3M Reports Fourth-Quarter and Full-Year 2015 Results

“The fourth quarter capped off a year of disciplined execution from our global team with solid margin and cash flow performance,” said Inge G. Thulin, 3M’s chairman, president and chief executive officer. “Throughout 2015 we controlled the controllable, while investing in the business and also returning significant cash to shareholders.

“2015 was an important year as we prepared and positioned our company for long-term success,” Thulin continued. “We strengthened and focused our portfolio, made significant investments in the business to support growth, and made good progress in moving toward a more efficient business model through business transformation and our corporate restructuring. We are building an even stronger and more competitive company for 2016 and beyond.”

Fourth-quarter GAAP earnings were $1.66 per share, a decrease of 8.3 percent versus the fourth quarter of 2014. Sales declined 5.4 percent year-on-year to $7.3 billion. Organic local-currency sales declined 1.1 percent while acquisitions, net of divestitures, added 1.5 percent to sales. Foreign currency translation reduced sales by 5.8 percent year-on-year.

During the fourth quarter the company incurred a pre-tax charge of $114 million ($88 million after-tax), or $0.14 per share, related to the corporate restructuring it announced in October. The restructuring was primarily focused on structural overhead, largely in the U.S., along with slower-growing markets with particular emphasis on EMEA (Europe, Middle East and Africa) and Latin America. Excluding restructuring, fourth-quarter earnings were $1.80 per share, a decrease of 0.6 percent versus the prior year.

Operating income was $1.5 billion and operating income margins for the quarter were 20.5 percent, down 1.0 percentage point year-on-year. Excluding restructuring, operating income was $1.6 billion in the quarter and operating margins were 22.1 percent, up 0.6 percentage points year-on-year. Fourth-quarter net income was $1.0 billion and the company converted 182 percent of net income to free cash flow.

3M paid $628 million in cash dividends to shareholders and repurchased $1.1 billion of its own shares during the quarter.

Organic local-currency sales growth was 4.5 percent in Health Care and 2.7 percent in Consumer with declines of 1.8 percent in Industrial, 2.5 percent in Safety and Graphics, and 7.7 percent in Electronics and Energy. On a geographic basis, organic local-currency sales growth was 1.1 percent in EMEA with declines of 0.4 percent in the U.S., 0.6 percent in Latin America/Canada and 2.7 percent in Asia Pacific.

Full-year 2015 GAAP earnings were $7.58 per share, an increase of 1.2 percent, or up 3.1 percent excluding the fourth-quarter restructuring. Sales decreased 4.9 percent to $30.3 billion with organic local-currency growth of 1.3 percent. Acquisitions, net of divestitures, increased sales 0.6 percent. Foreign currency translation reduced sales by 6.8 percent.

Full-year operating income margins were 22.9 percent, up 50 basis points versus 2014, or up 90 basis points excluding the fourth-quarter restructuring. 3M converted 103 percent of net income to free cash flow for the year and generated 22.5 percent return on invested capital.

For the full year, 3M paid $2.6 billion in cash dividends to shareholders and repurchased $5.2 billion of its own shares.

3M affirmed its 2016 full-year performance expectations. The company expects 2016 earnings to be in the range of $8.10 to $8.45 per share with organic local-currency sales growth of 1 to 3 percent. 3M also expects free cash flow conversion to be in the range of 95 to 105 percent.

Fourth-Quarter Business Group Discussion

Industrial

• Sales of $2.5 billion, down 6.3 percent in U.S. dollars. Organic local-currency sales declined 1.8 percent while foreign currency translation reduced sales by 6.2 percent and acquisitions increased sales 1.7 percent.
• On an organic local-currency basis:
  • Sales growth in 3M purification and automotive OEM was offset by declines in industrial adhesives and tapes, abrasives, and advanced materials.
  • Sales grew in EMEA, Latin America/Canada and Asia Pacific, but declined in the U.S.
• Operating income was $476 million, a decrease of 11.6 percent year-on-year; operating margin of 19.3 percent, or 21.0 percent excluding restructuring.

Safety and Graphics

• Sales of $1.3 billion, down 5.3 percent in U.S. dollars. Organic local-currency sales declined 2.5 percent while foreign currency translation reduced sales by 7.4 percent and acquisitions, net of divestitures, increased sales 4.6 percent.
• On an organic local-currency basis:
  • Sales grew in roofing granules and commercial solutions; traffic safety and security was flat; personal safety declined.
  • Sales declined in Asia Pacific, the U.S., EMEA and Latin America/Canada.
• Operating income was $282 million, a decrease of 1.1 percent year-on-year; operating margin of 21.8 percent, or 22.7 percent excluding restructuring.

Health Care

• Sales of $1.4 billion, down 0.8 percent in U.S. dollars. Organic local-currency sales increased 4.5 percent, acquisitions increased sales by 0.8 percent and foreign currency translation reduced sales by 6.1 percent.
• On an organic local-currency basis:
  • Sales grew in health information systems, food safety, oral care, drug delivery systems, and critical and chronic care.
  • Sales grew in all areas led by Asia Pacific, Latin America/Canada and EMEA.
• Operating income was $444 million, an increase of 2.7 percent year-on-year; operating margin of 32.1 percent, or 32.8 percent excluding restructuring.

Electronics and Energy

• Sales of $1.2 billion, down 11.7 percent in U.S. dollars. Organic local-currency sales declined 7.7 percent, divestitures reduced sales by 0.7 percent and foreign currency translation reduced sales by 3.3 percent.
• On an organic local-currency basis:
  • Electronics-related sales declined 8 percent as electronics materials solutions and display materials and systems declined; energy-related sales declined 6 percent as renewable energy, telecom and electrical markets declined.
  • Sales declined in the U.S., EMEA, Latin America/Canada and Asia Pacific.
• Operating income was $200 million, a decrease of 22.4 percent year-on-year; operating margin of 16.5 percent, or 17.5 percent excluding restructuring.

Consumer

• Sales of $1.1 billion, down 2.4 percent in U.S. dollars. Organic local-currency sales increased 2.7 percent and foreign currency translation reduced sales by 5.1 percent.
• On an organic local-currency basis:
  • Sales grew in home improvement, stationery and office supplies, and home care; consumer health care declined.
  • Sales grew in all areas led by the U.S., Asia Pacific and EMEA.
• Operating income was $254 million, up 0.5 percent year-on-year; operating margin of 23.1 percent, or 23.4 percent excluding restructuring.