3M’s pollution prevention pride came long before its looming fall, writes jgfarb:
Revenue at 3M is expected to be slightly lower this year, at almost $32 billion, than at the end of 2018, based on analyst estimates gathered by Refinitiv. They also project that its operating margin will slip to 19% compared to the 24% achieved five years ago.its fastest growing and most profitable division, health care, which includes wound dressings, medical coding systems and dental filing materials.
The burning question for shareholders is whether there will be enough money left to keep paying, and increasing, the dividend. 3M is what’s colloquially known in this realm as an “aristocrat,” having hiked its payout for 65 consecutive years. Any reversal of the trend would inevitably prompt some shareholders who seek steady dividends to sell 3M from their portfolios.
On that basis, 3M starts to look shakier. Its interest cover, after backing out estimated operating income from health care, would fall to about 4 times from 11 times. And its net debt, using all these assumptions and excluding the health care division, would swell to nearly 5 times EBITDA from less than 2 times.
More concerning from such an outcome would be the cash flow situation. 3M is projected by analysts to generate $8.5 billion of EBITDA in 2024, according to Refinitiv. Back out $2.5 billion from health care, as estimated by the Morgan Stanley team, and $1.5 billion of capital expenditure costs noted by Wolfe Research. After paying $1.3 billion of potential interest and another $900 million in taxes, it would leave $2.3 billion. Last year, 3M paid out $3.3 billion in dividends.
3M probably could find the money for the time being. For example, the water settlement, as drafted, only envisions $4.6 billion of outlays through 2025, and the rest over the ensuing 11 years.
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