3M NYSE: MMM reported stronger-than-expected second-quarter results, with executives citing gains from commercial execution, new product introductions and productivity initiatives as the company raised its full-year outlook for sales, earnings and free cash flow.
Chairman and CEO Bill Brown said 3M delivered organic growth of 5.4% in the quarter, adjusted operating margin of 24.9%, adjusted earnings per share of $2.40 and free cash flow of $1.3 billion. Adjusted EPS rose 11% from the prior year, while free cash flow conversion was 107%. The company returned $1.4 billion to shareholders during the quarter, including $400 million in dividends and $1 billion in share repurchases.
“Our results today exceeded our expectations, demonstrate the progress we’re making to build a higher performing company, and continue to give us confidence we’re on the right path forward,” Brown said.
Guidance Raised After Strong First Half
Chief Financial Officer Anurag Maheshwari said the company’s first-half performance gave management confidence to raise its 2026 outlook. 3M now expects organic growth of greater than 3.5% for the year, up from its prior expectation of 3%. Adjusted EPS guidance was increased to a range of $8.80 to $8.95, compared with the previous range of $8.50 to $8.70. The new range implies year-over-year EPS growth of 9% to 11%.
3M also raised its free cash flow forecast by $100 million to a range of $4.7 billion to $4.9 billion, with expected conversion above 100%.
Maheshwari said the revised guidance reflects stronger sales growth, productivity gains and the company’s capital deployment strategy. He noted that oil-related inflation is now expected to be $150 million to $175 million, up from $125 million previously, but said the impact is expected to be offset by pricing actions implemented in the second quarter.
For the second half, the updated guidance implies organic sales growth in the high 3% range or better, which Maheshwari described as more than two times the macro environment, along with operating margin expansion of about 100 basis points from the prior year.
Industrial Businesses Lead Growth
Safety & Industrial was the strongest-performing business group, with organic sales growth of 8.2% in the quarter. Maheshwari said the segment benefited from commercial excellence initiatives and the ramp-up of new product launches. He said the company delivered double-digit growth across electrical markets, industrial adhesives and tapes, abrasives, and industrial specialties.
Transportation and Electronics grew 5.9% in the quarter, helped by backlog conversion, commercial execution and account management. Semiconductor, aerospace and data center businesses grew double digits, while commercial branding and transportation grew approximately 5%. Auto was flat in a soft market, and consumer electronics declined in the low single digits.
The Consumer segment, which represents about 20% of sales, declined 2.1% in the quarter and 1.7% in the first half. Maheshwari said U.S. point-of-sale trends were positive for much of the year, but inventory tightening at several key retailers in the second half of June offset that momentum.
Brown said inventory levels in the Safety & Industrial and Transportation & Electronics businesses were normal. In Consumer, he said the retailer pullback was isolated to a few customers and amounted to about one week of supply. He said 3M expects Consumer performance to normalize in the third quarter as retailers stock for the back-to-school season, with the business expected to be flat to up slightly in the second half.
Innovation and Commercial Execution Remain Central Themes
Brown said 3M is rebuilding its innovation engine and expects to launch more than 350 new products this year. The company launched 92 products in the second quarter, up 44% from a year earlier, bringing the first-half total to 176.
Brown said 3M is on track to nearly triple the number of new products introduced this year compared with three years ago and to launch more than 1,000 products by 2027. He also said the company is reducing development cycle time by about 20% and expects artificial intelligence to help accelerate movement from idea generation to development and production.
Commercial initiatives also contributed to growth, according to management. Brown said cross-selling produced $110 million of booked opportunities, with another $120 million in the pipeline. During the question-and-answer session, he said customer attrition improved by about 200 basis points, primarily in Safety & Industrial, although he said attrition remains too high.
Brown said 3M expects to be about $450 million above macro growth for the full year, compared with a prior expectation of roughly $340 million to $350 million.
Data Center Opportunity Draws Attention
Executives highlighted 3M’s Expanded Beam Optical, or EBO, technology as a potential growth opportunity in data centers. Brown said Microsoft became the first hyperscaler to deploy 3M’s patented EBO technology in Azure data centers.
Brown described EBO as a durable, dust-resistant and vibration-resistant fiber optic connection technology. He said testing with a hyperscaler showed it can reduce by about 85% the time to install circuits and generate revenue in a data center. He said the company has about 100 patents in the area and 50 pending.
Brown said revenue from EBO is expected to be in the $40 million to $50 million range this year, but the opportunity could scale to four or five times that amount, or more, over the next several years depending on adoption and 3M’s ability to expand production. He said the total addressable market for EBO technologies is about $1 billion this year and could grow to $2 billion by 2028.
He added that 3M is working with contract manufacturers and other ecosystem participants, noting that the company does not expect to be successful as a sole provider. Brown said 3M has formed a multi-supplier agreement with 44 players across the ecosystem, including hyperscalers, chip manufacturers and connector manufacturers.
Portfolio and Productivity Actions Continue
Brown said 3M is continuing to shift from a holding company model toward a more integrated operating company model. He said the next phase involves simplifying and standardizing core processes, reducing complexity in the factory and distribution network, and reshaping the portfolio.
The company closed the acquisition of Madison Fire & Rescue on July 1 and consolidated it with its Scott SCBA business into a new majority-owned joint venture. Brown said 3M received $700 million in cash as part of the transaction. The joint venture generates $800 million in revenue, grows at a high-single-digit rate and has margins above the company average, according to Brown.
On productivity, Brown said cost of poor quality improved 60 basis points year over year, while overall equipment effectiveness improved 140 basis points. He cited a production improvement effort at 3M’s New Ulm facility, which makes cable accessories for electrical markets, as an example of operational discipline. Brown said the work center achieved record production levels in June and delivered $13 million of incremental revenue.
Maheshwari said second-quarter adjusted operating profit increased $110 million, or $0.16 per share, including a $240 million benefit from sales growth and productivity. That was partially offset by $30 million of investments and $110 million from tariff impacts and stranded cost headwinds. He said 3M has not received any tariff refunds to date.
Executives said 3M continues to track ahead of the commitments outlined at its investor day, including growth above macro, operating margin expansion, earnings growth and shareholder returns. Brown said the company remains in the “early innings” of its value creation effort, but said momentum is building.
About 3M (NYSE:MMM)
3M Company, originally founded in 1902 as the Minnesota Mining and Manufacturing Company, is a diversified global technology and manufacturing firm headquartered in St. Paul, Minnesota. Over its history the company has expanded from mineral mining into a broad portfolio of industrial, safety, healthcare and consumer products, building a reputation for applied science and product innovation across many end markets.
3M's businesses span a wide range of product categories including adhesives and tapes, abrasives, filtration and separation technologies, personal protective equipment such as respirators, medical and dental products, industrial and automotive solutions, and a suite of consumer brands (for example, well-known office and home products).
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