Shares of 3M (MMM 7.45%) rose by 8% before 11 a.m. on Tuesday as the market digested an impressive first-quarter earnings report.
An excellent quarter for 3M
Sales came in at the high end of the intra-quarter adjustments to management’s outlook given in March, and margins and profits were significantly higher than the previous outlook.
On the earnings call in January, the company told investors to expect first-quarter sales similar to that of the fourth quarter and adjusted earnings per share (EPS) similar to that of the first quarter of 2024. Investors were initially expecting organic sales growth of 2.1% in the first quarter, accompanied by EPS of $1.71.
However, investors were disappointed in March when CEO Bill Brown told them sales were tracking closer to 1% to 1.5% due to the impact of tariffs slowing revenue growth. On a more positive note, he told investors to expect better earnings.
Today, the 1.5% organic sales growth gave confidence. However, the real reason for the stock price surge is the better-than-expected profit margin, leading to a 10% increase in EPS to $1.88.
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Why 3M’s run can continue
Management maintained its underlying full-year adjusted EPS guidance of $7.60 to $7.90 but referred to “additional tariff sensitivity,” which could reduce EPS by $0.20 to $0.40.
In addition, Brown’s efforts in margin and operational improvements are bearing fruit with new product introductions (NPI) up 60% in the quarter. The company’s on-time in-full (OTIF) delivery rate also improved again on a sequential basis — NPI and OTIF are key operational targets for Brown.
If 3M can get a little help from the economy and tariffs, then there’s possibly some upside potential to its guidance for the full year, especially as the first quarter beat expectations so handily.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends 3M. The Motley Fool has a disclosure policy.