On January 26, 2021 3M (NYSE: MMM) reported fourth-quarter and full-year 2020 results and provided its 2021 financial outlook (Press release, 3M Pharmaceuticals, JAN 26, 2021, View Source [SID1234574324]).

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"The 3M team delivered a strong fourth quarter with organic growth across all business groups, robust cash flow and a double-digit increase in earnings per share," said Mike Roman, 3M chairman and chief executive officer. "In an uncertain economic environment, we stayed focused on innovating for our customers, improving our operational execution and fighting the pandemic from every angle."

"Throughout 2020 we distributed two billion respirators globally and supported the development and manufacturing of vaccines and therapeutics to help the world respond to COVID-19," Roman continued. "We also took significant actions to transform and build 3M for the future, while advancing our core values. Moving forward we will continue to prioritize investments in growth, productivity and sustainability as we build on our progress and deliver strong results in 2021."

Fourth-Quarter Results

3M delivered year-on-year growth across all business segments and geographic areas even as the COVID-19 pandemic continues to evolve and affect 3M’s businesses in a number of ways. During the fourth quarter, end-market demand remained strong in personal safety, home improvement, general cleaning, semiconductor, data center and biopharma filtration. At the same time, several other end markets continued to experience year-on-year declines primarily driven by COVID-19-related headwinds, including healthcare and oral care elective procedures, consumer electronics, hospitality, office supplies, and healthcare IT.

Sales grew 5.8 percent year-on-year to $8.6 billion. Organic local-currency sales increased 5.5 percent while acquisitions, net of divestitures, decreased sales by 1.1 percent. Foreign currency translation increased sales by 1.4 percent year-on-year.

Total sales grew 12.7 percent in Safety and Industrial, 10.6 percent in Consumer, 5.4 percent in Health Care, and 2.3 percent in Transportation and Electronics. Organic local-currency sales increased 11.4 percent in Safety and Industrial, 9.9 percent in Consumer, 6.6 percent in Health Care, and 1.4 percent in Transportation and Electronics.

On a geographic basis, total sales grew 7.4 percent in EMEA (Europe, Middle East and Africa), 5.8 percent in the Americas, and 5.3 percent in Asia Pacific. Organic local-currency sales grew 7.9 percent in the Americas, 5.6 percent in EMEA, and 1.7 percent in Asia Pacific.

Both fourth-quarter GAAP and adjusted earnings were $2.38 per share, resulting in year-on-year increases of 43.4 percent and 22.1 percent on a GAAP-and adjusted-basis, respectively. Fourth quarter operating income was $1.8 billion with operating margins of 21.5 percent, as referenced in the "Supplemental Financial Information Non-GAAP Measures" section.

The company’s operating cash flow was $2.5 billion with adjusted free cash flow of $2.1 billion contributing to adjusted free cash flow conversion of 151 percent. 3M paid $848 million in cash dividends to shareholders during the fourth quarter. The company reduced total debt by $0.8 billion, or down 4 percent, and net debt by $1.3 billion, or 9 percent, sequentially. See the "Supplemental Financial Information Non-GAAP Measures" section for applicable information.

Fourth-Quarter Business Group Discussion

Safety and Industrial

Sales of $3.1 billion, up 12.7 percent in U.S. dollars. Organic local-currency sales increased 11.4 percent and foreign currency translation increased sales by 1.3 percent.
On an organic local-currency basis:
Sales increased in personal safety, roofing granules, industrial adhesives and tapes, and electrical markets; sales declined in automotive aftermarket, abrasives, and closure and masking.
Sales grew in the Americas, EMEA, and Asia Pacific.
Segment operating income was $869 million, an increase of 50 percent year-on-year; operating margins of 27.7 percent.
Transportation and Electronics

Sales of $2.3 billion, up 2.3 percent in U.S. dollars. Organic local-currency sales increased 1.4 percent, foreign currency translation increased sales by 2.2 percent, and divestitures decreased sales by 1.3 percent.
On an organic local-currency basis:
Sales increased in automotive and aerospace, transportation safety, electronics, and advanced materials; sales declined in commercial solutions.
Sales grew in Asia Pacific; sales were flat in EMEA; sales declined in the Americas.
Segment operating income was $511 million, an increase of 8 percent year-on-year; operating margins of 21.8 percent.
Health Care

Sales of $2.3 billion, up 5.4 percent in U.S. dollars. Organic local-currency sales increased 6.6 percent, foreign currency translation increased sales by 1.6 percent and acquisitions, net of divestitures, decreased sales by 2.8 percent.
On an organic local-currency basis:
Sales increased in medical solutions, separation and purification, and food safety; sales declined in oral care and health information systems.
Sales grew in the Americas, EMEA; sales were flat in Asia Pacific.
Segment operating income was $558 million, an increase of 22 percent year-on-year; operating margins were 24.7 percent.
Consumer

Sales of $1.4 billion, up 10.6 percent in U.S. dollars. Organic local-currency sales increased 9.9 percent and foreign currency translation increased sales by 0.7 percent.
On an organic local-currency basis:
Sales increased in home improvement, home care, and consumer health care; sales declined in stationery and office supplies.
Sales grew in the Americas and EMEA; sales declined in Asia Pacific.
Segment operating income was $335 million, up 11 percent year-on-year; operating margins were 23.5 percent.
2020 Overview: Helping the world recover, building a better company, and positioning for growth

When the world needed 3M in 2020, we were there: fighting the pandemic from all angles, making and delivering more personal protective equipment than ever before, helping speed development of vaccines and therapeutics, and providing our expertise to governments around the world to manage pandemic response.

In addition, 3M forged partnerships with the U.S., Canada, Germany, and Singapore governments to create additional respirator manufacturing capacity. 3M applied its expertise to ensure business continuity and maintain strong customer service as market demand and government mandates rapidly shifted the flow of global supplies.

While stepping up its efforts to support pandemic care and recovery, 3M continued to deliver for customers: providing innovative solutions across our industry-leading businesses to improve health care, transportation and electronics, safety and industrial, and consumer products. At the same time, the company enhanced its financial flexibility with strong cash flow generation, aggressive cost reductions, and adjusted capital allocation plans.

The company’s investments focused on building a better 3M that will be more efficient, effective, and connected to customers. As end markets have changed, 3M is well positioned take advantage of attractive global trends in personal safety, home improvement, e-commerce, automotive, and healthcare.

Stepping up our leadership in ESG

3M is expanding its commitments to improving the communities that it operates in and serves. In 2021, as part of the company’s ongoing environmental stewardship, and as part of its 2021 capital expenditure plan, 3M expects to invest $100 million to further reduce water usage and improve water quality around its manufacturing locations.

Last year also marked a step forward for 3M’s efforts to advance diversity, equity, and inclusion – the company introduced platforms for change to address racial opportunity gaps, empowering an inclusive culture, and supporting our communities with a plan to invest $50 million to advance workforce development and STEM education initiatives. In February, the company plans to publish its first Diversity, Equity and Inclusion report and outline its commitment to improving representation of minorities at the company.

Full-Year 2020 Results

Throughout 2020 the COVID-19 pandemic impacted 3M’s end markets and business operations. During the year the company saw strong end-market demand in personal safety, home improvement, general cleaning, semiconductor, data center and biopharma filtration. At the same time, other end markets experienced year-on-year declines primarily driven by COVID-19-related headwinds, including healthcare and oral care elective procedures, industrial, consumer electronics, hospitality, office supplies, and healthcare IT.

Full-year 2020 sales grew 0.1 percent year-on-year to $32.2 billion. Organic local-currency sales decreased 1.7 percent while acquisitions, net of divestitures, increased sales by 2.1 percent. Foreign currency translation decreased sales by 0.3 percent year-on-year.

GAAP earnings were $9.25 per share, an increase of 18.4 percent. Excluding special items, adjusted earnings were $8.74 per share, a decrease of 1.5 percent. Full-year operating income was $7.2 billion with operating margins of 22.3 percent. Excluding special items, adjusted operating income and margins were $6.8 billion and 21.3 percent, respectively, as referenced in the "Supplemental Financial Information Non-GAAP Measures" section.

The company’s operating cash flow was $8.1 billion with adjusted free cash flow of $6.7 billion, contributing to adjusted free cash flow conversion of 132 percent for the year. In addition, 3M generated 18.2 percent return on invested capital. Refer to the "Supplemental Financial Information Non-GAAP Measures" section.

For the full year, 3M paid $3.4 billion in cash dividends to shareholders and repurchased $368 million of its own shares.

Full-Year 2021 Outlook

3M initiated its full-year 2021 guidance with earnings expected to be in the range of $9.20 to $9.70 per share. The company expects its full-year total sales growth in the range of 5 to 8 percent with organic local-currency growth between 3 to 6 percent. 3M also expects its full-year free cash flow conversion to be in the range of 95 to 105 percent, as referenced in the "Supplemental Financial Information Non-GAAP Measures" section.