Why Is 3M (MMM) Up 1.1% Since Last Earnings Report?

A month has gone by since the last earnings report for 3M (MMM). Shares have added about 1.1% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

3M’s Earnings and Revenues Surpass Estimates in Q1

3M reported solid first-quarter 2022 results. Its earnings surpassed estimates by 13.73% and sales exceeded the same by 1.02%. This is the company’s ninth consecutive quarter of earnings beat.

Its adjusted earnings in the reported quarter were $2.65 per share, surpassing the Zacks Consensus Estimate of $2.33. The bottom line decreased 4.3% from the year-ago quarter figure of $2.77.

Sales Details

In the quarter under review, 3M’s net sales were $8,829 million, reflecting a decline of 0.3% from the year-ago quarter. The company’s net sales surpassed the Zacks Consensus Estimate of $8,740 million.

Results suffered from an adverse impact of 2% from movements in foreign currencies, partially offset by a 1.7% year-over-year increase in organic sales.

Region-wise, sales in the Americas increased 2.5% year over year while that in the Asia Pacific was flat. Sales from business in the Europe, Middle East and Africa region declined 7.6% year over year.

The company reports top-line results under four business segments — Safety & Industrial, Transportation & Electronics, Health Care and Consumer. The segmental information is briefly discussed below.

Revenues from Safety and Industrial totaled $3,051 million, decreasing 1.6% year over year. The decline was attributable to a 2.1% negative impact from movements in foreign currencies, partially offset by a 0.5% increase in organic sales.

Revenues from Transportation & Electronics totaled $2,340 million, reflecting a year-over-year decrease of 2.3%. The decline was attributable to a 0.3% decrease in organic sales and a 2% adverse impact from movements in foreign currencies.

Revenues from Health Care were $2,124 million, up 2.7% year over year. The results benefited from a positive impact of 4.7% from organic sales, partially offset by a 2% negative impact from movements in foreign currencies.

Revenues from Consumer increased 1.8% year over year to $1,313 million. Organic sales improved 3.4% but movements in foreign currencies had a negative impact of 1.6%.

Margin Profile

In the quarter under review, 3M’s cost of sales increased 6.7% year over year to $4,826 million. It represented 54.7% of net sales compared with 51.1% in the year-ago quarter. Selling, general and administrative expenses increased 4.1% to $1,882 million. It represented 21.3% of net sales compared with 20.4% in the year-ago quarter. Research, development and related expenses decreased 8.4% to $480 million. It represented 5.4% of the quarter’s net sales.

The company’s adjusted operating income in the quarter decreased 17.7% year over year to $1,641 million.

Adjusted operating margin decreased 270 basis points to 21.4%. The adjusted tax rate in the quarter was 17.6% compared with 16.9% in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting first-quarter 2022, 3M had cash and cash equivalents of $3,247 million, reflecting a decrease from $4,564 million at the end of the last reported quarter. Long-term debt balance decreased 7.8% sequentially to $14,801 million.

In the reported quarter, the company generated net cash of $1,011 million from its operating activities, reflecting a decrease of 40.1% from the year-ago quarter. Capital used for purchasing property, plant and equipment increased 36.8% to $424 million. Adjusted free cash flow in the quarter was $715 million, down 50.3% from $1,438 million generated in the year-ago quarter. Adjusted free cash flow conversion was 47%.

In the quarter, the company used $852 million for paying out dividends to shareholders and repurchased $773 million worth of treasury shares. It paid out dividends of $858 million and repurchased shares worth $231 million in the year-ago quarter.

Outlook

For 2022, 3M remains focused on investing in emerging end markets to drive long-term growth. Healthy cash flow generation, efforts to strengthen capital structure and sound capital allocation also remain its priorities.

For 2022, it predicts adjusted earnings of $10.75-$11.25 per share, higher than $10.12 in 2021. For the year, organic sales are expected to increase in the range of 2-5% year over year. Free cash flow conversion is expected to be in the range of 90% to 100%.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

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. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile 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 trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise 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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