Innovative industrial conglomerate 3M (MMM 0.38%) reported its first-quarter results on April 30 that beat analysts' expectations. The company posted higher adjusted earnings per share (EPS) though net sales were down a hair year over year. The quarter was also marked by an impressive margin increase. However, among the items those adjusted earnings factored out were one-time costs from a couple of expensive lawsuits.
| Metric | Q1 2024 | Q1 2024 Analyst Estimate | Q1 2023 | % Change YoY |
|---|---|---|---|---|
| Adjusted EPS | $2.39 | $2.10 | $1.97 | 21.3% |
| Net sales | $8 billion | $7.63 billion | $8.03 billion | (0.3%) |
| Adjusted operating income margin | 21.9% | N/A | 17.9% | 4.0 percentage points |
Understanding 3M's business landscape
Through this past quarter, 3M has segmented its vast operations into four categories: safety and industrial, transportation and electronics, healthcare, and consumer. Its diversification and global footprint serve as buffers against market volatility, allowing it to leverage an array of revenue streams. Recently, management's focus has been on enhancing operational efficiency and emphasizing sectors poised for growth, as evidenced by its decision to spin off its healthcare business into a stand-alone entity, Solventum.
Quarterly highlights
This past quarter, 3M's financial and operational strategies came to the forefront as it navigated headwinds to deliver strong results. Despite a slight dip in year-over-year sales, the company reported an adjusted organic sales increase, showcasing the underlying strength of its diversified business model. Particularly noteworthy was its operating income margin expansion, reflecting stringent cost controls and operational efficiency.
The settlements to a pair of major legal cases -- one in which the company was sued for water contamination with the category of fluorochemicals known as PFAS, the other for its sale of faulty combat arms earplugs -- marked a pivotal moment for 3M. With its litigation costs relative to those cases now firm, financial projections regarding its future can be made with greater clarity and smoothness, and management can put a sharper focus on core operational priorities.
Looking ahead
Additionally, 3M initiated optimistic financial guidance for this year, projecting an increase in adjusted EPS, hinting at management's confidence in the company's direction in the wake of the healthcare business spinoff. It's guiding for adjusted earnings per share of $6.80 to $7.30 in 2024. After factoring out the now-hived-off Solventum business, management puts 2023's adjusted EPS in the approximate range of $5.97 to $6.12. It's also forecasting that adjusted total sales will land in the range of down 0.25% to up 2% for the year, after falling in 2023.
Investors are encouraged to watch for developments in 3M's operational efficiency initiatives and its ability to adjust post-spinoff, and what fresh ideas new CEO Bill Brown brings to the company after he takes the helm on May 1.
