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3M (MMM) Up 6.7% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for 3M (MMM - Free Report) . Shares have added about 6.7% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is 3M due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
3M’s Q3 Earnings & Reveneus Beat Estimates
3M’s third-quarter 2023 adjusted earnings (excluding $6.42 from non-recurring items) of $2.68 per share surpassed the Zacks Consensus Estimate of $2.34.
3M’s net sales of $8,312 million outperformed the Zacks Consensus Estimate of $7,952.7 million. However, the top line declined 3.6% year over year due to a 3.7% decrease in organic sales. Foreign currency translation had a positive impact of 0.6%, while divestitures hurt the top line by 0.5%.
Region-wise, sales in the Americas inched up 0.6% year over year, while that in the Asia Pacific declined 15.6%. Sales from business in Europe, the Middle East and Africa climbed 3.9%.
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 $2,751 million, decreasing 4.9% year over year. The decline can be attributed to a 5.8% decrease in organic revenues. The Zacks Consensus Estimate for Safety and Industrial segment revenues was pegged at $2,778 million.
Revenues from Transportation & Electronics totaled $2,171 million, reflecting a year-over-year decrease of 3%. The decline is attributable to a 4.1% decrease in organic sales. Acquisitions boosted segmental revenues by 1.4%, while divestitures had a 0.4% negative impact. The Zacks Consensus Estimate for Transportation & Electronics segment revenues was pegged at $2,043 million.
Revenues from Health Care were $2,073 million, down 0.2% year over year. The results were hurt by a 3.4% negative impact from divestitures. Organic sales climbed 2.4%. The Zacks Consensus Estimate for Health Care revenues was pegged at $2,035 million.
Revenues from the Consumer segment fell 6.7% year over year to $1,315 million. Organic sales decreased 5.4%. Movements in foreign currencies had a negative impact of 0.6%. The Zacks Consensus Estimate for Consumer segment revenues was pegged at $1,401 million.
Margin Profile
In the quarter under review, 3M’s cost of sales decreased 3.1% year over year to $4,580 million. Selling, general and administrative expenses jumped more than 100% to $5,992 million. Research, development and related expenses decreased 6.7% year over year to $430 million.
In the third quarter, 3M reported an operating loss of $2.65 billion against the operating income of $4.16 billion in the year-ago period. The downside was due to pre-tax charges of $4.2 billion related to its settlement of Combat Arms lawsuits.
MMM’s adjusted operating income in the quarter ascended 3.8% year over year to $1,859 million. The adjusted operating margin was 23.2% compared with 21.6% in the year-ago quarter. The adjusted tax rate in the quarter was 18.1% compared with 15.9% in the year-ago period.
Balance Sheet and Cash Flow
Exiting the third quarter, 3M had cash and cash equivalents of $5,140 million compared with $3,655 million at the end of December 2022. Long-term debt was $12,876 million at the end of the third quarter compared with $14,001 million at the end of December 2022.
At the end of the third quarter, 3M generated net cash of $4,694 million from its operating activities, reflecting an increase of 27.9% from the year-ago quarter. Capital used for purchasing property, plant and equipment increased 1.1% to $1.26 billion in the first nine months of 2023.
Adjusted free cash flow at the end of the third quarter was $4,339 million, up 36.8% year over year. Adjusted free cash flow conversion was 115% at the end of the same period.
In the first nine months of 2023, 3M rewarded its shareholders with $2.48 billion in dividend payments. The company did not repurchase shares in the third quarter.
2023 EPS Guidance Raised
Following robust year-to-date performance and due to strong operational execution, 3M has raised its adjusted earnings guidance for 2023. The company expects adjusted earnings of $8.95-$9.15 per share for the current year compared with $8.60-$9.10 anticipated earlier. The mid-point of the guided range — $9.05 — lies above the Zacks Consensus Estimate of $8.93.
Adjusted total sales are expected to decline approximately 5% compared with a decline of 1-5% anticipated earlier. This implies an adjusted organic sales decline of around 3%.
3M estimates adjusted operating cash flow of $6.5-$6.9 billion compared with $5.9-$6.3 billion anticipated earlier.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, 3M has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 3M has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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3M (MMM) Up 6.7% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for 3M (MMM - Free Report) . Shares have added about 6.7% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is 3M due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
3M’s Q3 Earnings & Reveneus Beat Estimates
3M’s third-quarter 2023 adjusted earnings (excluding $6.42 from non-recurring items) of $2.68 per share surpassed the Zacks Consensus Estimate of $2.34.
3M’s net sales of $8,312 million outperformed the Zacks Consensus Estimate of $7,952.7 million. However, the top line declined 3.6% year over year due to a 3.7% decrease in organic sales. Foreign currency translation had a positive impact of 0.6%, while divestitures hurt the top line by 0.5%.
Region-wise, sales in the Americas inched up 0.6% year over year, while that in the Asia Pacific declined 15.6%. Sales from business in Europe, the Middle East and Africa climbed 3.9%.
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 $2,751 million, decreasing 4.9% year over year. The decline can be attributed to a 5.8% decrease in organic revenues. The Zacks Consensus Estimate for Safety and Industrial segment revenues was pegged at $2,778 million.
Revenues from Transportation & Electronics totaled $2,171 million, reflecting a year-over-year decrease of 3%. The decline is attributable to a 4.1% decrease in organic sales. Acquisitions boosted segmental revenues by 1.4%, while divestitures had a 0.4% negative impact. The Zacks Consensus Estimate for Transportation & Electronics segment revenues was pegged at $2,043 million.
Revenues from Health Care were $2,073 million, down 0.2% year over year. The results were hurt by a 3.4% negative impact from divestitures. Organic sales climbed 2.4%. The Zacks Consensus Estimate for Health Care revenues was pegged at $2,035 million.
Revenues from the Consumer segment fell 6.7% year over year to $1,315 million. Organic sales decreased 5.4%. Movements in foreign currencies had a negative impact of 0.6%. The Zacks Consensus Estimate for Consumer segment revenues was pegged at $1,401 million.
Margin Profile
In the quarter under review, 3M’s cost of sales decreased 3.1% year over year to $4,580 million. Selling, general and administrative expenses jumped more than 100% to $5,992 million. Research, development and related expenses decreased 6.7% year over year to $430 million.
In the third quarter, 3M reported an operating loss of $2.65 billion against the operating income of $4.16 billion in the year-ago period. The downside was due to pre-tax charges of $4.2 billion related to its settlement of Combat Arms lawsuits.
MMM’s adjusted operating income in the quarter ascended 3.8% year over year to $1,859 million. The adjusted operating margin was 23.2% compared with 21.6% in the year-ago quarter. The adjusted tax rate in the quarter was 18.1% compared with 15.9% in the year-ago period.
Balance Sheet and Cash Flow
Exiting the third quarter, 3M had cash and cash equivalents of $5,140 million compared with $3,655 million at the end of December 2022. Long-term debt was $12,876 million at the end of the third quarter compared with $14,001 million at the end of December 2022.
At the end of the third quarter, 3M generated net cash of $4,694 million from its operating activities, reflecting an increase of 27.9% from the year-ago quarter. Capital used for purchasing property, plant and equipment increased 1.1% to $1.26 billion in the first nine months of 2023.
Adjusted free cash flow at the end of the third quarter was $4,339 million, up 36.8% year over year. Adjusted free cash flow conversion was 115% at the end of the same period.
In the first nine months of 2023, 3M rewarded its shareholders with $2.48 billion in dividend payments. The company did not repurchase shares in the third quarter.
2023 EPS Guidance Raised
Following robust year-to-date performance and due to strong operational execution, 3M has raised its adjusted earnings guidance for 2023. The company expects adjusted earnings of $8.95-$9.15 per share for the current year compared with $8.60-$9.10 anticipated earlier. The mid-point of the guided range — $9.05 — lies above the Zacks Consensus Estimate of $8.93.
Adjusted total sales are expected to decline approximately 5% compared with a decline of 1-5% anticipated earlier. This implies an adjusted organic sales decline of around 3%.
3M estimates adjusted operating cash flow of $6.5-$6.9 billion compared with $5.9-$6.3 billion anticipated earlier.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, 3M has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 3M has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.