Q4 2024 Summary
Published Feb 7, 2025, 7:58 PM UTC- Significant EPS growth driven by operational performance: 3M expects adjusted EPS growth of $0.70 to $1, or 10% to 14%, excluding non-operational items in 2025. This growth is propelled by sales volume leverage (a 2.5% volume increase with 35% incrementals), lower restructuring costs (a $200 million tailwind), and net productivity improvements of $150 million.
- New product launches driving growth in 2025: The company is optimistic about its abrasives business due to the launch of Cubitron 3, a new product offering with tremendous differentiation versus competitors. This is expected to improve performance and help turn around previously declining segments in 2025.
- Positive momentum in industrial order rates: 3M observed steady order rates in its industrial portfolio in Q4 2024, slightly higher than in Q3, with some backlog building into 2025. This provides confidence in achieving at least the 2.1% organic growth seen in Q4 as a floor for 2025.
- 3M anticipates slowing growth in China in 2025, expecting revenue growth to be in the low single-digit range compared to 10% growth in 2024, which may impact overall company sales as China accounts for about 10% of revenues.
- PFAS stranded costs are projected to be a headwind of approximately $100 million in 2025, particularly affecting margins in the Transportation and Electronics Business Group, which may weigh on overall profitability.
- Efforts to reduce inventory days may negatively affect service levels (OTIF), as the company experienced lower OTIF in one segment when inventory levels were improved in Q4, indicating that inventory reduction could impact customer satisfaction and sales.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue ($4.023B) | -50% | The divestiture of the Health Care business and continued moderation in respiratory product demand drove the steep revenue drop, while currency headwinds and a weaker macro environment in certain end markets added pressure. |
Americas ($2.066B) | -54% | Lower industrial and consumer demand plus cost actions impacting volumes were key drivers in the Americas, as the region also faced slow housing and automotive markets, partially offset by recovery in select adhesive and tape segments. |
Asia Pacific ($1.384B) | -34% | The region experienced softness in electronics and consumer segments, despite modest improvement in certain Asian markets. Additionally, regional currency pressures affected reported results, contributing to the overall decline. |
Europe, Middle East & Africa ($0.573B) | -60% | Reduced automotive OEM production and ongoing economic uncertainty in key European markets led to significant weakness. Geopolitical tensions and energy cost pressures also weighed on consumer and industrial demand in EMEA. |
Net Income ($728M) | -23% | The drop in one-time litigation expenses year-over-year aided the bottom line, yet lower revenue and margins plus restructuring costs curbed net income growth. The company also navigated portfolio realignments and inflationary pressures. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Adjusted Organic Growth | FY 2024 | ~1% | N/A | no current guidance |
Adjusted Operating Margins | FY 2024 | +250 to +275 bps | N/A | no current guidance |
Adjusted EPS | FY 2024 | $7.20 to $7.30 | N/A | no current guidance |
Adjusted Free Cash Flow Conversion | FY 2024 | 100%+ | N/A | no current guidance |
Q4 2024 Margins (quarterly guidance) | Q4 2024 | ~20.5% at high end | N/A | no current guidance |
Organic Sales Growth | FY 2025 | no prior guidance | 2% to 3% | no prior guidance |
Adjusted EPS | FY 2025 | no prior guidance | $7.60 to $7.90 | no prior guidance |
Free Cash Flow Conversion | FY 2025 | no prior guidance | 100% | no prior guidance |
Adjusted Operating Margin Expansion | FY 2025 | no prior guidance | +130 to +190 bps | no prior guidance |
Adjusted Capital Expenditures (CapEx) | FY 2025 | no prior guidance | ~$1 billion | no prior guidance |
Gross Share Repurchase Program | FY 2025 | no prior guidance | ~$1.5 billion | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Full-Year Adjusted EPS | FY 2024 | $7.20 to $7.30 | 7.54 = 1.67+ 2.06+ 2.48+ 1.33 | Beat |
Operating Margins | Q4 2024 | ~20.5% at the high end | 18.06% = 1085/ 6010 | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
EPS Growth and Margin Expansions | Q3: EPS up 18%, margin +140 bps. Q2: EPS +39% YOY, margin +440 bps. Q1: Full-year EPS +15% at midpoint, margin expansion of 200–275 bps. | EPS at $7.30 for 2024, +21% YOY; margin expansion of 280 bps to 21.4%. For 2025, guiding 4–8% EPS growth and 130–190 bps margin expansion. Focus on operational excellence and restructuring savings. | Consistent positive momentum. Growth expectations remain strong; margins expanding steadily. |
China Performance and Growth | Q3: Mid-single-digit growth; optimism but cautious on macro uncertainties. Q2: ~10% of revenue, 13% first-half growth. Q1: Strong quarter due to electronics and automotive; no specific 2024 outlook. | China contributed ~10% of revenue; slowed second-half growth in 2024. Q4 had high single-digit growth due to electronics front-loading but slower 2025 outlook (low single-digit). | Recurring topic; sentiment is more cautious going into 2025. |
PFAS Stranded Costs and Exit | Q3: Mention of PFAS exit by mid-2025 and under-absorbed costs. Q2: Ongoing PFAS manufacture exit by end of 2025; PFAS R&D spend impacted new product development. Q1: On track to exit PFAS by 2025; large settlement for water suppliers. | PFAS stranded costs: (–$100M) in 2025; significant portion allocated to TEBG. No new updates on full exit timeline in Q4 call. | Consistent focus; costs and liabilities remain a headwind. |
Inventory Management and OTIF | Q3: 100 days of inventory; OTIF at 89%. Q2: Only noted future inventory reductions. Q1: Inventory adjustments in industrial channels; no specific OTIF metrics mentioned. | Reduced inventory days by 2 YOY and 8 sequentially to 94 days; OTIF at 88% (+3 pts YOY). Target is 90%+ OTIF and 75 days of inventory. Safety & Industrial still lags. | Recurring topic; sentiment improving on service levels and lower inventory. |
Restructuring Cost Improvements | Q3: ~$275M full-year restructuring spend; margin improvements from restructuring. Q2: Charges declined in second half; ~75% complete with major plan. Q1: $250–$300M full-year charges; accelerating cost actions. | Lower restructuring costs expected to add $200M tailwind in 2025. $70M of benefits achieved in 2024, contributing to EPS and margin gains. | Ongoing driver of margin expansion; consistently emphasized. |
Productivity Enhancements | Q3: Focus on lean activities, R&D and commercialization improvements. Q2: COGS optimization, reduced complexity, and OEE focus. Q1: Emphasis on spending discipline and restructuring for margin gains. | $450M net productivity planned for 2025, including lean manufacturing, supply chain, and SG&A efficiencies. Aims for +2% net productivity in COGS. | Key initiative each quarter; sentiment remains positive as a significant margin lever. |
New Product Introductions | Q3: 10% increase in NPIs; aim for +25% in 2025. Q2: Fewer than 150 NPIs in 2024 vs. 1,000+ a decade ago. Q1: Gains in Transportation and Electronics from new launches (e.g., Command Strips, automotive). | Launched 169 new products in 2024 (+32% YOY). Expects double-digit increase in 2025. Focus on LCD 2.0, EBO connectors, and Cubitron 3; still early to see full sales impact. | Emerging momentum; sentiment cautiously optimistic on future sales impact. |
Industrial Order Rates | Q3: No specific rates, but mention of slight growth in adhesives/tapes. Q2: Mixed demand in Safety and Industrial; cautious channel partners. Q1: Mixed industrial orders; channel inventory reductions. | Slightly higher than Q3, with modest backlog into 2025. Reflects early signs of industrial market improvement. | New improvement noted; sentiment slightly more positive than prior quarters. |
Legal Liabilities and Settlements | Q3: No specific updates in provided docs. Q2: $3.7B combined payments for water supplies, Combat Arms. Q1: $10.3B PFAS water suppliers settlement; $5.3B Combat Arms potential liability. | $3B to settle Combat Arms and PWS; two major legal matters settled. | Recurring but with incremental updates; settlements remain a financial overhang. |
Solventum Spin-off Dissynergies | Q3: No specific details. Q2: Dissynergies included in segment income; TSA reimbursements partially offset. Q1: Estimated $150–$175M annual dissynergies allocated to segments in April 2024. | Mention of a $0.15 Q1 equity comp headwind, offset in Q2; ~ $60M TSA absorption on corporate side. | Consistent item, though discussions are briefer. |
Long-term Growth Challenges | Q3: 1% organic growth; need faster R&D, better salesforce coverage. Q2: Low NPI count, flat R&D spend, complex supply chain. Q1: Emphasis on innovation and focusing on attractive end markets. | Reliance on existing products; focusing on salesforce execution and new launches. Investments in innovation will take time to materialize. | Consistent challenge; sentiment acknowledges multi-year effort needed to boost growth. |
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Top-Line Growth and New Products
Q: How have new product launches impacted top-line growth?
A: William Brown explained that while new product introductions exceeded expectations in 2024, their impact on top-line growth has been modest due to most being Class 3 products with light initial sales. He expects more significant top-line impact in 2025 as they launch more Class 4 products with higher sales potential. -
Margin Expansion and EPS Growth
Q: Can you provide details on margin expansion and EPS growth drivers?
A: Anurag Maheshwari outlined that at the midpoint of EPS guidance (10% to 14% growth), three factors contribute: significant volume leverage from 2.5% volume growth with 35% incrementals (about $200 million), lower restructuring costs providing a $200 million tailwind, and net productivity gains of $150 million, despite $100 million in PFAS stranded costs. -
Pricing Assumptions for 2025
Q: What are your pricing assumptions for 2025?
A: William Brown indicated that while they are not disaggregating organic growth, they expect price increases to continue covering material cost inflation, resulting in a net positive impact on growth in 2025. -
Free Cash Flow Conversion
Q: What is your free cash flow conversion expectation for next year?
A: Anurag Maheshwari stated they achieved 111% free cash flow conversion in 2024, improving cash conversion cycle by 8 days. For 2025, they aim for 100% conversion, balancing investments and working capital needs, with potential to exceed this target if inventory reductions offset receivable increases from revenue growth. -
China Sales Outlook
Q: Can you elaborate on your expectations for China sales?
A: William Brown noted that while macro forecasts indicate a slowdown, they anticipate their China business to grow in the low single-digit range in 2025, compared to about 10% growth in 2024, with China comprising 10% of their global revenue. -
Update on Insurance Recoveries
Q: Any updates on insurance recoveries related to litigation?
A: William Brown reported recovering $170 million in Q4, totaling $340 million to date, mostly related to Combat Arms litigation. The company is actively pursuing recoveries and expects insurers to honor their commitments. -
Industrial Demand Trends
Q: Did the industrial demand uptick in Q4 continue into January?
A: William Brown observed steady order rates through Q4, slightly higher than Q3, with backlog built into 2025. He noted these are positive indicators suggesting modest improvements in industrial markets, though it's still early in the year. -
T&E Segment Margin Weakness
Q: Why was T&E segment margin weaker in Q4?
A: Anurag Maheshwari explained that seasonal factors like underabsorption due to inventory reductions (improved inventory by 8 days), growth investments, and FX impacts lowered margins in Q4. However, they expect margin expansion in 2025. -
Net Productivity Gains
Q: What's driving the $150 million in net productivity gains?
A: Anurag Maheshwari detailed that besides $70 million from restructuring benefits, over $400 million in productivity improvements across supply chain, procurement, and SG&A functions contribute to the net $150 million gain after offsetting PFAS stranded costs and growth investments. -
Profit Growth vs. Revenue Growth
Q: Can high profit growth over revenue growth be sustained?
A: Anurag Maheshwari indicated that while profit growth is expected to exceed revenue growth in 2025 due to productivity initiatives, they will provide a medium-term framework at the upcoming Investor Day, focusing on gross margin expansion driving bottom-line growth. -
Abrasives and Industrial Specialties Outlook
Q: When will abrasives and industrial specialties return to growth?
A: William Brown expects both segments to improve in 2025, with new product offerings like Cubitron 3 in abrasives driving growth, and industrial specialties flattening and starting to grow over time. -
Cash Levels and Capital Allocation
Q: What is the right amount of cash to carry?
A: Anurag Maheshwari noted they ended 2024 with $7.7 billion in cash, about twice the working capital requirement. They plan to end 2025 with over $6 billion in cash after dividends, share buybacks of $1.5 billion, and litigation settlements. -
Innovation Strategy
Q: How are you reinvigorating innovation and new product introductions?
A: William Brown emphasized eliminating bottlenecks, increasing R&D investments, adding resources, and focusing on key growth verticals. He supports the 15% unbudgeted time policy for scientists to foster innovation. -
Industrial OTIF and Inventory Reduction
Q: How are you improving OTIF and reducing inventory?
A: William Brown acknowledged OTIF challenges in the Safety and Industrial Business Group, aiming to reach 90% OTIF, possibly by year-end, while reducing inventory to 75 days. They prioritize OTIF over inventory reductions but believe both goals are achievable. -
Industrial Production Outlook
Q: Where do you see potential in industrial production?
A: William Brown is closely monitoring manufacturing IPI in the U.S. and Europe, noting expectations of positive IPI growth and a significant turnaround in Europe. However, he expressed concerns about a potential decline in auto builds affecting their business. -
Sales Organization Changes
Q: What changes are you making to the sales organization?
A: William Brown explained efforts to improve commercial execution by setting sales quotas earlier, enhancing sales management processes, cross-selling initiatives, and reinstituting price corridors to drive near-term growth by selling more of existing products. -
Skepticism on IPI Forecast and Pricing Framework
Q: How have you adjusted for the 1.9% IPI forecast and pricing?
A: William Brown acknowledged that IPI indicators are just starting points, and their 2% to 3% growth guidance considers a bottoms-up review and expectations of execution on internal initiatives alongside macro factors. They expect pricing to contribute positively but did not specify amounts. -
Operating Margin Expansion Framework
Q: Help us understand the operating margin expansion.
A: Anurag Maheshwari explained that the $450 million in productivity improvements includes COGS and SG&A efficiencies, and while they target 2% net productivity in COGS annually, the higher figure this year includes benefits from restructuring and other one-time gains. -
Pricing Assumption for the Year
Q: What's the price assumption for this year?
A: William Brown stated they expect price increases to cover material cost inflation, resulting in a net positive impact, but did not provide specific figures. -
Corporate Expenses Outlook
Q: How does corporate expense outlook affect the model?
A: Anurag Maheshwari noted that corporate expenses in 2025 will include a $60 million reallocation and $60 million in TSA absorption costs, but didn't provide guidance beyond that year. -
Working Capital Expectations
Q: What are your expectations for working capital benefits?
A: Anurag Maheshwari aims to reduce inventory to 75 days, and while revenue growth may increase receivables, they strive for over 100% free cash flow conversion by offsetting with inventory improvements.