3M (NYSE:MMM) soared by an impressive 17.9% in January, according to data provided by S&P Global Market Intelligence. The move comes as the market continues to warm to CEO Bill Brown's plans to rejuvenate the company's long-term growth rate and improve its operational performance.
3M is a self-help story
The company's fourth-quarter earnings report, released on Jan. 21, confirmed what many investors already knew about the stock. 3M isn't getting much help from its end markets, but its ongoing restructuring is expanding profit margins, and there's a lot of potential for future improvement.
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Revenue grew 2.1% on an organic basis in the fourth quarter, and management doesn't expect much better for the full year 2025 with guidance for organic sales growth of 2% to 3%. 3M's end markets remain mixed with weakness in auto builds and consumer discretionary spending, balanced by improving consumer electronics and aerospace end markets. Those conditions will likely continue through 2025, with industrial production expected to grow by 1.9%.
3M's growth prospects
The real growth story at 3M comes from the ongoing restructuring. The initiatives launched in 2023 are already demonstrating margin expansion. Gross profit margin expanded to 42.1% in 2024 compared to 39.1% in 2023, and Brown said he believes it can hit the high 40s over time.
The 2023 initiatives, which are almost complete, involve cutting jobs, reducing management layers, and cutting 5% of (less profitable) products in its consumer segment. The steps forward for 3M include improving its long-term growth rate by increasing its new product introductions (NPIs) rate by focusing on research and development. It used to be a hallmark of 3M's operations, with the company driving sales growth by releasing differentiated products that command pricing power. Unfortunately, 3M has fallen behind in NPIs in recent years, and Brown plans to return 3M to its former standing.
Image source: Getty Images.
3M will release comprehensive details on Brown's plans on Feb. 26 at an investor day event. Still, he's already improved 3M's on-time in-full deliveries and made initial progress on reducing the number of days 3M holds inventory before selling it.
3M in 2025
In summary, investors are warming to the proposition that Brown will improve 3M's operational performance and long-term growth. Given the company's underperformance over the last decade, there appears to be substantive opportunity for improvement. At less than 20 times expected 2025 earnings, 3M remains a good value stock option.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends 3M. The Motley Fool has a disclosure policy.
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