYSE:AVY), with operating margins of 8.7% and high levels of debt, trades at multiples comparable to 3M. Go figure! Chemical and health-care competitor Bayer AG (NYSE:BAY), meanwhile, posted declining sales and a loss in 2003. You have to turn to health care and competitors like Johnson & Johnson (NYSE:JNJ) before you see better operating margins and lower price-to-earnings ratios.

Annualizing this quarter's results pegs 3M at around 21 times free cash flow. That's not exactly cheap, but 3M is not exactly your average company. Over the past 10 years, the company has shrunk its share base while improving its operating margins and return on total capital. For perspective, that's something even IBM (NYSE:IBM) and Microsoft (NASDAQ:MSFT) can't claim. 3M's stock may be off marginally today, but the company is a winner.

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Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.