Shares of 3M Co. rallied Tuesday, after the consumer, industrial and health care-products company swung to a large second-quarter loss on a litigation settlement, but reported adjusted profit that beat expectations by a wide margin and raised its full-year outlook.
“In the second quarter, the actions we took to strengthen our supply chain and restructure the company led to improved service for customers, reduced costs across 3M, and better than expected margins and cash flow,” said Chief Executive Mike Roman.
The stock
MMM,
powered up 5.2% in morning trading, enough to pace the Dow Jones Industrial Average’s
DJIA,
gainers, and to put them on track for the highest close since May 6. The stock has now run up 17.6% since closing at an 11-year low of $93.31 on May 31.
The company swung to a net loss of $6.84 billion, or $12.35 a share, from net income of $78 million, or 14 cents a share, in the year-ago period.
The loss was a result of a $10.3 billion charge booked during the quarter for a proposed settlement of claims it was responsible for per- and polyfluoroalkyl substances (PFAS), or “forever chemicals,” in drinking water.
Excluding nonrecurring items, adjusted earnings per share fell to $2.17 from $2.45, but was well above the FactSet consensus of $1.73.
Sales surprisingly grew 4.2%, to $8.325 billion from $7.993 billion, while the FactSet consensus was for a decline to $7.875 billion.
“We saw strength in automotive, both OEM [original equipment manufacturing] and aftermarket, as well as highway infrastructure and personal safety, excluding disposable respirators,” CEO Roman said in the post-earnings conference call, according to a FactSet transcript.
“Health care, which was up slightly, continues to be impacted by lower post-COVID-related demand, notably in our biopharma, health information, and medical solutions businesses,” Roman said. “We also saw continued weakness in electronics, consumer retail, and China.”
Among 3M’s business segments, safety and industrial sales fell 5.4% to $2.77 billion, just above the FactSet consensus of $2.76 billion, and transportation and electronics sales declined 3.4% to $2.19 billion but beat expectations of $1.79 billion.
Consumer sales were down 2.8% to $1.29 billion but topped the FactSet consensus of $1.26 billion, while sales in its health care business, which is slated to be spun off into a separate public company, fell 4.8% to $2.08 billion to fall shy of expectations of $2.09 billion.
Adjusted free cash flow improved 43.7% to $1.46 billion, compared with the average estimate of two analysts surveyed by FactSet of $909 million.
For 2023, the company raised its guidance range for adjusted EPS to $8.60 to $9.10 from $8.50 to $9.00.
“As we execute our strategy, we are positioning 3M for long-term performance, including progressing the planned spin of our health care business and addressing a significant portion of PFAS litigation,” CEO Roman said.
The stock has tacked on 5.1% over the past three months, while the Dow has gained 5.6%.
