The objective of this exercise is to get around to the areas of business of S&P 500 companies. The goal here is not to dive deep into financials, but to get a broad understanding, in hopes that an iteration of this exercise would enable an orientation of the diverse scope of industries.
1. 10-K Business
3M identifies itself as a “diversified technology company with a global presence”. The company has four business segments – Safety and Industrial, Transportation and Electronics, Health Care, Consumer. The product page shows a good summary of the type of products they make. 3M truly produces a broad spectrum of products. I have looked into several which I was least familiar with.
Abrasives are used to smoothen the surface of an industrial material. Automotive parts include wheel weights (used to equalize the weight on either side of the wheel), headlight restoration kit etc. Coatings include corrosion protection coatings, electrical resin, ink and toner, floor finishings, stain repellents etc. Ceramic fiber, for its heat resistance and lightweight quality, is used in transport vehicles. 3M 360 Encompass Computer-Assisted Coding provides coders that work in hospitals reduce cost and increase intelligence, by aiding the collection and analysis of patient documents etc. They also make temporary dental fillings, office supplies and home cleaning tools. 3M sells their products through direct sales, e-commerce, wholesalers, retailers, etc. As a producer of products, inflation in 2023 and strong labor market negatively impacted the business.
Source: 3M
Source: 10-K
2. 10-K MD&A
There are litigation costs tied to 3M – 3M respirator masks that did not prevent asbestos, PFAS (per- and polyfluoroalkyl substance) that is used in
firefighting foam, non-stick cookware contaminated drinking water, faulty combat earplugs that resulted in hearing loss. There are also
losses tied to disposal of assets in Russia.
Net sales for 2023 was $32b. Safety and Industrial accounts for 33%, Transportation and Electronics 26%, Health Care 25% and Consumer 15%
Source: 10-K
3. Yahoo Finance, Bigcharts, Seeking Alpha Overview
Source: Yahoo Finance
Yahoo Finance
3M Company was originally Minnesota Mining and Manufacturing Company. Conglomerates GICS industry class includes companies that have several unrelated businesses in various industries across many countries. The $74b market cap company seems to have been doing well until 2017. Then was a continued downward trend since 2018, except for the bounce back in the first year of Covid. There was a turnaround in 2024.
There has been a noticeable increase of operating expense in 2022 and 2023. The company recorded -$9b in operating income in 2023. It will be important to look into why the business was damaged in 2022 and 2023. The company consistently earned around $30b to $35b in revenue every year since 2020. ROA is 7.5%, ROE 24%, and levered FCF is $10.8b. Trailing p/e is 52x, forward p/e is 17x.
Source: Bigcharts, Seeking Alpha
Bigcharts, Seeking Alpha
p/e level is quite different from Yahoo Finance. It shows a spiked level of 75x. Dividend trend shows the difficult conditions the company must have been facing since 2021. While trailing EPS seems to only have fallen during 2023, looking at data from Seeking Alpha, it shows that gross profit and operating income indeed fell starting 2021. Revenue declined but COGS increased. In 2023, Revenue was $33b. gross profit was $14b (42%), operating profit was $6b (18%). Yahoo Finance reported a operating loss of -$9b in the period, more in line with 10-K.
4. 24Q2 earnings call ChatGPT summary
This part is a copy & paste of ChatGPT 4o
Key Highlights of the Period
• Strong Performance: 3M reported solid second-quarter results with non-GAAP earnings per share of $1.93, up nearly 40%, and 1% organic revenue growth. Adjusted free cash flow was $1.2 billion with a conversion rate of 109%. The company expanded operating margins by 440 basis points year-on-year, driven by organic growth, productivity improvements, and strong spending discipline.
• Focus on Operational Excellence: The company continued its transformation, benefiting from its restructuring and supply chain centralization efforts, while maintaining a strong balance sheet. Significant progress has been made in operational improvements, including optimizing supply chains, reducing inventory, and improving equipment utilization.
Growth Strategy
• Organic Growth Focus: CEO Bill Brown emphasized the need to improve organic growth, acknowledging that 3M’s growth has lagged behind peers. The company is refocusing on R&D and commercial excellence to drive product innovation and expand market penetration in growth areas like automotive electrification, industrial automation, and climate technology.
• Portfolio and Capital Deployment: 3M will continue to evaluate its portfolio to prioritize high-growth segments, while exploring potential divestitures and acquisitions. Capital will be allocated toward R&D, operational improvements, dividends, and share buybacks, with no near-term acquisitions planned but portfolio adjustments under consideration.
Headwinds
• Macroeconomic and Sector Challenges: Consumer retail discretionary spending remained soft, particularly in hardline goods, and industrial end markets were mixed, with cautious demand from channel partners. Additionally, the spin-off of Solventum created temporary cost inefficiencies, and 3M faces ongoing uncertainties related to legal matters and PFAS manufacturing exit.
• Stock-Based Compensation and Currency: Timing of stock-based compensation grants and the impact of a stronger U.S. dollar negatively impacted earnings, though partially offset by productivity gains and restructuring savings.
* Organic growth: Growth from existing businesses, not through mergers and acquisitions
5. 23Q4 earnings call ChatGPT summary
This part is a copy & paste of ChatGPT 4o
Key Highlights of the Period
• Strong Operational Performance: 3M delivered a strong fourth quarter with an 11% increase in adjusted EPS and 180 basis points of operating margin expansion. For the full year, 3M exceeded its original earnings and cash flow guidance despite organic sales declining by 3%. The company reduced net debt by $2 billion and returned $3.3 billion to shareholders through dividends.
• Health Care Spin-Off: The company is on track to complete the spin-off of its Health Care business, named Solventum, by the first half of 2024. 3M expects to receive proceeds from the spin-off, which will strengthen its balance sheet and provide additional liquidity.
Growth Strategy
• Restructuring and Simplification: 3M implemented the most significant restructuring in its history in 2023, generating $400 million in savings by cutting management layers, reducing corporate services, and optimizing supply chains. These actions positioned 3M for improved operational efficiency.
• Focus on Growth Markets: 3M is prioritizing growth in areas like automotive electrification, climate technology, and industrial automation. Additionally, it is streamlining its portfolio by exiting underperforming product lines, particularly in the consumer segment.
Headwinds
• Litigation and Legal Settlements: 3M is managing significant legal risks, including settlements related to Combat Arms Earplugs and PFAS litigation. These legal costs could result in financial headwinds, with potential financing needs impacting earnings by up to $0.20 per share.
• Macroeconomic Challenges: Weakness in consumer retail, electronics, and China markets continues to affect organic sales, with these sectors showing muted demand. Ongoing restructuring and pension headwinds are also expected to create financial pressure in 2024.
6. Questions
Q1. Why did stock price plummet in starting 2018
Forbes said in July 2019 that it was due to weak customer demand in China. The slowdown of the second-largest economy
had an impact on 3M’s revenues. This was exacerbated by US-China trade war, which started in early 2018.
Q2. Why did stock price plummet in starting 2021
Internet says it was the impact of N95 mask sales declining after peak-Covid, inflation, chip shortages impacting automotive and electrics business, strong USD, PFAS and earplug litigation etc.
Written from scratch by Meston Ecoa
May contain incorrect data and information