Industrial conglomerate 3M (NYSE:MMM) beat Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 25.6% year on year to $5.95 billion. Its non-GAAP profit of $1.88 per share was 6.4% above analysts’ consensus estimates.
Revenue: $5.95 billion vs analyst estimates of $5.69 billion (25.6% year-on-year decline, 4.6% beat)
Adjusted EPS: $1.88 vs analyst estimates of $1.77 (6.4% beat)
Management reiterated its full-year Adjusted EPS guidance of $7.75 at the midpoint
Operating Margin: 20.9%, up from 18.8% in the same quarter last year
Free Cash Flow was -$315 million, down from $833 million in the same quarter last year
Organic Revenue rose 1.5% year on year, in line with the same quarter last year
Market Capitalization: $68 billion
Company Overview
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
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. 3M struggled to consistently generate demand over the last five years as its sales dropped at a 5.4% annual rate. This was below our standards and suggests it’s a low quality business.
3M Quarterly Revenue
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 performance shows its demand remained suppressed as its revenue has declined by 14.4% annually over the last two years. 3M isn’t alone in its struggles as the General Industrial Machinery industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.
3M Year-On-Year Revenue Growth
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 that don’t accurately reflect its fundamentals. Over the last two years, 3M’s organic revenue was flat. 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 results.
3M Organic Revenue Growth
This quarter, 3M’s revenue fell by 25.6% year on year to $5.95 billion but beat Wall Street’s estimates by 4.6%.
Looking ahead, sell-side analysts expect revenue to decline by 2.2% over the next 12 months. Although this projection is better than its two-year trend, it's hard to get excited about a company that is struggling with demand.
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Operating Margin
3M has managed its cost base well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 10.2%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
Analyzing the trend in its profitability, 3M’s operating margin decreased by 2.7 percentage points over the last five years. Even though its historical margin was healthy, shareholders will want to see 3M become more profitable in the future.
3M Trailing 12-Month Operating Margin (GAAP)
This quarter, 3M generated an operating profit margin of 20.9%, up 2.2 percentage points year on year. The increase was encouraging, and because its revenue and gross margin actually decreased, we can assume it was more efficient because it trimmed its operating expenses like marketing, R&D, and administrative overhead.
Earnings Per Share
We track the long-term change 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 is profitable.
Sadly for 3M, its EPS and revenue declined by 3.4% and 5.4% 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.
3M Trailing 12-Month EPS (Non-GAAP)
Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.
For 3M, its two-year annual EPS declines of 6.2% show it’s continued to underperform. These results were bad no matter how you slice the data.
In Q1, 3M reported EPS at $1.88, up from $1.71 in the same quarter last year. This print beat analysts’ estimates by 6.4%. Over the next 12 months, Wall Street expects 3M’s full-year EPS of $7.47 to grow 4.6%.
Key Takeaways from 3M’s Q1 Results
We were impressed by how significantly 3M blew past analysts’ revenue expectations this quarter. We were also happy its EPS outperformed Wall Street’s estimates. Overall, this quarter had some key positives. The stock traded up 4.2% to $131.18 immediately after reporting.
