3M recently reported second-quarter 2020 results.
“While our results were significantly impacted by the global economic slowdown, we executed well, managed our costs and delivered another quarter of robust cash flow,” said Mike Roman, 3M chairman and CEO. “We are taking actions to navigate near-term challenges, while relentlessly innovating for our customers and investing for the future to lead out of the slowdown and continue to deliver long-term value for our shareholders.
“Globally across 3M, we continue to fight the pandemic from all angles and help ensure the safety of our employees, healthcare workers and first-responders, and the public,” Roman continued. “I remain incredibly proud of how our team is leading through these unprecedented times, and I thank all 3Mers for their tireless efforts.”
Advancing Pandemic Response in Dynamic Environment
3M has been aggressively responding to the COVID-19 pandemic given its critical role as a provider of personal protective equipment in the U.S. and across the world. The company continues to adjust and adapt quickly with a focus on mitigating the near-term impact while positioning 3M’s businesses for success coming out of the crisis. The company continues to:
Protect employees
• Strong, global workplace safety protocols to protect employees
• Employees effectively adjusting to different ways to work while ensuring business continuity
• In early stages of return-to-workplace; complying with government guidelines and policies
Lead in pandemic response
• Global production of nearly 800 million respirators in the first half of 2020; approximately 50 percent distributed in U.S. primarily to healthcare and FEMA; on-track to approximately 2 billion globally, including 1 billion in the U.S. for full-year 2020
• Partnering with U.S. Department of Defense and other governments to expand global respirator manufacturing capacity
• Advanced membrane technology being used in blood oxygenation procedures; biopharma filtration solutions supporting new vaccine and therapeutic development efforts
• Expanding partnerships, including new innovative rapid diagnostic COVID-19 test with the Massachusetts Institute of Technology
Fight fraud and price gouging
• Created hotlines and websites around the world to report suspected fraud
• Filed 18 lawsuits including in 10 U.S. states and Canada
• Secured removal of more than 7,000 counterfeit websites and more than 10,000 false or deceptive social media posts to date
Relentlessly serve customers
• Maintaining strong customer service with new global enterprise operations team
• Ongoing adjustments to manufacturing/supply chain operations as demand trends evolve
• Nearly all plants and distribution centers fully or partially operational
• Continue to innovate for customers to solve big challenges such as air quality, automotive electrification and food safety; Priority Growth Platforms outperforming markets they serve
Protect financial flexibility
• Strong operating cash flow of $1.9 billion, up 15 percent year-on-year; adjusted free cash flow of $1.5 billion, up 18 percent year-on-year, benefitting from year-on-year improvements in working capital and timing of income tax payments
• Aggressively reduced costs by approximately $400 million year-on-year to help offset COVID-19 related impacts and actions
• Undertook restructuring actions as a result of the COVID-19 pandemic and related economic impact resulting in a $58 million charge
• Divested the drug delivery business, generating a pre-tax gain of $387 million
• Strengthened the balance sheet by reducing net debt by $1.7 billion since March 31, 2020
Second-Quarter Results
The COVID-19 pandemic continues to evolve and affect 3M’s businesses in a number of ways. During the second quarter, end-market demand remained strong in personal safety, home improvement, general cleaning, semiconductor, data center and biopharma filtration. At the same time, several other end markets continued to experience significant weakness including healthcare elective procedures, automotive OEM and aftermarket, general industrial, commercial solutions and office supplies.
Second-quarter sales declined 12.2 percent year-on-year to $7.2 billion. Organic local-currency sales declined 13.1 percent, while acquisitions, net of divestitures, increased sales by 2.4 percent. Foreign currency translation reduced sales by 1.5 percent year-on-year.
Total sales declined 0.4 percent in Health Care, 6.2 percent in Consumer, 9.2 percent in Safety and Industrial and 20.9 percent in Transportation and Electronics. Organic local-currency sales decreased 5.0 percent in Consumer, 6.1 percent in Safety and Industrial, 12.4 percent in Health Care and 18.9 percent in Transportation and Electronics.
On a geographic basis, total sales declined 8.5 percent in Asia Pacific, 12.7 percent in the Americas and 16.4 percent in EMEA (Europe, Middle East and Africa). Organic local-currency sales decreased 8.1 percent in Asia Pacific, 14.5 percent in EMEA and 15.6 percent in the Americas.
Second-quarter GAAP earnings were $2.22 per share, an increase of 15.6 percent year-on-year, with operating income of $1.7 billion and operating margins of 24.3 percent.
Excluding special items, second-quarter adjusted earnings were $1.78 per share, a decline of 16.4 percent year-on-year, with operating income of $1.4 billion and operating margins of 19.6 percent, as referenced in the “Supplemental Financial Information Non-GAAP Measures” section.
The company’s operating cash flow was $1.9 billion with adjusted free cash flow of $1.5 billion contributing to adjusted free cash flow conversion of 149 percent. See the “Supplemental Financial Information Non-GAAP Measures” section for applicable information.
The company paid $846 million in cash dividends to shareholders during the quarter.
Second-Quarter Business Group Discussion
Safety and Industrial
Sales of $2.7 billion, down 9.2 percent in U.S. dollars. Organic local-currency sales decreased 6.1 percent, foreign currency translation decreased sales by 2.2 percent, and divestitures decreased sales by 0.9 percent.
On an organic local-currency basis:
• Sales increased in personal safety; sales declined in closure and masking, electrical markets, roofing granules, industrial adhesives and tapes, abrasives, and automotive aftermarket.
• Sales declined in EMEA, Asia Pacific and the Americas.
Segment operating income was $636 million, a decline of 1.6 percent year-on-year; operating margins of 23.8 percent.
Transportation and Electronics
Sales of $1.9 billion, down 20.9 percent in U.S. dollars. Organic local-currency sales decreased 18.9 percent, foreign currency translation decreased sales by 0.9 percent, and divestitures decreased sales by 1.1 percent.
On an organic local-currency basis:
• Sales decreased in electronics, transportation safety, advanced materials, commercial solutions, and automotive and aerospace.
• Sales declined in Asia Pacific, the Americas and EMEA.
Segment operating income was $382 million, a decline of 35.4 percent year-on-year; operating margins of 19.7 percent.
Health Care
Sales of $1.8 billion, down 0.4 percent in U.S. dollars. Organic local-currency sales decreased 12.4 percent, foreign currency translation decreased sales by 1.6 percent and acquisitions, net of divestitures, increased sales by 13.6 percent.
On an organic local-currency basis:
• Sales grew in separation and purification; sales declined in medical solutions, food safety, health information systems and oral care.
• Sales declined in EMEA, Asia Pacific and the Americas.
Segment operating income was $306 million, a decline of 36.7 percent year-on-year; operating margins of 16.8 percent.
Consumer
Sales of $1.2 billion, down 6.2 percent in U.S. dollars. Organic local-currency sales decreased 5.0 percent and foreign currency translation decreased sales by 1.2 percent.
On an organic local-currency basis:
• Sales grew in home care, and home improvement; sales declined in consumer health care, and stationery and office supplies.
• Sales declined in the Americas, Asia Pacific and EMEA.
Segment operating income was $287 million, up 4.8 percent year-on-year; operating margins of 23.2 percent.
Guidance Remains Withdrawn; July 2020 Sales Trends
Due to the continued evolving and uncertain impact of the COVID-19 pandemic, 3M is not able to estimate the full duration, magnitude and pace of recovery across its diverse end markets with reasonable accuracy. Therefore, 3M continues to believe it is prudent to not provide guidance. The company is seeing broad-based sales improvements across businesses and geographies to start the third quarter. With one week left in July, total company sales are currently up low-single digits year-on-year. 3M will maintain its monthly reporting of sales information during the third-quarter to provide transparency on its ongoing business performance.
