3M Company (NYSE: $MMM) is an equipment manufacturer renowned for various products. Their products include adhesive and building materials, cleaning and medical supplies, and more. On Tuesday, January 23, 2024, 3M released its Q4 earnings report before markets opened.
Q4 Earnings Reports Beats Estimates
In its Q423 earnings report, 3M beats earnings estimates. Its adjusted EPS for the quarter was $2.42, beating the analysts’ estimate of $2.31. The EPS was also an increase from the $2.18 reported in Q422.
Total sales for the quarter came in at $8.01 billion, above analyst’s estimates of $7.69. However, the figure was a 0.8% decline from the same time last year. The Y/Y decline was due to a 1.9% decline in organic sales. Foreign currency translations positively impacted 0.9%, while acquisitions provided a 0.2% boost on the top line.
Net income for the quarter was a $945 million loss, a 74.8% increase compared to the $541 million loss reported in Q422. That represented a loss per share of $1.70, which was a 74.0% increase from the $0.98 loss reported in Q422.
According to the report, organic sales in North America rose 0.3% Y/Y, while in the Asia Pacific, they fell 5.8%. Meanwhile, organic sales in the Middle East, Africa, and Europe dropped 0.6%.
3M Segment Performance
The Safety and Industrial segment brought in revenue of $2.67 billion, a 2.7% Y/Y decline. The Transportation & Electronics segment brought in $1.77 billion, a Y/Y increase of 4.5%. Acquisitions in the segments helped boost revenue by 1.3%, with foreign currency translations having a positive impact of 0.5%.
The Health Care segment brought in $2.04 billion in revenue, a 0.3% decline Y/Y. Lastly, the Consumer segment saw a 1.6% decline in revenue Y/Y to $1.23 billion.
Margin Performance
In the fourth quarter, 3M saw a 2% increase in cost of sales Y/Y to $4.7 billion. Selling, general and administrative expenses dropped 24.3% to $1.63 billion, while R&D expenses rose 4.9% Y/Y to $467 million.
The company reported a $1.24 billion operating income in the quarter, compared to the $632 million reported in Q422. A decline in operating expenses drove this increase.
The company saw operating income in Q423 rise by 9.1% Y/Y to $1.6 billion. Its adjusted operating margin for Q4 was 20.9%, compared to the 19.1% reported in Q422.
3M Cash Flow
According to the report, 3M had cash and cash equivalents worth $5.93 billion, a massive increase from the $3.66 billion reported at the end of FY22. Long-term debt stood at $13.09 billion at the end of the year, compared to the $14.0 billion reported at the end of FY22.
3M generated $1.99 billion in net cash in Q4 from operating activities, a 3.3% increase Y/Y. Capital for property, plant, and equipment purchases dropped 7.7% to $1.6 billion in 2023.
At the end of Q4, adjusted free cash flow was $1.96 billion, representing a 17.8% Y/Y increase. In the same period, adjusted free cash flow conversion was 145%. For FY23, 3M gave its stockholders $3.3 billion in dividends. There was no share buyback for Q4.
Disappointing Guidance
For FY24, 3M projects an adjusted EPS of $9.35-$9.75, a slight increase from the FY23 adjusted EPS of $9.24, in which the midpoint is $9.55. However, it is below the analysts’ estimate of $9.90.
The company projects adjusted total sales growth of 0.25%-2.25%, implying organic sales growth of 2%. 3M forecasts adjusted operating cash flow of $6.5-$7.1 billion, a 95%-105% adjusted free cash flow conversion.
MMM Stock Performance
On Tuesday, January 23, 2024, after the release of the earnings number, MMM stock dived, closing trading 11% lower. The slide continued on January 24, with the stock trading 0.04% lower during early morning trading at $96.06 per share as of 09:59 AM in New York. The Tuesday decline marked the biggest selloff for the stock in five years. MMM stock has lost 16.43% of its value in the past 12 months.
MMM Stock Forecast
The consensus rating for MMM stock is a hold. The analysts predict a broad range for the stock, with a high of $123 and a low of $87 per share. Their median target of $108 represents a 12.23% upside.
Should You Buy 3M Stock?
3M revealed that it plans to spin off its healthcare segment in H1 2024. That is currently one of the company’s most stable sources of earnings. Without it, 3M will have to rely on the three other segments, which are cyclical. While the segment saw a slight decline in Q4, it has grown in all previous quarters of 2023.
With disappointing guidance for FY24, it is understandable why the stock suffered a massive selloff on Tuesday. Investors are wary that the company could come under pressure, reducing its dividend yield. On a more positive note, the expected lower interest rates in 2024 could help 3M, which is currently in restructuring.
Based on the guidance issued by the company and its planned spinoff of the healthcare segment, analysts’ hold rating accurately represents the stock’s medium-term outlook.
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