3M Company’s ( MMM Quick Quote MMM - Free Report) fourth-quarter 2022 adjusted earnings (excluding $1.30 from non-recurring items) of $2.28 per share missed the Zacks Consensus Estimate of $2.34. The bottom line decreased year over year due to lower demand and coronavirus-induced disruptions in China. 3M’s net sales of $8,079 million outperformed the Zacks Consensus Estimate of $8,036.3 million. However, the top line declined 6.2% year over year due to an adverse foreign currency impact of 5% and a 2% negative impact from divestitures. Organic sales inched up 0.4%. This includes a 2.6 percentage point headwind from the decline in disposable respirator demand, among other factors. Region-wise, sales in the Americas decreased 0.6% year over year, while that in the Asia Pacific declined 13.2%. Sales from business in the Europe, Middle East and Africa region declined 10.9%. 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 $2,735 million, decreasing 4% year over year. The decline was attributable to a 5.3% negative impact from movements in foreign currencies, partially offset by a 1.3% increase in organic sales. Revenues from Transportation & Electronics totaled $2,055 million, reflecting a year-over-year decrease of 5.9%. The decline was attributable to 6.2% adverse impact from movements in foreign currencies, partially offset by 1.4% increase in organic sales. Revenues from Health Care were $2,042 million, down 6.7% year over year. The results were hurt by 4.5% impact from adverse foreign currency translation, partially offset by 1.9% organic sales growth. Revenues from Consumer fell 10.4% year over year to $1,246 million. Organic sales decreased 5.7%. Movements in foreign currencies had a negative impact of 3.1%. Margin Profile
In the quarter under review, 3M’s cost of sales decreased 2.4% year over year to $4,585 million. Selling, general and administrative expenses climbed 17.7% to $2,146 million. Research, development and related expenses declined 6.1% to $445 million.
The company’s adjusted operating income in the quarter dropped 10.2% year over year to $1,544 million. Adjusted operating margin was 19.1% compared with 20% in the year-ago quarter. The adjusted tax rate in the quarter was 16.9% compared with 15.1% in the year-ago quarter. Balance Sheet and Cash Flow
Exiting the fourth quarter, 3M had cash and cash equivalents of $3,655 million compared with $4,564 million at the end of December 2021. Long-term debt was $14,001 million at the end of the fourth quarter compared with $16,056 million at the end of December 2021.
In 2022, MMM generated net cash of $5,591 million from its operating activities, reflecting a decrease of 25% from the year-ago quarter. Capital used for purchasing property, plant and equipment increased 9.1% to $1,749 million at the end of 2022. Adjusted free cash flow at the end of the fourth quarter was $4,691 million, down 25.5% year over year. Adjusted free cash flow conversion was 82% at the end of the same period. In 2022, 3M rewarded its shareholders with dividend payments of $3.4 billion, down 1.5% year over year. The company bought back shares worth $1.4 billion in the same period. Bearish 2023 Outlook
For 2023, 3M expects adjusted sales to decrease 2-6% year over year due to a decline in disposable respirator demand and adverse foreign currency movements. The company anticipates organic sales to either decline up to 3% or remain flat year over year due to an estimated two percentage point negative impact from the disposable respirator decline and exit of Russia. Foreign currency translation is predicted to hurt adjusted sales by 1-2%, while divestitures are expected to impact adjusted sales by 1%.
3M anticipates adjusted earnings of $8.50-$9.00 for 2023 ($9.88 was reported in 2022). The Zacks Consensus Estimate for the same stands at $10.16. The guidance includes a negative impact of 55 cents-80 cents from the decline in disposable respirator demand, the exit of Russia, foreign currency translation and divestitures. Adjusted operating cash flow is expected to be $5.8-$6.3 billion, reflecting a free cash flow conversion of 90-100%. For the first quarter of 2023, 3M expects to record a pre-tax restructuring charge of $75 to $100 million. Zacks Rank & Key Picks
3M currently carries a Zacks Rank #4 (Sell).
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