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3M's (MMM) Q2 Earnings & Revenues Beat Estimates, Decline Y/Y

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3M Company’s (MMM - Free Report) second-quarter 2022 adjusted earnings (excluding $2.34 from non-recurring items) of $2.48 per share surpassed the Zacks Consensus Estimate of $2.41. The bottom line declined year over year.

3M’s net sales of $8,702 billion also outperformed the Zacks Consensus Estimate of $8,564.2 million. The top line dipped 2.8% year over year due to a 4-percentage point negative impact from foreign-currency headwinds.

Region-wise, sales in the Americas increased 3.7% year over year while that in the Asia Pacific declined 7.8%. Sales from business in the Europe, Middle East and Africa region declined 12.2%.

3M Company Price, Consensus and EPS Surprise

3M Company Price, Consensus and EPS Surprise

3M Company price-consensus-eps-surprise-chart | 3M Company Quote

Segmental Results

The company reports top-line results under four business segments — Safety & Industrial, Transportation & Electronics, Health Care and Consumer.

Revenues from Safety and Industrial totaled $2,924 million, decreasing 3.4% year over year. The decline was attributable to a 4.1% negative impact from movements in foreign currencies, partially offset by a 0.7% increase in organic sales.

Revenues from Transportation & Electronics totaled $2,268 million, reflecting a year-over-year decrease of 3.7%. The decline was attributable to 4.2% adverse impact from movements in foreign currencies, partially offset by 0.5% increase in organic sales.

Revenues from Health Care were $2,179 million, up nearly 1% year over year. The results benefited from a positive impact of 4.4% from organic sales, partially offset by a 3.8% negative impact from movements in foreign currencies.

Revenues from Consumer decreased 5% year over year to $1,330 million. Organic sales decreased 2.5%. Movements in foreign currencies also had a negative impact of 2.5%.

Margin Profile

In the quarter under review, 3M’s cost of sales increased 7.9% year over year to $5,093 million. It represented 58.5% of net sales compared with 52.7% in the year-ago quarter. Selling, general and administrative expenses surged 73.1% to $3,023 million. It represented 34.7% of net sales compared with 19.5% in the year-ago quarter. Research, development and related expenses declined 7.4% to $476 million. It represented 5.5% of the quarter’s net sales.

The company’s adjusted operating income in the quarter declined 13% year over year to $1,826 million. Adjusted operating margin was 21%, compared with 23.4% in the year-ago quarter. The adjusted tax rate in the quarter was 19.8%, compared with 21.6% in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting the second quarter, 3M had cash and cash equivalents of $2,722 million, compared with $4,564 million at the end of December 2021. Long-term debt was $14,019 million at the end of the second quarter, compared with $16,056 million at the end of December 2021.
 
In the reported quarter, the company generated net cash of $1,127 million from its operating activities, reflecting a decrease of 40.3% from the year-ago quarter. Capital used for purchasing property, plant and equipment increased 14.8% to $808 million at the end of the first half of 2022. Adjusted free cash flow at the end of the second quarter was $1,686 million, down 45.1% year over year. Adjusted free cash flow conversion was 57% at the end of the same period.

In the first half of 2022, 3M rewarded its shareholders with dividend payments of $1,700 million, down roughly 1% year over year.

2022 Outlook

Due to adverse foreign-currency impact, thanks to the stronger U.S. dollar, 3M now anticipates total sales to decline 0.5-2.5% year over year from the previous expectation of an increase of 1-4%. The company anticipates organic sales growth of 1.5-3.5% compared with 2-5% expected earlier. The impact of foreign-currency translation is expected to be 4% on sales compared with 1% estimated earlier.

3M predicts adjusted earnings per share of $10.30-$10.80 for the full year compared with $10.75-$11.25 anticipated earlier. The mid-point — $10.55 — of the guided range lies above the Zacks Consensus Estimate of $10.53. Operating cash flow is expected to be $6.6-$7.2 billion in 2022.

Other Important Announcements

3M has announced plans to spin off its Health Care business into a separate public company. The business would focus on wound care, oral care, healthcare IT, and biopharma filtration. The transaction is expected to be completed by 2023 end, subject to regulatory approvals.

Additionally, 3M intends to complete its previously announced divestiture of the Food Safety business to Neogen in September 2022, subject to customary closing conditions.

Zacks Rank & Key Picks

3M carries a Zacks Rank #3 (Hold).

Some better-ranked stocks worth considering are as follows:

Griffon Corporation (GFF - Free Report) sports a Zacks Rank #1 (Strong Buy). The company has an impressive earnings surprise history having outperformed the Zacks Consensus Estimate in three of the preceding four quarters, while missing in one. The average beat was 97%.  You can see the complete list of today’s Zacks #1 Rank stocks.

Griffon has an estimated earnings growth rate of 117.6% for the current year. The stock gained 13.5% in a year’s time.

Greif (GEF - Free Report) carries a Zacks Rank #1. The company’s earnings have surpassed the Zacks Consensus Estimate in each of the preceding four quarters, the average beat being 22.9%.

Greif has an estimated earnings growth rate of 36.8% for the current year. Shares of the company have rallied 13% in a year.

Titan International (TWI - Free Report) flaunts a Zacks Rank #1. The company’s earnings have outperformed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 56.4%.

Titan International has an estimated earnings growth rate of 164.7%. Shares of the company have surged more than 100% in a year.


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