Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of 3M’s financial statements with a narrative from the perspective of management. 3M’s MD&A is presented in the following sections:
• Overview
• Results of Operations
• Performance by Business Segment
• Financial Condition and Liquidity
• Cautionary Note Concerning Factors That May Affect Future Results
Forward-looking statements in Part I, Item 2 may involve risks and uncertainties that could cause results to differ materially from those projected (refer to the section entitled Cautionary Note Concerning Factors That May Affect Future Results in Part I, Item 2 and the risk factors provided in Part II, Item 1A for discussion of these risks and uncertainties).
Overview
3M is a diversif ied global manufacturer, technology innovator and marketer of a wide variety of products and services. Effective in the first quarter of 2024, 3M made certain changes within its business segments. The changes are described in Note 17. While they impacted the composition and names of certain divisions within 3M's business segments, they did not change the overall composition of segments or the measure of segment operating performance used by 3M’s chief operating decision maker (CODM). Information provided herein reflects the impact of these changes for all periods presented.
3M manages its operations in four operating business segments: Safety and Industrial; Transportation and Electronics; Health Care; and Consumer. As discussed in Note 3, on April 1, 2024, 3M completed the previously announced separation of its Health Care business (the Separation) through a pro rata distribution of 80.1% of the outstanding shares of Solventum Corporation (Solventum) to 3M stockholders. As a result of the Separation, Solventum became an independent public company and 3M will no longer consolidate Solventum into 3M’s financial results. In connection with the Separation, the historical net income of Solventum and applicable assets and liabilities included in the Separation will be reported in 3M's consolidated financial statements as discontinued operations beginning in the second quarter of 2024.
From a geographic perspective, any references to EMEA refer to Europe, Middle East and Africa on a combined basis. References are made to organic sales change (which include both organic volume impacts and selling price impacts), which is defined as the change in net sales, absent the separate impacts on sales from foreign currency translation and acquisitions, net of divestitures. Acquisition and divestiture sales change impacts, if any, are measured separately for the first twelve months post-transaction. 3M believes this information is useful to investors and management in understanding ongoing operations and in analysis of ongoing operating trends.
3M is impacted by certain special items such as costs for significant litigation and the sales and income associated with manufactured PFAS products. See Certain amounts adjusted for special items - (non-GAAP measures) section below for additional discussion of these and other special items, including references therein to where further information is provided.
Additional information regarding certain items impacting pre-2024 periods that may also be relevant in 2024 can be found in the Overview section of Part II, Item 7 as well as in further sections of 3M’s 2023 Annual Report on Form 10-K.
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Earnings (loss) per share attributable to 3M common shareholders – diluted: The following table provides the increases (decreases) in diluted earnings (loss) per share.
Earnings (loss) per diluted share Three months ended
March 31, 2024
Same period last year $ 1.76
Net costs for significant litigation 0.07
Divestiture costs
0.15
Manufactured PFAS products (0.01)
Total special items 0.21
Same period last year, excluding special items $ 1.97
Increase/(decrease) due to:
Total organic growth/productivity and other 0.65
Restructuring and related charges
(0.10)
Foreign exchange impacts (0.09)
Acquisitions
0.01
Other expense (income), net 0.05
Income tax rate (0.09)
Shares of common stock outstanding (0.01)
Current period, excluding special items 2.39
Net costs for significant litigation (0.44)
Divestiture costs (0.28)
Manufactured PFAS products —
Total special items (0.72)
Current period $ 1.67
The Company refers to various "adjusted" amounts or measures on an “adjusted" basis. These exclude special items. These non-GAAP measures are further described and reconciled to the most directly comparable GAAP financial measures in the Certain amounts adjusted for special items - (non-GAAP measures) section below.
A discussion related to the components of year-on-year changes in earnings (loss) per diluted share follows:
Total organic growth/productivity and other:
• For the first quarter of 2024, the following components impacted earnings per diluted share year-on-year:
◦ Timing of stock-based compensation grants to be incurred in the second quarter of 2024 versus the first quarter of 2023 due to Solventum spin (further discussed in "Results of Operations" section) resulted in a net year-on-year benefit of $0.15 per share.
◦ Nonrecurring items including gain on property sales resulted in a net year-on-year increase of $0.08 per share
◦ Remaining organic growth/productivity and other impacts resulted in a net year-on-year increase of $0.42 per share which was impacted by the following:
▪ Benefits from productivity, sourcing actions, restructuring and spending discipline
▪ Investments in growth, productivity, and sustainability
Restructuring and related charges:
• 3M recorded restructuring pre-tax charges of $104 million in the first quarter of 2024 compared to $52 million in the same period last year (refer to Note 5 for additional discussion). In addition, 3M recorded adjustments to previous accruals and certain related accelerated depreciation.
Foreign exchange impacts:
• Foreign currency impacts (net of hedging) decreased operating income by approximately $63 million (or decreased pre-tax income by approximately $65 million) year-on-year for 2024. These estimates include: (a) the effects of year-on-year changes in exchange rates on translating current period functional currency profits into U.S. dollars and on current period non-functional currency denominated purchases or transfers of goods between 3M operations, and (b) year-on-year changes in transaction gains and losses, including derivative instruments designed to reduce foreign currency exchange rate risks.
Acquisitions/divestitures:
• Impacts primarily relate to reconsolidation of Aearo entities.
◦ In the third quarter of 2022, 3M deconsolidated the Aearo Entities and, in the second quarter of 2023, reconsolidated those entities (discussed in Note 16). For each of the 12-months post-deconsolidation and post-reconsolidation, impacts are each reflected separately as divestiture and acquisition, respectively.
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Other expense (income), net:
• Interest expense (net of interest income) included in other expense (income), net as presented above decreased for the first quarter of 2024 compared to the same period year-on-year.
• Lower income related to non-service cost components of pension and postretirement expense increased expense year-on-year for the first quarter of 2024.
Income tax rate:
• Certain items above reflect specific income tax rates associated therewith. Overall, the effective tax rate for the first quarter of 2024 was 24.7 percent, an increase from 17.7 percent in the prior year. The primary factors that increased the Company's effective tax rate for first quarter 2024 were nonrecurring deferred tax benefits in 2023 as compared to 2024's decreased tax benefits related to significant litigation and stock-based compensation, as well as tax costs of entity structuring associated with the separation of Solventum.
• On an adjusted basis (as discussed below), the effective tax rate for the first quarter of 2024 was 20.5 percent, an increase of 2.8 percentage points compared to the same period year-on-year. The primary factors were nonrecurring deferred tax benefits in 2023 and decreased tax benefits from stock-based compensation in 2024.
Shares of common stock outstanding:
• Higher shares outstanding decreased earnings per share year-on-year for the first quarter of 2024.
Certain amounts adjusted for special items - (non-GAAP measures): In addition to reporting financial results in accordance with U.S. GAAP, 3M also provides certain non-GAAP measures. These measures are not in accordance with, nor are they a substitute for GAAP measures, and may not be comparable to similarly titled measures used by other companies.
Certain measures adjust for the impacts of special items. Special items for the periods presented include the items described below. Because 3M provides certain information with respect to business segments, it is noteworthy that special items impacting operating income (loss) are reflected in Corporate and Unallocated, except as described below with respect to net costs for significant litigation and manufactured PFAS products items.
This document contains measures for which 3M provides the reported GAAP measure and a non-GAAP measure adjusted for special items. These measures and reasons 3M believes they are useful to investors (and, as applicable, used by 3M) include:
GAAP amounts for which a measure adjusted for special items is also provided: Reasons 3M believes the measure is useful:
• Net sales (and sales change)
Considered, in addition to segment operating performance, in evaluating and managing operations; useful in understanding underlying business performance, provides additional transparency to special items
• Operating income (loss), segment operating income (loss) and operating income (loss) margin
• Income (loss) before taxes
• Provision for income taxes and effective tax rate
• Net income (loss)
• Earnings (loss) per share
Special items for the periods presented include:
Net costs for significant litigation:
• These relate to 3M's respirator mask/asbestos (which include Aearo and non-Aearo items), PFAS-related other environmental, and Combat Arms Earplugs matters (as discussed in Note 16). Net costs include the impacts of changes in accrued liabilities (including interest imputation on applicable settlement obligations), external legal fees, and insurance recoveries, along with the associated tax impacts. 3M does not consider the elements of the net costs associated with these matters to be normal, operating expenses related to the Company’s ongoing operations, revenue generating activities, business strategy, industry, and regulatory environment. Net costs related to respirator mask/asbestos are reflected as special items in the Safety and Industrial business segment while those impacting operating income (loss) associated with PFAS-related other environmental and Combat Arms Earplugs matters are reflected as corporate special items in Corporate and Unallocated. In addition, during the voluntary chapter 11 bankruptcy period (which began in July 2022 and ended in June 2023—see Note 16), costs associated with the Aearo portion of respirator mask/asbestos matters were reflected in corporate special items in Corporate and Unallocated. Prior to the bankruptcy, costs associated with Combat Arms Earplugs matters were reflected as part of special items in the Safety and Industrial business segment.
Divestiture costs:
• These include costs related to separating and divesting substantially an entire business segment of 3M following public announcement of its intended divestiture, including net tax costs of entity structuring associated with the separation of Solventum. These also include interest expense on debt issued by Solventum for the period outstanding prior to the April 1, 2024 completion of the separation of Solventum from 3M.
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Manufactured PFAS products:
• These amounts relate to sales and estimates of income (loss) regarding manufactured PFAS products that 3M plans to exit by the end of 2025 included within the Transportation and Electronics business segment. Along with other costs in arriving at this associated income, these amounts include estimates of costs of sales of $230 million and $276 million for the three months ended March 31, 2024 and 2023, respectively. Estimated income does not contemplate impacts on non-operating items such as net interest income/expense and the non-service cost components portion of defined benefit plan net periodic benefit costs.
Three months ended March 31, 2023
(Dollars in millions, except per share amounts) Net sales Operating income (loss) Operating income (loss) margin Income (loss) before taxes Provision (benefit) for income taxes Effective tax rate Net income (loss) attributable to 3M Earnings per diluted share
Safety and Industrial
GAAP amounts $ 601 21.6 %
Adjustments for special items:
Net costs for significant litigation (39)
Total special items (39)
Adjusted amounts (non-GAAP measures) $ 562 20.2 %
Transportation and Electronics
GAAP amounts $ 2,050 $ 294 14.4 %
Adjustments for special items:
Manufactured PFAS products (345) (10)
Total special items (345) (10)
Adjusted amounts (non-GAAP measures) $ 1,705 $ 284 16.7 %
Total Company
GAAP amounts $ 8,031 $ 1,241 15.4 % $ 1,189 $ 210 17.7 % $ 976 $ 1.76
Adjustments for special items:
Net costs for significant litigation — 43 43 7 36 0.07
Manufactured PFAS products (345) (10) (10) (3) (7) (0.01)
Divestiture costs — 102 102 20 82 0.15
Total special items (345) 135 135 24 111 0.21
Adjusted amounts (non-GAAP measures) $ 7,686 $ 1,376 17.9 % $ 1,324 $ 234 17.7 % $ 1,087 $ 1.97
Three months ended March 31, 2024
(Dollars in millions, except per share amounts) Net sales Sales change Operating income (loss) Operating income (loss) margin Income (loss) before taxes Provision (benefit) for income taxes Effective tax rate Net income (loss) attributable to 3M Earnings (loss) per diluted share Earnings (loss) per diluted share percent change
Safety and Industrial
GAAP amounts $ 657 24.1 %
Adjustments for special items:
Net costs for significant litigation 7
Total special items 7
Adjusted amounts (non-GAAP measures) $ 664 24.3 %
Transportation and Electronics
GAAP amounts $ 2,104 2.6 % $ 481 22.9 %
Adjustments for special items:
Manufactured PFAS products (281) (2)
Total special items (281) (2)
Adjusted amounts (non-GAAP measures) $ 1,823 6.9 % $ 479 26.3 %
Total Company
GAAP amounts $ 8,003 (0.3) % $ 1,501 18.8 % $ 1,237 $ 305 24.7 % $ 928 $ 1.67 (5) %
Adjustments for special items:
Net costs for significant litigation
— 70 274 31 243 0.44
Manufactured PFAS products (281) (2) (2) (1) (1) —
Divestiture costs — 121 165 8 157 0.28
Total special items (281) 189 437 38 399 0.72
Adjusted amounts (non-GAAP measures) $ 7,722 0.5 % $ 1,690 21.9 % $ 1,674 $ 343 20.5 % $ 1,327 $ 2.39 21 %
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Three months ended March 31, 2024
Sales Change Organic sales Acquisitions Divestitures Translation Total sales change
Total Company — % 0.4 % (0.1) % (0.6) % (0.3) %
Remove manufactured PFAS products special item impact 0.8 — — — 0.8
Adjusted total Company (non-GAAP measures)
0.8 % 0.4 % (0.1) % (0.6) % 0.5 %
Transportation and Electronics 2.7 % 1.4 % — % (1.5) % 2.6 %
Remove manufactured PFAS products special item impact 4.0 0.3 — — 4.3
Adjusted Transportation and Electronics (non-GAAP measures) 6.7 % 1.7 % — % (1.5) % 6.9 %
Sales and operating income (loss) by business segment: The following tables contain sales and operating income (loss) results by business segment for the three months ended March 31, 2024 and 2023. Refer to the section entitled Performance by Business Segment later in MD&A for additional discussion concerning 2024 versus 2023 results, including Corporate and Unallocated. Refer to Note 17 for additional information on business segments.
Three months ended March 31,
2024 2023 % change
(Dollars in millions) Net
Sales Operating
Income (Loss) Net
Sales Operating
Income (Loss) Net
Sales Operating
Income (Loss)
Business Segments
Safety and Industrial $ 2,732 $ 657 $ 2,779 $ 601 (1.7) % 9.3 %
Transportation and Electronics 2,104 481 2,050 294 2.6 63.5
Health Care 2,017 354 2,010 360 0.3 (1.6)
Consumer 1,140 216 1,192 179 (4.3) 20.9
Corporate and Unallocated 10 (207) — (193)
Total Company $ 8,003 $ 1,501 $ 8,031 $ 1,241 (0.3) % 20.9 %
Three months ended March 31, 2024
Worldwide Sales Change
By Business Segment Organic sales Acquisitions Divestitures Translation Total sales
change
Safety and Industrial (1.4) % — % — % (0.3) % (1.7) %
Transportation and Electronics 2.7 1.4 — (1.5) 2.6
Health Care 1.0 — (0.3) (0.4) 0.3
Consumer (3.9) — — (0.4) (4.3)
Total Company — 0.4 (0.1) (0.6) (0.3)
Refer to the Certain amounts adjusted for special items - (non-GAAP measures) section for additional details on the impact of special items on sales (and sales change) and operating income (loss) by business segment.
Sales by geographic area: Percent change information compares the three months ended March 31, 2024 with the same prior year period, unless otherwise indicated. Additional discussion of business segment results is provided in the Performance by Business Segment section.
Three months ended March 31, 2024
Americas Asia
Pacific Europe,
Middle East
& Africa Other
Unallocated Worldwide
Net sales (millions) $ 4,375 $ 2,106 $ 1,522 $ — $ 8,003
% of worldwide sales 54.7 % 26.3 % 19.0 % 100.0 %
Components of net sales change:
Organic sales (1.5) 0.9 3.3 —
Acquisitions 0.6 0.1 0.1 0.4
Divestitures — (0.1) (0.3) (0.1)
Translation 0.4 (4.3) 1.7 (0.6)
Total sales change (0.5) % (3.4) % 4.8 % (0.3) %
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Additional information beyond what is included in the preceding tables are as follows:
• For the first quarter of 2024, in the Americas geographic area, U.S. total sales were flat which included decreased organic sales of 1 percent. Total sales in Mexico increased 10 percent which included increased organic sales of 1 percent. In Canada, total sales decreased 3 percent which included decreased organic sales of 4 percent. In Brazil, total sales were flat which included decreased organic sales of 5 percent. In the Asia Pacific geographic area, China total sales increased 5 percent which included increased organic sales of 8 percent. In Japan, total sales decreased 14 percent which included decreased organic sales of 4 percent.
Financial condition: Refer to the section entitled Financial Condition and Liquidity later in MD&A for a discussion of items impacting cash flows.
In November 2018, 3M’s Board of Directors replaced the Company’s February 2016 repurchase program with a new repurchase program. This new program authorizes the repurchase of up to $10 billion of 3M’s outstanding common stock, with no pre-established end date. In the first three months of 2024, the Company purchased $21 million of its own stock, compared to $29 million of stock purchases in the first three months of 2023. As of March 31, 2024, approximately $4.2 billion remained available under the authorization. In February 2024, 3M’s Board of Directors declared a first-quarter 2024 dividend of $1.51 per share, an increase of 1 percent.
Results of Operations
Net Sales: Refer to the preceding Overview section and the Performance by Business Segment section later in MD&A for additional discussion of sales change.
Operating Expenses:
Three months ended
March 31,
(Percent of net sales) 2024 2023 Change
Cost of sales 54.1 % 57.4 % (3.3) %
Selling, general and administrative expenses (SG&A) 21.6 21.3 0.3
Research, development and related expenses (R&D) 5.5 5.9 (0.4)
Operating income (loss) margin 18.8 % 15.4 % 3.4 %
Stock compensation expense was $29 million and $135 million for the first quarter of 2024 and 2023, respectively, which impacts cost of sales; selling, general and administrative expenses (SG&A); and research, development and related expenses (R&D). The Company’s annual stock option and restricted stock unit grant is typically made in February. As discussed in Note 20 to the Consolidated Financial Statements in 3M's 2023 Annual Report on Form 10-K, because of certain accounting rules, grants to employees that are retiree-eligible are essentially fully reflected as compensation at time of grant. This retiree-eligible population generally represents approximately 35 percent of the annual grant stock-based compensation expense; therefore, higher stock-based compensation expense is typically recognized in the first quarter. However, as previously disclosed, due to the spin-off separation of Solventum, the 2024 annual grant will be made after the April 1, 2024 separation.
For total year 2024, 3M previously expected defined benefit pension and postretirement service cost expense (which impacts cost of sales, SG&A, and R&D) to total approximately $250 million while non-service pension and postretirement net benefit costs was expected to be a benefit of approximately $30 million, for a total consolidated defined benefit pre-tax pension and postretirement expense of approximately $220 million, an increase of approximately $75 million compared to 2023. In connection with the April 1, 2024 separation of Solventum (see Note 3), the historical net income of Solventum will be reported in 3M's consolidated financial statements as discontinued operations beginning in the second quarter of 2024. Further, the remeasurement of U.S. pension and postretirement pension plans discussed in Note 12 impacts 2024 expense. Considering this remeasurement and also on the basis of treating Solventum as a discontinued operation, 3M preliminarily estimates full year 2024 continuing operations defined benefit pension and postretirement service cost expense to total approximately $200 million while continuing operations non-service pension and postretirement net benefit cost is anticipated to be a benefit of approximately $10 million, for a total estimated continuing operations consolidated defined benefit pre-tax pension and postretirement expense of approximately $190 million.
The year-on-year decrease in defined benefit pension and postretirement service cost expense for the first three months of 2024 was approximately $3 million.
For total year 2023, the Company recognized consolidated defined benefit pre-tax pension and postretirement service cost expense of $274 million and a benefit of $129 million related to all non-service pension and postretirement net benefit costs (after settlements, curtailments, special termination benefits and other) for a total consolidated defined benefit pre-tax pension and postretirement expense of $145 million.
The Company continues to make investments in the implementation of new business systems and solutions, including enterprise resource planning, with these investments impacting cost of sales, SG&A, and R&D.
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Cost of Sales: Cost of sales, measured as a percent of sales, decreased in the first quarter of 2024 when compared to the same period last year. Decreases in the first quarter of 2024 were primarily due to ongoing manufacturing productivity initiatives and timing of stock-based compensation grants.
Selling, General and Administrative Expenses: SG&A, measured as a percent of sales, increased slightly in the first three months of 2024 when compared to the same period last year. SG&A in 2024 was primarily impacted by divestiture costs (related to the spin-off separation of Solventum), restructuring charges and timing of stock-based compensation grants.
Research, Development and Related Expenses: R&D, measured as a percent of sales, decreased in the first quarter of 2024 when compared to the same period last year. 3M continues to invest in a range of R&D activities from application development, product and manufacturing support, product development and technology development aimed at disruptive innovations. R&D was also impacted by timing of stock-based compensation grants and restructuring charges.
Other Expense (Income), Net: See Note 6 for a detailed breakout of this line item.
Interest expense (net of interest income) increased in the first quarter of 2024 driven by the addition of imputed interest associated with the obligations resulting from the PWS Settlement and the CAE Settlement (discussed in Note 16) and interest expense on debt issued by Solventum for the period outstanding prior to the April 1, 2024 completion of the separation of Solventum from 3M.
The non-service pension and postretirement net benefit decreased approximately $20 million in the first quarter of 2024 compared to the same period year-on-year.
Provision (benefit) for Income Taxes:
Three months ended
March 31,
(Percent of pre-tax income/loss) 2024 2023
Effective tax rate 24.7 % 17.7 %
Factors that impacted the tax rates between years are further discussed in the Overview section above and in Note 8.
Income from Unconsolidated Subsidiaries, Net of Taxes:
Three months ended
March 31,
(Millions) 2024 2023
Income (loss) from unconsolidated subsidiaries, net of taxes $ 1 $ 2
Income (loss) from unconsolidated subsidiaries, net of taxes, is attributable to the Company’s accounting under the equity method for ownership interests in certain entities.
Net Income (Loss) Attributable to Noncontrolling Interest:
Three months ended
March 31,
(Millions) 2024 2023
Net income (loss) attributable to noncontrolling interest $ 5 $ 5
Net income (loss) attributable to noncontrolling interest represents the elimination of the income or loss attributable to non-3M ownership interests in 3M consolidated entities. The primary noncontrolling interest relates to 3M India Limited, of which 3M’s effective ownership is 75 percent.
Significant Accounting Policies: Information regarding new accounting standards is included in Note 1 to the Consolidated Financial Statements.
Performance by Business Segment
Item 1, Business Segments, provides an overview of 3M’s business segments. In addition, disclosures relating to 3M’s business segments are provided in Note 17. Effective in the first quarter of 2024, 3M made certain changes within its business segments. The changes are described in Note 17. While they impacted the composition and names of certain divisions within 3M's business segments, they did not change the overall composition of segments or the measure of segment operating performance used by 3M’s chief operating decision maker (CODM). Information provided herein reflects the impact of these changes for all periods presented. 3M manages its operations in four business segments. The reportable segments are Safety and Industrial; Transportation and Electronics; Health Care; and Consumer.
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Corporate and Unallocated: In addition to these four business segments, 3M assigns certain costs to “Corporate and Unallocated,” which is presented separately in the preceding business segments table and in Note 17. Corporate and Unallocated operating income (loss) includes “corporate special items” and “other corporate expense-net”. Corporate special items include net costs for significant litigation impacting operating income (loss) associated with PFAS-related other environmental and Combat Arms Earplugs matters. In addition, during the voluntary chapter 11 bankruptcy period (which began in July 2022 and ended in June 2023—see Note 16) costs associated with the Aearo portion of respirator mask/asbestos matters were also included in corporate special items. Prior to the bankruptcy, costs associated with Combat Arms Earplugs matters were not included in the Corporate net costs for significant litigation special item, instead being reflected in the Safety and Industrial business segment. Corporate special items also include divestiture costs impacting operating income. These include costs related to separating and divesting substantially an entire business segment of 3M following public announcement of its intended divestiture. Other corporate expense-net includes certain enterprise and governance activities resulting in unallocated corporate costs and other activity and net costs that 3M may choose not to allocate directly to its business segments. Because Corporate and Unallocated includes a variety of miscellaneous items, it is subject to fluctuation on a quarterly and annual basis.
Corporate and Unallocated net operating loss increased in the first three months of 2024, when compared to the same period last year. The subsections below provide additional information.
Corporate Special Items:
Refer to the Certain amounts adjusted for special items - (non-GAAP measures) section for additional details on the impact of special items and to Note 17 for additional information on the components of corporate special items. Corporate special item net costs were similiar year-over-year primarily due to increased divestiture costs offset by lower net costs for significant litigation associated with Corporate and Unallocated.
Other Corporate Expense - Net:
Other corporate operating expenses, net, increased year-over-year in the first three months of 2024 primarily due to higher unallocated corporate costs relating to certain enterprise and governance activities.
Operating Business Segments: Information related to 3M’s business segments is presented in the tables that follow with additional context in the corresponding narrative below the tables.
Refer to 3M's 2023 Annual Report on Form 10-K, Item 1, Business, for discussion of 3M products that are included in each business segment.
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Safety and Industrial Business:
Three months ended
March 31,
2024 2023
Sales (millions) $ 2,732 $ 2,779
Sales change analysis:
Organic sales (1.4) %
Translation (0.3)
Total sales change (1.7) %
Business segment operating income (millions)
$ 657 $ 601
Percent change 9.3 %
Percent of sales 24.1 % 21.6 %
Adjusted business segment operating income (millions) (non-GAAP measure) $ 664 $ 562
Percent change 18.2 %
Percent of sales 24.3 % 20.2 %
The preceding table also displays business segment operating income (loss) information adjusted for special items. For Safety and Industrial these adjustments include net costs related to respirator mask/asbestos (Aearo-related and non-Aearo related). During the voluntary Aearo chapter 11 bankruptcy period (which began in July 2022 and ended in June 2023 —see Note 16), net costs related to Aearo-respirator mask/asbestos matters were reflected as corporate special items in Corporate and Unallocated while those associated with non-Aearo respirator mask/asbestos matters continued to be reflected as special items in the Safety and Industrial business segment. Prior to the bankruptcy, costs associated with Combat Arms Earplugs matters were reflected in the Safety and Industrial business segment (rather than reflected in Corporate and Unallocated—see Note 17 for additional information). Refer to the Certain amounts adjusted for special items - (non-GAAP measures) section for additional details.
First quarter 2024 results:
Sales in Safety and Industrial were down 1.7 percent in U.S. dollars.
On an organic sales basis:
• Sales increased in roofing granules and industrial adhesives and tapes, and decreased in industrial specialties, electrical markets, abrasives, automotive aftermarket and personal safety.
• Growth was held back by disposable respirator sales decline within personal safety (which negatively impacted year-on-year first quarter organic growth by 0.8 percentage points) and industrial end market demand remained mixed. This was partially offset by growth in roofing granules and industrial adhesives and tapes.
Business segment operating income margins increased year-on-year driven by benefits from productivity actions, restructuring, strong spending discipline, timing of stock-based compensation grants to be incurred in the second quarter of 2024 versus the first quarter of 2023 due to Solventum spin and lower special item costs for significant litigation which more than offset the decline in organic sales volume and higher restructuring costs. Adjusting for special items (non-GAAP measure), business segment operating income margins increased year-on-year as displayed above.
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Transportation and Electronics Business:
Three months ended
March 31,
2024 2023
Sales (millions) $ 2,104 $ 2,050
Sales change analysis:
Organic sales 2.7 %
Acquisitions 1.4
Translation (1.5)
Total sales change 2.6 %
Business segment operating income (millions) $ 481 $ 294
Percent change 63.5 %
Percent of sales 22.9 % 14.4 %
Adjusted sales (millions) (non-GAAP measure) $ 1,823 $ 1,705
Sales change analysis:
Organic sales 6.7 %
Acquisitions 1.7
Translation (1.5)
Total sales change 6.9 %
Adjusted business segment operating income (millions) (non-GAAP measure) $ 479 $ 284
Percent change 68.5 %
Percent of sales 26.3 % 16.7 %
The preceding table also displays business segment sales (and sales change) and operating income (loss) information adjusted for special items. For Transportation and Electronics these adjustments include the sales and estimates of income regarding PFAS manufactured products that 3M plans to exit by the end of 2025. Refer to the Certain amounts adjusted for special items - (non-GAAP measures) section for additional details.
First quarter 2024 results:
Sales in Transportation and Electronics were up 2.6 percent in U.S. dollars. Adjusting for special item PFAS manufactured products (non-GAAP measure), sales were up 6.9 percent in U.S. dollars.
On an organic sales basis:
• Sales increased in electronics, automotive and aerospace, and commercial branding and transportation,and decreased in advanced materials.
• Growth came from strong momentum in automotive electrification and share gains with spec-in wins and new product introductions in automotive and consumer electronics driving strong volume growth to support customer production ramp and product launches along with continued channel inventory normalization as electronics demand stabilizes.
Acquisitions:
• Impacts related to reconsolidation of Aearo entities are included in Transportation and Electronics.
◦ In the third quarter of 2022, 3M deconsolidated the Aearo Entities and, in the second quarter of 2023, reconsolidated those entities (discussed in Note 16). For each of the 12-months post-deconsolidation and post-reconsolidation, impacts are each reflected separately as divestiture and acquisition, respectively.
Business segment operating income margins increased year-on-year driven by benefits from strong leverage on organic sales volumes growth, productivity actions, restructuring, strong spending discipline, and timing of stock-based compensation grants to be incurred in the second quarter of 2024 versus the first quarter of 2023 due to Solventum spin partially offset by higher restructuring costs. Adjusting for special item PFAS manufactured products (non-GAAP measure), business segment operating income margins increased year-on-year as displayed above.
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Health Care Business:
Three months ended
March 31,
2024 2023
Sales (millions) $ 2,017 $ 2,010
Sales change analysis:
Organic sales 1.0 %
Divestitures (0.3)
Translation (0.4)
Total sales change 0.3 %
Business segment operating income (millions) $ 354 $ 360
Percent change (1.6) %
Percent of sales 17.5 % 17.9 %
First quarter 2024 results:
Sales in Health Care were up 0.3 percent in U.S. dollars.
On an organic sales basis:
• Sales increased in purification and filtration, and was flat in medical surgical (MedSurg), dental solutions and health information systems.
Business segment operating income margins decreased year-on-year largely due to public company stand-up costs.
As discussed in Note 3, on April 1, 2024, 3M completed the previously announced separation of its Health Care business as a separate public company, Solventum. 3M retained equity ownership interest of approximately 19.9% in Solventum.
Consumer Business:
Three months ended
March 31,
2024 2023
Sales (millions) $ 1,140 $ 1,192
Sales change analysis:
Organic sales (3.9) %
Translation (0.4)
Total sales change (4.3) %
Business segment operating income (millions) $ 216 $ 179
Percent change 20.9 %
Percent of sales 19.0 % 15.0 %
First quarter 2024 results:
Sales in Consumer were down 4.3 percent in U.S. dollars.
On an organic sales basis:
• Sales decreased in packaging and expression, home and auto care, home improvement and consumer safety and well-being.
• Growth was negatively impacted by continued softness in consumer discretionary spending along with product portfolio and geographic prioritization.
Business segment operating income margins increased year-on-year driven by benefits from productivity actions, restructuring, portfolio initiatives, strong spending discipline and timing of stock-based compensation grants to be incurred in the second quarter of 2024 versus the first quarter of 2023 due to Solventum spin partially offset by decline in organic sales volume and higher restructuring costs.
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Financial Condition and Liquidity
The strength and stability of 3M’s business model and strong free cash flow capability, together with proven capital markets access, provide financial flexibility to deploy capital in accordance with the Company's stated priorities and meet needs associated with contractual commitments and other obligations. Investing in 3M’s business to drive organic growth and deliver strong returns on invested capital remains the first priority for capital deployment. This includes research and development, capital expenditures, and commercialization capability. The Company also continues to actively manage its portfolio through acquisitions and divestitures to maximize value for shareholders. 3M expects to continue returning cash to shareholders through dividends and share repurchases. To fund cash needs in the United States, the Company relies on ongoing cash flow from U.S. operations, access to capital markets and repatriation of the earnings of its foreign affiliates that are not considered to be permanently reinvested. For those international earnings still considered to be reinvested indefinitely, the Company currently has no plans or intentions to repatriate these funds for U.S. operations. See Note 10 in 3M's 2023 Annual Report on Form 10-K for further information on earnings considered to be reinvested indefinitely.
3M maintains a strong liquidity profile. The Company’s primary short-term liquidity needs are met through cash on hand and U.S. commercial paper issuances. 3M believes it will have continuous access to the commercial paper market. 3M’s commercial paper program permits the Company to have a maximum of $5 billion outstanding with a maximum maturity of 397 days from date of issuance. The Company had no commercial paper outstanding at March 31, 2024, compared to $1.8 billion commercial paper outstanding as of December 31, 2023.
Total debt: The strength of 3M’s credit profile and significant ongoing cash flows provide 3M proven access to capital markets. Additionally, the Company’s debt maturity profile is staggered to help ensure refinancing needs in any given year are reasonable in proportion to the total portfolio. As of the date of this report, 3M has a credit rating of A3, negative outlook from Moody's Investors Service, a credit rating of BBB+, CreditWatch negative from S&P Global Ratings, and a credit rating of A-, stable outlook from Fitch.
The Company’s total debt at March 31, 2024 increased when compared to December 31, 2023 as a result of Solventum's issuance of $8.4 billion in aggregate principal amount of debt. This was partially offset by $2.9 billion in debt maturities, consisting of $1.1 billion of medium-term notes and $1.8 billion repayment of commercial paper borrowings. As discussed in Note 11, obligations associated with Solventum's borrowings became the sole responsibility of Solventum after the April 1, 2024 Separation. For discussion of repayments of and proceeds from debt refer to the following Cash Flows from Financing Activities section.
Effective February 8, 2023, the Company renewed its “well-known seasoned issuer” (WKSI) shelf registration statement, which registers an indeterminate amount of debt or equity securities for future issuance and sale. This replaced 3M’s previous WKSI shelf registration dated February 10, 2020. The Company has issued debt securities under a WKSI shelf in August 2019 and March 2020. 3M also has a medium-term notes program (Series F) program, originally established in 2016, up to an aggregate principal amount of $18 billion. As of March 31, 2024, the total amount of debt issued under the (Series F) program is approximately $17.6 billion (utilizing the foreign exchange rates applicable at the time of issuance for the euro denominated debt). The Company has not issued any debt under the (Series F) program since February 2019 and does not intend to issue any additional debt under this program in the future.
Information with respect to long-term debt issuances and maturities for the periods presented is included in Note 11.
In May 2023, 3M entered into a $4.25 billion five-year revolving credit facility expiring in 2028; the facility was amended in July and September 2023. The revolving credit agreement includes a provision under which 3M may request an increase of up to $1.0 billion (at lender’s discretion), bringing the total facility up to $5.25 billion. The agreement replaced the amended and restated $3.0 billion, five-year revolving credit agreement and the $1.25 billion 364-day credit facility that would have expired in November 2024 and November 2023, respectively. The credit facility was undrawn at March 31, 2024. Under the $4.25 billion credit facility, the Company is required to maintain its EBITDA to Interest Ratio as of the end of each fiscal quarter at not less than 3.0 to 1. This is calculated (based on amounts defined in the amended agreement) as the ratio of consolidated total EBITDA for the four consecutive quarters then ended to total interest expense on all funded debt for the same period. At March 31, 2024, this ratio was approximately 15 to 1. Debt covenants do not restrict the payment of dividends.
In the first quarter of 2024, as discussed in Note 11, Solventum entered into a revolving credit facility of $2 billion which was undrawn as of March 31, 2024. This credit facility became the sole responsibility of Solventum after the April 1, 2024 Separation.
The Company also had $368 million in stand-alone letters of credit and bank guarantees issued and outstanding at March 31, 2024. These instruments are utilized in connection with normal business activities.
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Cash, cash equivalents and marketable securities: At March 31, 2024, 3M had $11.0 billion of cash, cash equivalents and marketable securities, of which approximately $5.2 billion was held by the Company’s foreign subsidiaries and approximately $5.8 billion was held in the United States. These balances are invested in bank instruments and other high-quality fixed income securities. At December 31, 2023, 3M had $6.0 billion of cash, cash equivalents and marketable securities, of which approximately $3.2 billion was held by the Company’s foreign subsidiaries and $2.8 billion was held by the United States. The increase from December 31, 2023 was driven by proceeds from Solventum's issuance of $8.4 billion in aggregate principal amount of debt prior to the Separation as discussed in Note 11.
Net Debt (non-GAAP measure): Net debt is not defined under U.S. GAAP and may not be computed the same as similarly titled measures used by other companies. The Company defines net debt as total debt less the total of cash, cash equivalents and current and long-term marketable securities. 3M believes net debt is meaningful to investors as 3M considers net debt and its components to be important indicators of liquidity and financial position. The table below provides net debt as of March 31, 2024 and December 31, 2023. Note, as discussed above, that obligations associated with Solventum's first quarter 2024 $8.4 billion aggregate principal amount of borrowings remained with Solventum after the April 1, 2024 Separation while, as discussed in Note 3, 3M expects to retain approximately $7.7 billion of proceeds from these borrowing after completion of accounting for the Separation.
(Millions) March 31, 2024 December 31, 2023 Change
Total debt $ 21,413 $ 16,035 $ 5,378
Less: Cash, cash equivalents and marketable securities 10,991 6,006 4,985
Net debt (non-GAAP measure) $ 10,422 $ 10,029 $ 393
Refer to the preceding Total Debt and Cash, Cash Equivalents and Marketable Securities sections for additional details.
Balance Sheet: 3M’s strong balance sheet and liquidity provide the Company with significant flexibility to fund its numerous opportunities going forward. The Company will continue to invest in its operations to drive growth, including continual review of acquisition opportunities.
The Company uses working capital measures that place emphasis and focus on certain working capital assets, such as accounts receivable and inventory activity.
Working capital (non-GAAP measure):
(Millions) March 31, 2024 December 31, 2023 Change
Current assets $ 21,613 $ 16,379 $ 5,234
Less: Current liabilities 13,156 15,297 (2,141)
Working capital (non-GAAP measure) $ 8,457 $ 1,082 $ 7,375
Various assets and liabilities, including cash and short-term debt, can fluctuate significantly from month to month depending on short-term liquidity needs. Working capital is not defined under U.S. generally accepted accounting principles and may not be computed the same as similarly titled measures used by other companies. The Company defines working capital as current assets minus current liabilities. 3M believes working capital is meaningful to investors as a measure of operational efficiency and short-term financial health.
Working capital increased $7.4 billion compared with December 31, 2023. Balance changes in current assets increased working capital by $5.2 billion, driven largely by increases in cash and cash equivalents due to Solventum's issuance of $8.4 billion in aggregate principal amount of debt. This was partially offset by $2.9 billion in debt maturities, consisting of $1.1 billion of medium-term notes and $1.8 billion repayment of commercial paper borrowings. Balance changes in current liabilities increased working capital by $2.1 billion, primarily due to decreases in short-term borrowings and current portions of long-term debt.
Cash Flows: Discussions of cash flows from operating, investing and financing activities are provided in the sections that follow.
Cash Flows from Operating Activities:
Cash flows from operating activities can fluctuate significantly from period to period, as working capital movements, tax timing differences and other items such as litigation payments can significantly impact cash flows.
In the first three months of 2024, cash flows provided by operating activities decreased $508 million compared to the same period last year, primarily driven by an additional CAE payment of $253 million (discussed in Note 16) and balance changes in inventories decreasing operating cash flow $232 million (a decrease of operating cash flow by $141 million in 2024, compared to an increase in operating cash flow by $91 million in 2023).
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Cash Flows from Investing Activities:
Investments in property, plant and equipment (PP&E) enable growth across many diverse markets, helping to meet product demand and increasing manufacturing efficiency. 3M spent $375 million on PP&E in the first quarter of 2024 and is evaluating its expected capital spending for the remainder of 2024.
3M records capital-related government grants earned as reductions to the cost of property, plant and equipment; and associated unpaid liabilities and grant proceeds receivable are considered non-cash changes in such balances for purposes of preparation of statement of cash flows.
3M invests in renewal and maintenance programs, which pertain to cost reduction, cycle time, maintaining and renewing current capacity, eliminating pollution, and compliance. Costs related to maintenance, ordinary repairs, and certain other items are expensed. 3M also invests in growth, which adds to capacity, driven by new products, both through expansion of current facilities and new facilities. Finally, 3M also invests in other initiatives, such as information technology (IT), laboratory facilities, and a continued focus on investments in sustainability.
Purchases of marketable securities and investments and proceeds from maturities and sale of marketable securities and investments are primarily attributable to certificates of deposit/time deposits, commercial paper, and other securities, which are classified as available-for-sale. Refer to Note 10 for more details about 3M’s diversified marketable securities portfolio. Purchases of investments include additional survivor benefit insurance, plus investments in equity securities.
Cash Flows from Financing Activities:
Total debt was approximately $21.4 billion at March 31, 2024 and $16.0 billion at December 31, 2023. Solventum's issuance of $8.4 billion in aggregate principal amount of debt. This was partially offset by $2.9 billion in debt maturities, consisting of $1.1 billion of medium-term notes and $1.8 billion repayment of commercial paper borrowings.The gross commercial paper issuances and repayments, in addition to repayments of the fixed-rate notes are largely reflected in “Proceeds from debt (maturities greater than 90 days)” and "Repayment of debt (maturities greater than 90 days)". The Company had no commercial paper outstanding at March 31, 2024, compared to $1.8 billion commercial paper outstanding as of December 31, 2023. 3M’s primary short-term liquidity needs are met through cash on hand and U.S. commercial paper issuances. Refer to Note 11 for more detail regarding debt.
Repurchases of common stock are made to support the Company’s stock-based employee compensation plans and for other corporate purposes. In the first three months of 2024, the Company purchased $21 million of its own stock. For more information, refer to the table titled “Issuer Purchases of Equity Securities” in Part II, Item 2. The Company does not utilize derivative instruments linked to the Company’s stock.
3M has paid dividends since 1916. In February 2024, 3M’s Board of Directors declared a first-quarter 2024 dividend of $1.51 per share, an increase of 1 percent.
Other cash flows from financing activities may include various other items, such as cash paid associated with certain derivative instruments, distributions to or sales of noncontrolling interests, changes in overdraft balances, and principal payments for finance leases.
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Free Cash Flow (non-GAAP measure): Free cash flow and free cash flow conversion are not defined under U.S. generally accepted accounting principles (GAAP). Therefore, they should not be considered a substitute for income (loss) or cash flow data prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. The Company defines free cash flow as net cash provided by operating activities less purchases of property, plant and equipment. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures. The Company defines free cash flow conversion as free cash flow divided by net income (loss) attributable to 3M. The Company believes free cash flow and free cash flow conversion are meaningful to investors as they are useful measures of performance and the Company uses these measures as an indication of the strength of the company and its ability to generate cash. Free cash flow and free cash flow conversion vary across quarters throughout the year. Below find a recap of free cash flow and free cash flow conversion.
Refer to the preceding Cash Flows from Operating Activities and Cash Flows from Investing Activities sections for discussion of items that impacted the operating cash flow and purchases of PP&E components of the calculation of free cash flow. Refer to the preceding Results of Operations section for discussion of items that impacted the net income (loss) attributable to 3M component of the calculation of free cash flow conversion.
Three months ended March 31,
(Millions) 2024 2023
Major GAAP Cash Flow Categories
Net cash provided by (used in) operating activities $ 767 $ 1,275
Net cash provided by (used in) investing activities (393) (386)
Net cash provided by (used in) financing activities 4,621 (716)
Free Cash Flow (non-GAAP measure)
Net cash provided by (used in) operating activities $ 767 $ 1,275
Purchases of property, plant and equipment (375) (475)
Free cash flow 392 800
Net income (loss) attributable to 3M $ 928 $ 976
Free cash flow conversion 42% 82 %
Material Cash Requirements from Known Contractual and Other Obligations: See the Financial Condition and Liquidity - Material Cash Requirements from Known Contractual and Other Obligations section of Item 7 of 3M's 2023 Annual Report on Form 10-K.
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Cautionary Note Concerning Factors That May Affect Future Results
This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company may also make forward-looking statements in other reports filed with the United States Securities and Exchange Commission ("SEC"), in materials delivered to shareholders and in press releases. In addition, the Company’s representatives may from time to time make oral forward-looking statements.
Forward-looking statements relate to future events and typically address the Company’s expected future business and financial performance. Words such as “plan,” “expect,” “aim,” “believe,” “project,” “target,” “anticipate,” “intend,” “estimate,” “will,” “should,” “could,” "would," “forecast” and other words and terms of similar meaning, typically identify such forward-looking statements. In particular, these include, among others, statements relating to:
• worldwide economic, political, regulatory, international trade, geopolitical, capital markets and other external conditions and other factors beyond the Company's control, including inflation, recession, military conflicts, and natural and other disasters or climate change affecting the operations of the Company or its customers and suppliers,
• foreign currency exchange rates and fluctuations in those rates,
• liabilities and the outcome of contingencies related to certain fluorochemicals known as "PFAS," including liabilities related to claims, lawsuits, and government regulatory proceedings concerning various PFAS-related products and chemistries, as well as risks related to the Company's plans to exit PFAS manufacturing and discontinue use of PFAS across its product portfolio,
• risks related to the class-action settlement (“PWS Settlement”) to resolve claims by public water systems in the United States regarding PFAS,
• legal proceedings, including significant developments that could occur in the legal and regulatory proceedings described in the Company's reports on Form 10-K, 10-Q, and 8-K,
• competitive conditions and customer preferences,
• the timing and market acceptance of new product and service offerings,
• the availability and cost of purchased components, compounds, raw materials and energy due to shortages, increased demand and wages, supply chain interruptions, or natural or other disasters,
• unanticipated problems or delays with the phased implementation of a global enterprise resource planning (ERP) system, or security breaches and other disruptions to the Company's information technology infrastructure,
• the impact of acquisitions, strategic alliances, divestitures, and other strategic events resulting from portfolio management actions and other evolving business strategies,
• operational execution, including the extent to which the Company can realize the benefits of planned productivity improvements, as well as the impact of organizational restructuring activities,
• financial market risks that may affect the Company's funding obligations under defined benefit pension and postretirement plans,
• the Company’s credit ratings and its cost of capital,
• tax-related external conditions, including changes in tax rates, laws, or regulations,
• matters relating to the spin-off of the Company's Health Care business, including the risk that the expected benefits will not be realized; the risk that the costs or dis-synergies will exceed the anticipated amounts; potential business disruption; the diversion of management time; the impact of the transaction on the Company's ability to retain talent; potential impacts on the Company's relationships with its customers, suppliers, employees, regulators and other counterparties; the ability to realize the desired tax treatment; the risk that any consents or approvals required will not be obtained; risks under the agreements and obligations entered into in connection with the spin-off, and
• matters relating to Combat Arms Earplugs (“CAE”), including those related to the August 2023 settlement that is intended to resolve, to the fullest extent possible, all litigation and alleged claims involving the CAE sold or manufactured by the Company's subsidiary Aearo Technologies and certain of its affiliates (“Aearo Entities”) and/or 3M (“CAE Settlement”).
The Company assumes no obligation to update or revise any forward-looking statements. Changes in such assumptions or factors could produce significantly different results.
Forward-looking statements are based on certain assumptions and expectations of future events and trends that are subject to risks and uncertainties. Actual future results and trends may differ materially from historical results or those reflected in any such forward-looking statements depending on a variety of factors. Important information as to these factors can be found in this document, including, among others, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the headings of “Overview,” “Financial Condition and Liquidity” and annually in “Critical Accounting Estimates.” Discussion of these factors is incorporated by reference from Part II, Item 1A, “Risk Factors,” of this document, and should be considered an integral part of Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” For additional information concerning factors that may cause actual results to vary materially from those stated in the forward-looking statements, see our reports on Form 10-K, 10-Q and 8-K filed with the SEC from time to time.
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