Industrial conglomerate 3M (NYSE:MMM) reported Q2 CY2024 results exceeding Wall Street analysts' expectations , with revenue down 21.7% year on year to $6.26 billion. It made a non-GAAP profit of $1.93 per share, down from its profit of $2.17 per share in the same quarter last year.

Is now the time to buy 3M? Find out in our full research report.

3M (MMM) Q2 CY2024 Highlights:

• Revenue: $6.26 billion vs analyst estimates of $5.83 billion (7.3% beat)

• Operating Profit: $1.27 billion vs analyst estimates of $1.15 billion (10.3% beat)

• EPS (non-GAAP): $1.93 vs analyst estimates of $1.68 (14.9% beat)

• Raises full year EPS to $7.15 at the midpoint (from $7.05), slightly below estimates of $7.18

• Gross Margin (GAAP): 42.9%, in line with the same quarter last year

• Free Cash Flow of $752 million, similar to the previous quarter

• Organic Revenue was flat year on year (-2.5% in the same quarter last year)

• Market Capitalization: $57.21 billion

Producers of the first asthma inhaler, 3M Company (NYSE:MMM) is a global conglomerate known for products in industries like healthcare, safety, electronics, and consumer goods.

General Industrial Machinery

Automation that increases efficiency and connected equipment that collects analyzable data have been trending, creating new demand for general industrial machinery companies. Those who innovate and create digitized solutions can spur sales and speed up replacement cycles, but all general industrial machinery companies are still at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.

Sales Growth

Reviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. 3M struggled to generate demand over the last five years as its sales dropped by 2.9% annually, a rough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. 3M's recent history shows its demand has stayed suppressed as its revenue has declined by 10% annually over the last two years.

We can better understand the company's sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don't accurately reflect its fundamentals. Over the last two years, 3M's organic revenue averaged 1.2% year-on-year declines. Because this number is better than its normal revenue growth, we can see that some mixture of divestitures and foreign exchange rates dampened its headline performance.

This quarter, 3M's revenue fell 21.7% year on year to $6.26 billion but beat Wall Street's estimates by 7.3%. Looking ahead, Wall Street expects revenue to decline 14.1% over the next 12 months.

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Operating Margin

Operating margin is an important measure of profitability. It’s the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. Operating margin is also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

3M has managed its expenses well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 11.3%. This isn't surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, 3M's annual operating margin decreased by 16.6 percentage points over the last five years. Even though its margin is still high, shareholders will want to see 3M become more profitable in the future.

This quarter, 3M generated an operating profit margin of 20.3%, up 132.4 percentage points year on year. This increase was solid, and since the company's operating margin rose more than its gross margin, we can infer it was recently more efficient with its general expenses like sales, marketing, and administrative overhead.

EPS

We track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.

Sadly for 3M, its EPS and revenue declined by 1.1% and 2.9% annually over the last five years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, 3M's low margin of safety could leave its stock price susceptible to large downswings.

Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For 3M, its two-year annual EPS declines of 6.7% show its recent history was to blame for its underperformance over the last five years. These results were bad no matter how you slice the data.

In Q2, 3M reported EPS at $1.93, down from $2.17 in the same quarter last year. Despite falling year on year, this print easily cleared analysts' estimates. Over the next 12 months, Wall Street expects 3M to perform poorly. Analysts are projecting its EPS of $8.74 in the last year to shrink by 14.7% to $7.46.

Key Takeaways from 3M's Q2 Results

We were impressed by how 3M beat analysts' revenue, operating profit, and EPS expectations this quarter. That the company raised full year EPS guidance is also a great sign. Overall, we think this was a really good quarter that should please shareholders. The stock traded up 5.2% to $108.76 immediately following the results.

3M may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.