3M (NYSE:MMM) shares surge after strong second quarter results
Industrial conglomerate 3M (NYSE: MMM) reported second-quarter 2024 results that beat Wall Street analysts’ expectations, with sales down 21.7% year over year to $6.26 billion. Non-GAAP earnings per share were $1.93, down from $2.17 per share in the same period last year.
Is now the time to buy 3M? Find out with our full research report.
3M (MMM) Q2 2024 highlights:
Revenue: $6.26 billion, beating analyst estimates of $5.83 billion (7.3%)
Operating income: $1.27 billion, 10.3% above analyst estimates of $1.15 billion.
EPS (non-GAAP): $1.93, beating analyst estimates of $1.68 (14.9%)
Raised full-year EPS midpoint to $7.15 (from $7.05), slightly below estimate of $7.18
Gross margin (GAAP): 42.9%, flat with the same period last year
Free cash flow of $752 million, flat with the prior quarter
Organic revenue flat year-over-year (-2.5% year-over-year)
Market cap: $57.21 billion
3M Co. (NYSE:MMM), which made the first asthma inhaler, is a global conglomerate known for products in industries including healthcare, safety, electronics and consumer goods.
General Industrial Machinery
Trends such as automation to increase efficiency and connected devices that collect data that can be analyzed are creating new demands for industrial equipment manufacturers. Companies that innovate and create digitalized solutions can increase sales and speed replacement cycles, but all industrial equipment manufacturers are still subject to economic cycles. For example, consumer spending and interest rates can have a significant impact on the industrial production that drives demand for these companies’ products.
Sales growth
Examining a company’s long-term performance reveals insights about the quality of its business. While any company can have short-term successes, leading companies tend to continue to grow for years. 3M saw its sales decline 2.9% annually over the past five years and struggled to generate demand. This is a rough starting point for our analysis.
3M Total Revenue
Long-term growth is paramount, but in the industrial sector, a five-year historical perspective can miss new trends and demand cycles in the industry. 3M’s recent history shows that demand remains subdued, with revenue declining 10% each of the past two years.
To get a better understanding of the company’s sales trends, we analyze its organic revenue, which excludes one-time events like acquisitions and currency fluctuations, as they don’t accurately reflect the company’s fundamentals. Over the past two years, 3M’s organic revenue has declined 1.2% year-over-year on average. This is better than typical revenue growth, suggesting that a combination of divestitures and currency fluctuations has undermined the company’s performance.
The story continues
3M YoY Organic Revenue Growth
For the quarter, 3M’s revenue fell 21.7% year over year to $6.26 billion, but beat Wall Street expectations by 7.3%. Looking ahead, Wall Street expects revenue to fall 14.1% over the trailing 12 months.
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Operating Profit Margin
Operating margin is a key measure of profitability. It’s the portion of revenue after deducting all major expenses, from cost of goods sold to advertising and wages. Because operating margin excludes interest and taxes, it’s also useful for comparing profitability across companies with different debt levels and tax rates.
3M has managed its expenses well over the past five years, and has demonstrated solid profitability for its industrial business, with an average operating margin of 11.3%. This is not surprising, as high gross margins will get the company off to a strong start.
Analyzing profitability trends, 3M’s annual operating margins have declined by 16.6 percentage points over the past five years. While margins remain strong, shareholders would like to see 3M achieve even greater profitability in the future.
3M Operating Margin (GAAP)
For the quarter, 3M’s operating margin was 20.3%, up 132.4 percentage points from the same period last year. This increase was strong, and the company’s operating margin exceeded its gross margin, suggesting that the company has recently made progress in streamlining its general expenses, including sales, marketing, and administrative overhead.
Per share
We track earnings per share (EPS) growth over time for the same reasons as revenue growth over time, however, when compared to revenue, EPS highlights whether a company’s growth has been profitable.
Unfortunately for 3M, the company’s EPS and revenue have declined 1.1% and 2.9%, respectively, over the past five years. We advise our readers to avoid companies with declining revenue and EPS, as declining revenues can signal a shift in longer-term trends and preferences. If the tides were to turn unexpectedly, 3M’s low margin of safety could mean its stock price could suffer a significant decline.
3M EPS (Adjusted)
Like revenue, EPS is analyzed over the most recent period because it can provide insight into emerging themes and developments in the business. In the case of 3M, the two-year annual decline in EPS was 6.7%, suggesting that the poor performance over the past five years was due to recent performance. No matter how you analyze the data, these results were bad.
3M reported second-quarter EPS of $1.93, down from $2.17 in the same period last year. Though down year-over-year, the figure was well above analyst expectations. Over the next 12 months, Wall Street is expecting weaker performance from 3M. Analysts expect EPS to fall 14.7% to $7.46 from last year’s EPS of $8.74.
Key takeaways from 3M’s second quarter results
I was impressed that 3M beat analysts’ revenue, operating income, and EPS estimates this quarter. It’s a great sign that the company raised its full-year EPS guidance. Overall, I think this was a very good quarter that should please shareholders. Immediately after the earnings release, the stock price rose 5.2% to $108.76.
3M may have had a strong quarter, but does that mean you should invest in it now? When making an investment decision, it’s important to consider the valuation, the quality of the business, and what happened in the most recent quarter. We cover that in our complete, actionable research report, which you can read for free here.