Industrial conglomerate 3M (NYSE:MMM) announced better-than-expected revenue in Q3 CY2024, but sales fell 21.5% year on year to $6.29 billion. Its non-GAAP profit of $1.98 per share was also 4.1% above analysts’ consensus estimates.
Revenue: $6.29 billion vs analyst estimates of $6.06 billion (3.9% beat)
Adjusted EPS: $1.98 vs analyst estimates of $1.90 (4.1% beat)
EBITDA: $1.68 billion vs analyst estimates of $1.73 billion (2.5% miss)
Management raised its full-year Adjusted EPS guidance to $7.25 at the midpoint, a 1.4% increase
Gross Margin (GAAP): 42.1%, in line with the same quarter last year
Organic Revenue was flat year on year (-3.1% in the same quarter last year)
Market Capitalization: $74.07 billion
Company Overview
Producers of the first asthma inhaler, 3M Company (NYSE:MMM) is a global conglomerate known for products in industries like healthcare, safety, electronics, and consumer goods.
General Industrial Machinery
Automation that increases efficiency and connected equipment that collects analyzable data have been trending, creating new demand for general industrial machinery companies. Those who innovate and create digitized solutions can spur sales and speed up replacement cycles, but all general industrial machinery companies are still at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.
Sales Growth
Reviewing a company’s long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. 3M’s demand was weak over the last five years as its sales fell by 4.2% annually, a rough starting point for our analysis.
3M Total Revenue
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. 3M’s recent history shows its demand has stayed suppressed as its revenue has declined by 12.3% annually over the last two years. 3M isn’t alone in its struggles as the General Industrial Machinery industry experienced a cyclical downturn, with many similar businesses seeing lower sales at this time.
3M also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don’t accurately reflect its fundamentals. Over the last two years, 3M’s organic revenue averaged 1.3% year-on-year declines. Because this number is better than its normal revenue growth, we can see that some mixture of divestitures and foreign exchange rates dampened its headline performance.
3M Year-On-Year Organic Revenue Growth
This quarter, 3M’s revenue fell 21.5% year on year to $6.29 billion but beat Wall Street’s estimates by 3.9%.
Looking ahead, sell-side analysts expect revenue to decline 6% over the next 12 months. Although this projection is better than its two-year trend it's tough to feel optimistic about a company facing demand difficulties.
3M has managed its cost base well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 10.8%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
Analyzing the trend in its profitability, 3M’s annual operating margin might have seen some fluctuations but has generally stayed the same over the last five years, highlighting the long-term consistency of its business.
3M Operating Margin (GAAP)
This quarter, 3M generated an operating profit margin of 20.9%, up 54 percentage points year on year. The increase was solid, and since its operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as marketing, R&D, and administrative overhead.
Earnings Per Share
We track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth was profitable.
Sadly for 3M, its EPS and revenue declined by 2.8% and 4.2% annually over the last five years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, 3M’s low margin of safety could leave its stock price susceptible to large downswings.
3M Trailing 12-Month EPS (Non-GAAP)
A five-year view shows that 3M has repurchased its stock, shrinking its share count by 5.2%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.
3M Diluted Shares Outstanding
Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business. For 3M, its two-year annual EPS declines of 10.9% show it’s continued to underperform. These results were bad no matter how you slice the data.
In Q3, 3M reported EPS at $1.98, down from $2.68 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 4.1%. Over the next 12 months, Wall Street expects 3M’s full-year EPS of $8.03 to shrink by 4.6%.
Key Takeaways from 3M’s Q3 Results
We were impressed by how significantly 3M blew past analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its organic revenue missed and its EBITDA fell short of Wall Street’s estimates. Overall, this was still a solid quarter. The stock traded up 3.1% to $139.05 immediately following the results.
