3M Co Earnings - Q1 2025 Analysis

Positives

  • Adjusted EPS of $1.88 in Q1, up 10% YoY and above expectations.
  • FCF of approximately $500 million came in stronger than expected due to better earnings and disciplined CapEx spending.
  • The company launched 62 new products in Q1, up about 60% YoY, and achieved more than 70% on-time launch attainment.
  • The company had a strong start to the year with Q1 adjusted EPS of $1.88, up 10% YoY.
  • The company expects to grow EPS by $0.15 to $0.20 on the operational side due to the benefits from volume, restructuring costs, productivity, and lower equity comp.

Q&A Highlights - Q1 2025

  • Analyst asked about the mitigation levers that 3M Co is pulling to offset the impact of tariffs.

    3M Co is taking several actions to mitigate the impact of tariffs, including sourcing and logistics actions, such as changing the source of supply, adjusting trade flows, and optimizing the network. The company is also looking at alternative production sites with different countries of origin to minimize tariff impact. Additionally, 3M Co is exploring discretionary cost actions and selected surgical price actions, such as surcharges and list price changes, to offset the tariff impact. The company is also considering offensive opportunities, such as bringing more products into the US and taking share from competitors.

  • Analyst asked about the phasing of the $0.30 net headwind and its impact by segment.

    The tariffs started in February, with non-USMCA aluminum steel, but the biggest impact started in April, particularly with the US-China trade war. The company carries about 90 days of inventory, so the impact will be seen in the second half of the year. The company is working on actions to mitigate the impact, such as controlling costs and implementing an offensive strategy.

  • Analyst asked about the criticality of exports from the US to China and if there's an option to walk away from those sales.

    The company has a strong business in China and important domestic and export customers in China. There are opportunities to shift the network to bring products into China from other regions that don't have the same tariff effect. The company wants to preserve its relationship and great business in China, which is 10% of the company's revenue and grew double-digits last year. The company is following its international customers who manufacture in China and is moving to other regions. The company wants to be there to support them and is exploring ways to mitigate the impact on its end, such as sourcing from other regions.

  • Analyst asked about the impact of excessive China tariffs on 3M's supply chain and shipments.

    William M. Brown, 3M's CFO, responded that the company has not seen any disruptions or hesitancy from suppliers to ship to them, and they have not seen much push on pricing. He added that these things will evolve over the balance of the year, but the company has not yet seen the concerns mentioned by the analyst.

  • Analyst asked about the company's thinking on stock buybacks, given the stock's weakness and long-term momentum.

    Anurag Maheshwari, 3M's CFO, explained that the company's approach to stock buybacks is more timing-based, rather than aggressive. He mentioned that the company has a $7.5 billion authorization, and they have the optionality to go bigger if needed in the back half of the year. He noted that Anurag will make the right call as they get out of the quarter and into later on in the year.

  • Analyst asked about the company's outlook regarding margin puts and takes, specifically regarding the shift in G&A productivity expectation for the full year and growth investments.

    The company is maintaining its cadence for growth investments, which includes a step-up in the second quarter, and it is funding other initiatives such as commercial excellence. Regarding G&A, the company has taken a hedge of $0.10 in its guidance, and without that hedge, it expects to see at least $50 million of G&A improvement in Q1 flow through the rest of the year.

  • Analyst asked about the company's approach to imports from China and the timing of the $160 million impact.

    The company is not pausing any orders or shipments from China, but it is looking at ways to mitigate the impact of tariffs, such as through sourcing, logistics, discretionary costs, and pricing. The company is working on a case-by-case basis, keeping in mind that the business is still going on as usual.

  • Analyst asked about updates or changes to the initial expectation on corporate items.

    Anurag Maheshwari stated that the corporate side of the company is trending towards the higher end of the range, due to the G&A costs and the Solventum transition agreements. He also mentioned that the company made some progress in the first quarter, which helped it move towards the higher end of the range. Additionally, he explained that the timing between Q1 and Q2 plays a role in the spin-related items.