3M Co. (NYSE:MMM)

The period between 2017 and 2021 demonstrates fluctuating financial performance as measured by economic profit. Net operating profit after taxes (NOPAT) generally increased over the period, though with some variation. The cost of capital remained relatively stable, while invested capital exhibited an increasing trend. These factors combined to produce significant changes in economic profit.

Net Operating Profit After Taxes (NOPAT)

NOPAT increased from US$5,388 million in 2017 to US$5,630 million in 2018, representing a modest gain. A decrease was then observed in 2019, with NOPAT falling to US$4,679 million. Subsequent years saw recovery, with NOPAT reaching US$5,797 million in 2020 and further increasing to US$6,058 million in 2021. This indicates a generally positive trend in core operational profitability, despite the dip in 2019.

Cost of Capital

The cost of capital experienced a slight decrease from 13.27% in 2017 to 13.13% in 2018. It continued to decline to 12.27% in 2019, before modestly increasing to 12.43% in 2020 and 12.47% in 2021. The fluctuations were relatively small, suggesting a stable cost of funding throughout the analyzed period.

Invested Capital

Invested capital showed an initial decrease from US$32,308 million in 2017 to US$31,616 million in 2018. However, it then increased substantially to US$38,698 million in 2019. This upward trend continued, with invested capital reaching US$38,880 million in 2020 and US$39,156 million in 2021. This suggests a growing capital base over the period.

Economic Profit

Economic profit demonstrated significant variability. It began at US$1,101 million in 2017 and increased to US$1,477 million in 2018. A substantial decline occurred in 2019, resulting in an economic loss of US$69 million. Economic profit rebounded strongly in 2020 to US$963 million and continued to rise to US$1,174 million in 2021. The fluctuations in economic profit appear to be driven by the interplay between NOPAT, cost of capital, and, particularly, invested capital. The negative economic profit in 2019 highlights a period where returns did not exceed the cost of capital, despite positive NOPAT.

Overall, the period was characterized by growth in NOPAT and invested capital, coupled with a relatively stable cost of capital. The resulting economic profit exhibited volatility, with a notable loss in 2019, but ultimately recovered to levels comparable to the earlier years of the period.

Net Income Attributable to 3M

The net income exhibits a fluctuating trend over the five-year period. Starting at 4,858 million USD in 2017, it increased to 5,349 million USD in 2018, indicating a positive growth. However, there was a decline in 2019, with net income falling to 4,570 million USD. This downward shift was followed by a recovery in 2020 and 2021, reaching 5,384 million USD and 5,921 million USD respectively, signaling an overall increasing trajectory towards the end of the period.

Net Operating Profit After Taxes (NOPAT)

The NOPAT shows similar variability with a general upward movement. It rose from 5,388 million USD in 2017 to 5,630 million USD in 2018, before dropping to 4,679 million USD in 2019, reflecting a noticeable dip in operational profitability after taxes. Subsequently, NOPAT recovered significantly in 2020 and 2021, achieving 5,797 million USD and 6,058 million USD respectively. This rebound suggests improved operational efficiency and tax impact post-2019.

Overall Summary

Both the net income and NOPAT follow a similar pattern characterized by growth in the early years, a decline in 2019, and a strong rebound in the last two years. The dip in 2019 indicates potential challenges during that period, impacting both profitability and operational returns after taxes. The recovery phase through 2020 and 2021 suggests strategic or market conditions improving, leading to enhanced financial performance. The data implies resilience and a return to growth momentum after a temporary setback.

The analysis of the provided financial data reveals a notable trend in the company's tax-related figures over a five-year period from 2017 to 2021.

Provision for Income Taxes

This figure shows a significant and consistent decline from 2017 through 2019, decreasing from US$2,679 million in 2017 to US$1,130 million in 2019. The trend then stabilizes somewhat in the following years, with a slight increase to US$1,318 million in 2020 before a marginal decrease to US$1,285 million in 2021.

Cash Operating Taxes

Cash operating taxes exhibit a similar downward pattern initially, falling from US$2,524 million in 2017 to US$1,349 million in 2019. After this period, the figure rises again in 2020 to US$1,585 million and remains relatively stable into 2021 at US$1,557 million. This suggests some recovery or stabilization in cash tax payments following the prior decline.

Overall, both provisions for income taxes and cash operating taxes experienced a marked reduction between 2017 and 2019. Subsequently, from 2020 onward, there appears to be a trend toward stabilization or slight recovery in tax-related expenses, although these amounts have not returned to the higher levels seen in 2017. This pattern could indicate changes in profitability, tax planning strategies, or tax law impacts over the examined period.

Total Reported Debt & Leases

The total reported debt and leases increased notably from 15,091 million USD at the end of 2017 to 21,299 million USD by the end of 2019. However, a declining trend is observed afterward, with the total reducing to 19,775 million USD in 2020 and further to 18,317 million USD in 2021. This indicates an initial period of increased leverage followed by a consistent effort to reduce debt and lease obligations over the last two years.

Total 3M Company Shareholders’ Equity

Shareholders’ equity showed a downward trend from 11,563 million USD in 2017 to 9,796 million USD in 2018, indicating a reduction in net assets during that period. From 2018 onwards, equity exhibited a recovery and growth, climbing to 10,063 million USD in 2019, then more significantly increasing to 12,867 million USD in 2020 and reaching 15,046 million USD in 2021. This reflects improving retained earnings or capital infusions contributing to the strengthening of the equity base over the latter years.

Invested Capital

Invested capital was relatively stable between 2017 and 2018, with marginal decrease from 32,308 million USD to 31,616 million USD. In 2019, a considerable increase occurred, bringing the invested capital to 38,698 million USD. This level was maintained with slight increments through 2020 and 2021, totaling 38,880 million USD and 39,156 million USD respectively. This pattern suggests significant new investments or assets acquisition in 2019, followed by stabilization of capital deployment in subsequent years.

Overall Insights

The combined analysis suggests a strategic shift over the reported period. After increasing debt levels through 2019, the company appears to focus on deleveraging in 2020 and 2021, coinciding with rising shareholders' equity and steady invested capital. This could imply improved profitability, asset management, or capital restructuring efforts enhancing the company's financial stability and reducing reliance on borrowed funds.

The period between 2017 and 2021 demonstrates fluctuating financial performance as measured by economic value added metrics. Economic profit exhibited volatility, beginning with positive values, experiencing a significant decline, and then recovering. Invested capital generally increased over the five-year period, though with a slight decrease between 2017 and 2018. The economic spread ratio, reflecting the efficiency of capital allocation, mirrored the trends in economic profit.

Economic Profit

Economic profit increased from US$1,101 million in 2017 to US$1,477 million in 2018, indicating improved profitability relative to the cost of capital. However, a substantial decrease occurred in 2019, resulting in an economic loss of US$69 million. A strong recovery followed in 2020, with economic profit reaching US$963 million, and further growth to US$1,174 million in 2021. This suggests periods of both successful and unsuccessful value creation.

Invested Capital

Invested capital decreased slightly from US$32,308 million in 2017 to US$31,616 million in 2018. Subsequently, it increased significantly to US$38,698 million in 2019 and continued to rise, reaching US$39,156 million in 2021. The consistent increase from 2019 onwards suggests ongoing investment in the business, despite the economic loss experienced in that year.

Economic Spread Ratio

The economic spread ratio followed a similar pattern to economic profit. It rose from 3.41% in 2017 to 4.67% in 2018, indicating an increasing ability to generate returns exceeding the cost of capital. A sharp decline to -0.18% in 2019 reflected the economic loss. The ratio recovered to 2.48% in 2020 and further improved to 3.00% in 2021, demonstrating a return to positive value creation, although not reaching the levels observed in 2018. The negative value in 2019 indicates that returns were insufficient to cover the cost of capital during that period.

Overall, the analysis reveals a period of fluctuating performance. While invested capital generally increased, the ability to generate economic profit and a positive economic spread varied considerably. The recovery observed in 2020 and 2021 suggests a strengthening of financial performance, but the significant dip in 2019 warrants further investigation.

The economic profit margin exhibited fluctuations over the five-year period. Initial positive performance was followed by a significant downturn, then a recovery, and finally a slight increase. A review of the economic profit and adjusted net sales figures reveals the underlying drivers of these changes.

Economic Profit Margin

The economic profit margin began at 3.48% in 2017, indicating that for every dollar of sales, the company generated 3.48 cents of economic profit. This margin improved to 4.50% in 2018, representing the highest value observed during the period. A substantial decline occurred in 2019, with the margin falling to -0.22%, signifying an economic loss. The margin recovered to 2.99% in 2020 and continued to increase to 3.32% in 2021, though remaining below the 2018 peak.

Economic Profit

Economic profit increased from US$1,101 million in 2017 to US$1,477 million in 2018, aligning with the improvement in the economic profit margin. The significant drop in economic profit to -US$69 million in 2019 directly contributed to the negative margin for that year. A strong rebound was seen in 2020, with economic profit reaching US$963 million, and further growth to US$1,174 million in 2021.

Adjusted Net Sales

Adjusted net sales demonstrated a generally upward trend, increasing from US$31,641 million in 2017 to US$35,386 million in 2021. While sales increased in 2018 and 2021, a slight decrease was observed in 2019, from US$32,869 million to US$31,949 million. The increase in sales did not consistently translate into improved economic profit margins, as evidenced by the 2019 results, suggesting that factors beyond revenue growth influenced profitability.

The period demonstrates a complex relationship between sales, economic profit, and the resulting margin. While sales generally increased, the economic profit margin was significantly impacted by fluctuations in economic profit, particularly the substantial loss experienced in 2019. The subsequent recovery in both economic profit and margin indicates a return to more favorable performance, but the margin has not yet reached its previous high.