After a promising end to Mike Roman's tenure, investors were optimistic about 3M's (MMM, Financial) future under new CEO William Brown, who took office on May 1. Following the spin-off of its healthcare business, now trading as Solventum (SOLV, Financial), Brown has led a leaner organization.
In Q2, Brown met investor expectations by delivering a double-digit earnings beat and sustaining organic growth. 3M reiterated its FY24 organic sales growth outlook of flat to +2% year-over-year and raised the low end of its adjusted EPS forecast to $7.00-7.30 from $6.80-7.30. Consequently, the stock surged to levels not seen in almost two years.
- With the healthcare business gone, 3M's adjusted organic sales growth is more critical than its reported sales figure. In Q2, organic revenue grew by 1.2% year-over-year, and adjusted EPS from continuing operations rose 39% to $1.93.
- Significant restructuring efforts, including a shift to a global business unit structure and centralized supply chains, positively impacted quarterly results.
- Growth in Q2 was driven by the Electronics segment, which saw 3.3% organic growth. The segment's Electronics division outperformed with a low-double-digit increase, reflecting rising demand in consumer electronics. The auto OEM business also grew nearly 5%, maintaining positive momentum, with a 9% organic rise in the first half of the year.
- Safety & Industrial experienced 1.1% organic growth year-over-year, driven by adhesives and the automotive aftermarket. However, there was a low-single-digit decline in abrasives and industrial specialties, with cautious end-consumer sentiment.
- Strength in these segments offset a 1.4% organic sales decline in the Consumer segment, attributed to weak discretionary spending. 3M expects the consumer retail environment to remain subdued for the rest of the year.
Despite a challenging global economy, 3M's Q2 results showed solid organic revenue growth across most end markets. The company continues to advance its restructuring plans, although challenges such as end-market demand and a $10.3 billion PFAS settlement remain. Overall, the direction under new leadership looks promising.
