Full Press Release Details
For Immediate Release
3M Reports Second-Quarter 2019 Results
Second-Quarter Summary:
Sales of $8.2 billion, down 2.6 percent year-on-year
Organic local-currency sales declined 0.9 percent year-on-year
GAAP EPS of $1.92 vs. $3.07 last year, down 37.5 percent year-on-year
Adjusted EPS of $2.20 vs. $3.07 last year, down 28.3 percent year-on-year
Q2 2019 excludes $0.28 per share non-cash charge from Venezuela deconsolidation
Q2 2018 includes $0.48 per share benefit from divestiture gain, net of related restructuring actions
Announced acquisition of Acelity Inc., expected to close in Q4 2019
Affirming full-year 2019 organic growth and adjusted earnings expectations
ST. PAUL, Minn. July 25, 2019 3M (NYSE: MMM) today reported second-quarter 2019 results.
I am encouraged by our company s progress and performance in the second quarter, said Mike Roman, 3M chairman and chief executive officer. Our execution was strong in the face of continued slow growth conditions in key end markets, as we effectively managed costs and improved cash flow. Moving ahead we remain focused on continuing to drive operational improvements, investing for the future and delivering for our customers and shareholders.
Second-Quarter Results
Sales were down 2.6 percent to $8.2 billion. Organic local-currency sales decreased 0.9 percent while acquisitions, net of divestitures, increased sales by 0.1 percent. Foreign currency translation decreased sales by 1.8 percent year-on-year.
Total sales grew 5.8 percent in Health Care with declines of 0.5 percent in Consumer, 2.9 percent in Transportation and Electronics, and 9.0 percent in Safety and Industrial. Organic local-currency sales increased 3.5 percent in Health Care and 0.7 percent in Consumer, with declines of 1.2 percent in Transportation and Electronics, and 5.0 percent in Safety and Industrial.
On a geographic basis, total sales grew 1.7 percent in the U.S., with declines of 2.9 percent in Latin America/Canada, 3.5 percent in Asia Pacific, and 9.4 percent in EMEA (Europe, Middle East and Africa). Organic local-currency sales increased 0.7 percent in Latin America/Canada and 0.1 percent in the U.S., with decreases of 0.9 percent in Asia Pacific and 3.6 percent in EMEA.
Second-quarter 2019 GAAP earnings were $1.92 per share, a decrease of 37.5 percent versus the second quarter of 2018. During the second quarter of 2019, the company deconsolidated its Venezuelan subsidiary resulting in a non-cash charge of $162 million, or $0.28 per share. Excluding the Venezuelan deconsolidation charge, second-quarter 2019 adjusted earnings were $2.20 per share, a decrease of 28.3
percent versus the second quarter of 2018 as referenced in the Supplemental Financial Information Non-GAAP Measures section.
Second-quarter 2019 adjusted earnings includes a charge of $0.21 per share, from restructuring and other actions, and a tax benefit of $0.07 per share, from the held-for-sale status of the pending divestiture of the gas and flame detection business, net of ongoing deal costs. Second-quarter 2018 GAAP and adjusted earnings were $3.07 per share which included a net benefit of $0.48 per share, related to the divestiture of the communication markets business, net of related restructuring actions.
Second-quarter operating income was $1.7 billion with operating margins of 20.8 percent. Included in these results is a $112 million charge from restructuring and other costs, or a negative 1.4 percentage point impact to operating margins.
The company s operating cash flow was $1.7 billion, contributing to conversion of 110 percent of net income to free cash flow, as referenced in the Supplemental Financial Information Non-GAAP Measures section.
3M paid $830 million in cash dividends to shareholders and repurchased $400 million of its own shares during the quarter.
Second-Quarter Business Group Discussion
Safety and Industrial
Sales of $3.0 billion, down 9.0 percent in U.S. dollars. Organic local-currency sales decreased 5.0 percent, foreign currency translation decreased sales by 2.1 percent, and divestitures decreased sales by 1.9 percent.
On an organic local-currency basis:
Sales increased in roofing granules and personal safety; declined in industrial adhesives and tapes, electrical markets, abrasives, closure and masking, and automotive aftermarket.
Sales grew in Latin America/Canada; declined in Asia Pacific, EMEA, and the U.S.
Operating income was $653 million, a decrease of 49.2 percent year-on-year; Q2 2018 operating income included the communication markets divestiture gain of $494 million; operating margins of 22.1 percent.
Transportation and Electronics
Sales of $2.5 billion, down 2.9 percent in U.S. dollars. Organic local-currency sales decreased 1.2 percent, foreign currency translation decreased sales by 1.7 percent.
On an organic local-currency basis:
Sales increased in advanced materials and transportation safety; declined in electronics, commercial solutions, and automotive and aerospace.
Sales were flat in the U.S., Latin America/Canada; declined in Asia Pacific and EMEA.
Operating income was $592 million, a decrease of 11.6 percent year-on-year; operating margins of 24.1 percent.
Sales of $1.8 billion, up 5.8 percent in U.S. dollars. Organic local-currency sales increased 3.5 percent, foreign currency translation decreased sales by 2.1 percent, and acquisitions increased sales by 4.4 percent.
On an organic local-currency basis:
Sales grew in health information systems, medical solutions, food safety, and oral care; declined in drug delivery.
Sales increased in Asia Pacific, the U.S. and Latin America/Canada.
Operating income was $483 million, an increase of 2.9 percent year-on-year; operating margins of 26.4 percent.
Sales of $1.3 billion, down 0.5 percent in U.S. dollars. Organic local-currency sales increased 0.7 percent and foreign currency translation decreased sales by 1.2 percent.
On an organic local-currency basis:
Sales grew in consumer health care, stationery & office supplies, and home improvement; declined in home care.
Sales grew in Latin America/Canada and the U.S.; declined in Asia Pacific and EMEA.
Operating income was $268 million, down 3.6 percent year-on-year; operating margins of 20.6 percent.
3M updated its full-year 2019 GAAP earnings to reflect the second quarter $0.28 per share charge for the deconsolidation of its Venezuelan subsidiary. Therefore, the company now expects 2019 GAAP earnings to be in the range of $8.25 to $8.75 per share versus a prior expectation of $8.53 to $9.03 per share.
3M maintained its full-year 2019 adjusted earnings expectation to be in the range of $9.25 to $9.75 per share. 3M also affirmed its full-year organic local-currency sales growth guidance to be in the range of minus 1 to plus 2 percent, return on invested capital of 20 to 22 percent, and free cash flow conversion of 95 to 105 percent. See the Supplemental Financial Information Non-GAAP Measures section for applicable information.
3M will conduct an investor teleconference at 9:00 a.m. EDT (8:00 a.m. CDT) today. Investors can access this conference via the following:
Live webcast at http://investors.3M.com.
Live telephone:
Call 800-762-2596 within the U.S. or +1 212-231-2916 outside the U.S. Please join the call at least 10 minutes before the start time.
Webcast replay:
Go to 3M s Investor Relations website at http://investors.3M.com and click on Quarterly Earnings.
Telephone replay:
Call 800-633-8284 within the U.S. or +1 402-977-9140 outside the U.S. (for both U.S. and outside the U.S., the access code is 21900594). The telephone replay will be available until 11:30 a.m. EDT (10:30 a.m. CDT) on August 1, 2019.
Forward-Looking Statements
This news release contains forward-looking information about 3M s financial results and estimates and business prospects that involve substantial risks and uncertainties. You can identify these statements by the use of words such as anticipate, estimate, expect, aim, project, intend, plan, believe, will, should, could, target, forecast and other words and terms of similar meaning in connection with any discussion of future operating or financial performance or business plans or prospects. Among the factors that could cause actual results to differ materially are the following: (1) worldwide economic, political, regulatory, capital markets and other external conditions and other factors beyond the Company s control, including natural and other disasters or climate change affecting the operations of the Company or its customers and suppliers; (2) the Company s credit ratings and its cost of capital; (3) competitive conditions and customer preferences; (4) foreign currency exchange rates and fluctuations in those rates; (5) the timing and market acceptance of new product offerings; (6) the availability and cost of purchased components, compounds, raw materials and energy (including oil and natural gas and their derivatives) due to shortages, increased demand or supply interruptions (including those caused by natural and other disasters and other events); (7) the impact of acquisitions, strategic alliances, divestitures, and other unusual events resulting from portfolio management actions and other evolving business strategies, and possible organizational restructuring; (8) operational execution, including scenarios where the Company generates fewer productivity improvements than estimated; (9) unanticipated problems or delays with the phased implementation of a global enterprise resource planning (ERP) system, or security breaches and other disruptions to the Company s information technology infrastructure; (10) financial market risks that may affect the Company s funding obligations under defined benefit pension and postretirement plans; and (11) legal proceedings, including significant developments that could occur in the legal and regulatory proceedings described in the Company s Annual Report on Form 10-K for the year ended Dec. 31, 2018, and any subsequent quarterly reports on Form 10-Q (the Reports ). Changes in such assumptions or factors could produce significantly different results. A further description of these factors is located in the Reports under Cautionary Note Concerning Factors That May Affect Future Results and Risk Factors in Part I, Items 1 and 1A (Annual Report) and in Part I, Item 2 and Part II, Item 1A (Quarterly Reports). The information contained in this news release is as of the date indicated. The Company assumes no obligation to update any forward-looking statements contained in this news release as a result of new information or future events or developments.
3M Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(Millions, except per-share amounts)
| Three months ended | Six months ended | ||||||||||||
| June 30, | June 30, | ||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||
| Net sales | $ | 8,171 | $ | 8,390 | $ | 16,034 | $ | 16,668 | |||||
| Operating expenses | |||||||||||||
| Cost of sales | 4,313 | 4,227 | 8,623 | 8,463 | |||||||||
| Selling, general and administrative expenses | 1,686 | 1,800 | 3,634 | 4,373 | |||||||||
| Research, development and related expenses | 470 | 468 | 947 | 954 | |||||||||
| Gain on sale of businesses | (506 | ) | (8 | ) | (530 | ) | |||||||
| Total operating expenses | 6,469 | 5,989 | 13,196 | 13,260 | |||||||||
| Operating income | 1,702 | 2,401 | 2,838 | 3,408 | |||||||||
| Other expense (income), net | 256 | 51 | 304 | 93 | |||||||||
| Income before income taxes | 1,446 | 2,350 | 2,534 | 3,315 | |||||||||
| Provision for income taxes | 315 | 488 | 510 | 847 | |||||||||
| Net income including noncontrolling interest | $ | 1,131 | $ | 1,862 | $ | 2,024 | $ | 2,468 | |||||
| Less: Net income attributable to noncontrolling interest | 4 | 5 | 6 | 9 | |||||||||
| Net income attributable to 3M | $ | 1,127 | $ | 1,857 | $ | 2,018 | $ | 2,459 | |||||
| Weighted average 3M common shares outstanding basic | 577.7 | 591.4 | 577.6 | 593.8 | |||||||||
| Earnings per share attributable to 3M common shareholders basic | $ | 1.95 | $ | 3.14 | $ | 3.49 | $ | 4.14 | |||||
| Weighted average 3M common shares outstanding diluted | 586.1 | 604.2 | 587.3 | 608.5 | |||||||||
| Earnings per share attributable to 3M common shareholders diluted | $ | 1.92 | $ | 3.07 | $ | 3.44 | $ | 4.04 |
3M Company and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in millions)
| June 30, | December 31, | ||||||
| 2019 | 2018 | ||||||
| ASSETS | |||||||
| Current assets | |||||||
| Cash and cash equivalents | $ | 2,849 | $ | 2,853 | |||
| Marketable securities current | 139 | 380 | |||||
| Accounts receivable net | 5,374 | 5,020 | |||||
| Inventories | 4,300 | 4,366 | |||||
| Prepaids | 949 | 741 | |||||
| Other current assets | 440 | 349 | |||||
| Total current assets | 14,051 | 13,709 | |||||
| Property, plant and equipment net | 8,998 | 8,738 | |||||
| Operating lease right of use assets | 879 | ||||||
| Goodwill and intangible assets net | 13,538 | 12,708 | |||||
| Other assets | 1,503 | 1,345 | |||||
| Total assets | $ | 38,969 | $ | 36,500 | |||
| LIABILITIES AND EQUITY | |||||||
| Current liabilities | |||||||
| Short-term borrowings and | |||||||
| current portion of long-term debt | $ | 892 | $ | 1,211 | |||
| Accounts payable | 2,130 | 2,266 | |||||
| Accrued payroll | 604 | 749 | |||||
| Accrued income taxes | 223 | 243 | |||||
| Operating lease liabilities current | 247 | ||||||
| Other current liabilities | 3,169 | 2,775 | |||||
| Total current liabilities | 7,265 | 7,244 | |||||
| Long-term debt | 14,914 | 13,411 | |||||
| Other liabilities | 6,648 | 5,997 | |||||
| Total liabilities | $ | 28,827 | $ | 26,652 | |||
| Total equity | $ | 10,142 | $ | 9,848 | |||
| Shares outstanding | |||||||
| June 30, 2019: 575,279,050 shares | |||||||
| December 31, 2018: 576,575,168 shares | |||||||
| Total liabilities and equity | $ | 38,969 | $ | 36,500 |
3M Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
| Six months ended | |||||||
| June 30, | |||||||
| 2019 | 2018 | ||||||
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | $ | 2,710 | $ | 2,042 | |||
| Cash flows from investing activities: | |||||||
| Purchases of property, plant and equipment | (812 | ) | (669 | ) | |||
| Acquisitions, net of cash acquired | (704 | ) | 13 | ||||
| Purchases and proceeds from sale or maturities of marketable securities and investments net | 254 | 672 | |||||
| Proceeds from sale of businesses, net of cash sold | 6 | 806 | |||||
| Other investing activities | 21 | 85 | |||||
| NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | (1,235 | ) | 907 | ||||
| Cash flows from financing activities: | |||||||
| Change in debt | 953 | 774 | |||||
| Purchases of treasury stock | (1,101 | ) | (2,537 | ) | |||
| Proceeds from issuances of treasury stock pursuant to stock option and benefit plans | 365 | 305 | |||||
| Dividends paid to shareholders | (1,660 | ) | (1,612 | ) | |||
| Other financing activities | (34 | ) | (26 | ) | |||
| NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | (1,477 | ) | (3,096 | ) | |||
| Effect of exchange rate changes on cash and cash equivalents | (2 | ) | (105 | ) | |||
| Net increase (decrease) in cash and cash equivalents | (4 | ) | (252 | ) | |||
| Cash and cash equivalents at beginning of year | 2,853 | 3,053 | |||||
| Cash and cash equivalents at end of period | $ | 2,849 | $ | 2,801 |
3M Company and Subsidiaries
SUPPLEMENTAL FINANCIAL INFORMATION
NON-GAAP MEASURES
(Dollars in millions, except full-year 2019 forecast)
| Three months ended | Six months ended | ||||||||||||
| June 30, | June 30, | ||||||||||||
| Major GAAP Cash Flow Categories | 2019 | 2018 | 2019 | 2018 | |||||||||
| Net cash provided by (used in) operating activities | $ | 1,662 | $ | 1,899 | $ | 2,710 | $ | 2,042 | |||||
| Net cash provided by (used in) investing activities | (10 | ) | 626 | (1,235 | ) | 907 | |||||||
| Net cash provided by (used in) financing activities | (1,735 | ) | (3,142 | ) | (1,477 | ) | (3,096 | ) |
| Free Cash Flow (non-GAAP measure) | Full-Year 2019 Forecast (Billions) | ||||||||||||||
| Net cash provided by (used in) operating activities | $ | 1,662 | $ | 1,899 | $ | 2,710 | $ | 2,042 | $6.3 to $7.0 | ||||||
| Purchases of property, plant and equipment | (421 | ) | (365 | ) | (812 | ) | (669 | ) | ($1.6 to $1.7 | ) | |||||
| Free cash flow (a) | 1,241 | 1,534 | 1,898 | 1,373 | $4.6 to $5.4 | ||||||||||
| Net income attributable to 3M | $ | 1,127 | $ | 1,857 | $ | 2,018 | $ | 2,459 | $4.8 to $5.1 | ||||||
| Free cash flow conversion (a) | 110 | % | 83 | % | 94 | % | 56 | % | 95% to 105% |
(a) Free cash flow and free cash flow conversion are not defined under U.S. generally accepted accounting principles (GAAP). Therefore, they should not be considered a substitute for income or cash flow data prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. The Company defines free cash flow as net cash provided by operating activities less purchases of property, plant and equipment. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures. The Company defines free cash flow conversion as free cash flow divided by net income attributable to 3M. The Company believes free cash flow and free cash flow conversion are meaningful to investors as they function as useful measures of performance and the Company uses these measures as an indication of the strength of the company and its ability to generate cash.
| June 30, | December 31, | ||||||
| Net Debt (non-GAAP measure) | 2019 | 2018 | |||||
| Total debt | $ | 15,806 | $ | 14,622 | |||
| Less: Cash, cash equivalents and marketable securities | 3,034 | 3,270 | |||||
| Net debt (b) | $ | 12,772 | $ | 11,352 |
(b) Net debt is not defined under U.S. GAAP and may not be computed the same as similarly titled measures used by other companies. The Company defines net debt as total debt less the total of cash, cash equivalents and current and long-term marketable securities. 3M believes net debt is meaningful to investors as 3M considers net debt and its components to be an important indicator of liquidity and a guiding measure of capital structure strategy.
3M Company and Subsidiaries