3M Reports 12% EPS Growth in Q2

Multinational conglomerate 3M (NYSE:MMM) reported fiscal 205 second-quarter earnings on Friday, July 18, 2025, with adjusted EPS of $2.16, increasing 12% year over year, despite macroeconomic sluggishness and tariff headwinds. The quarter featured 1.5% organic sales growth, 290 basis points margin expansion year over year, $1.3 billion in adjusted free cash flow, and evidence of accelerating new product development, cost discipline, and commercial execution. Full-year EPS guidance was raised to $7.75-$8.00.

3M Saw Accelerated Innovation Pipeline and Revenue Impact from New Product Launches

In the first half of 2025, 3M management reported 126 new product launches, resulting in five-year new product sales rising 9% in the first half and tracking toward over 15% growth for the full year, according to management. The expansion in R&D headcount by 150 since the start of 2025, combined with disciplined business-case screening, has fueled stronger proprietary offerings across multiple business segments.

"In Q2, we launched 64 new products, up about 70% versus last year, which puts us at 126 launches for the first half and on track to exceed our target of 215 for the year. ... five-year new product sales bottomed last year and were up 9% in the first half, accelerating from Q1 into Q2 and tracking well to be up more than 15% for the year."
— Bill Brown, Chairman and Chief Executive Officer

The resurgence of new product momentum diversifies revenue streams and supports both pricing power and share gains, strengthening 3M's long-term competitive positioning across industrial and consumer end markets.

3M's Margin Expansion Driven by Supply Chain and G&A Productivity

3M expanded adjusted operating margins by 290 basis points to 24.5%, with productivity gains of approximately $500 million for the year, split equally between supply chain and general and administrative (G&A) expenses. Additionally, the cost of poor quality metric was reduced to 6.1%, down 90 basis points year over year.

"So, for the year, it's about half a billion dollars of productivity. More or less, about half is coming out of G&A. And about half is coming out of our factories, out of our supply chain, which as we translate it internally, is running about 2% net of inflation, which is about what we had expected. "
— Bill Brown, Chairman and Chief Executive Officer

This balanced approach to cost discipline provides durable earnings leverage and allows for continued investment in innovation, even amid external cost pressures such as tariffs or input inflation.

3M Targets Commercial Excellence Adoption and Geographic/End-Market Diversification

Commercial excellence initiatives have been extended from Safety & Industrial to Transportation, Electronics, and international markets; more than 400 sales managers have been trained, yielding 48 cross-selling pairs with a pipeline value of over $60 million and $10 million of new orders booked. China led regional growth, increasing mid-single digits aided by market share gains in adhesives and electronics, while Safety and Industrial posted its fifth consecutive quarter of organic growth -- a contrast to persistent auto and consumer market headwinds.

"... our team in Safety and Industrial launched the program in the U.S. late last year and has now expanded this effort into Europe and Asia. We have trained over 400 sales managers and see early results through higher closed-won opportunities and improved order rates. We now have 48 cross-selling pairs identified, about double since Q1, with a pipeline value of over $60 million and $10 million of new orders booked to date."
— Bill Brown, Chairman and Chief Executive Officer

The cross-segment adoption of data-driven commercial practices, combined with international growth momentum, reduces reliance on any single market and increases resilience to regional or end-market volatility.

Looking Ahead

Management raised full-year 2025 adjusted EPS guidance to $7.75-$8.00, reflecting 6%-10% expected earnings growth, and it expects organic growth of approximately 2%. Margin expansion is guided at 150-200 basis points for the year. There is more than 100% free cash flow conversion and Q3 seasonal earnings concentration similar to prior years, while management continues to monitor unresolved PFAS litigation and macroeconomic uncertainties.

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JesterAI is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. All articles published by JesterAI are reviewed by our editorial team, and The Motley Fool takes ultimate responsibility for the content of this article. JesterAI cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool has positions in and recommends 3M. The Motley Fool has a disclosure policy.