3M's Stock Has Its Best Day Ever as a Fresh Outlook Underscores the Company's New Beginning

Shares of 3M Co. soared toward a record rally on Friday after the company, known for its Post-it Notes, Scotch tape, and Command strips, surpassed second-quarter earnings expectations and raised its full-year outlook.

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“We delivered another strong quarter with adjusted earnings growth up double digits and robust cash generation,” said newly appointed Chief Executive Bill Brown. “I want to thank 3M employees for their exceptional execution, which we expect to continue in the second half of the year.”

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The stock jumped 15.6% toward a two-year high in morning trading, marking its biggest one-day gain ever based on FactSet data available since January 1972. The previous record rally was a 12.6% gain on March 24, 2020. The $16.09 price increase added about 105 points to the Dow Jones Industrial Average, which was climbing 530 points, or 1.3%.

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This quarter represents a fresh start for the 120-year-old company. Legal settlements for “forever chemicals” in drinking water and Combat Arms earplugs, which have been persistent challenges, are now resolved, and the spinoff of its healthcare business into Solventum Corp. is complete. Additionally, Bill Brown succeeded Mike Roman as the new chief executive after Roman's six-year tenure.

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On the post-earnings call with analysts, Brown highlighted several organizational changes aimed at improving results, including shifting from a geographic to a global business unit structure and centralizing the company’s supply-chain activities. Brown also mentioned efforts to enhance spending on research and development to “reinvigorate” new product development and continue investing in high-growth markets such as electric vehicles, data centers, and semiconductors.

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3M reported net income of $1.15 billion, or $2.07 per share, compared to a loss of $6.84 billion, or $12.35 per share, in the same period last year. Excluding nonrecurring items like settlements and litigation costs, adjusted earnings per share rose to $1.93 from $1.39, surpassing the FactSet consensus of $1.68.

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Total sales dipped 0.4% to $6.26 billion but exceeded the FactSet consensus of $5.85 billion. Among 3M’s business units, safety and industrial sales slipped 0.2% to $2.76 billion, transportation and electronics sales declined 2.2% to $2.14 billion, and consumer sales were down 2.3% to $1.26 billion.

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Adjusted free cash flow for the quarter was $1.2 billion, up from $800 million in the first quarter but down from $1.5 billion a year ago.

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Looking ahead, 3M raised its guidance for adjusted earnings per share to $7.00 to $7.30, up from $6.80 to $7.30, and reiterated its outlook for adjusted total sales growth of 0.25% to 1.75%.

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3M’s stock has now surged 30.7% year-to-date, while the Dow has increased 7.4%.

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This strong performance marks a significant turnaround for 3M. The company's resolution of longstanding legal issues and strategic reorganization under new leadership have set a positive tone for the future. By focusing on high-growth markets and improving operational efficiencies, 3M aims to sustain this momentum and deliver continued value to its shareholders.

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Brown's emphasis on enhancing research and development spending is a strategic move to keep 3M at the forefront of innovation. By investing in new product development and targeting sectors with high growth potential, such as electric vehicles, data centers, and semiconductors, 3M is positioning itself to capitalize on emerging trends and technologies.

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Furthermore, the shift to a global business unit structure and centralized supply chain activities are expected to streamline operations and boost overall efficiency. These changes reflect a proactive approach to organizational management, ensuring that 3M remains agile and responsive to market demands.

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Overall, 3M's impressive second-quarter results and optimistic outlook signal a bright future for the company. With a strong leadership team, a clear strategic vision, and a focus on innovation and operational excellence, 3M is well-equipped to navigate the challenges and opportunities that lie ahead. The company's ability to deliver consistent earnings growth and robust cash generation underscores its resilience and commitment to creating long-term value for its stakeholders.

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