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3M Reports Third-Quarter 2019 Results

ST. PAUL, Minn.--(BUSINESS WIRE)--

Third-Quarter Highlights:

  • Sales of $8.0 billion, down 2.0 percent year-on-year
  • Organic local-currency sales declined 1.3 percent year-on-year
  • GAAP EPS of $2.72 vs. $2.58 last year, up 5.4 percent year-on-year
    • Q3 2019 earnings include a $0.14 per share benefit from a divestiture gain
  • Operating cash flow of $2.0 billion; free cash flow of $1.7 billion, with free cash flow conversion of 106 percent
  • Returned $1.0 billion to shareholders via dividends and gross share repurchases
  • Updates guidance to reflect market trends and Acelity, Inc. acquisition

3M (MMM) today reported third-quarter 2019 results.

“The 3M team delivered strong operational performance in the third quarter,” said Mike Roman, 3M chairman and chief executive officer. “While the macroeconomic environment remains challenging, we executed well and built on the progress we made in the second quarter. We continued to effectively manage costs and reduce inventory levels, while generating strong margins and cash flow.”

Roman continued, “We also continue to make good progress on our strategic priorities, including our recently-closed acquisition of Acelity, which is an exciting addition to 3M’s health care portfolio. Moving ahead we’ll continue to focus on driving operational improvements and investing for the future, which will position us for strong growth and premium returns as our markets recover.”

Third-Quarter Results

Sales declined 2.0 percent year-on-year to $8.0 billion. Organic local-currency sales declined 1.3 percent while acquisitions, net of divestitures, increased sales by 0.6 percent. Foreign currency translation reduced sales by 1.3 percent year-on-year.

Total sales grew 4.7 percent in Health Care and 1.7 percent in Consumer, with declines of 4.4 percent in Transportation and Electronics and 5.7 percent in Safety and Industrial. Organic local-currency sales increased 2.6 percent in Consumer and 2.0 percent in Health Care, with declines of 3.3 percent in Safety and Industrial, and 3.4 percent in Transportation and Electronics.

On a geographic basis, total sales grew 0.8 percent in the U.S. and 0.6 percent in Latin America/Canada, with declines of 4.1 percent in EMEA (Europe, Middle East and Africa) and 5.0 percent in Asia Pacific. Organic local-currency sales increased 2.8 percent in Latin America/Canada and 2.0 percent in EMEA, with declines of 1.1 percent in the U.S. and 4.4 percent in Asia Pacific.

Third-quarter GAAP earnings were $2.72 per share, an increase of 5.4 percent year-over-year, which included a benefit of $0.14 per share from the divestiture of the gas and flame detection business.

Third-quarter operating income was $2.0 billion including a benefit of $112 million from the divestiture of the gas and flame detection business. Operating margins were 25.2 percent which includes a 1.4 percentage point benefit from the divestiture.

The company’s operating cash flow was $2.0 billion, contributing to conversion of 106 percent of net income to free cash flow. See the “Supplemental Financial Information Non-GAAP Measures” section for applicable information. Free cash flow conversion includes a negative 27 percentage point combined impact from the divestiture of the gas and flame detection business and cash payments for previously accrued respiratory-related legal settlements.

The company paid $828 million in cash dividends to shareholders and repurchased $142 million of its own shares during the quarter.

Third-Quarter Business Group Discussion

Safety and Industrial

  • Sales of $2.8 billion, down 5.7 percent in U.S. dollars. Organic local-currency sales decreased 3.3 percent, foreign currency translation decreased sales by 1.6 percent, and divestitures decreased sales by 0.8 percent.
  • On an organic local-currency basis:
    • Sales increased in roofing granules; declined in personal safety, abrasives, industrial adhesives and tapes, electrical markets, closure and masking, and automotive aftermarket.
    • Sales grew in EMEA and Latin America/Canada; declined in the U.S. and Asia Pacific.
  • Operating income was $765 million, an increase of 9.6 percent year-on-year, including a $112 million benefit from the divestiture of the gas and flame detection business; operating margins of 26.8 percent.

Transportation and Electronics

  • Sales of $2.5 billion, down 4.4 percent in U.S. dollars. Organic local-currency sales decreased 3.4 percent, foreign currency translation decreased sales by 1.0 percent.
  • On an organic local-currency basis:
    • Sales increased in advanced materials, transportation safety, and commercial solutions; declined in automotive and aerospace, and electronics.
    • Sales grew in Latin America/Canada and EMEA; declined in Asia Pacific and the U.S.
  • Operating income was $631 million, a decrease of 13.1 percent year-on-year; operating margins of 25.2 percent.

Health Care

  • Sales of $1.7 billion, up 4.7 percent in U.S. dollars. Organic local-currency sales increased 2.0 percent, foreign currency translation decreased sales by 1.7 percent, and acquisitions increased sales by 4.4 percent.
  • On an organic local-currency basis:
    • Sales grew in health information systems, food safety, medical solutions, and oral care, while drug delivery was flat; declined in separation and purification.
    • Sales increased in the U.S., EMEA, Asia Pacific, and Latin America/Canada.
  • Operating income was $459 million, a decrease of 3.2 percent year-on-year; operating margins of 26.7 percent.

Consumer

  • Sales of $1.3 billion, up 1.7 percent in U.S. dollars. Organic local-currency sales increased 2.6 percent and foreign currency translation decreased sales by 0.9 percent.
  • On an organic local-currency basis:
    • Sales grew in home improvement and consumer health care; declined in stationery and office supplies and home care.
    • Sales grew in EMEA, Latin America/Canada, and the U.S.; declined in Asia Pacific.
  • Operating income was $308 million, up 2.3 percent year-on-year; operating margins of 23.2 percent.

Fourth-Quarter and Full-Year 2019 Outlook

3M provided its fourth-quarter 2019 GAAP earnings guidance to be in the range of $2.05 to $2.15 per share. This earnings range includes an estimated $0.15 per share negative impact from the recently closed acquisition of Acelity, Inc., which was previously not included in guidance. Fourth-quarter organic local-currency sales is expected to decline between 1 to 3 percent.

3M updated its full-year 2019 GAAP earnings to be in the range of $8.20 to $8.30 per share versus a prior expectation of $8.25 to $8.75 per share. Excluding the full-year 2019 impacts from the first-quarter significant litigation-related charges of $0.72 per share, the second-quarter deconsolidation of its Venezuelan subsidiary charge of $0.28 per share, and the gas and flame detection divestiture gain of $0.21 per share, 3M now expects its 2019 earnings to be in the range of $8.99 to $9.09 per share versus prior expectation of $9.25 to $9.75. This updated earnings range includes an estimated $0.15 per share negative impact from the recently closed acquisition of Acelity, Inc., which was previously not included in full-year guidance.

3M also updated its full-year organic local-currency sales guidance to decline between 1 to 1.5 percent versus a prior expectation of minus 1 to plus 2 percent. In addition, the company updated its range for return on invested capital to 18.5 to 19.5 percent versus a prior expecation of 20 to 22 percent to include the impact of the Acelity, Inc. acquisition. Lastly, free cash flow conversion is now expected to be in the range of 105 to 110 percent versus a prior expectation of 95 to 105 percent. See the “Supplemental Financial Information Non-GAAP Measures” section for applicable information.

3M will conduct an investor teleconference at 9:00 a.m. EDT (8:00 a.m. CDT) today. Investors can access this conference via the following:

  • Live webcast at http://investors.3M.com.
  • Live telephone:
    Call 800-762-2596 within the U.S. or +1 212-231-2916 outside the U.S. Please join the call at least 10 minutes before the start time.
  • Webcast replay:
    Go to 3M’s Investor Relations website at http://investors.3M.com and click on “Quarterly Earnings.”
  • Telephone replay:
    Call 800-633-8284 within the U.S. or +1 402-977-9140 outside the U.S. (for both U.S. and outside the U.S., the access code is 21900595). The telephone replay will be available until 11:30 a.m. EDT (10:30 a.m. CDT) on October 31, 2019.

Forward-Looking Statements
This news release contains forward-looking information about 3M's financial results and estimates and business prospects that involve substantial risks and uncertainties. You can identify these statements by the use of words such as "anticipate," "estimate," "expect," "aim," "project," "intend," "plan," "believe," "will," "should," "could," "target," "forecast" and other words and terms of similar meaning in connection with any discussion of future operating or financial performance or business plans or prospects. Among the factors that could cause actual results to differ materially are the following: (1) worldwide economic, political, regulatory, capital markets and other external conditions and other factors beyond the Company's control, including natural and other disasters or climate change affecting the operations of the Company or its customers and suppliers; (2) the Company's credit ratings and its cost of capital; (3) competitive conditions and customer preferences; (4) foreign currency exchange rates and fluctuations in those rates; (5) the timing and market acceptance of new product offerings; (6) the availability and cost of purchased components, compounds, raw materials and energy (including oil and natural gas and their derivatives) due to shortages, increased demand or supply interruptions (including those caused by natural and other disasters and other events); (7) the impact of acquisitions, strategic alliances, divestitures, and other unusual events resulting from portfolio management actions and other evolving business strategies, and possible organizational restructuring; (8) operational execution, including scenarios where the Company generates fewer productivity improvements than estimated; (9) unanticipated problems or delays with the phased implementation of a global enterprise resource planning (ERP) system, or security breaches and other disruptions to the Company's information technology infrastructure; (10) financial market risks that may affect the Company’s funding obligations under defined benefit pension and postretirement plans; and (11) legal proceedings, including significant developments that could occur in the legal and regulatory proceedings described in the Company's Annual Report on Form 10-K for the year ended Dec. 31, 2018, and any subsequent quarterly reports on Form 10-Q (the “Reports”). Changes in such assumptions or factors could produce significantly different results. A further description of these factors is located in the Reports under "Cautionary Note Concerning Factors That May Affect Future Results" and "Risk Factors" in Part I, Items 1 and 1A (Annual Report) and in Part I, Item 2 and Part II, Item 1A (Quarterly Reports). The information contained in this news release is as of the date indicated. The Company assumes no obligation to update any forward-looking statements contained in this news release as a result of new information or future events or developments.

 

3M Company and Subsidiaries

CONSOLIDATED STATEMENT OF INCOME

(Millions, except per-share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Nine months ended

 

 

September 30,

 

September 30,

 

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

7,991

 

$

8,152

 

$

24,025

 

$

24,820

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

4,188

 

 

4,159

 

 

12,811

 

 

12,622

Selling, general and administrative expenses

 

 

1,455

 

 

1,547

 

 

5,089

 

 

5,920

Research, development and related expenses

 

 

443

 

 

430

 

 

1,390

 

 

1,384

Gain on sale of businesses

 

 

(106)

 

 

 

 

(114)

 

 

(530)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

 

5,980

 

 

6,136

 

 

19,176

 

 

19,396

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

2,011

 

 

2,016

 

 

4,849

 

 

5,424

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense (income), net

 

 

45

 

 

51

 

 

349

 

 

144

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

1,966

 

 

1,965

 

 

4,500

 

 

5,280

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

378

 

 

419

 

 

888

 

 

1,266

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income including noncontrolling interest

 

$

1,588

 

$

1,546

 

$

3,612

 

$

4,014

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Net income attributable to noncontrolling interest

 

 

5

 

 

3

 

 

11

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to 3M

 

$

1,583

 

$

1,543

 

$

3,601

 

$

4,002

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average 3M common shares outstanding – basic

 

 

576.5

 

 

585.6

 

 

577.2

 

 

591.1

Earnings per share attributable to 3M common shareholders – basic

 

$

2.75

 

$

2.64

 

$

6.24

 

$

6.77

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average 3M common shares outstanding – diluted

 

 

583.0

 

 

598.4

 

 

585.9

 

 

605.1

Earnings per share attributable to 3M common shareholders – diluted

 

$

2.72

 

$

2.58

 

$

6.15

 

$

6.61

3M Company and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEET

(Dollars in millions)

(Unaudited)

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2019

 

2018

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,731

 

$

2,853

Marketable securities – current

 

 

30

 

 

380

Accounts receivable – net

 

 

5,020

 

 

5,020

Inventories

 

 

4,007

 

 

4,366

Prepaids

 

 

717

 

 

741

Other current assets

 

 

515

 

 

349

Total current assets

 

 

18,020

 

 

13,709

Property, plant and equipment – net

 

 

8,891

 

 

8,738

Operating lease right of use assets

 

 

834

 

 

Goodwill and intangible assets – net

 

 

13,257

 

 

12,708

Other assets

 

 

1,548

 

 

1,345

Total assets

 

$

42,550

 

$

36,500

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Short-term borrowings and

 

 

 

 

 

 

current portion of long-term debt

 

$

1,960

 

$

1,211

Accounts payable

 

 

2,079

 

 

2,266

Accrued payroll

 

 

669

 

 

749

Accrued income taxes

 

 

137

 

 

243

Operating lease liabilities – current

 

 

241

 

 

Other current liabilities

 

 

2,735

 

 

2,775

Total current liabilities

 

 

7,821

 

 

7,244

Long-term debt

 

 

17,479

 

 

13,411

Other liabilities

 

 

6,486

 

 

5,997

Total liabilities

 

$

31,786

 

$

26,652

 

 

 

 

 

 

 

Total equity

 

$

10,764

 

$

9,848

Shares outstanding

 

 

 

 

 

 

September 30, 2019: 575,050,655 shares

 

 

 

 

 

 

December 31, 2018: 576,575,168 shares

 

 

 

 

 

 

Total liabilities and equity

 

$

42,550

 

$

36,500

3M Company and Subsidiaries

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollars in millions)

(Unaudited)

 

 

 

 

 

 

 

 

 

Nine months ended

 

 

September 30,

 

 

2019

 

2018

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

 

$

4,732

 

 

$

4,181

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(1,161

)

 

 

(1,046

)

Acquisitions, net of cash acquired

 

 

(704

)

 

 

13

 

Purchases and proceeds from sale or maturities of marketable securities and investments – net

 

 

348

 

 

 

714

 

Proceeds from sale of businesses, net of cash sold

 

 

236

 

 

 

806

 

Other investing activities

 

 

136

 

 

 

151

 

 

 

 

 

 

 

 

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

 

 

(1,145

)

 

 

638

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Change in debt

 

 

4,779

 

 

 

1,093

 

Purchases of treasury stock

 

 

(1,243

)

 

 

(3,601

)

Proceeds from issuances of treasury stock pursuant to stock option and benefit plans

 

 

437

 

 

 

401

 

Dividends paid to shareholders

 

 

(2,488

)

 

 

(2,406

)

Other financing activities

 

 

(158

)

 

 

(36

)

 

 

 

 

 

 

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

 

 

1,327

 

 

 

(4,549

)

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(36

)

 

 

(138

)

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

4,878

 

 

 

132

 

Cash and cash equivalents at beginning of year

 

 

2,853

 

 

 

3,053

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

7,731

 

 

$

3,185

 

3M Company and Subsidiaries

SUPPLEMENTAL FINANCIAL INFORMATION

NON-GAAP MEASURES

(Dollars in millions, except full-year 2019 forecast)

(Unaudited)

 

 

 

Three months ended

 

Nine months ended

 

 

 

 

September 30,

 

September 30,

 

 

Major GAAP Cash Flow Categories

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

2,022

 

 

$

2,139

 

 

$

4,732

 

 

$

4,181

 

 

 

Net cash provided by (used in) investing activities

 

 

90

 

 

 

(269

)

 

 

(1,145

)

 

 

638

 

 

 

Net cash provided by (used in) financing activities

 

 

2,804

 

 

 

(1,453

)

 

 

1,327

 

 

 

(4,549

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Free Cash Flow (non-GAAP measure)

 

 

 

 

 

 

 

 

 

 

 

 

 

Full-Year 2019
Forecast
(Billions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

2,022

 

 

$

2,139

 

 

$

4,732

 

 

$

4,181

 

 

$6.7 to $6.9

Purchases of property, plant and equipment

 

 

(349

)

 

 

(377

)

 

 

(1,161

)

 

 

(1,046

)

 

($1.6 to $1.7)

Free cash flow (a)

 

 

1,673

 

 

 

1,762

 

 

 

3,571

 

 

 

3,135

 

 

$5.0 to $5.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to 3M

 

$

1,583

 

 

$

1,543

 

 

$

3,601

 

 

$

4,002

 

 

$4.8 to $4.9

Free cash flow conversion (a)

 

 

106

 

%

 

114

 

%

 

99

 

%

 

78

 

%

105% to 110%

(a)

Free cash flow and free cash flow conversion are not defined under U.S. generally accepted accounting principles (GAAP). Therefore they should not be considered a substitute for income or cash flow data prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. The Company defines free cash flow as net cash provided by operating activities less purchases of property plant and equipment. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures. The Company defines free cash flow conversion as free cash flow divided by net income attributable to 3M. The Company believes free cash flow and free cash flow conversion are meaningful to investors as they function as useful measures of performance and the Company uses these measures as an indication of the strength of the company and its ability to generate cash.

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

Net Debt (non-GAAP measure)

 

2019

 

2018

Total debt

 

$

19,439

 

$

14,622

Less: Cash, cash equivalents and marketable securities

 

 

7,807

 

 

3,270

Net debt (b)

 

$

11,632

 

$

11,352

(b)

Net debt is not defined under U.S. GAAP and may not be computed the same as similarly titled measures used by other companies. The Company defines net debt as total debt less the total of cash, cash equivalents and current and long-term marketable securities. 3M believes net debt is meaningful to investors as 3M considers net debt and its components to be an important indicator of liquidity and a guiding measure of capital structure strategy.

null

3M Company and Subsidiaries

SUPPLEMENTAL FINANCIAL INFORMATION

NON-GAAP MEASURES – (CONTINUED)

(Dollars in millions, except full-year 2019 forecast)

(Unaudited)

 

 

 

 

 

 

 

 

 

Twelve months ended

 

 

Full Year Estimated

Return on Invested Capital (non-GAAP measure)

 

December 31, 2018

 

 

2019 (in billions)

 

 

 

 

 

 

 

Net income including non-controlling interest

 

$

5,363

 

 

$4.8 to $4.9

Interest expense (after-tax) (1)

 

 

268

 

 

$0.4

Adjusted net income (Return)

 

$

5,631

 

 

$5.2 to $5.3

 

 

 

 

 

 

 

Average shareholders' equity (including non-controlling interest) (2)

 

$

10,407

 

 

$9.0 to $9.5

Average short-term and long-term debt (3)

 

 

14,912

 

 

$18.0 to $18.5

Average invested capital

 

$

25,318

 

 

$27.0 to $28.0