3M 's (MMM) First Quarter Results Boost Shares Amid Strong Mask Sales

There are some companies that are in the right place at the right time, and that confluence of luck and strategy results in some exciting stock price gains. Whether it was internet-focused companies back at the dot-com bubble, or greeting card companies at Mother's Day, being where people need a product most at the right time is a winning strategy that's almost impossible to set up ahead of time. Just ask 3M (NYSE: MMM), who recently published its first-quarter earnings, sent on a rocketsled upward thanks to the coronavirus' arrival.

Right Place, Right Time, Right Results

3M shares were up 4.3% in trading before the markets even opened, and the gains haven't stopped yet as of this writing. That alone is something of a surprise; normally when shares spike in premarket trading, some capitulations go on as new investors take profits. But now, that's not really the case; the stock closed at $153.53 yesterday, and as of this writing, is currently trading at $160.89.

Essentially, what made 3M explode was exactly what you'd think; huge new sales of N95 and otherwise virus-protective masks and similar materials propelled the company's earnings well past what Wall Street originally expected.

While the results weren't universally great—3M noted that it saw “a mix of results” in the various market segments with which they were involved—the “personal safety unit” led the way with positively massive sales. Since the personal safety unit is directly connected to the production of N95 masks, that's the big winner right now. 3M did note that some of its market segments had seen weaker demand due to responses to the ongoing virus. So while the company is doing well, it's mostly spiking on the results of a couple divisions while others lose a lot more ground.

Thus, the company could comfortably report adjusted earnings per share (EPS) of $2.16, as compared to consensus estimates of $2.03, backed up by $8.08 billion in revenue, as compared to $7.91 billion in expected revenue. That's up a surprisingly narrow 2.7% as compared to the same time last year.

Building on a Winner

3M isn't planning to rest on its laurels, either; the company has already set itself up to double respirator production worldwide, hitting 100 million such models a month, since just the beginning of 2020. Now, it's poised to drop enough capital investment to double respirator output once more.

Yet despite this plan, and this winning quarter, 3M is still pulling its full-year guidance off the table. The conditions on the ground are just too uncertain to make plans that even vaguely make sense. But, in something of a turnaround from the norm that's a direct benefit to investors, the company is looking to offer up monthly sales numbers to investors so that they can more readily track 3M's performance and make decisions about maintaining or modifying investment levels from there.

Further, 3M is also planning to modify its cost profile; the company is actively pursuing cost reductions, though don't look for a lot of job losses. The company hopes to save a combined total between $350 million and $400 million for the second quarter, which will help on several fronts. While it's suspending its share buyback plans, it's not only keeping its dividend, but it's also maintaining the two-percent increase to $1.47.

Like Buying Beanie Babies in 2002?

As wonderfully as 3M is doing—and all credit to the company for taking advantage of conditions on the ground to produce profit by offering a product people need—it's worth wondering if, maybe, these gains are temporary. We're already seen some states come off the lockdown panic and reopen economies, some much more so than others.

While there are concerns about a second wave of coronavirus to come, and the potential for viral mutations as well as further infection gains likely to follow—the whole point of lockdowns was to “slow the spread”, not “smother the virus”—it's easy to look at the overall market and wonder if maybe 3M will lose some ground going forward as masks are less urgently needed.

However, this concern is comparatively minimal. Remember that 3M has a wide, wide range of other market segments to work with; if the virus does lose ground, and the personal safety unit goes down with it, there will be other, currently repressed market segments to help make up the difference.

In the end, 3M's spectacular level of market diversification will save it, and its stock price, going forward. The best sign of that is 3M's dividend; you don't raise your dividend in a pandemic unless you're really sure about the company's long-term future.