- Reported sales increased 0.2% to $2.016 billion, organic sales increased 0.9%
- GAAP Earnings Per Share (EPS) of $1.37; adjusted non-GAAP EPS of $2.08
- Generated $442 million in cash from operations; Non-GAAP free cash flow of $340 million
- Reaffirms full-year 2024 guidance
Full-Year 2024 Guidance (non-GAAP)
- Organic sales growth of -2% to 0%
- Adjusted EPS of $6.10 to $6.40
- Free cash flow of $700M to $800M. According to slides below, $1,200M to $1,300M excluding CAPEX. No breakdown of whether this is all growth CAPEX or maintenance CAPEX.
Capital Allocation (mentioned on March 19th investor day)
- 24 months of paying down debt before any distribution (dividend or share repurchases)
- Claims that the CAPEX will result in innovation and growth even though their 2024 could be -2% growth where their addressable market grows 6% optimistically per year
- Growth strategies: Improve WAMGR (Weighted Average Market Growth Rate), evolve commercial model, increase output of new products, M&As (differentiated & clinician-preferred solutions)
Personal Takeaways
On slide 48 They claim that paying down debt improves free cash flow by reducing interest expense but free cash flow by definition excludes interest expense. Maybe they mean free cash flow to equity?
I was waiting for earnings to decide whether to keep the shares or to divest. I'm leaning towards divesting. There's too much focus on “growth” given the amount of projections they've provided. It's a mature business yet they aren't forthcoming if CAPEX is going to be that large every year or if it's this large just for the current year. If I were to assume they won't reduce CAPEX (i.e. they will fund growth), I get a low valuation. Considering that they will take 2 years to pay off debt, this is more of a stock to HOLD than a screaming buy. The spin-off was already a massive distribution in my opinion and with 3M using the spin-off as a reason to slash its own dividend, it doesn't seem like its worth owning both SOLV and MMM anymore.
Thoughts?
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