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3M CO (MMM)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 beat on both revenue and EPS with margin expansion: Adjusted EPS $2.16 vs $2.01* and revenue $6.34B vs $6.07B*, driven by broad-based execution and productivity; adjusted operating margin expanded 290 bps YoY to 24.5% .
  • FY25 guidance raised: Adjusted EPS to $7.75–$8.00 (now includes tariffs), adjusted total sales growth ~2.5% with ~2.0% adjusted organic growth, adjusted operating cash flow $5.1–$5.5B; >100% adjusted FCF conversion .
  • Operations: All three business groups grew organically; adjusted FCF $1.28B despite GAAP operating cash flow of $(0.95)B due to $2.2B after-tax litigation payments; company returned $1.3B via dividends and buybacks in Q2 .
  • Why the beat: ~$0.31 EPS tailwind from productivity, disciplined G&A, metered growth investments, and FX; partly offset by tariffs and below-the-line items; below-the-line included a $0.06 gain from an investment sale pulled forward to Q2 .
  • Catalyst watch: Guidance raise and sustainable margin trajectory vs. tariff headwinds; ongoing PFAS litigation settlements (e.g., New Jersey) and tariff mitigation actions remain key narrative drivers .

What Went Well and What Went Wrong

What Went Well

  • Margin and EPS acceleration: Adjusted operating margin 24.5% (+290 bps YoY) and adjusted EPS $2.16 (+12% YoY) on productivity and cost controls .
  • Broad-based organic growth: Adjusted organic growth +1.5% with all three business groups positive; CEO: “positive organic sales growth and double-digit EPS growth” and all groups “growing organically for the third quarter in a row” .
  • Execution KPIs improving: OTIF reached 89.6% (June >90%); OEE ~59% with specific asset rationalization examples; “AI-enabled models to optimize machine settings” improving utilization and yields .

What Went Wrong

  • Tariffs and 2H margin mix: Company embedding tariff impact in guidance; 2H margin implied lower than 1H due to ~120–130 bps tariff drag plus higher investments and stranded costs .
  • Auto and consumer pockets of softness: Auto OEM down low single digits; auto aftermarket down mid-single digits; consumer flattish amid cautious sentiment .
  • Cash from operations negative in Q2: $(0.95)B GAAP operating cash flow driven by $2.2B after-tax litigation payments; adjusted FCF $1.28B, but litigation continues to weigh on GAAP cash metrics .

Financial Results

Headline results across recent quarters (oldest → newest):

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Billions)$6.00 $5.95 $6.34
Adjusted EPS ($)$1.68 $1.88 $2.16
Adjusted Operating Margin (%)19.7% 23.5% 24.5%
Adjusted Organic Sales Growth (%)2.1% 1.5% 1.5%

Q2 2025 vs S&P Global consensus and result:

MetricQ4 2024Q1 2025Q2 2025
Revenue Estimate ($B)$5.85*$5.73*$6.07*
Revenue Actual ($B)$6.00 $5.95 $6.34
Result vs EstimateBeatBeatBeat
Primary EPS Estimate ($)$1.54*$1.77*$2.01*
Adjusted EPS Actual ($)$1.68 $1.88 $2.16
Result vs EstimateBeatBeatBeat

*Values retrieved from S&P Global.

Segment breakdown – sales and growth (YoY) for Q2:

SegmentQ2 2024 Net Sales ($MM)Q2 2025 Net Sales ($MM)Total Sales Change YoY (%)Organic Sales Change YoY (%)
Safety & Industrial2,759 2,857 3.6% 2.6%
Transportation & Electronics2,143 2,130 (0.6%) (1.5%)
Consumer1,263 1,270 0.6% 0.3%

Operating income by segment (Q2):

SegmentQ2 2024 OI ($MM)Q2 2025 OI ($MM)
Safety & Industrial612 721
Transportation & Electronics428 462
Consumer219 268
Total Reportable Segments1,259 1,451

KPIs and cash (Q1 vs Q2):

KPIQ1 2025Q2 2025
OTIF (%)89% 89.6% (June >90%)
OEE (%)58% ~59%
Adjusted Free Cash Flow ($B)$0.49 $1.28
Cash from Operations ($B)$(0.08) $(0.95)
Gross Share Buybacks ($B)$1.30 $1.00
Backlog Coverage (next qtr)~25% (entering Q2) 20–25% (entering Q3)

Non-GAAP adjustments (Q2 2025 EPS bridge excerpts): +$0.79 significant litigation; +$0.02 manufactured PFAS products; +$0.01 Solventum ownership change; adjusted EPS $2.16 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EPSFY 2025$7.60–$7.90 (tariff sensitivity $(0.20)–$(0.40) not included) $7.75–$8.00 (tariffs included) Raised; now embeds tariffs
Adjusted Total Sales GrowthFY 20250.5%–1.5% (initial Jan guide) ~2.5% Raised
Adjusted Organic Sales GrowthFY 20252%–3% ~2.0% Lower end of prior range
Adjusted Operating Cash FlowFY 2025$5.2–$5.3B $5.1–$5.5B Range widened
Adjusted FCF ConversionFY 2025~100% >100% Raised
Operating Margin ExpansionFY 2025N/A+150–200 bps expected New disclosure
Tariff TreatmentFY 2025Excluded; sensitivity $(0.20)–$(0.40)/sh Included; gross ~$0.20/sh, mitigated via cost/sourcing and price Included
DividendQ3 2025—$0.73 per share declared (payable Sep 12) Update on capital return

Earnings Call Themes & Trends

TopicQ4 2024 (previous-2)Q1 2025 (previous-1)Q2 2025 (current)Trend
Commercial excellence & marginsReturned to positive organic growth; 2025 guide set 62 NPIs; standardized sales rhythms; backlog ~25% coverage; adjusted margin 23.5% 64 NPIs; margin 24.5%; productivity across supply chain and G&A Improving cadence & margins
Supply chain/OTIF/OEE—OTIF 89%, OEE 58% OTIF 89.6% (June >90%), OEE ~59%; AI-enabled quality improvements Steady improvement
Tariffs & macro—Tariff sensitivity $(0.20)–$(0.40)/sh; macro soft pockets Tariffs now embedded; gross ~$0.20/sh; macro “sluggish”/lateral From sensitivity to embedded
Regional trends (China/Europe)—China up mid-single digits; Europe weak China mid-single-digit growth; Europe flat with auto as watch item China resilient; Europe mixed
Auto/electronics—Auto OEM down mid-single digits; electronics low-single-digit growth Auto flat in 2H after 1H declines; electronics softening 2H but up YoY Auto stabilizing; electronics moderating
Regulatory/legal (PFAS)——NJ PFAS settlement over 25 years; exit PFAS manufacturing by YE25 reaffirmed Reducing legal overhang
R&D execution—R&D % of sales up to 4.8% +150 R&D headcount since late 2024; innovation pipeline highlighted Higher R&D intensity

Management Commentary

  • CEO (press release): “We delivered strong results in the second quarter, posting positive organic sales growth and double-digit EPS growth… With execution improving and solid results in the first half, we have confidence in our increased full-year EPS guidance, which now embeds the expected impact of tariffs.”
  • CEO (call): “On service, our on-time and in-full metric reached 89.6%, the highest quarterly performance we’ve achieved in nearly six years… We’re using AI-enabled models to optimize machine settings… freeing capacity to retire aging assets.”
  • CFO (call): “Adjusted operating margins were 24.5%, up 290 bps… operational performance contributed $0.31 to earnings, partially offset by $0.02 from FX and $0.06 from non-operational items… we had a $0.06 benefit from the sale of an investment below the line.”
  • CEO (call on tariffs): “We’re offsetting ~$0.20 of gross tariff [EPS] with cost/sourcing changes and price… gross ~$140 million, net ~$70 million.”

Q&A Highlights

  • New product cadence vs margin: Management expects both growth and margin benefits from stepped-up NPIs, with pricing discipline particularly effective in industrial end markets .
  • Productivity split and sustainability: ~$500M of FY productivity, roughly half supply chain and half G&A; structural G&A savings from IT optimization and indirects highlighted .
  • 2H margin step-down drivers: Despite higher volumes, tariffs (120–130 bps), increased investments and stranded costs drive lower 2H margin vs 1H; still +110 bps YoY in 2H at midpoint .
  • Pricing/tariff mitigation: ~70 bps price for FY (vs ~50 bps typical), with ~40 bps YoY price contribution in 2H helping offset tariff headwinds .
  • End-market outlook: Auto expected flattish in 2H after declines; electronics still up YoY but softer; China growth moderates; Europe monitored for auto weakness .

Estimates Context

  • Quarterly beats vs S&P Global consensus: Q2 revenue $6.34B vs $6.07B*; Q2 adjusted EPS $2.16 vs $2.01*; Q1 revenue $5.95B vs $5.73*; Q1 adjusted EPS $1.88 vs $1.77*; Q4 revenue $6.00B vs $5.85*; Q4 adjusted EPS $1.68 vs $1.54* .
  • Implications: Street models likely need to reflect higher FY25 EPS range ($7.75–$8.00) that now includes tariffs, 150–200 bps margin expansion, and modest 2H revenue acceleration (~2.5% org in 2H implied) while incorporating 2H tariff drag and stranded costs .

*Values retrieved from S&P Global.

Key Takeaways for Investors

  • High-quality beat with improving margin trajectory: 24.5% adjusted OI margin and double-digit adjusted EPS growth reinforce the operational turnaround .
  • Guidance raised despite tariff inclusion: Midpoint EPS up ~$0.15 with tariffs now embedded; risk management and pricing discipline are working .
  • Execution KPIs trending right: OTIF at six-year highs and OEE improving underpin sustained margin leverage and potential asset rationalization .
  • Mix watch: Transportation & Electronics still slightly negative on total sales; autos stabilizing 2H and electronics moderating—monitor 2H pace .
  • Cash dynamics: GAAP operating cash pressured by litigation payments; adjusted FCF robust; continued buybacks and a $0.73 dividend highlight balanced capital returns .
  • 2H setup: Expect sequential revenue stability with 2H margin moderated by tariffs/investments; execution on tariff mitigation and pricing is the swing factor .
  • Legal overhang easing: NJ PFAS settlement structure smooths cash over 25 years; progress on broader PFAS matters remains a medium-term derisking catalyst .