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Why Is 3M (MMM) Down 1.6% Since Last Earnings Report?

A month has gone by since the last earnings report for 3M (MMM). Shares have lost about 1.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is 3M due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

3M Q4 Earnings Beat Estimates, Revenues Decline Y/Y

3M reported fourth-quarter 2023 results, where its revenues and earnings surpassed the Zacks Consensus Estimate. The top line inched down, while the bottom line increased on a year-over-year basis.

Inside the Headlines

In the fourth quarter, 3M delivered adjusted earnings of $2.42 per share, surpassing the Zacks Consensus Estimate of $2.31. The metric increased from $2.18 reported in the year-ago quarter.

The company’s net sales of $8,013 million outperformed the Zacks Consensus Estimate of $7,686 million. However, the top line declined 0.8% year over year due to a 1.9% decrease in organic sales. Foreign currency translation had a positive impact of 0.9%, while acquisitions boosted the top line by 0.2%.

Region-wise, organic sales in the Americas inched up 0.3% year over year, while that in the Asia Pacific declined 5.8%. Organic sales from businesses in Europe, the Middle East and Africa inched down 0.6%.

Segmental Results

The company reports top-line results under four business segments — Safety & Industrial, Transportation & Electronics, Health Care and Consumer.

Revenues from Safety and Industrial totaled $2,661 million, decreasing 2.7% year over year. The decline can be attributed to a 3.9% decrease in organic revenues. The Zacks Consensus Estimate for Safety and Industrial segment revenues was pegged at $2,624 million.

Revenues from Transportation & Electronics totaled $1,769 million, reflecting a year-over-year increase of 4.5%. The increase is attributable to a 2.7% improvement in organic sales. Acquisitions boosted segmental revenues by 1.3%, while foreign currency translation had a 0.5% positive impact. The Zacks Consensus Estimate for Transportation & Electronics segment revenues was pinned at $1,619 million.

Revenues from Health Care were $2,037 million, down 0.3% year over year. The results were hurt by an organic sales decline of 1% and a 0.4% negative impact from divestitures. The Zacks Consensus Estimate for Health Care revenues was pegged at $2,108 million.

Revenues from the Consumer segment fell 1.6% year over year to $1,226 million. Organic sales decreased 2.2%. Movements in foreign currencies had a positive impact of 0.6%. The Zacks Consensus Estimate for Consumer segment revenues was pinned at $1,301 million.

Margin Profile

In the quarter under review, 3M’s cost of sales increased 2% year over year to $4,678 million. Selling, general and administrative expenses declined 24.3% to $1,625 million. Research, development and related expenses increased 4.9% year over year to $467 million.

In the fourth quarter, 3M reported an operating income of $1,243 million compared with the operating income of $632 million in the year-ago period. The upside was driven by a decline in the company’s total operational expenses.

MMM’s adjusted operating income in the quarter ascended 9.1% year over year to $1,608 million. The adjusted operating margin was 20.9% compared with 19.1% in the year-ago quarter. The adjusted tax rate in the quarter was 14.9% compared with 16.6% in the year-ago period.

Balance Sheet and Cash Flow

Exiting the fourth quarter, 3M had cash and cash equivalents of $5,933 million compared with $3,655 million at the end of December 2022. Long-term debt was $13,088 million at the end of December 2023 compared with $14,001 million at the end of December 2022.

In the quarter, 3M generated net cash of $1,986 million from its operating activities, reflecting an increase of 3.3% from the year-ago quarter. Capital used for purchasing property, plant and equipment decreased 7.7% to $1.6 billion in 2023.

Adjusted free cash flow at the end of the fourth quarter was $1,955 million, up 17.8% year over year. Adjusted free cash flow conversion was 145% at the end of the same period.

In 2023, 3M rewarded its shareholders with $3.3 billion in dividend payments. The company did not repurchase shares in the fourth quarter.

2024 Guidance

MMM expects adjusted earnings of $9.35-$9.75 per share for 2024. The mid-point of the guided range is $9.55, which lies below the Zacks Consensus Estimate of $9.90.

Adjusted total sales are expected to be in the range of 0.25-2.25%. This implies an adjusted organic sales growth of 0-2%.

3M estimates adjusted operating cash flow of $6.5-$7.1 billion, representing 95-105% adjusted free cash flow conversion.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

At this time, 3M has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision has been net zero. Notably, 3M has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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