It has been about a month since the last earnings report for 3M (MMM Quick QuoteMMM - Free Report) . Shares have lost about 14.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is 3M due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

3M's Earnings and Revenues Surpass Estimates in Q4

3M reported solid fourth-quarter 2021 results. Its earnings surpassed estimates by 13.79% and sales exceeded the same by 0.08%. This is the company’s eighth consecutive quarter of earnings beat.

Its adjusted earnings in the reported quarter were $2.31 per share, surpassing the Zacks Consensus Estimate of $2.03. The bottom line decreased 2.9% from the year-ago quarter figure of $2.38.

The results gained from the positive impact of price/raw material (3 cents), shares outstanding (2 cents), lower tax rate (12 cents) and other tailwinds (10 cents). However, organic volume /productivity & other and foreign currency movements had adverse impacts of 33 cents and 4 cents, respectively.

In 2021, the company’s adjusted earnings came in at $10.12, up 14% year over year.

Sales Details

In the quarter under review, 3M’s net sales were $8,612 million, reflecting growth of 0.3% from the year-ago quarter. The company’s net sales also surpassed the Zacks Consensus Estimate of $8,605 million.

Results benefited from a 1.3% year-over-year increase in organic sales, partially offset by an adverse impact of 1% from movements in foreign currencies.

Region-wise, sales in the Americas increased 2.1% year over year while that in the Asia Pacific fell 0.2%. Sales from business in the Europe, Middle East and Africa region declined 4.5% year over year.

The company reports top-line results under four business segments — Safety & Industrial, Transportation & Electronics, Health Care and Consumer. The segmental information is briefly discussed below.

Revenues from Safety and Industrial totaled $3,064 million, decreasing 2.2% year over year. The decline was attributable to a 1.3% decrease in organic sales and a 0.9% negative impact from movements in foreign currencies.

Revenues from Transportation & Electronics totaled $2,306 million, reflecting a year-over-year decrease of 1.5%. The decline was attributable to a 0.4% decrease in organic sales and a 1.1% adverse impact from movements in foreign currencies.

Revenues from Health Care were $2,275 million, up 0.7% year over year. The results benefited from a positive impact of 1.6% from organic sales, partially offset by a 0.9% negative impact from movements in foreign currencies.

Revenues from Consumer increased 4.1% year over year to $1,476 million. Organic sales improved 4.9% but movements in foreign currencies had a negative impact of 0.8%.

In 2021, the company’s net sales were $35,355 million, up 9.9% on a year-over-year basis.

Margin Profile

In the quarter under review, 3M’s cost of sales increased 7.1% year over year to $4,698 million. It represented 54.6% of net sales compared with 51.1% in the year-ago quarter. Selling, general and administrative expenses decreased 3.5% to $1,824 million. It represented 21.2% of net sales compared with 22% in the year-ago quarter. Research, development and related expenses increased 3.9% to $474 million. It represented 5.5% of the quarter’s net sales.

The company’s adjusted operating income in the quarter decreased 12.6% year over year to $1,616 million.

Operating margin decreased 270 basis points to 18.8%. The tax rate in the quarter was 14.5% compared with 18.6% in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting 2021, 3M had cash and cash equivalents of $4,564 million, reflecting a decrease from $4,878 million at the end of the last reported quarter. Long-term debt balance decreased 0.8% sequentially to $16,056 million.

In the reported quarter, the company generated net cash of $2,005 million from its operating activities, reflecting a decrease of 20.3% from the year-ago quarter. Capital used for purchasing property, plant and equipment increased 31.8% to $556 million. Adjusted free cash flow in the quarter was $1,479 million, down 29.7% from $2,104 million generated in the year-ago quarter. Adjusted free cash flow conversion was at 110%.

In the quarter, the company used $848 million for paying out dividends to shareholders and repurchased $938 million treasury shares. It paid out dividends of $848 million and refrained from repurchasing shares in the year-ago quarter.


 

Outlook

For 2022, 3M remains focused on investing in emerging end markets for driving long-term growth. Healthy cash flow generation, efforts to strengthen capital structure and sound capital allocation also remain its priorities.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

The consensus estimate has shifted -5.11% due to these changes.

VGM Scores

At this time, 3M has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 3M has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.