Full Press Release Details
For Immediate Release
3M Reports Third-Quarter 2018 Results
Third-Quarter Highlights:
Sales of $8.2 billion, down 0.2 percent year-on-year
Organic local-currency sales growth of 1.3 percent
GAAP EPS of $2.58 vs. $2.33 last year, up 10.7 percent year-on-year
Returned $1.9 billion to shareholders via dividends and gross share repurchases
ST. PAUL, Minn. October 23, 2018 - 3M (NYSE: MMM) today reported third-quarter 2018 results.
In the third quarter, 3M delivered a double-digit increase in cash flow and earnings-per-share, along with strong margins despite slower growth, said Mike Roman, 3M chief executive officer. We also continued to deploy capital to invest in our future and return cash to our shareholders.
Through nine months of the year, our global team posted organic growth of more than 3 percent, and we are positioned to deliver a solid 2018, Roman continued. Going forward, we remain focused on innovating for our customers and driving growth, while continuing to transform our enterprise.
Third-quarter sales were $8.2 billion with organic local-currency sales up 1.3 percent while acquisitions, net of divestitures, increased sales by 0.2 percent. Foreign currency translation decreased sales by 1.7 percent year-on-year.
Total sales grew 7.0 percent in Safety and Graphics; Industrial was flat; sales declined 2.8 percent in Health Care, 3.4 percent in Consumer and 4.8 percent in Electronics and Energy. Organic local-currency sales increased 2.3 percent in Electronics and Energy, 2.2 percent in Industrial, and 2.2 percent in Safety and Graphics; organic local-currency sales declined 1.1 percent in Health Care and 2.0 percent in Consumer.
On a geographic basis, total sales grew 1.6 percent in Asia Pacific and 1.3 percent in the U.S.; total sales declined 3.9 percent in EMEA (Europe, Middle East and Africa) and 5.5 percent in Latin America/Canada. Organic local-currency sales increased 3.2 percent in Asia Pacific, 2.1 percent in Latin America/Canada, and 0.5 percent in the U.S.; organic local-currency sales declined 0.9 percent in EMEA.
Third-quarter GAAP earnings were $2.58 per share, an increase of 10.7 percent year-over-year. Operating income was $2.0 billion with operating margins of 24.7 percent.
The company s operating cash flow was $2.1 billion, contributing to conversion of 114 percent of net income to free cash flow, as referenced in the Supplemental Financial Information Non-GAAP Measures section.
3M paid $794 million in cash dividends to shareholders and repurchased $1.1 billion of its own shares during the quarter.
The company updated its 2018 GAAP earnings expectations to be in the range of $8.78 to $8.93 per share versus $9.08 to $9.38 previously. Excluding the full-year impacts from the communication markets business divestiture gain and related actions, a first-quarter legal settlement, and the Tax Cuts and Jobs Act-related expense, 3M now expects its adjusted 2018 earnings to be in the range of $9.90 to $10.00 per share versus prior expectation of $10.20 to $10.45. The update to the ranges reflects an estimated full-year earnings headwind of $0.05 per share from foreign currency versus a prior expectation of a benefit of $0.10 per share.
3M also updated its full-year organic local-currency sales growth guidance to approximately 3 percent from 3 to 4 percent and free cash flow conversion to 90 to 95 percent from 90 to 100 percent, as referenced in the Supplemental Financial Information Non-GAAP Measures section.
Third-Quarter Business Group Discussion
Sales were $3.0 billion, flat in U.S. dollars. Organic local-currency sales increased 2.2 percent, foreign currency translation decreased sales by 2.1 percent, and divestitures decreased sales by 0.1 percent.
On an organic local-currency basis:
Sales growth was led by advanced materials, automotive and aerospace, and industrial adhesives and tapes; automotive aftermarket declined.
Sales grew in all geographic areas led by Asia Pacific and the U.S.
Operating income was $667 million, a decrease of 0.7 percent year-on-year; operating margins were 22.1 percent.
Safety and Graphics
Sales were $1.7 billion, up 7.0 percent in U.S. dollars. Organic local-currency sales increased 2.2 percent, foreign currency translation decreased sales by 2.2 percent, and acquisitions, net of divestitures, increased sales by 7.0 percent.
On an organic local-currency basis:
Sales grew in personal safety, transportation safety, and commercial solutions; roofing granules declined.
Sales grew in all geographic areas led by Asia Pacific and the U.S.
Operating income was $412 million, up 0.4 percent year-on-year; operating margins were 24.8 percent.
Sales were $1.4 billion, down 2.8 percent in U.S. dollars. Organic local-currency sales decreased 1.1 percent and foreign currency translation decreased sales by 1.7 percent.
On an organic local-currency basis:
Sales grew in food safety, health information systems, and oral care; drug delivery declined.
Sales grew in Asia Pacific and Latin America/Canada; sales declined in EMEA and the U.S.
Operating income was $446 million, a decrease of 4.4 percent year-on-year; operating margins were 30.9 percent.
Electronics and Energy
Sales were $1.4 billion, down 4.8 percent in U.S. dollars. Organic local-currency sales increased 2.3 percent, foreign currency translation decreased sales by 1.0 percent and divestitures decreased sales by 6.1 percent.
On an organic local-currency basis:
Energy-related sales grew by 6 percent; electronics-related sales grew 1 percent.
Sales grew in the U.S., Asia Pacific, and Latin America/Canada; sales declined in EMEA.
Operating income was $457 million, an increase of 6.2 percent year-on-year; operating margins were 31.7 percent.
Sales were $1.2 billion, down 3.4 percent in U.S. dollars. Organic local-currency sales decreased 2.0 percent and foreign currency translation decreased sales by 1.4 percent.
On an organic local-currency basis:
Sales grew in home improvement; stationery and office supplies, home care, and consumer health care declined.
Sales grew in Latin America/Canada; the U.S., EMEA, and Asia Pacific declined.
Operating income was $291 million, down 6.7 percent year-on-year; operating margins were 23.5 percent.
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 21863183). The telephone replay will be available until 11:30 a.m. EDT (10:30 a.m. CDT) on Oct. 31, 2018.
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, and capital markets 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) generating 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, 2017, 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 | Nine months ended | ||||||||||||
| September 30, | September 30, | ||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||
| Net sales | $ | 8,152 | $ | 8,172 | $ | 24,820 | $ | 23,667 | |||||
| Operating expenses | |||||||||||||
| Cost of sales | 4,159 | 4,059 | 12,622 | 11,961 | |||||||||
| Selling, general and administrative expenses | 1,547 | 1,637 | 5,920 | 4,871 | |||||||||
| Research, development and related expenses | 430 | 468 | 1,384 | 1,422 | |||||||||
| Gain on sale of businesses | (530 | ) | (490 | ) | |||||||||
| Total operating expenses | 6,136 | 6,164 | 19,396 | 17,764 | |||||||||
| Operating income | 2,016 | 2,008 | 5,424 | 5,903 | |||||||||
| Other expense (income), net | 51 | 11 | 144 | 27 | |||||||||
| Income before income taxes | 1,965 | 1,997 | 5,280 | 5,876 | |||||||||
| Provision for income taxes | 419 | 564 | 1,266 | 1,532 | |||||||||
| Net income including noncontrolling interest | $ | 1,546 | $ | 1,433 | $ | 4,014 | $ | 4,344 | |||||
| Less: Net income attributable to noncontrolling interest | 3 | 4 | 12 | 9 | |||||||||
| Net income attributable to 3M | $ | 1,543 | $ | 1,429 | $ | 4,002 | $ | 4,335 | |||||
| Weighted average 3M common shares outstanding basic | 585.6 | 597.6 | 591.1 | 597.9 | |||||||||
| Earnings per share attributable to 3M common shareholders basic | $ | 2.64 | $ | 2.39 | $ | 6.77 | $ | 7.25 | |||||
| Weighted average 3M common shares outstanding diluted | 598.4 | 612.7 | 605.1 | 612.5 | |||||||||
| Earnings per share attributable to 3M common shareholders diluted | $ | 2.58 | $ | 2.33 | $ | 6.61 | $ | 7.08 | |||||
| Cash dividends paid per 3M common share | $ | 1.36 | $ | 1.175 | $ | 4.08 | $ | 3.525 |
As discussed in note (c), results of operations for the first quarter of 2018 were impacted by an $897 million pre-tax charge related to settlement of a previously disclosed lawsuit with the State of Minnesota and a $217 million measurement period adjustment relative to the accounting for the 2017 enactment of the Tax Cuts and Jobs Act. Results of operations for the second quarter of 2018 reflected the net $389 million pre-tax impact of the Communication Markets divestiture gain, net of restructuring actions. In addition, as discussed in 3M s Form 8-K dated May 8, 2018, (which updated 3M s 2017 Annual Report on Form 10-K) the Company adopted Accounting Standards Update (ASU) No. 2017-07 relative to the presentation of pension and postretirement benefit costs in the first quarter of 2018 with retroactive impact to prior periods.
3M Company and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in millions)
| September 30, | December 31, | ||||||
| 2018 | 2017 | ||||||
| ASSETS | |||||||
| Current assets | |||||||
| Cash and cash equivalents | $ | 3,185 | $ | 3,053 | |||
| Marketable securities current | 338 | 1,076 | |||||
| Accounts receivable net | 5,329 | 4,911 | |||||
| Inventories | 4,437 | 4,034 | |||||
| Prepaids | 745 | 937 | |||||
| Other current assets | 385 | 266 | |||||
| Total current assets | 14,419 | 14,277 | |||||
| Property, plant and equipment net | 8,630 | 8,866 | |||||
| Goodwill and intangible assets net | 12,849 | 13,449 | |||||
| Other assets | 1,377 | 1,395 | |||||
| Total assets | $ | 37,275 | $ | 37,987 | |||
| LIABILITIES AND EQUITY | |||||||
| Current liabilities | |||||||
| Short-term borrowings and | |||||||
| current portion of long-term debt | $ | 1,307 | $ | 1,853 | |||
| Accounts payable | 2,029 | 1,945 | |||||
| Accrued payroll | 783 | 870 | |||||
| Accrued income taxes | 186 | 310 | |||||
| Other current liabilities | 3,031 | 2,709 | |||||
| Total current liabilities | 7,336 | 7,687 | |||||
| Long-term debt | 13,539 | 12,096 | |||||
| Other liabilities | 6,089 | 6,582 | |||||
| Total liabilities | $ | 26,964 | $ | 26,365 | |||
| Total equity | $ | 10,311 | $ | 11,622 | |||
| Shares outstanding | |||||||
| September 30, 2018: 582,287,135 shares | |||||||
| December 31, 2017: 594,884,237 shares | |||||||
| Total liabilities and equity | $ | 37,275 | $ | 37,987 |
3M Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
| Nine months ended | |||||||
| September 30, | |||||||
| 2018 | 2017 | ||||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | $ | 4,181 | $ | 4,380 | |||
| Cash flows from investing activities: | |||||||
| Purchases of property, plant and equipment | (1,046 | ) | (914 | ) | |||
| Acquisitions, net of cash acquired | 13 | (12 | ) | ||||
| Purchases and proceeds from sale or maturities of marketable securities and investments net | 714 | (310 | ) | ||||
| Proceeds from sale of businesses, net of cash sold | 806 | 862 | |||||
| Other investing activities | 151 | 20 | |||||
| NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | 638 | (354 | ) | ||||
| Cash flows from financing activities: | |||||||
| Change in debt | 1,093 | (590 | ) | ||||
| Purchases of treasury stock | (3,601 | ) | (1,564 | ) | |||
| Proceeds from issuances of treasury stock pursuant to stock option and benefit plans | 401 | 582 | |||||
| Dividends paid to shareholders | (2,406 | ) | (2,104 | ) | |||
| Other financing activities | (36 | ) | (23 | ) | |||
| NET CASH USED IN FINANCING ACTIVITIES | (4,549 | ) | (3,699 | ) | |||
| Effect of exchange rate changes on cash and cash equivalents | (138 | ) | 106 | ||||
| Net increase (decrease) in cash and cash equivalents | 132 | 433 | |||||
| Cash and cash equivalents at beginning of year | 3,053 | 2,398 | |||||
| Cash and cash equivalents at end of period | $ | 3,185 | $ | 2,831 |
3M Company and Subsidiaries
SUPPLEMENTAL FINANCIAL INFORMATION
NON-GAAP MEASURES
(Dollars in millions, except full-year 2018 forecast)
| Three months ended | Nine months ended | ||||||||||||
| September 30, | September 30, | ||||||||||||
| Major GAAP Cash Flow Categories | 2018 | 2017 | 2018 | 2017 | |||||||||
| Net cash provided by operating activities | $ | 2,139 | $ | 1,750 | $ | 4,181 | $ | 4,380 | |||||
| Net cash provided by (used in) investing activities | (269 | ) | (781 | ) | 638 | (354 | ) | ||||||
| Net cash used in financing activities | (1,453 | ) | (843 | ) | (4,549 | ) | (3,699 | ) |
| Free Cash Flow (non-GAAP measure) | Full-Year 2018 Forecast (Billions) | |||||||||||||||
| Net cash provided by operating activities | $ | 2,139 | $ | 1,750 | $ | 4,181 | $ | 4,380 | $ | 6.4 to $6.8 | ||||||
| Purchases of property, plant and equipment | (377 | ) | (325 | ) | (1,046 | ) | (914 | ) | $ | (1.6 | ) | |||||
| Free cash flow (a) | 1,762 | 1,425 | 3,135 | 3,466 | $ | 4.8 to $5.2 | ||||||||||
| Net income attributable to 3M | $ | 1,543 | $ | 1,429 | $ | 4,002 | $ | 4,335 | $ | 5.3 to $5.5 | ||||||
| Free cash flow conversion (a) | 114 | % | 100 | % | 78 | % | 80 | % | 90% to 95% |
(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.
| September 30, | December 31, | ||||||
| Net Debt (non-GAAP measure) | 2018 | 2017 | |||||
| Total debt | $ | 14,846 | $ | 13,949 | |||
| Less: Cash, cash equivalents and marketable securities | 3,550 | 4,156 | |||||
| Net debt (b) | $ | 11,296 | $ | 9,793 |
(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