3M Company
CEO : Mr. Michael F. Roman
Quarterly earnings growth(YoY,%)
| Period | Revenue | Operating Income | EPS | Release Date |
|---|---|---|---|---|
| 2022 Q4 | -6.2% YoY | -44.1% | -57.9% | 2023-01-24 |
Monish Patolawala says,
Negative trends in consumer retail and electronics-related businesses
- Accelerated negative trends in consumer retail and electronics-related businesses
- Significant slowing in China due to COVID-19 impact resulting in a 17% decline in organic sales in December and down 8% for the quarter
Fourth quarter sales and operating income
- Fourth-quarter total sales were $8.1 billion, down 6.2% YoY
- Organic basis, Q4 sales increased 0.4% versus last year
- Adjusted basis, fourth-quarter operating income was $1.5 billion, with operating margins of 19.1%
- Adjusted earnings for the quarter were $2.28 versus $2.45 last year
Factors impacting operating margins and earnings
- Inflation continuing to impact raw material, logistics, and energy costs
- Foreign currency translation was a negative 5% impact on total sales
- Divestitures and deconsolidation resulted in a year-over-year headwind in Q4
Business group performance
- Safety and Industrial business posted sales of $2.7 billion or up 1.3% organically. Excluding disposable respirators, Safety and Industrial grew Q4 organic sales by 7.5%
- Transportation and Electronics posted sales of $2.1 billion, or up 1.4% organically. Our auto OEM business increased mid-teens versus a 2% increase in global car and light truck builds
- Healthcare business had organic growth of 1.9% versus last year. Fourth quarter elective health care procedure volumes were approximately 90% of pre-COVID levels
- Consumer business posted fourth-quarter sales of $1.2 billion. Organic sales declined 5.7% year-on-year with particular weakness in the US
Free cash flow and shareholder return
- Fourth-quarter adjusted free cash flow was $1.7 billion, up 3% YoY
- During the quarter, we returned $1.4 billion to shareholders through cash dividends and share repurchases of $540 million
- For the year, we returned $4.8 billion to shareholders, including $3.4 billion in dividends and $1.5 billion in share repurchases
Mike Roman says,
Decline in Consumer-Facing Markets
- Organic growth of 0.4% versus the expected 1% to 3% due to the rapid declines in consumer-facing markets, such as consumer electronics and retail, which accelerated in December.
- Consumers sharply cut discretionary spending and retailers adjusted inventory levels.
COVID-Related Disruptions in China
- Saw a significant slowing in China due to COVID-related disruptions, along with moderating demand across industrial markets.
Adjusting Manufacturing Output and Restructuring
- Actions were taken to adjust manufacturing output and control costs, which enabled the company to deliver a $250 million inventory improvement.
- Today, the company announced restructuring in its manufacturing operations, as it expects the demand trends to extend through the first half of 2023.
Opportunities to Improve Margins and Cash Flow
- The company is focused on improving manufacturing operations and driving working capital as supply chain stabilizes. These are the most significant opportunities to improve margins and cash flow.
Investing in Growth, Productivity, and Sustainability
- As the company navigates the external environment, it continues to position itself for the future by investing in growth, productivity, and sustainability.
- The outlook for 2023 will be discussed after Monish takes the audience through the quarter.
Q & A sessions,
3M’s Actions and Performance in 2022
- To address inflation, 3M took selling price actions and proactively managed costs.
- New distribution center on the East Coast was opened to address supply chain disruptions.
- 3M posted 1% organic growth in 2022 or 3% excluding the impact of disposable respirators and Russia exit.
- 3M delivered adjusted EPS of $10.10 and adjusted free cash flow of $4.7 billion with an adjusted conversion rate of 82%.
- 3M reduced net debt by $0.5 billion, ended 2022 with a net debt-to-EBITDA ratio of 1.4 and returned $4.8 billion to shareholders through dividends and share repurchases.
Outlook for 2023
- 3M expects market and macroeconomic challenges to persist in 2023.
- 3M expects organic growth of -3% to flat, adjusted EPS of $8.50 to $9, and adjusted free cash flow conversion of 90% to 100%.
- Supply chains are improving, but 3M still sees headwinds from material availability and inflation, albeit at a lower level.
- 3M is taking actions to reduce cost structure and inventory and has implemented strict control of hiring and discretionary spending, including reducing approximately 2,500 global manufacturing roles.
Business Update
- 3M advanced its leadership in wound care and introduced new thermal barrier films to improve performance of electric car batteries, achieving 30% organic growth in automotive electrification platform in 2022.
- 3M will exit all PFAS manufacturing by the end of 2025, based on regulatory trends and changing stakeholder expectations.
- 3M is preparing for the spin-off of its Health Care business, which presents a value creation opportunity.
Market and End Market Segment Dynamics
- Industrial markets experienced mixed performance, with strengths seen in areas like electrical markets and automotive aftermarket, but moderation in specific end market segments.
- China experienced market interruptions due to COVID and electronics slowdown, which impacted industrial production and GDP.
- Consumer discretionary spending is in decline, with a 10% to 30% decline in consumer electronics build affecting the end markets.
- Specialty markets like construction and packaging are seeing some reduction of inventory as 3M starts the New Year.
Supply Chain Performance and Inventory
- 3M is managing the transition of its electronics business away from consumer electronics and innovating with customers in OLED displays, AR, VR, automotive electrification, factory automation, and semiconductor manufacturing.
- 3M is seeing destocking efforts in consumer and industrial markets, with retailers aggressively reducing inventory in consumer.
- Transportation and electronics business is seeing consumer electronics OEMs reducing inventories, while automotive OEM inventory remains low.
No bad stock 