3-Month (MMM) Down 0.9% Since Last Earnings Report: Can It Rebound?

A month has passed since the last earnings report for 3M (MMM). Shares lost about 0.9% in that time, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is 3M poised for a breakout? Before we dive into the recent reaction from investors and analysts, let’s take a quick look at the company’s most recent earnings report in order to get a better handle on the important factors influencing the situation.

3M’s Q1 earnings and revenues exceed estimates, y/y growth

3M reported first-quarter 2024 results, with revenue and earnings beating the Zacks Consensus Estimate. Both revenues and profits (adjusted) increased year-on-year.

Inside the headlines

3M posted adjusted earnings per share of $2.39, which topped the Zacks Consensus Estimate of $2.08. This rate increased from $1.97 reported in the year-ago quarter.

The company’s adjusted net sales of $7.72 billion surpassed the Zacks Consensus Estimate of $7.64 billion. This metric increased by 0.5% year-over-year, driven by organic sales growth of 0.8%. Currency translations had a negative impact of 0.6%, while acquisitions improved earnings by 0.3%. On a GAAP basis, MMM net sales decreased 0.3% year over year to $8.0 billion.

Regionally, organic sales in the Americas decreased 0.9% year-over-year, while in the Asia-Pacific region they increased 2.6%. Organic sales of companies from Europe, the Middle East and Africa increased by 3.3%.

Segment results

In April 2024, 3M completed the spin-off of its healthcare business into a separate public company. It is worth noting that the company’s first quarter results also include the results of the Healthcare unit, as the spin-off of the company was completed after the end of the first quarter.

Security and Industrial revenues were $2.73 billion, down 1.7% year-over-year. This was due to a 1.4% decline in organic revenues and a negative foreign currency translation impact of 0.3%.

Transportation and electronics revenues were $1.82 billion, up 6.9% year-over-year. The increase is due to a 6.7% improvement in organic sales. Acquisitions increased segment revenues by 1.7%, while currency translations had a negative impact of 1.5%.

Healthcare revenue was $2.02 billion, up 0.3% year-over-year. This was due to organic sales growth of 1%. Divestments and currency conversions had a negative impact of 0.3% and 0.4%, respectively.

Consumer segment revenues declined 4.3% year-over-year to $1.14 billion. Organic sales decreased by 3.9%. Changes in exchange rates had an unfavorable impact of 0.4%.

The story continues

Margin profile

During the quarter, 3M’s cost of sales decreased 6.2% year over year to $4.33 billion. Selling, general and administrative expenses increased 1.8% to $1.74 billion. Research, development and related expenses declined 7.4% year-over-year to $437 million.

In the first quarter, 3M reported operating income of $1.50 billion, compared with $1.24 billion in the same period a year ago. The decline in the company’s total operating costs was a positive factor.

MMM’s adjusted operating income for the quarter increased 23.7% year-over-year to $1.71 billion. Adjusted operating margin was 21.9% compared to 17.9% in the year-ago quarter. The adjusted tax rate for the quarter was 20.5% compared to 17.7% in the same period a year earlier.

Balance sheet and cash flow

At the end of the first quarter, 3M had cash and cash equivalents of $10.9 billion, compared to $5.9 billion at the end of December 2023. Long-term debt was $20.6 billion at the end of the reported quarter, compared to 13, USD 1 billion at the end of December 2023

During the quarter, 3M generated net cash from operations of $767 million, a decline of 39.8% compared to the same quarter last year. Capital used to purchase property, plant and equipment decreased 21.1% to $375 million in the quarter.

Adjusted free cash flow at the end of the first quarter was $833 million, down 11.9% year-over-year. Adjusted free cash flow conversion at the end of the same period was 63%.

In the first three months of 2024, 3M rewarded its shareholders with $835 million in dividends.

Guidelines 2024

MMM expects adjusted earnings in the range of $6.80-$7.30 per share. The midpoint of the range is $7.05, reflecting a decline from the $9.24 recorded in 2023.

Adjusted total sales are expected to decline 0.25% and increase 1.75%. This represents adjusted organic sales growth of 0-2%.
3M expects its dividend payout ratio to be approximately 40% of adjusted free cash flow.

How have estimates changed since then?

It turns out that estimate revisions have been trending downward over the past month.

As a result of these changes, the consensus estimate moved by -25.94%.

VGM results

At this point, 3M has a Good Growth Score of A, although it lags well behind its Momentum Score with a D. Following the exact same trajectory, the stock was rated a D on the value side, putting it in the top bottom 40% for this investment strategy .

Overall, the stock has a composite VGM score of B. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. No wonder 3M has a Zacks Rank #5 (Strong Sales). We expect a below-average rate of return on stocks in the coming months.

Industry player performance

3M belongs to the Zacks Diversified Operations industry. Another company in the same industry, Honeywell International Inc. (HON), has gained 0.9% over the past month. More than a month has passed since the company announced its results for the quarter ended March 2024.

In the most recent quarter, Honeywell International reported revenue of $9.11 billion, representing a year-over-year change of +2.7%. EPS of $2.25 for the same period compared to $2.07 a year ago.

Honeywell International is expected to report earnings per share of $2.32 for the current quarter, which would represent a year-over-year change of +4%. Over the past 30 days, the Zacks Consensus Estimate has moved +0.2%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Honeywell International. The stock also has a VGM Rating of F.

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