First-Quarter Highlights:
Sales of $8.1 billion, up 2.7 percent year-on-year
Organic local-currency sales grew 0.3 percent year-on-year
GAAP EPS of $2.22; adjusted EPS of $2.16
Operating cash flow of $1.2 billion, up 16 percent year-on-year; adjusted free cash flow of $0.9 billion, up 40 percent year-on-year
Withdraws full-year 2020 guidance due to COVID-19 impact and end-market uncertainty
3M (NYSE: MMM) today reported first-quarter 2020 results.
“In this unprecedented time, I could not be more proud of how our 96,000 people have stepped up to help fight COVID-19, and I thank all 3Mers for their incredible efforts,” said Mike Roman, 3M chairman and chief executive officer. “We are attacking the pandemic from all angles, which includes mobilizing all of our resources and rapidly increasing output of critical supplies to healthcare workers and first responders.”
“Given the breadth and diversity of our businesses, the financial impact of COVID-19 is varying across 3M,” Roman continued. “In the first quarter we saw strong growth in personal safety, as well as in other areas of our portfolio experiencing high demand due to the pandemic. At the same time, we experienced weak demand in several end markets that were more severely impacted by actions taken around the world to slow the pandemic. Looking ahead, 3M is taking action that will help us navigate near-term uncertainty, generate strong cash flow, and lead out of the slowdown by delivering for employees, customers and shareholders.”
COVID-19 Response & Business Impact
3M has been aggressively responding to the COVID-19 pandemic given its critical role as a provider of personal protective equipment in the U.S. and across the world. Since the beginning of the year, 3M has continued to:
Lead in pandemic response
Accelerated respirator production, including ramped up idle respirator lines
Doubled global respirator output to 100 million/month (U.S. ~35 million/month)
Increasing capital investment to double respirator output again
Partnering to create innovative solutions to protect healthcare workers
Prioritize supplies to the most critical areas
Immediately redirected vast majority of global respirators output to healthcare
Uniting with governments and distribution partners to expedite products to healthcare workers
Closely collaborating with U.S. Administration, FDA, HHS, DoD and FEMA to import 166.5 million respirators into the U.S.
Fight fraud and price gouging
Working with distributors and governments to ensure secure supply chains
3M has not increased respirator prices as a result of the pandemic
Published N95 respirator prices; created hotline for fraud and price gouging
Working with national and local legal authorities to bring lawsuits in multiple states and Canada
Support communities through aid for relief and recovery efforts
Contributing $20 million in financial support to frontline healthcare workers, vulnerable populations disproportionately affected by the virus and medical research initiatives
The COVID-19 pandemic is affecting 3M’s businesses in a number of ways. 3M has experienced strong end-market demand, specifically in personal safety, home improvement, general cleaning, food safety and biopharma filtration. At the same time, several other end markets have experienced significant weakness due to social distancing and shelter-in-place mandates. These end markets include oral care, automotive OEM and aftermarket, general industrial, commercial solutions, and stationery and office.
The company is continuing to adapt quickly to the current environment, with a focus on mitigating the near-term impact while positioning 3M’s businesses for success coming out of the crisis. Actions being taken include:
Protecting our employees
Mobilized global crisis action team in January
Updated safe workplace protocols globally, including work-from-home where possible
Implemented pandemic support programs
Ensuring business continuity
Maintaining strong customer service with new global Enterprise Operations organization
Ongoing adjustments to operations, including targeted shutdowns due to weak customer/market demand or government mandates
Targeted paid short-term furloughs in businesses most impacted
Protecting financial flexibility
Taking aggressive cost reductions while minimizing employee impact—estimated cost savings of $350 to $400 million in the second quarter of 2020
Adjusting capital allocation plans—prioritizing organic investments and the dividend, and suspended share repurchase program
Reduced full-year 2020 cap-ex plan to approximately $1.3 billion versus $1.6 to $1.8 billion, previously
Added $1.75 billion of cash via March 2020 debt issuance
Continue to expect after-tax proceeds of $0.4 billion from closing of drug delivery divestiture in second quarter 2020
Withdrawing Full-Year Outlook
Due to the evolving and uncertain impact of the COVID-19 pandemic, 3M currently is not able to estimate the full duration, magnitude and pace of recovery across its diverse end markets with reasonable accuracy. Therefore, 3M believes it is prudent to withdraw its previously communicated full-year 2020 outlook, which was provided on January 28, 2020. The company will begin reporting monthly sales information starting in May to provide transparency on 3M’s ongoing business performance.
First-Quarter Results
Sales were up 2.7 percent year-on-year to $8.1 billion. Organic local-currency sales grew 0.3 percent while acquisitions, net of divestitures, increased sales by 4.2 percent. Foreign currency translation reduced sales by 1.8 percent year-on-year.
Total sales grew 21.0 percent in Health Care and 4.6 percent in Consumer, with declines of 1.0 percent in Safety and Industrial and 5.0 percent in Transportation and Electronics. Organic local-currency sales increased 6.1 percent in Consumer, 2.2 percent in Safety and Industrial and 1.2 percent in Health Care, with a decline of 3.0 percent in Transportation and Electronics.
On a geographic basis, total sales grew 10.1 percent in the Americas, with declines of 2.1 percent in EMEA (Europe, Middle East and Africa) and 5.4 percent in Asia Pacific. Organic local-currency sales increased 4.2 percent in the Americas, with declines of 1.7 percent in EMEA and 4.4 percent in Asia Pacific.
First-quarter GAAP earnings were $2.22 per share, an increase of 47 percent year-on-year, with operating income of $1.7 billion and operating margins of 20.6 percent.
Excluding special items, first-quarter adjusted earnings were $2.16 per share, a decline of 2.7 percent year-on-year, with operating income of $1.7 billion and operating margins of 20.8 percent, as referenced in the “Supplemental Financial Information Non-GAAP Measures” section.
The company’s operating cash flow was $1.2 billion with adjusted free cash flow of $0.9 billion contributing to adjusted free cash flow conversion of 74 percent. See the “Supplemental Financial Information Non-GAAP Measures” section for applicable information.
The company paid $847 million in cash dividends to shareholders and repurchased $365 million of its own shares during the quarter.
First-Quarter Business Group Discussion
Safety and Industrial
Sales of $2.9 billion, down 1.0 percent in U.S. dollars. Organic local-currency sales increased 2.2 percent, foreign currency translation decreased sales by 2.2 percent, and divestitures decreased sales by 1.0 percent.
On an organic local-currency basis:
Sales increased in personal safety, roofing granules, and industrial adhesives and tapes; sales declined in closure and masking, electrical markets, automotive aftermarket, and abrasives.
Sales grew in the Americas and EMEA; sales declined in Asia Pacific.
Operating income was $726 million, an increase of 14.0 percent year-on-year; operating margins of 24.7 percent.
Transportation and Electronics
Sales of $2.2 billion, down 5.0 percent in U.S. dollars. Organic local-currency sales decreased 3.0 percent, foreign currency translation decreased sales by 1.3 percent, and divestitures decreased sales by 0.7 percent.
On an organic local-currency basis:
Sales increased in electronics and were flat in advanced materials, and transportation safety; sales declined in commercial solutions, and automotive and aerospace.
Sales declined in the Americas, Asia Pacific and EMEA.
Operating income was $484 million, a decline of 7.3 percent year-on-year; operating margins of 21.6 percent.
Adjusted operating income was $482 million, a decline of 7.1 percent year-on-year; adjusted operating margins of 21.5 percent.
Health Care
Sales of $2.1 billion, up 21.0 percent in U.S. dollars. Organic local-currency sales increased 1.2 percent, foreign currency translation decreased sales by 1.8 percent, and acquisitions increased sales by 21.6 percent.
On an organic local-currency basis:
Sales grew in drug delivery, food safety, medical solutions, and separation and purification, and were flat in health information systems; sales declined in oral care.
Sales grew in the Americas; sales declined in EMEA and Asia Pacific.
Both GAAP and adjusted operating income was $456 million, a decline of 1.7 percent year-on-year on a GAAP basis; or a decline of 0.7 percent on an adjusted basis; operating margins of 21.7 percent.
Consumer
Sales of $1.3 billion, up 4.6 percent in U.S. dollars. Organic local-currency sales increased 6.1 percent and foreign currency translation decreased sales by 1.5 percent.
On an organic local-currency basis:
Sales grew in home improvement, home care and consumer health care; sales declined in stationery and office supplies.
Sales grew in the Americas; sales declined in Asia Pacific and EMEA.
Operating income was $269 million, up 14.5 percent year-on-year; operating margins of 21.4 percent.
