3M (MMM)

Industrial conglomerate 3M (NYSE:MMM) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 7.4% year on year to $6.52 billion. Its non-GAAP profit of $2.19 per share was 5.6% above analysts’ consensus estimates.

Company Overview

Producers of the first asthma inhaler, 3M Company (NYSE:MMM) is a global conglomerate known for products in industries like healthcare, safety, electronics, and consumer goods.

Automation that increases efficiency and connected equipment that collects analyzable data have been trending, creating new demand for general industrial machinery companies. Those who innovate and create digitized solutions can spur sales and speed up replacement cycles, but all general industrial machinery companies are still at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.

Competitors offering similar products include Honeywell (NYSE:HON), Illinois Tool Works (NYSE:ITW), and Dupont (NYSE:DD).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. 3M struggled to consistently generate demand over the last five years as its sales dropped at a 5.2% annual rate. This wasn’t a great result and suggests it’s a low quality business.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. 3M’s annualized revenue declines of 2.2% over the last two years suggest its demand continued shrinking.

We can better understand the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, 3M’s organic revenue averaged 1.2% year-on-year growth. Because this number is better than its two-year revenue growth, we can see that some mixture of divestitures and foreign exchange rates dampened its headline results.

This quarter, 3M reported year-on-year revenue growth of 7.4%, and its $6.52 billion of revenue exceeded Wall Street’s estimates by 4.2%.

Looking ahead, sell-side analysts expect revenue to grow 1.6% over the next 12 months. Although this projection suggests its newer products and services will catalyze better top-line performance, it is still below average for the sector.

3M’s unit economics are great compared to the broader industrials sector and signal that it enjoys product differentiation through quality or brand. As you can see below, it averaged an excellent 40.9% gross margin over the last five years. Said differently, roughly $40.92 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue.

This quarter, 3M’s gross profit margin was 41.8%, marking a 1.6 percentage point increase from 40.2% in the same quarter last year. 3M’s full-year margin has also been trending up over the past 12 months, increasing by 4.8 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

3M has managed its cost base well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 10%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, 3M’s operating margin decreased by 1.9 percentage points over the last five years. Even though its historical margin was healthy, shareholders will want to see 3M become more profitable in the future.

This quarter, 3M generated an operating margin profit margin of 22.2%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for 3M, its EPS and revenue declined by 1.5% and 5.2% annually over the last five years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, 3M’s low margin of safety could leave its stock price susceptible to large downswings.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For 3M, its two-year annual EPS growth of 10.2% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.

In Q3, 3M reported adjusted EPS of $2.19, up from $1.98 in the same quarter last year. This print beat analysts’ estimates by 5.6%. Over the next 12 months, Wall Street expects 3M’s full-year EPS of $7.91 to grow 6.2%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

3M has shown terrific cash profitability, putting it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the industrials sector, averaging 19.7% over the last five years.

3M’s free cash flow clocked in at $1.54 billion in Q3, equivalent to a 23.6% margin. The company’s cash profitability regressed as it was 1.9 percentage points lower than in the same quarter last year, but it’s still above its five-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, causing short-term swings. Long-term trends trump temporary fluctuations.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

3M’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 10.7%, slightly better than typical industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. 3M’s ROIC has increased over the last few years. This is a good sign, and we hope the company can keep improving.

3M reported $5.19 billion of cash and $12.6 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $6.72 billion of EBITDA over the last 12 months, we view 3M’s 1.1× net-debt-to-EBITDA ratio as safe. We also see its $523 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly 3M blew past analysts’ revenue expectations this quarter. We were also happy its organic revenue narrowly outperformed Wall Street’s estimates. The last major positive is that full-year EPS guidance was raised. Overall, we think this was a decent quarter with some key metrics above expectations. The stock remained flat at $155.68 immediately after reporting.

Updated: December 3, 2025 at 10:39 PM EST

Before investing in or passing on 3M, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

3M doesn’t pass our quality test. To kick things off, its revenue has declined over the last five years. And while its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits, the downside is its declining EPS over the last five years makes it a less attractive asset to the public markets. On top of that, its organic revenue growth has disappointed.

3M’s P/E ratio based on the next 12 months is 20.4x. At this valuation, there’s a lot of good news priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $174.94 on the company (compared to the current share price of $173.21).