10-QPeriod: Q3 FY2015

3M CO Quarterly Report for Q3 Ended Sep 30, 2015

Filed October 29, 2015For Securities:MMM

Summary

3M Company's third quarter and first nine months of 2015 results show a mixed performance driven by a challenging global economic environment and a strong U.S. dollar. While overall sales declined due to foreign currency translation, the company achieved positive organic local-currency growth in most segments and geographies. Significant strategic acquisitions, notably Capital Safety and Polypore's Separations Media business, bolstered sales growth but also impacted earnings in the short term due to integration costs and purchase accounting. The company managed to expand operating income margins year-over-year, driven by productivity gains, lower raw material costs, and selective price increases. Shareholders benefited from continued investment in R&D, a 20% increase in dividends, and substantial share repurchases, underscoring a commitment to returning value despite macroeconomic headwinds.

Financial Highlights

53 data points
Beta

Revenue

$7.71B

49.7% Gross Margin

Net Income

$1.30B

16.8% Net Margin

EPS (Diluted)

$2.05

Total Assets

$33.26B

Cash & Equivalents

$1.60B

Free Cash Flow

$1.31B

Financial Statements
Beta
Revenue$7.71B
Cost of Revenue$3.88B
Gross Profit$3.83B
SG&A Expenses$1.53B
Operating Expenses$5.84B
Operating Income$1.88B
Net Income$1.30B
EPS (Basic)$2.09
EPS (Diluted)$2.05
Shares Outstanding (Basic)620.60M
Shares Outstanding (Diluted)631.20M

Key Highlights

  • 1Net sales for the nine months ended September 30, 2015, decreased by 4.7% to $23.0 billion, primarily due to a 7.1% negative impact from foreign currency translation.
  • 2Organic local-currency sales grew by 1.2% in Q3 2015 and 2.0% for the first nine months of 2015, indicating underlying business resilience.
  • 3Operating income margins improved to 24.3% in Q3 2015 and 23.7% for the first nine months, up from 23.4% and 22.7% respectively, driven by cost management and pricing.
  • 4Significant acquisitions in Capital Safety and Polypore's Separations Media business added to sales and goodwill, with a combined purchase price of $3.9 billion.
  • 5The company repurchased $4.1 billion of stock in the first nine months of 2015, and increased its quarterly dividend by 20% to $1.025 per share.
  • 6Free cash flow for the first nine months of 2015 was $3.07 billion, a decrease from $3.44 billion in the prior year, impacted by higher working capital requirements and cash taxes.
  • 7The company is undergoing a restructuring plan, expecting to reduce 1,500 positions worldwide with estimated pre-tax savings of $130 million in 2016, with a $100 million charge anticipated in Q4 2015.

Frequently Asked Questions

The acquisitions of Capital Safety for approximately $2.5 billion and Polypore's Separations Media business for $1.0 billion in 2015 significantly increased 3M's goodwill and intangible assets. While these acquisitions contributed to sales growth, they also negatively impacted earnings per share in the short term due to purchase accounting impacts, transaction expenses, and integration costs. Specifically, the acquisitions reduced third-quarter earnings by 4 cents per diluted share.

The strengthening U.S. dollar had a substantial negative impact on 3M's reported sales and earnings. For the third quarter of 2015, foreign currency translation reduced worldwide sales by 7.4% and pre-tax earnings by approximately $95 million (or 10 cents per diluted share). For the first nine months, the impact was even greater, with currency translation reducing sales by 7.1% and pre-tax earnings by approximately $295 million (or 32 cents per diluted share).

3M is strategically increasing its balance sheet leverage to fund investments in its businesses and enhance shareholder returns. The company repurchased $4.1 billion of its stock in the first nine months of 2015 and increased its quarterly dividend by 20% to $1.025 per share, marking its 57th consecutive annual dividend increase. This focus on capital structure optimization and shareholder returns is supported by strong free cash flow generation and access to capital markets.

Most of 3M's business segments experienced positive organic local-currency sales growth in the third quarter of 2015, except for Electronics and Energy. The Industrial segment saw declines primarily due to weakness in the oil and gas market. The Safety and Graphics segment benefited from the Capital Safety acquisition, while the Electronics and Energy segment faced softer conditions in electronics markets. The Health Care segment showed broad-based growth, with developing markets being a particular strong point. The Consumer segment saw robust growth in stationery and office supplies, and construction and home improvement categories.