3M Company (MMM Quick QuoteMMM - Free Report) has delivered impressive results for the first quarter of 2021. Its earnings surpassed estimates by 23.11% and sales exceeded the same by 5.92%. This is the company’s fifth consecutive quarter of an earnings beat.

Its adjusted earnings in the reported quarter were $2.77 per share, surpassing the Zacks Consensus Estimate of $2.25. Also, the bottom line increased 26.5% from the year-ago quarter figure of $2.19.

The results gained from a year-over-year organic volume growth/productivity (34 cents), foreign currency movements (13 cents), tax rate (14 cents) and other tailwinds (3 cents). However, price/raw material, divestitures and shares outstanding had adverse impacts of 1 cent, 3 cents and 2 cents, respectively.

Sales Details

In the quarter under review, 3M’s net sales were $8,851 million, reflecting growth of 9.6% from the year-ago quarter. Also, the company’s net sales surpassed the Zacks Consensus Estimate of $8,356 million. Respirator-related sales boosted net sales by $190 million.

Results benefitted from an 8% year-over-year increase in organic sales and a 3% gain from movements in foreign currencies. However, divestitures had a negative impact of 1.4%.

On a geographical basis, sales in the Americas increased 4.5% year over year, while that in the Asia Pacific grew 18.1%. Business in the Europe, Middle East and Africa region improved, with sales increasing 10.4% year over year.

The company reports top-line results under four business segments — including Safety & Industrial, Transportation & Electronics, Health Care, and Consumer. The segmental information is briefly discussed below.

Revenues from the Safety and Industrial segment totaled $3,327 million, increasing 13.7% year over year. The improved performance resulted from a 10.3% increase in organic sales and a 3.4% contribution from movements in foreign currencies.

Revenues from the Transportation & Electronics segment totaled $2,531 million, reflecting a year-over-year increase of 13%. Results gained from 9.8% growth in organic sales and a 3.3% contribution from movements in foreign currencies.

Revenues from the Health Care segment were $2,248 million, up 6.8% year over year. The results benefitted from a positive impact of 9.3% from organic sales and a 3.1% gain from movements in foreign currencies. However, divestitures had a negative impact of 5.6%.

Revenues from the Consumer segment increased 9.8% year over year to $1,373 million. Organic sales improved 7.8% and movements in foreign currencies had a positive impact of 2%.

Margin Profile

In the quarter under review, 3M’s cost of sales increased 10.1% year over year to $4,525 million. It represented 51.1% of net sales compared with 50.9% in the year-ago quarter. Selling, general and administrative expenses grew 2.3% year over year to $1,808 million. It represented 20.4% of net sales versus 21.9% in the year-ago quarter. Research, development and related expenses decreased 2.4% year over year to $524 million. It represented 5.9% of the quarter’s net sales.

Adjusted operating income in the quarter under review increased 18.8% year over year to $1,994 million. Operating margin increased 170 bps year over year to 22.5%. The tax rate in the quarter was 16.4% versus 20.7% in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting the first quarter, 3M had cash and cash equivalents of $4,636 million, reflecting a slight change from $4,634 million at the end of the last reported quarter. Long-term debt balance decreased 6.5% sequentially to $16,819 million.

In the reported quarter, the company generated net cash of $1,688 million from its operating activities, reflecting an increase of 39.2% from the year-ago quarter. Capital used for purchasing property, plant and equipment decreased 6.6% year over year to $310 million. Adjusted free cash flow in the quarter was $1,391    million, up 49.4% from $931 million generated in the year-ago quarter. Adjusted free cash flow conversion was at 86%.

In the quarter, the company used $858 million for paying out dividends to shareholders and repurchased $231 million treasury shares. Notably, it paid out dividends of $847 million and repurchased shares worth $365 million in the year-ago quarter.

Outlook

For 2021, 3M reiterated its projections. Adjusted earnings are expected to be $9.20-$9.70 per share. Sales are predicted to increase 5-8% year over year, with organic sales growth of 3-6%.

The company also anticipates a cash flow of $7.1-$7.8 billion from operating activities and capital expenditure of $1.8-$2.0 billion. Free cash flow in the year is predicted to be $5.1-$6.0 billion and free cash flow conversion is expected to be 95-105%.