3M's stock surges toward a 14-month high after profit, sales beat expectations

By Tomi Kilgore

Sales slipped from a year ago, amid declines in the consumer and safety and industrial businesses

Shares of 3M Co. rallied Tuesday - toward the highest prices seen in more than a year - after the consumer, industrial and healthcare-products company reported first-quarter profit and revenue that beat expectations.

"We delivered results that were better than our expectations as we returned to organic growth and achieved double digit adjusted earnings growth," said outgoing Chief Executive Mike Roman. "We improved performance in our businesses through strong operational execution, completed the spinoff of Solventum, and finalized two major legal settlements."

The stock (MMM) climbed 4.1% in midday trading, putting it on track to close at the highest price since Feb. 8, 2023.

The results come amid a busy start to the year for 3M, as the company finalized two major legal settlements, including an agreement to pay $10.3 billion to address "forever chemicals" in drinking water and an agreement to pay $6 billion to resolve Combat Arms earplug litigation.

The company also is replacing its longtime chief executive. On May 1, Bill Brown will lead the company, replacing Mike Roman, who was in the role for six years. Brown will also be in charge of a smaller 3M, after the spinoff of its healthcare business, Solventum Corp. (SOLV), on April 1.

Net income fell to $928 million, or $1.67 a share, from $976 million, or $1.76 a share, in the same period a year ago. Excluding nonrecurring items, such as litigation costs, adjusted earnings per share of $2.39 beat the FactSet consensus of $2.10.

Sales slipped 0.3% to $8.00 billion, but were above the FactSet consensus of $7.63 billion.

Sales declines in the safety and industrial and consumer businesses offset growth in the transportation and electronics and healthcare businesses.

Within the transportation and electronics business, consumer electronics was stable, while the semiconductor market remained soft.

In the consumer business, home improvement and consumer safety product sales were down in the low-single digit percentage range, home and auto care sales declined in the mid-single digits range and packaging dropped in the high-single digits range.

There was some concern going into the quarter that 3M was likely to cut its dividend, after raising it for the past 64 years. The stock's current dividend yield of 6.55% at Monday's closing price was more than four times the implied yield on the S&P 500 index SPX of 1.44%.

On Tuesday, 3M said that, following the Solventum spinoff, the dividend-payout ratio is expected to be approximately 40% of adjusted free cash flow, with the second-quarter dividend expected to be declared in May 2024. That compares with the average payout ratio of just over 57% for the past 10 years, as CFRA Jonathan Sakraida noted in a recent note to clients.

Read: 3M may be posed to cut its dividend - and break with a 64-year tradition, says analyst.

For 2024, the company said it expects adjusted EPS, with Solventum results reported as discontinued operations, of $6.80 to $7.30. Previous EPS guidance of $9.35 to $9.75 included Solventum results.

The stock has advanced 5% year to date, while the Dow Jones Industrial Average , of which 3M is a component, has tacked on 1%.

-Tomi Kilgore

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04-30-24 1145ET

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