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3M Company (MMM - Free 3M Stock Report), a diversified manufacturer and technology conglomerate, which is also a Dow-30 component, reported second-quarter results were a mixed bag. It disappointed on the top line, reporting sales of $7.5 billion, down 2% from a year earlier, and well shy of both the consensus estimate ($7.8 billion) and our more aggressive target ($8.1 billion). On the brighter side, share earnings were up 4%, to $1.66, that beat Wall Street's expectation by a penny and was in line with our estimate.

Management noted that company-wide revenues were hurt by challenging economic conditions and the strengthening U.S. dollar. Sluggish economic growth on the home front, the possibility of a recession across the pond, and slowing economic growth in Asia have all been well documented, but currency translation brought down revenues by slightly more than 4%.

On a segment-by-segment basis, local currency sales rose 5% in Healthcare, 4% in Industrial & Transportation, 3% in Consumer & Office, and 3% in Safety, Security & Protection Services. On the downside, foreign exchange neutral revenues dropped 2% in Electro & Communications and 7% in Display & Graphics, due largely to ongoing weakness in the consumer electronics industry. On a geographic basis, local currency sales were up 11% in Latin America/Canada and 4% in the United States. On the other side of the coin, local currency revenues slipped 1% and 2% in Asia/Pacific and EMEA (Europe, Middle East, and Africa), respectively.

The operating (EBITDA) margin expanded nicely in the period (by about 140 basis points), to almost 23%. Moreover, all six of the company's segments reported operating margins over 20%. Management said that excellent productivity, which stemmed from factory efficiency and cost discipline throughout the organization, led to the record second-quarter earnings.

The reaction to the announcement on Wall Street was positive, as MMM stock rose modestly following the announcement in a higher equity market.

We have adjusted our 2012 estimates based on the updated information. We now look for revenues to advance 2%, to $30.1 billion this year, which is near the high end of management's guidance. We are keeping our bottom-line target unchanged at $6.45, which is near the middle of 3M's expectation of $6.35-$6.50.

As far as our recommendation is concerned, it remains unchanged since our last full-page report. We like the high-quality blue chip, and think it would make a solid cornerstone for most portfolios. Indeed, long-term capital appreciation potential is worthwhile and well defined, the dividend yield is above average, and volatility is below market.

About the Company:3M, a component of the Dow Jones Industrial Average, is a diversified manufacturer that sells more than 50,000 products in 65 countries. Its six business segments include: Industrial & Transportation (33.5% of 2011 revenues); Healthcare (16.7%); Display & Graphics (12.2%); Consumer & Office (13.8%); Safety, Security & Protection (12.7%); and Electro & Communications (11.0%).

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.