3M reported better-than-expected second-quarter earnings with growth picking up. Investors should be pleased.
The materials giant on Friday announced adjusted earnings per share of $1.93 from sales of $6 billion. Wall Street was looking for earnings per share of $1.68 from sales of $5.9 billion.
Shares were up 13.32% to $117.16 after the earnings were released.
Year-over-year comparability is affected by the company’s healthcare spinoff; 3M completed the separation of Solventum on April 1. Adjusted for the spin, 3M reported first-quarter per-share earnings of about $1.70 from sales of $5.7 billion.
A nice surprise in the first quarter was sales growth. Organic sales rose by about 1%, the first positive reading in four quarters. Organic sales grew by about 1.2% in the second quarter.
“We delivered another strong quarter with adjusted earnings growth up double-digits and robust cash generation,” said CEO William
Brown in a news release. This is Brown’s first quarter as CEO. He took over for Mike Roman on May 1. “As I look ahead, I am focused on three priorities: driving sustained organic revenue growth, increasing operational performance, and effectively deploying capital.”
Coming into Friday, 3M stock, which has been adjusted for the Solventum spin, has risen 13% this year, roughly in line with the S&P 500. All of that gain has come over the past three months.
Looking ahead, 3M expects 2024 sales to grow roughly 1%. That’s the same as the guidance provided in April. Management boosted EPS guidance to a range of $7 to $7.30, up from a prior range of $6.80 and $7.30 a share. Wall Street currently expects $7.20 a share.
RBC analyst Deane Dray wrote in a preview report that he expected a guidance bump of 10 cents, citing some improving end market such as electronics demand. 3M delivered that bump. Still, he rates shares Sell and has a $93 price target on the stock. Dray isn’t convinced all the legal liabilities from groundwater pollution are known.
3M has agreed to pay some $13 billion over the coming years to U.S. water providers to remediate chemicals the company and others produced that have been found in water supplies in trace amounts.
Management hosts an earnings conference call at 9 a.m. Eastern to discuss results. Analysts will likely check in on any legal overhangs.
Options markets imply the stock will move about 5%, up or down, following earnings. Shares have moved an average of about 5% over the past four quarterly reports. They have risen three times and fallen once over that span.
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