Adjusted earnings, a non-GAAP figure, rose 23 percent to $2.38 per share from $1.94 one year earlier, a less robust change than the GAAP percentage.
This post compares the quarterly Income Statement published by 3M to the estimates I made in a previous “Look Ahead” post. My estimates were based on publicly available guidance provided by 3M's management to financial analysts, news reports, and trends in the company's historical results. Unless otherwise mentioned, all reported values mentioned below are GAAP figures.
First, a little background about the company: Formed more than a century ago as Minnesota Mining and Manufacturing, the 3M Company is now a conglomerate that sells a wide range of innovative products for Safety and Industrial, Transportation and Electronics, Health Care, and Consumer markets. While many 3M products have been designed for demanding commercial and medical applications, consumers might be more familiar with the company's Scotch® tape and Post-It Notes®. COVID-19 has affected 3M's businesses in different ways: sales of N-95 masks and certain other health care and consumer products have grown, while sales of industrial products have fallen. In December 2020, 3M announced it would be taking actions to eliminate redundancies and better leverage analytical data to become more efficient in both operations and marketing.
Revenue in the December 2020 quarter totaled $8.6 billion, 6 percent more than last year's $8.1 billion. The Safety and Industrial business was responsible for 37 percent of overall revenue, and this unit's revenue grew by 12.7 percent compared to the year-earlier result. The Transportation and Electronics business contributed 27 percent of revenue, and this unit's revenue increased by 2.3 percent. The Health Care unit supplied 26 percent of revenue, and this business's revenue rose by 5.4 percent.
I was expecting 3M to report revenue of $8.3 billion for the December 2020 quarter. The actual amount surpassed my estimate by $283.0 million (3.4 percent).
The Cost of Revenue (also known as Cost of Goods Sold) was $4.4 billion in the latest quarter, which translates into a Gross Margin of 48.9 percent of revenue. Since it was higher than the 46.7 percent Gross Margin achieved in the year-earlier quarter, it signifies that 3M sold its products and services at more profitable prices relative to production costs. I was expecting the Gross Margin to be 48.0 percent in the December 2020 quarter, and 3M exceeded that prediction by 0.9 percent.
3M spent $0.46 billion on Research and Development in the latest quarter, down from $0.52 billion one year ago. I had estimated that R&D expenses would be $0.50 billion. R&D was 5.3 percent of Revenue.
Sales, General, and Administrative expenses totaled $1.9 billion in the December 2020 quarter, down from $1.9 billion one year ago. SG&A expenses decreased from 23.9 percent to 22.0 percent of quarterly revenue, which shows 3M spent less per dollar of sales on indirect operational costs, such as marketing. I had estimated that SG&A expenses would be 21.0 percent of revenue, and 3M spent more than that percentage.
The last operating expense line on the Income Statement is for other operating income and expenses, such as restructuring. This line amounted to a $0.0 million loss in the latest quarter. I was expecting a net loss of $150.0 million due to restructuring. The charge must have been included in one of the other operating expense items.
Operating Income was $1.8 billion in the quarter, up 39.5 percent from the year-earlier period. Operating Income exceeded my $1.6 billion estimate by $0.3 billion.
Interest and other non-operating items summed to a net expense of $139 million. My estimate was $100.0 million.
The effective income tax rate fell by 1.5 percent to 18.5 percent, which had a positive effect on net income. I expected the tax rate to be 21.0 percent.
Net income in the quarter was $1.4 billion, $2.38 per share. The figures for the year-earlier quarter were $1.0 billion, $1.66/share. My EPS estimate was $2.02.
In summary, 3M's earnings were much better than I expected. The major factors that resulted in this achievement were: strong revenue growth, an improved Gross Margin, reduced R&D spending, and a lower tax rate.
The Cash Flow Statement for the quarter shows that 3M's operating activities generated $2.5 billion in cash during the last quarter, up 7.6 percent from $2.3 billion in the year-earlier period. The cash flow delta was, therefore, less robust the change in earnings. Notable uses for cash included $848 million to pay dividends to shareholders, $2 million to buy back the company's common shares, and $422 million to acquire property, plant and capital equipment.
Free cash flow over the last 12 months totaled $6.6 billion, or $11.32 per share using the latest share count. At the current market price per share of $170.40, this translates into a decent Free Cash Flow Yield of 6.6 percent.
This post is not investment advice, and the accuracy of the information, tables, charts, and any commentary presented is not guaranteed. Readers are encouraged to independently verify all data using information from original sources. The Income Statements discussed in these blog posts have not been audited and may differ in material respects from those published by the subject company. These differences are intended to facilitate analysis and cross-company comparisons. Complete financial statements with notes can usually be found in the 10-Q and 10-K filings companies submit to the Securities and Exchange Commission (SEC).
#3m #mmm #gauges #gcfr #gcfr2 #QtrlyRpt #nac_financialanalysis
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