3M (MMM 0.67%) returned to solid growth in the third quarter, led by its safety and graphics and health care businesses. Revenue was up 5.6% in the quarter, despite a 1.7% headwind from foreign exchange rates. Organic local currency growth was 5.8%, a sign that the company's renewed focus on research and development is starting to pay off. Earnings per share were up 7.9% from a year ago to $1.78, $0.03 ahead of estimates.
While the top-line numbers were impressive, the breadth of the strength at 3M is what should have investors very encouraged. In the past, the company has seen health care do well one quarter and consumer goods another, but rarely do all parts of the business click at once.
Safety and graphics, which sells everything from face masks to display graphics, saw an 8.1% increase in organic sales and a 7.3% jump in operating income. Health care's organic sales were up 6.8% as food safety, drug delivery, and health information systems saw more demand from customers. Electronics and energy saw the least growth at 3.8%, but even that was better than 2012's company organic growth of 2.6%, and it isn't as though a booming economy was driving growth.
Putting 3M's growth into perspective makes it even more impressive. General Electric (GE +1.44%) grew industrial revenue just 3% last quarter, while DuPont's (DD +0.00%) non-agriculture revenue grew just 2.3% in that period. Both GE and DuPont serve a diverse customer base, like 3M, but neither grew as quickly last quarter. This may be a turning point for 3M.
Is this a buying opportunity?
I've targeted 4% organic growth as the threshold 3M needs to achieve to really impress investors and that makes this quarter very impressive. It's too early to call 3M's newfound growth a long-term trend, but CEO Inge Thulin is 20 months into his tenure and now is when we should start seeing his strategic shift away from acquisitions and toward research take shape. If growth continues at a solid pace for the next few quarters I think the stock is a steal at 19 times earnings and a 2.1% dividend yield.
