3M Exceeds Q3 Earnings and Revenue Expectations, Revises Full-Year 2023 Outlook

3M Stock

3M Company (NYSE:MMM) has released its third-quarter 2023 results, revealing adjusted earnings of $2.68 per share (excluding $6.42 attributed to non-recurring items). This figure surpassed the Zacks Consensus Estimate of $2.34.

The company’s net sales for the quarter reached $8,312 million, exceeding the Zacks Consensus Estimate of $7,952.7 million. However, the top-line performance demonstrated a 3.6% decrease compared to the previous year due to a 3.7% dip in organic sales. Foreign currency translation had a positive impact of 0.6%, while divestitures had a 0.5% adverse effect.

Segmental Results

3M reports its financial results across four business segments: Safety and industrial, Transportation and electronics, Health Care, and Consumer.

  • Safety & Industrial: Revenues from this segment were $2,751 million, indicating a 4.9% decrease year-over-year, primarily due to a 5.8% dip in organic revenues.
  • Transportation & Electronics: Revenues totaled $2,171 million, reflecting a 3% decrease compared to the previous year. Organic sales in this segment were down by 4.1%, with acquisitions contributing positively by 1.4% and divestitures negatively impacting by 0.4%.
  • Health Care: This segment reported revenues of $2,073 million, marking a slight decline of 0.2% year-over-year. A 3.4% reduction from divestitures impacted the results, while organic sales grew by 2.4%.
  • Consumer: Revenues from the Consumer segment fell by 6.7% year-over-year to $1,315 million, with a 5.4% decrease in organic sales. Foreign currency fluctuations also had a negative impact of 0.6%.

Margin Profile

3M’s cost of sales decreased by 3.1% year-over-year to $4,580 million. However, selling, general, and administrative expenses surged by over 100% to $5,992 million. Research, development, and related expenses experienced a decrease of 6.7% year-over-year to $430 million.

For the third quarter, 3M reported an operating loss of $2.65 billion, a stark contrast to the operating income of $4.16 billion in the year-ago period. This decline was largely attributed to pre-tax charges of $4.2 billion related to its settlement of Combat Arms lawsuits.

3M’s adjusted operating income in the third quarter showed a 3.8% increase year-over-year, reaching $1,859 million. The adjusted operating margin improved to 23.2%, up from 21.6% in the previous year’s quarter. The adjusted tax rate in the quarter was 18.1%, compared to 15.9% in the year-ago period.

Balance Sheet and Cash Flow

At the end of the third quarter, 3M held cash and cash equivalents amounting to $5,140 million, a significant increase from $3,655 million at the end of December 2022. Long-term debt was $12,876 million compared to $14,001 million at the end of December 2022.

3M generated net cash of $4,694 million from its operating activities in the third quarter, showing an increase of 27.9% compared to the same quarter in the previous year. Capital used for purchasing property, plant, and equipment increased by 1.1% to $1.26 billion during the first nine months of 2023.

Adjusted free cash flow for the third quarter was $4,339 million, reflecting a 36.8% year-over-year increase. Adjusted free cash flow conversion reached 115% at the end of the same period.

In the first nine months of 2023, 3M distributed $2.48 billion in dividend payments to its shareholders. Notably, the company did not repurchase shares during the third quarter.

2023 EPS Guidance Raised

Following a robust year-to-date performance and strong operational execution, 3M has increased its adjusted earnings guidance for 2023. The company now anticipates adjusted earnings to fall within the range of $8.95 to $9.15 per share for the current year, compared to the earlier estimate of $8.60 to $9.10. The midpoint of the guided range, which is $9.05, surpasses the Zacks Consensus Estimate of $8.93.

Adjusted total sales are predicted to decline by approximately 5%, compared to the earlier expectation of a 1-5% decline. This implies an adjusted organic sales decline of about 3%.

3M also estimates adjusted operating cash flow for the year to be in the range of $6.5 billion to $6.9 billion, as opposed to the earlier estimate of $5.9 billion to $6.3 billion.

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