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3M Company MMM has delivered solid second-quarter 2021 results. Its earnings surpassed estimates by 15.11% and sales exceeded the same by 4.82%. This is the company’s sixth consecutive quarter of earnings beat.
Its adjusted earnings in the reported quarter were $2.59 per share, surpassing the Zacks Consensus Estimate of $2.25. The bottom line also increased 45.5% from the year-ago quarter figure of $1.78.
The results gained from year-over-year organic volume growth/productivity (89 cents), foreign currency movements (8 cents) and other tailwinds (6 cents). However, price/raw material, tax rate, divestitures and shares outstanding had adverse impacts of 17 cents, 3 cents, 2 cents and 3 cents, respectively.
In the quarter under review, 3M’s net sales were $8,950 million, reflecting growth of 24.7% from the year-ago quarter. The company’s net sales also surpassed the Zacks Consensus Estimate of $8,539 million.
Results benefited from 21.4% year-over-year increase in organic sales and 4% gain from movements in foreign currencies. However, divestitures had a negative impact of 0.7%.
Region wise, sales in the Americas increased 26.1% year over year, while that in the Asia Pacific grew 20.2%. Business in the Europe, Middle East and Africa region improved, with sales increasing 28.7% 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 $3,254 million, increasing 22.4% year over year. The improved performance resulted from a 17.6% increase in organic sales and a 4.8% contribution from movements in foreign currencies.
Revenues from Transportation & Electronics totaled $2,482 million, reflecting a year-over-year increase of 28.1%. Results gained from 24.2% growth in organic sales and a 3.9% contribution from movements in foreign currencies.
Revenues from Health Care were $2,278 million, up 24.9% year over year. The results benefited from a positive impact of 23.2% from organic sales and a 4.3% gain from movements in foreign currencies. However, divestitures had a negative impact of 2.6%.
Revenues from Consumer increased 20.4% year over year to $1,482 million. Organic sales improved 17.8% and movements in foreign currencies had a positive impact of 2.6%.
In the quarter under review, 3M’s cost of sales increased 24% year over year to $4,719 million. It represented 52.7% of net sales compared with 53% in the year-ago quarter. Selling, general and administrative expenses grew 9.5% to $1,746 million. It represented 19.5% of net sales versus 22.2% in the year-ago quarter. Research, development and related expenses increased 21.2% to $514 million. It represented 5.7% of the quarter’s net sales.
Adjusted operating income in the quarter increased 13.3% year over year to $1,971 million. Operating margin increased 240 basis points to 22%. The tax rate in the quarter was 21.5% versus 20.7% in the year-ago quarter.
Balance Sheet and Cash Flow
Exiting the second quarter, 3M had cash and cash equivalents of $4,695 million, reflecting increase from $4,636 million at the end of the last reported quarter. Long-term debt balance decreased 3.3% sequentially to $16,267 million.
In the reported quarter, the company generated net cash of $1,887 million from its operating activities, reflecting a decrease of 0.9% from the year-ago quarter. Capital used for purchasing property, plant and equipment increased 4% to $394 million. Adjusted free cash flow in the quarter was $1,566 million, up 1.7% from $1,540 million generated in the year-ago quarter. Adjusted free cash flow conversion was at 103%.
In the quarter, the company used $858 million for paying out dividends to shareholders and repurchased $503 million treasury shares. It paid out dividends of $846 million and repurchased shares worth $1 million in the year-ago quarter.
For 2021, 3M updated its projections. Adjusted earnings are expected to be $9.70-$10.10 per share. Sales are predicted to increase 7-10% year over year, with organic sales growth of 6-9%.
The company also anticipates cash flow of $7.1-$7.7 billion from operating activities and capital expenditure of $1.8-$2.0 billion. Free cash flow in the year is predicted to be $5.1-$5.9 billion and free cash flow conversion is expected to be 90-100%.
3M Company Price, Consensus and EPS Surprise
3M Company price-consensus-eps-surprise-chart | 3M Company Quote
Zacks Rank & Stocks to Consider
The company currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks are Carlisle Companies Incorporated CSL, Griffon Corporation GFF and ITT Inc. ITT, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Carlisle delivered an earnings surprise of 39.38%, on average, in the trailing four quarters.
Griffon delivered an earnings surprise of 122.71%, on average, in the trailing four quarters.
ITT delivered an earnings surprise of 26.36%, on average, in the trailing four quarters.
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