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3M (MMM) Beats on Q1 Earnings & Sales, Suspends 2020 View

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3M Company (MMM - Free Report) has reported better-than-expected results for the first quarter of 2020, with earnings and sales surpassing estimates by 6.9% and 1%, respectively. The impressive results amid the uncertainties related to the coronavirus outbreak seem to have supported the company’s share price increase of 4.8% in the pre-market session.

Its adjusted earnings in the reported quarter were $2.16 per share, surpassing the Zacks Consensus Estimate of $2.02. However, the bottom line decreased 2.7% from the year-ago quarter figure of $2.22. The results suffered from the adverse impacts of higher taxes, forex woes (8 cents per share) and acquisitions/divestitures, partially offset by gains from organic volume and lower share count.

Sales Details

In the quarter under review, 3M’s net sales were $8,075 million, reflecting growth of 2.7% from the year-ago quarter. Also, the company’s net sales surpassed the Zacks Consensus Estimate of $7,994 million.

Results benefited from a 0.3% year-over-year increase in organic sales and 4.8% gain from acquisitions, partially offset by 0.6% negative impact of divestitures and 1.8% adverse impact of foreign currency translation. Notably, higher demand for respirator due to the virus outbreak added $100 million in organic sales in the quarter.

On a geographical basis, sales in the United States grew 10.1% year over year, while that in the Asia Pacific declined 5.4%. Europe, Middle East and Africa’s sales declined 2.1% and that of Latin America/Canada improved 2.7%.

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 $2,935 million, declining 0.9% year over year. The decline resulted from a 2.2% adverse impact of forex woes and 1% negative impact of divestitures, partially offset by 2.2% increase in organic sales.

Revenues from the Transportation & Electronics segment totaled $2,238 million, declining 5% year over year. Results were adversely impacted by a 3% fall in organic sales, a 1.3% decline from forex woes and 0.7% negative impact of divestitures.

Revenues from the Health Care segment were $2,103 million, rising 21% year over year. Acquisitions had positive impacts of 21.6% and organic sales grew 1.2% year over year. However, forex woes had adverse impacts of 1.8%.

Revenues from the Consumer segment grew 4.6% year over year at $1,256 million. Forex woes had an adverse impact of 1.5%, while organic sales increased 6.1% year over year.

Margin Profile

In the quarter under review, 3M’s cost of sales declined 4.7% year over year to $4,109 million. It represented 50.9% of net sales compared with 54.8% in the year-ago quarter. Selling, general and administrative expenses decreased 9.2% year over year to $1,768 million. It represented 21.9% of net sales versus 24.8% in the year-ago quarter. Research, development and related expenses grew 12.6% year over year to $537 million. It represented 6.7% of the quarter’s net sales versus 6.1% in the year-ago quarter.

Adjusted operating income in the quarter under review inched up 0.1% year over year to $1,678 million. Operating margin decreased 50 bps year over year to 20.8%. Tax rate in the quarter was 20.6% versus 19.5% in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting the first quarter, 3M had cash and cash equivalents of $4,253 million, up 80.7% from $2,353 million at the end of the last reported quarter. Long-term debt balance increased 9.96% sequentially to $19,247 million.

During the quarter, the company increased cash by $1.75 billion through debt issuance in March.

In the reported quarter, it generated net cash of $1,213 million, reflecting year-over-year growth of 15.7%. Capital used for purchasing property, plant and equipment declined 15.1% year over year to $332 million. Adjusted free cash flow in the quarter was $931 million, up 39.6% from $667 million generated in the year-ago quarter. Adjusted free cash flow conversion was at 74%.

During the quarter, the company used $847 million for paying out dividends to shareholders and repurchased $365 million shares.

3M’s Priorities and Impacts of Pandemic

3M remains focused on generating healthy cash flow and ensuring the safety of its employees, shareholders and customers in the present environment. Work-from-home options have been implemented where it can be for employees, while temporary shutdown of operations has been considered to deal with lower demand for products. Also, cost-saving actions have been taken, with $350-$400 million savings anticipated to be realized in the second quarter.

The company noted that it is experiencing high demand for biopharma filtration, personal safety, general cleaning, home improvement and food safety products. However, demand has been disrupted for many products in key end markets — including general industrial, oral care, stationery and office, automotive OEM and aftermarket, and commercial solutions.

Outlook

Due to the pandemic-related uncertainties, 3M withdrew its previously provided projections for 2020. However, monthly sales data will be available from May.

The company also noted that the share buyback program has been suspended for now, while capital will be used mainly for dividend payments and organic investments. Capital expenditure for 2020 is now targeted to be $1.3 billion, down from $1.6-$1.8 billion mentioned previously. Also, it added that the divestiture of the drug delivery business will result in proceeds (after-tax) of $0.4 billion in the second quarter.

3M Company Price, Consensus and EPS Surprise

 

3M Company Price, Consensus and EPS Surprise

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

Zacks Rank & Stocks to Consider

With a market capitalization of $84.5 billion, 3M currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks are Sharps Compliance Corp. (SMED - Free Report) , Superior Uniform Group, Inc. (SGC - Free Report) and CECO Environmental Corp. (CECE - Free Report) . While Sharps Compliance currently sports a Zacks Rank #1 (Strong Buy), both Superior Uniform and CECO Environmental carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 30 days, earnings estimates for Sharps Compliance improved for the current year, while have been unchanged for Superior Uniform and CECO Environmental. Further, earnings surprise for the last reported quarter was 100% for Sharps Compliance, 33.33% for Superior Uniform and 92.86% for CECO Environmental.

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