Yahoo Finance 3M (MMM) Down 0.9% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for 3M (MMM). Shares have lost about 0.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is 3M due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
3M Q1 Earnings & Revenues Surpass Estimates, Up Y/Y
3M reported first-quarter 2024 results, wherein revenues and earnings surpassed the Zacks Consensus Estimate. Both the top and bottom lines (on adjusted basis) increased on a year-over-year basis.
Inside the Headlines
3M delivered adjusted earnings of $2.39 per share, surpassing the Zacks Consensus Estimate of $2.08. The metric increased from $1.97 reported in the year-ago quarter.
The company’s adjusted net sales of $7.72 billion outperformed the Zacks Consensus Estimate of $7.64 billion. The metric increased 0.5% year over year, driven by organic sales growth of 0.8%. Foreign currency translation had a negative impact of 0.6%, while acquisitions boosted the top line by 0.3%. On a GAAP basis, MMM’s net sales inched down 0.3% year over year to $8.0 billion.
Region-wise, organic sales in the Americas declined 0.9% year over year, while that in the Asia Pacific inched up 2.6%. Organic sales from businesses in Europe, the Middle East and Africa increased 3.3%.
Segmental Results
In April 2024, 3M completed the spin off of its Health Care business into a separate public company. Notably, the company’s first-quarter results include the performance of Health Care unit, as the spin-off was completed after first-quarter-end.
Revenues from Safety and Industrial totaled $2.73 billion, decreasing 1.7% year over year. This was caused by a 1.4% decrease in organic revenues and negative impact of 0.3% from foreign currency translation.
Revenues from Transportation & Electronics totaled $1.82 billion, reflecting a year-over-year increase of 6.9%. The increase is attributable to a 6.7% improvement in organic sales. Acquisitions boosted segmental revenues by 1.7%, while foreign currency translation had a 1.5% negative impact.
Revenues from Health Care were $2.02 billion, up 0.3% year over year. This were driven by organic sales increase of 1%. Divestitures and foreign currency translation had negative impacts of 0.3% and 0.4%, respectively.
Revenues from the Consumer segment fell 4.3% year over year to $1.14 billion. Organic sales decreased 3.9%. Movements in foreign currencies had an adverse impact of 0.4%.
Margin Profile
In the quarter under review, 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 decreased 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 year-ago period. The upside was driven by a decline in the company’s total operational expenses.
MMM’s adjusted operating income in the quarter ascended 23.7% year over year to $1.71 billion. The adjusted operating margin was 21.9% compared with 17.9% in the year-ago quarter. The adjusted tax rate in the quarter was 20.5% compared with 17.7% in the year-ago period.
Balance Sheet and Cash Flow
Exiting the first quarter, 3M had cash and cash equivalents of $10.9 billion compared with $5.9 billion at the end of December 2023. Long-term debt was $20.6 billion at the end of the reported quarter compared with $13.1 billion at the end of December 2023.
In the quarter, 3M generated net cash of $767 million from its operating activities, reflecting a decrease of 39.8% from the year-ago quarter. Capital used for purchasing 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 was 63% at the end of the same period.
In the first three months of 2024, 3M rewarded its shareholders with $835 million in dividend payments.
2024 Guidance
MMM expects adjusted earnings in the range of $6.80-$7.30 per share. The mid-point of the guided range is $7.05, which reflects a decline from $9.24 reported in 2023.
Adjusted total sales are expected to decline 0.25% to increase 1.75%. This implies an 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 Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -25.94% due to these changes.
VGM Scores
At this time, 3M has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. 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. It's no surprise 3M has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
3M belongs to the Zacks Diversified Operations industry. Another stock from the same industry, Honeywell International Inc. (HON), has gained 0.9% over the past month. More than a month has passed since the company reported results for the quarter ended March 2024.
Honeywell International reported revenues of $9.11 billion in the last reported quarter, representing a year-over-year change of +2.7%. EPS of $2.25 for the same period compares with $2.07 a year ago.
Honeywell International is expected to post earnings of $2.32 per share for the current quarter, representing a year-over-year change of +4%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.2%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Honeywell International. Also, the stock has a VGM Score of F.
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