3M on Tuesday posted a strong first quarter, blowing past Wall Street's profit forecasts with solid performances across all of its main businesses.
But with supply-chain costs rising — and likely legal expenses, too — 3M maintained its profit forecast for 2021, a cautious move.
"Strong [earnings] beat, offset by inflationary impact for now, guidance looks conservative," said an earnings note Tuesday by Stephen Tusa,, a stock analyst at JPMorgan.
The Maplewood-based manufacturing giant, maker of everything from Post-it notes to computer coolant, recorded profits of $586.3 million, or $2.77 per share, a 23% per-share increase over 2020's first quarter. The consensus stock analyst estimate was $2.29 per share.
3M's first-quarter sales clocked in at $8.9 billion, a jump of 9.6% and ahead of forecasts of $8.47 billion.
"The first quarter was highlighted by broad-based organic growth, robust cash flow and a double-digit increase in earnings per share," Mike Roman, 3M CEO, said in a statement.
In a conference call with analysts Tuesday, Roman said 3M is confident despite continued uncertainty over COVID-19.
"Looking ahead, we expect a continuing strengthening of the global economy, but we expect the recovery to be uneven," he said.
Despite the strong quarter, 3M's shares closed Tuesday at $194.45, down $5.18 or 2.6%.
3M's respirator sales once again proved a high note during the first quarter, boosting results in its health care and industrial safety businesses.
Last year, COVID-19 ignited sales of 3M's N95 respirator, considered the gold standard for health care and industrial workers. "We continue to expect strong pandemic respirator demand," 3M Chief Financial Officer Monish Patolawala told analysts.
But he said year-over-year sales growth of respirators will decline as 3M laps last year's strong N95 sales.
Potolawala also said that during the first quarter, 3M mostly weathered a semiconductor supply crunch that has fouled up manufacturing supply chains across the globe.
Indeed, 3M's consumer electronics and transportation and electronics businesses prospered in the first quarter "despite the well-known semiconductor supply constraints," Potolawala said.
But semiconductor supply shortages remain an issue while another supply-chain threat is looming: price inflation. "The inflation is coming faster," Potolawala said.
During the first quarter, 3M increased its own selling prices, but they were more than offset by higher raw materials and logistics costs, shaving profits by 1 cent per share.
And the situation is likely to deteriorate: The company estimated that raw materials and logistics headwinds will cut per-share profits by 30 to 50 cents for the rest of 2021, compared with an earlier forecast of up to 10 cents.
Despite comfortably besting Wall Street's first-quarter forecasts, 3M didn't increase its earnings guidance for 2021 — a "surprise," RBC Capital Markets analyst Deane Dray said on the conference call. "You are signaling that something could be brewing."
Potolawala said that in addition to rising inflation and supply-chain costs, 3M's legal defense expenses will increase in 2020's second half as it deals with lawsuits involving both PFAS chemicals and its Combat Arms earplugs.
3M is mired in one of the largest U.S. mass torts ever over the earplugs. More than 200,000 people — mostly veterans and active-duty soldiers — claim the earplugs were knowingly defective, which 3M strongly denies.
The first of three bellwether earplug trials began earlier this month. But the sprawling litigation around the PFAS chemicals that 3M once made is likely to cost the company considerably more over the long term than the earplug suit.
During the first quarter, 3M's industrial and safety business posted organic sales growth of 10.3% and total revenue of $3.3 billion. Its operating profits grew 17% over a year ago.
3M's transportation and electronics business, with $2.5 billion in total revenue, continued recovering during the first quarter, its organic sales rising 9.8% and its operating income up 27% over a year ago.
3M's health care division recorded sales of $2.2 billion, a 9.3% increase when adjusted for currency swings and divestitures. Its operating profit rose 13% from the same period a year ago. 3M's consumer segment tallied revenue of $1.4 billion, with a 7.8% increase in organic sales and operating profit growth of 9%.
3M's first quarter was strong globally. Its organic local-currency sales grew 12.8% in Asia Pacific, 6.3% in the Americas and 5.5% in Europe, the Middle East and Africa. In China alone, organic sales grew 32%, Roman said.
Mike Hughlett • 612-673-7003
