3M (NYSE:MMM) is a highly diversified manufacturing company. Its portfolio ranges from consumer goods and healthcare products to industrials and electronics. However, the pandemic set in motion a series of events that have disrupted global supply chains, potentially creating a headwind for 3M's business.

In this Backstage Pass video, recorded on Oct. 27, 2021, Motley Fool contributors Travis Hoium and Brian Withers discuss 3M's third-quarter earnings. Travis highlights the impact of supply chain disruptions and the metrics investors should watch going forward.

Travis Hoium: So 3M, a little bit more of a diversified manufacturing play here. Just let me share the highlights for the quarter: $8.9 billion in revenue, up 7.1%, which is a high growth number for a company like 3M which is typically not going to be a growth stock or the kind of levels that we think of as a growth stock. But this is a recovery from the pandemic levels. Take that with a little bit of a grain of salt.

Earnings per share were flat at $2.45, but did beat estimates. What was impacting the stock which was essentially flat over the last couple of days is that their outlook is not necessarily as good as investors would have hoped. Their local currency growth, they lowered it to 8% to 9%, which is actually at the top end of their previous range. But on the earnings side, they are now expecting $9.90 per share in earnings, which is at the lower end of their earnings range.

Generally, the story here for 3M is that their revenue is going to be a little bit better than maybe we expected or at least the midpoint of the range, but their earnings are going to be lower. We're seeing those raw material costs come through with a company like 3M; they are going to be a consumer of a lot of different products in the market, especially as diversified as they are. That's generally what we're seeing from a revenue and earnings perspective.

A couple of interesting highlights that I saw in the earnings release -- this is such a diversified company that it's hard to take one specific thing out of their earnings, because they're making over 10,000 products so they're touching so many different markets -- but their consumer business organic revenue was up 7.6%, which is their strongest segment.

They said this was because a lot of work from home so people are buying products that they are using in their offices at home. Also we're back to a little bit more of a normal back to school schedule this year versus last year. That was really good to see. Interestingly, healthcare was only up 3.3% on an organic basis, so that was actually their weakest segment that they breakout. A couple of interesting things to note there.

The other big concern is that they're actually seeing a downstream effect of the chip constraint that we've seen in a bunch of different businesses. They mentioned things like automobiles. If companies like GM and Ford aren't able to make automobiles, they're not going to be buying products from 3M that are going to be going into those automobiles whether that's tape or electrical connectors, all kinds of different things that they make that go into other products. That's really important to see that pick up over the next few quarters, as Nick touched on.

Then a couple of other highlights because if you own shares of 3M, you probably own it for the money that they're returning to shareholders. They returned $1.4 billion to shareholders, bought back $527 million worth of stock. That was really positive. They did that with operating cash flow of $1.9 billion and free cash flow of $1.5 billion. This continues to be a moneymaking machine but we'll see over the next few quarters if they were able to keep that high single digit organic sales growth going. They said that they are going to be able to raise prices here in the next few quarters so we'll maybe see that come down the pipeline maybe earnings will come back up a little bit as a result.

Brian Withers: Yeah. Travis, this is a pretty impressive quarter for a company that is so highly dependent on supply chain and manufacturing to have a seven percent year-over-year growth. I think that's pretty awesome for them.


Travis Hoium: Yeah. It's good and it's really hard to see what the organic growth is without COVID in there. Over the next few quarters I think that's the interesting thing to see. I spent some time working at 3M and innovation is always a thing that they talk about so I watch that organic number. We'll see if they're able to invest and grow the business long term like we would like to see

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