3M Co. :MMM-US: Earnings Analysis: Q4, 2016 By the Numbers : January 25, 2017

3M Co. reports financial results for the quarter ended December 31, 2016.

We analyze the earnings along side the following peers of 3M Co. – General Electric Company (GE-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 7329 million, Net Earnings of USD 1155 million.
  • Gross margins widened from 48.11% to 49.30% compared to the same period last year, operating (EBITDA) margins now 22.72% from 27.56%.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 7329 7709 7662 7409 7298
Revenue Growth (%YOY) 0.42 -0.04 -0.31 -2.23 -5.45
Earnings (mil) 1155 1329 1291 1275 1038
Earnings Growth (%YOY) 11.27 2.55 -0.69 6.34 -11.96
Net Margin (%) 15.76 17.24 16.85 17.21 14.22
EPS 1.88 2.15 2.08 2.05 1.66
Return on Equity (%) 41.27 44.33 43.56 43.37 34.64
Return on Assets (%) 13.8 15.8 15.6 15.53 12.59

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Market Share Versus Profits

Revenues History
Earnings History

MMM-US‘s change in revenue this period compared to the same period last year of 0.42% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that MMM-US is holding onto its market share. Also, for comparison purposes, revenues changed by -4.93% and earnings by -13.09% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings growth has been influenced by the year-on-year improvement in gross margins from 48.11% to 49.30%. However the company’s overhead costs have prevented it from fully capitalizing on these gross margin improvements. In fact, the company’s operating margins (EBITDA margins) showed no improvement over the same period last year.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

MMM-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 70.07, compared to last year’s level of 52.64 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 22.12% to 22.72% and (2) one-time items. The company’s pretax margins are now 21.97% compared to 20.05% for the same period last year.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

3M Co. is a science company. It engages in inventing. The company operates through the following business segments: Industrial, Safety and Graphics, Electronics and Energy, Health Care, and Consumer. The Industrial segment involves in the automotive original equipment manufacturer and automotive aftermarket, electronics, appliance, paper and printing, packaging, food and beverage, and construction. The Safety and Graphics segment offers market that increase the safety, security, and productivity of people, facilities and systems. The Electronics and Energy segment serves customers in electronics and energy markets, including electronic devices, telecommunications networks, electrical products, power generation and distribution, and infrastructure protection. The Health Care segment includes medical clinics and hospitals, pharmaceuticals, dental and orthodontic practitioners, health information systems, and food manufacturing and testing. The Consumer segment comprises of consumer retail, office retail, home improvement, and building maintenance. 3M was founded by Henry S. Bryan, Hermon W. Cable, John Dwan, William A. McGonagle and J. Danley Budd in 1902 and is headquartered in St. Paul, MN.

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