Nothing like a good clinic. 3M (MMM) puts on the best. Here's a company that the analysts struggle with, because the company's an R&D powerhouse, which makes it difficult to model.
In other words, there's so much that's new per quarter, that the organic growth kind of sneaks up on you.
Thursday's quarterly report gave you 6% organic growth. The standouts: the electronics and energy divisions, and the safety business.
A lot of the business came from Asia Pacific, which is something the analysts seem to discount. They are so focused on the Americas, they simply don't understand the pastiche of businesses and the notion that there is an R&D business, both locally and in St. Paul, that actually does create earnings much faster than any other company.
The statistic that matters: 30% of the sales come from products that didn't exist three years ago. How do you model that? How do you model all the new household products the company has -- Inge Thulin sends me a basket of new kinds of sponges and cleaning products and other innovations that would make a parent's day when you move, for example, your kid into a new apartment -- which is how I know them. It's the safety and graphics and electronic and energy businesses that are rally propelling things.
It's not just innovation. 3M gives you everything you could ever want from a company. While everyone is struggling with higher costs, the company reported that costs were lower. When so many are attempting -- and failing -- to put through price increases, 3M succeeded in a way that I think surprised analysts.
While many companies are trying to calculate what the new tax code means, 3M has figured it out. The company's tax rate goes from 26-27% to 20-22%. We know it is going to re-invest in the company, because re-investment is the lifeblood of the company. But the management are always committed to higher dividends and bigger buybacks. You got a 16% increase in the dividend, from $1.175 to $1.36, when all we thought we'd get was $1.24. Very few companies that are followed by so many analysts would surprise like that.
The buyback was boosted to $2 to $5 billion, from $2 to $4 billion previously. I bet it's the upper end of the range. Why? Because the share count here has gone from 732 million to 613 million over 10 years' time. I think the buyback gets increased in part because of the advance of the stock.
3M's an amazing company because it has been making these changes for years. My dad was the rep for Philadelphia, selling whatever 3M invented that could help him sell product to retailers for better packaging.
I used to go with Pop to his office on Saturdays. Retailers always run out of gift wrap and boxes they need to help sell their wares. He never stopped working on Saturdays, because he didn't want to disappoint. I remember one day when 3M came up with Shasheen, a ribbon that made it so retailers could make beautiful bows. It was so revolutionary that I dazzled kids in my fifth-grade class show and tell with the stuff.
If you were my father, you had a whole new product to make a call on in a business that was devoid of innovation. That was 55 years ago. You can go on eBay and see what he sold.
All I can say is that 3M is constantly giving the Pops of the world and the governments and the enterprises of all kinds new product to make a call or a sale on. It worked then. It worked now.
