10-QPeriod: Q2 FY2019

3M CO Quarterly Report for Q2 Ended Jun 30, 2019

Filed July 26, 2019For Securities:MMM

Summary

3M Company's (MMM) second-quarter 2019 report shows a notable decrease in net sales and operating income compared to the prior year, reflecting challenging macroeconomic conditions and strategic inventory adjustments. Net sales declined by 2.6% year-over-year to $8.17 billion, while operating income dropped significantly by 29.1% to $1.7 billion. This downturn was broad-based across key segments like Safety and Industrial and Transportation and Electronics, impacted by slowing demand in automotive, electronics, and industrial markets, particularly in Asia Pacific and the U.S. The company also incurred a substantial pre-tax charge of $148 million for restructuring actions impacting approximately 2,000 positions globally. The Health Care segment demonstrated resilience with a 5.8% sales increase. Investors should note the company's ongoing efforts to streamline operations and its cautious outlook given the market headwinds.

Financial Highlights

54 data points
Beta

Revenue

$8.17B

47.2% Gross Margin

Net Income

$1.13B

13.8% Net Margin

EPS (Diluted)

$1.92

Total Assets

$38.97B

Cash & Equivalents

$2.85B

Free Cash Flow

$1.24B

Financial Statements
Beta
Revenue$8.17B
Cost of Revenue$4.31B
Gross Profit$3.86B
SG&A Expenses$1.69B
Operating Expenses$6.47B
Operating Income$1.70B
Interest Expense$111.00M
Net Income$1.13B
EPS (Basic)$1.95
EPS (Diluted)$1.92
Shares Outstanding (Basic)577.70M
Shares Outstanding (Diluted)586.10M

Key Highlights

  • 1Net sales for the quarter decreased by 2.6% to $8.17 billion compared to the prior year's $8.39 billion.
  • 2Operating income saw a significant decline of 29.1% to $1.70 billion from $2.40 billion in the same period last year.
  • 3Earnings per diluted share (EPS) decreased by 37.5% to $1.92, compared to $3.07 in the prior year's quarter.
  • 4The Safety and Industrial segment experienced a substantial 9.0% sales decline, impacting overall company performance.
  • 5The Health Care segment showed growth, with sales increasing by 5.8% to $1.83 billion.
  • 63M incurred $148 million in pre-tax restructuring charges, affecting approximately 2,000 positions worldwide.
  • 7The company repurchased $1.1 billion of its own stock in the first six months of 2019, continuing its capital return strategy.

Frequently Asked Questions

The sales decline was primarily driven by a slowdown in key end markets such as automotive, electronics, and industrial sectors, particularly in Asia Pacific and the United States. Additionally, all businesses worked to reduce inventories, leading to lower production volumes which also negatively impacted sales.

In the second quarter of 2019, 3M implemented restructuring actions impacting approximately 2,000 positions globally, resulting in a pre-tax charge of $148 million. This charge affected operating income by $112 million and other expenses by $36 million, negatively impacting earnings per share by $0.21.

The Health Care segment demonstrated resilience, with a 5.8% increase in sales to $1.83 billion in the second quarter of 2019. This growth was supported by increases in health information systems, medical solutions, food safety, and oral care, although drug delivery experienced some softness.

3M's capital deployment priorities remain investing in organic growth (R&D, capital expenditures), pursuing complementary acquisitions, and returning cash to shareholders through dividends and share repurchases. The company repurchased $1.1 billion of its stock in the first six months of 2019 and increased its quarterly dividend by 6%.

The report details ongoing litigation related to respirator masks/asbestos, PFAS (per- and polyfluoroalkyl substances) contamination, and Bair Hugger™ patient warming systems. The company also disclosed a voluntary investigation into certain travel activities and related funding issues, which has been voluntarily disclosed to the Department of Justice and SEC. The company has increased accruals for respirator mask/asbestos liabilities and other environmental liabilities.