Story Stocks^®

3M (MMM) is breaking out to its highest levels in over three years and providing the DJIA with a boost today after exceeding 4Q24 EPS and revenue estimates while also issuing solid FY25 guidance that points to an improving demand environment. The industrial company, which has been in perpetual turnaround mode amid stagnant conditions across several of its end markets, is making some meaningful strides under recently appointed CEO William Brown, as illustrated by the fact that each of its business segments achieved positive organic sales growth in Q4.

Furthermore, with MMM's restructuring program now nearly complete -- approximately 90% of targeted cost savings have been reached -- the company is benefitting from improved productivity and efficiencies. As a result, adjusted operating margin of 19.7% came in better than MMM had anticipated, driven by stronger organic growth and productivity gains. For the full year, adjusted operating margin was up 280 bps to 21.4%.

• On paper, MMM's 25% yr/yr total revenue decline in Q4 looks troubling, but the steep drop is due to the company's spin-off of its healthcare unit, Solventum, last April. Therefore, organic sales, which strips out the impact of divestitures and acquisitions, is a far more useful metric in terms of assessing actual demand. For the fourth consecutive quarter, MMM generated positive organic sales growth at +2.1% in Q4, led by its Safety & Industrial segment.
• Fueled by healthy demand for roofing granules and industrial tapes and adhesives, organic sales grew by 2.4% for Safety & Industrial, representing the segment's third consecutive quarter of growth. Looking ahead, MMM expects this level of growth to continue for Safety & Industrial, helping to underpin company-wide organic sales growth of 2-3% in FY25.
• One of Mr. Brown's key initiatives after taking the helm as CEO on May 1, 2024, has been to reinvigorate MMM's product innovation machine, which had been stifled under a constant stream of litigation issues. With MMM making substantial progress on the litigation front over the past two years -- in August 2023 it agreed to pay $6 bln to resolve litigation over its Combat Arms Earplugs, as one example -- the company has been free to pour more resources into product development. In Q4, new product launches were up 32%, with the Transportation & Electronics division particularly active during the quarter.
• New product launches and spec-wins helped push organic sales higher by 2.0% for Transportation & Electronics. Unsurprisingly, the aerospace end market was a standout, up 25%, as robust travel demand continues to support the industry. Additionally, electronics grew by high-single-digits, thanks to an upswing in demand for mobile phones.
• Perhaps the most encouraging item in the earnings report was the swing to positive growth for the struggling Consumer segment. Sluggish consumer spending and the hybrid/work-from-home trend has weighed on this segment for many quarters -- in Q3 and Q2, organic sales decreased by 0.7% and 1.4%, respectively -- but a rebound in the home improvement market helped to snap that losing streak. In Q4, organic sales increased by 1.2%.

The main takeaway is that MMM's long-awaited turnaround continued to gain traction in Q4 as it looks to put its troubled, litigation-filled past in the rearview mirror. While business isn't necessarily booming for MMM, a return to organic sales growth for each of its business groups represents a major improvement.