3M Delivers Strong Fourth-Quarter Results; Improves Operational Performance and Exceeds Earnings and Cash Flow Expectations
- None.
- Full-year 2023 sales declined by 4.5%
- GAAP loss of $12.63 per share
- Potential impact of funding amounts due under the PWS and CAE legal settlements
- Adjusted EPS could be impacted up to an estimated ($0.20) from complete debt financing of these settlements
Insights
The reported financial results of 3M indicate a mixed performance with a notable divergence between GAAP and non-GAAP measures. The GAAP earnings per share (EPS) of $1.70 compared to the previous year's $0.98 and an adjusted EPS increase of 11% year-on-year to $2.42 reflect a company that has managed to improve profitability despite challenging market conditions. The expansion of adjusted operating income margin from 19.1% to 20.9%, despite headwinds from restructuring charges, suggests effective cost management and operational efficiency.
Investors should be aware of the significant impact of special items, such as the settlements for Combat Arms Earplug (CAE) and public water systems (PWS) regarding PFAS, which have heavily influenced the GAAP figures, resulting in a loss per share of $12.63 for the full year. This underlines the importance of understanding non-GAAP measures for a clearer picture of the company's operational performance, excluding one-time charges. The focus on high-growth markets like automotive electrification and climate technology is promising, but the decline in organic sales year-on-year raises concerns about the company's growth trajectory in its core markets.
The 0.8% decline in total sales and a 1.9% decrease in organic sales highlight the competitive and operational challenges faced by 3M. The adjusted sales figure excluding manufactured PFAS products and the impact of disposable respirator demand decline provide a more nuanced understanding of the company's sales dynamics. A decrease in demand for disposable respirators, which saw a surge during the pandemic, is an expected normalization of the market.
Looking at the broader market trends, 3M's investment in areas such as automotive electrification and climate technology aligns with global shifts towards sustainability and innovation. However, the sales performance indicates that the company must navigate a delicate balance between investing in future growth areas and maintaining its core business performance. The company's operational cash flow improvement by 19% and a 30% increase in adjusted free cash flow year-on-year are positive indicators of its ability to generate liquidity and manage working capital effectively.
The settlements for CAE and PWS regarding PFAS, resulting in pre-tax charges of $4.3 billion and $10.5 billion respectively, are significant legal developments that have materially affected 3M's financials. The impact of these settlements on the GAAP loss per share demonstrates the substantial legal and financial risks associated with environmental and product liability issues. Stakeholders should monitor the company's approach to addressing these liabilities, as they have long-term implications for corporate reputation and financial stability.
Additionally, the company's forward-looking statements exclude the potential impact of funding amounts due under the PWS and CAE legal settlements, indicating uncertainty about the final financial impact of these issues. The mention of debt financing for these settlements and its potential impact on adjusted EPS highlights the complexities of managing such significant legal financial obligations while maintaining operational performance.
- Results reflect strong operational execution, progress on restructuring, and spending discipline
- Well-positioned to continue improving performance, including continued expansion of adjusted operating margins3 in 2024
- Health Care spin remains on track for first half of 2024
"The fourth quarter capped a strong year for 3M," said 3M chairman and CEO Mike Roman. "Throughout 2023, we executed our priorities and delivered on our commitments – including expanding underlying operating margins and cash flow. We initiated actions to restructure our organization and simplify our supply chain, while progressing our Health Care spin and addressing legal matters."
"Our team remains focused on further improving our operational performance, optimizing our portfolio, and reducing risk," Roman continued. "We will continue to invest in high-growth markets where 3M's unique capabilities can make a difference, including automotive electrification, climate technology, and industrial automation. I am confident we will deliver a successful 2024."
Fourth-Quarter Highlights:
Q4 2023 | Q4 2022 | |||||||
GAAP earnings per share | $ 1.70 | $ 0.98 | ||||||
Special items: | ||||||||
Net costs for significant litigation | 0.36 | 0.07 | ||||||
Other special items, net | 0.36 | 1.13 | ||||||
Adjusted earnings per share (EPS) | $ 2.42 | $ 2.18 | ||||||
Memo: | ||||||||
GAAP operating income margin | 15.5 % | 7.8 % | ||||||
Adjusted operating income margin1 | 20.9 % | 19.1 % | ||||||
1Above adjusted operating income margin for Q4 2023 includes a 1.4 percentage point headwind | ||||||||
- GAAP earnings per share of
$1.70 15.5% . - Adjusted EPS of
$2.42 $109 million $0.17 - Adjusted EPS up 11 percent year-on-year.
- Adjusted operating income margin of
20.9% includes a 1.4 percentage point headwind from restructuring related net charges.- Adjusted operating income margin expanded 1.8 percentage points year-on-year.
GAAP | Adjusted (Non- | |||||||
Net sales (Millions) | ||||||||
Sales change | ||||||||
Total sales | (0.8) % | (0.3) % | ||||||
Components of sales change: | ||||||||
Organic sales2 | (1.9) % | (1.4) % | ||||||
Acquisitions/divestitures | 0.2 % | 0.2 % | ||||||
Translation | 0.9 % | 0.9 % | ||||||
Adjusted sales excludes manufactured PFAS products. | ||||||||
2Above adjusted organic sales decline includes a 60 basis point headwind from the decline in | ||||||||
- Sales of
$8.0 billion - Adjusted sales of
$7.7 billion - Operating cash flow of
$2.0 billion $2.0 billion - 3M returned
$828 million
The above includes reference to certain non-GAAP measures. See the "Supplemental Financial Information Non-GAAP Measures" section for applicable information.
Full-Year Highlights:
Full Year | Full Year | |||||||
GAAP earnings (loss) per share | $ (12.63) | $ 10.18 | ||||||
Special items: | ||||||||
Impact of Combat Arms Earplug (CAE) settlement | 5.94 | — | ||||||
Impact of public water systems (PWS) settlement | 14.45 | — | ||||||
Other net costs for significant litigation | 0.61 | 3.20 | ||||||
Other special items, net | 0.87 | (3.50) | ||||||
Adjusted earnings per share (EPS) | $ 9.24 | $ 9.88 | ||||||
Memo: | ||||||||
GAAP operating income (loss) margin | (27.9) % | 19.1 % | ||||||
Adjusted operating income margin1 | 20.3 % | 21.1 % | ||||||
1Above adjusted operating income margin for full year 2023 includes a 1.4 percentage point | ||||||||
- GAAP loss per share of
$12.63 27.9% includes the previously announced settlements for CAE and PWS inthe United States regarding PFAS, resulting in a pre-tax charges of$4.3 billion $10.5 billion $20.39 - Adjusted EPS of
$9.24 $441 million $0.65 - Adjusted operating income margin of
20.3% includes a 1.4 percentage point headwind from restructuring related net charges.
GAAP | Adjusted (Non- | |||||||
Net sales (Millions) | ||||||||
Sales change | ||||||||
Total sales | (4.5) % | (4.5) % | ||||||
Components of sales change: | ||||||||
Organic sales2 | (3.2) % | (3.2) % | ||||||
Acquisitions/divestitures | (0.7) % | (0.8) % | ||||||
Translation | (0.6) % | (0.5) % | ||||||
Adjusted sales excludes manufactured PFAS products. | ||||||||
2Above adjusted organic sales decline includes a 1.9 percentage point headwind from the decline in | ||||||||
- Sales of
$32.7 billion - Adjusted sales of
$31.4 billion - Operating cash flow of
$6.7 billion $6.3 billion - 3M returned
$3.3 billion
The above includes reference to certain non-GAAP measures. See the "Supplemental Financial Information Non-GAAP Measures" section for applicable information.
Full-Year 2024 Outlook
3M provided the following full-year 2024 expectations. This 2024 outlook continues to reflect the Health Care business as part of the company for the full year, but does not reflect the potential impact of funding amounts due under the PWS and CAE legal settlements absent receipt of cash payments in the Health Care business spin.
- Adjusted total sales growth3 in the range of 0.25 to 2.25 percent, reflecting adjusted organic sales3 growth of flat to up 2 percent.
- Adjusted EPS3 in the range of
$9.35 $9.75 - Adjusted operating cash flow3 of
$6.5 $7.1 billion
The above does not reflect, for reasons described at 3, the potential impact of funding amounts under the PWS and CAE settlements absent cash received in the Health Care spin. However, for illustrative purposes only, adjusted EPS3 could be impacted up to an estimated (
3As further discussed at 7 within the "Supplemental Financial Information Non-GAAP Measures" section, 3M cannot, without unreasonable effort, forecast certain items required to develop meaningful comparable GAAP financial measures and, therefore, does not provide them on a forward-looking basis reflecting these items. |
Conference Call
3M will conduct an investor teleconference at 9 a.m. EST (8 a.m. CST) today. Investors can access this conference via the following:
- Live webcast at https://investors.3M.com
- Live telephone:
Call 800-762-2596 within theU.S. or +1 212-231-2916 outside theU.S. Please join the call at least 10 minutes before the start time. - Webcast replay at https://investors.3m.com/financials/quarterly-earnings
- Telephone replay:
Call 800-633-8284 within theU.S. or +1 402-977-9140 outside theU.S. (for bothU.S. and outside theU.S. , the access code is 22028938). The telephone replay will be available until 11:30 a.m. EST (10:30 a.m. CST) on January 30, 2024.
Consolidated Financial Statements and Supplemental Financial Information Non-GAAP Measures
View the Financial Statement Information on 3M's website: https://investors.3m.com/financials/quarterly-earnings
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 "plan," "expect," "aim," "believe," "project," "target," "anticipate," "intend," "estimate," "will," "should," "could," "would," "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, international trade, geopolitical, capital markets and other external conditions and other factors beyond the Company's control, including inflation, recession, military conflicts, natural and other disasters or climate change affecting the operations of the Company or its customers and suppliers; (2) foreign currency exchange rates and fluctuations in those rates; (3) risks related to certain fluorochemicals, including liabilities related to claims, lawsuits, and government regulatory proceedings concerning various PFAS-related products and chemistries, as well as risks related to the Company's plans to exit PFAS manufacturing and discontinue use of PFAS across its product portfolio; (4) risks related to the proposed class-action settlement ("PWS Settlement") to resolve claims by public water systems in
About 3M
3M (NYSE: MMM) believes science helps create a brighter world for everyone. By unlocking the power of people, ideas and science to reimagine what's possible, our global team uniquely addresses the opportunities and challenges of our customers, communities, and planet. Learn how we're working to improve lives and make what's next at 3M.com/news.
Please note that the company announces material financial, business and operational information using the 3M investor relations website, SEC filings, press releases, public conference calls and webcasts. The company also uses the 3M News Center and social media to communicate with our customers and the public about the company, products and services and other matters. It is possible that the information 3M posts on the News Center and social media could be deemed to be material information. Therefore, the company encourages investors, the media and others interested in 3M to review the information posted on 3M's news center and the social media channels such as @3M or @3MNews.
Contacts
3M
Investor Contacts:
Bruce Jermeland, 651-733-1807
or
Diane Farrow, 612-202-2449
or
Eric Herron, 651-233-0043
Media Contact:
Tim Post, tpost3@mmm.com
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SOURCE 3M Company
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