Disappointing Results for Wide-Moat 3M
Our long-term fundamental outlook for the firm remains intact, and we don't expect changes to our fair value estimate.
Wide moat-rated
Looking closely at its operating segments, 3M's performance was a bit of a tale of two cities. Our thesis largely depends on how 3M's overall portfolio is managed, and we expect both safety and graphics and healthcare to deliver most of the portfolio's growth. Safety and graphics was once again a bright spot for the firm. Organic sales only grew 2.2% year over year, but the acquisition of Scott Safety has been a strong growth engine and has exceeded management’s expectations, boosting reported sales 7% year over year, even with a negative 2.2% year-over-year headwind.
Healthcare, however, had some adverse headwinds and revenue decreased 1.1% year over year. Healthcare has been running below management’s 4%-6% sales growth target for the segment. We're not overly concerned with some of the near-term weakness in the healthcare segment. Most of the weakness here can be attributed to the firm’s drug delivery business, as well as a tough comp from last year (which rose 7.6% year over year).
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