There is a lot going on a
3M
these days, including some big legal settlements. Investors and Wall Street had reacted by essentially avoiding the stock.
3M (ticker: MMM) is trying to turn sentiment around by posting more consistent results. It’s off to a good start: It just posted its second consecutive big earnings beat.
On Tuesday morning, 3M reported adjusted earnings per share of $2.68 from sales of $8 billion for its third quarter. The EPS figure is 28 cents above the upper end of the company’s own guidance range. It was better than Wall Street was looking for too. Analysts were projecting EPS of $2.34 from sales of $8 billion.
In the third quarter of 2022, 3M reported per-share earnings of $2.69 and revenue of $8.6 billion, respectively.
The company also raised its full-year guidance. Coming out of the second-quarter report, 3M expected to generate full-year earnings between $8.60 and $9.10 a share. Now the company expects between $8.95 and $9.15 a share for 2023. That means 3M needs to earn $2.23 a share in the fourth quarter to hit the midpoint of the full-year guidance range. That’s below the $2.42 modeled by analysts but guidance has proved conservative lately.
For instance, the upper end of the company’s second-quarter guidance was $1.75 a share. 3M posted $2.17 a share for the period, while Wall Street was projecting $1.73. Shares moved up 5.3% on the day of the second-quarter earnings report.
As for the third quarter, the results look solid. 3M generated free cash flow of $1.9 billion in the third quarter, better than the $1 billion projected by Wall Street, helped by lower inventory levels. For the full year, 3M expects to generate about $5.2 billion in free cash flow, about $400 million higher than analysts are modeling.
“Our momentum accelerates our ability to define where we go next at 3M,” said CEO Mike Roman on the company’s earnings conference call. “We prioritize attractive markets where we have the right to win and the opportunity to differentiate ourselves through our unique capabilities and strengths.”
3M is spinning off its healthcare business in 2024, allowing 3M to focus on higher-growth businesses such, as electric vehicles. Auto sales grew at a double-digit rate in the third quarter. 3M’s EV-related sales are on pace to hit $600 million in 2023, up 30% year over year.
3M stock was up 4.6% in early trading at $89.47 a share. The
S&P 500
and
Dow Jones Industrial Average
were both up about 0.8%.
3M still has legal issues to deal with, however. The third-quarter earnings number is adjusted: It excludes a pretax charge of some $4 billion to settle claims related to potentially faulty earplugs sold to the military. That number reflects the present value of the payments and deducts $1.1 billion in charges already taken for the issue. In earlier filings, the company had referred to a settlement of $6 billion, but that is the full amount paid over time.
The earplug settlement follows a June settlement related to chemicals produced by 3M and others that were found in groundwater. The company at the time said the agreement wasn’t an admission of liability.
Both settlements are significant. Legal liabilities have been an overhang on 3M stock for years, and are reflected in Wall Street ratings. Only one analyst, or about 5% of the total, rates shares Buy, according to FactSet. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. One of the recent upgrades was from Sell to Hold. Currently, about 11% of analysts rate shares Sell, down from 20% a few months ago.
Legal overhangs and the overall economy have investors cautious, too. Through midday trading on Monday, shares were down about 28% over the past 12 months. The S&P 500 and Dow were up 11% and 5%, respectively.
3M earned $10.10 a share in 2022. Earnings are down this year partly because 3M is battling a slowing economy, like many other manufacturing firms.
Write to Al Root at [email protected]
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