![]() and at least maintaining inventory days (the time inventory is held on hand),.increasing days payables outstanding (the time it takes to pay suppliers),.decreasing days sales outstanding (the time it takes to collect customer payments),.Third, in an environment where many companies have improved their working capital management by: This is also underscored by the weak 2023 net sales guidance of -6% to -2% (organically -3% to flat) and expected operating cash flow of only about $6 billion (well below the prior five-year average of $7.1 billion).įigure 2: 3M Company : Inventories in percent of net sales and year-over-year change in basis points (own work, based on the company’s 2006 to 2022 10-Ks) ![]() Inventories are approaching 16% of net sales, which is well above the historical average and not comparable to the Great Recession. Second, consider how 3M's inventories have evolved over the years (Figure 2). It's also worth remembering that the decline in gross margin during the 2008/09 recession was nowhere near as severe:įigure 1: 3M Company : Gross margin and year-over-year change in basis points (own work, based on the company’s 2006 to 2022 10-Ks) Those struggling to pass on price increases to their customers can be identified quite easily by a decline in gross margin. 2022, in my view, was a year that separated the wheat from the chaff. Now, one can argue that 3M is a cyclical company, but I still think the decline in 2022 points to weakness in the company's pricing power. Since 2006, 3M has spent about a quarter of its free cash flow on acquisitions.Ī look at the company's financial statements provides some cause for concern.įirst, 3M's gross margin has deteriorated in recent years, with the 300 basis point decline in 2022 being particularly troubling. However, staying at the forefront of technology and managing such a diversified technology empire is extremely complex, in part because of the complexities associated with integrating acquired businesses. In essence, a bet on 3M is a bet on the progress of the global economy, as the company's technologies are incorporated into an unimaginably large number of products. There is no doubting 3M's degree of diversification, the sheer number of patents and industries in which it operates. 3M Is Increasingly Inefficient And Its Economic Moat Should Be Questioned ![]() Now, before you condemn me for "buying high and selling low," let me explain the main reasons - apart from the obvious litigation-related headwinds - that led me to sell my stake in 3M Company. However, taking into account recent events and looking closely at the company's historical and more recent results, I don't think the situation has improved, even if the market initially reacted positively to the reduced legal uncertainty. Based on an estimated $10 billion to settle all claims, I thought it was reasonable to hold the stock, while cautioning that investors should only expect a continuation of token-like dividend increases. ![]() I wrote about 3M stock in an article that focused on potential red flags at several blue-chip companies. Shares of industrial conglomerate 3M Company ( NYSE: MMM) remain under pressure, largely due to continued uncertainty surrounding environmental and earplug-related litigation. ![]()
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