3M Awarded Department of Defence Contracts to Further Expand U.S. Production of N95 Respirators

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3M Awarded Department of Defence Contracts to Further Expand U.S. Production of N95 Respirators

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What happened

3M (NASDAQ: MMM) in its press release on May 7, 2020, stated that it has been awarded two contracts through the Department of Defence to increase its production of N95 respirators to battle the COVID-19 outbreak.

This will allow the company to produce an additional 39 million respirators per month. 3M’s own investment of $80 million will allow them to increase the monthly production by 22 million units. This will lead to a total production of roughly 95 million respirators per month since the company has already been producing at a capacity of 35 million respirators per month.

3M

So what

In December 2019, the government of Wuhan confirmed that the health authorities were dealing with several cases of “pneumonia of unknown cause”. Following this 3M, increased the U.S. production of the N95 respirator from 22 million to 26 million in anticipation of higher demand. By the end of January, the WHO declared a public health emergency of international concern.

3M, in response to this, operated their supply chain for 24 hours a day for 7 days a week in the month of February. This increased production to 33 million respirators per month.

In March, 3M secured authorization for the import of 10 million masks of the U.S. from its facilities in China. Around this time the production of the respirators had increased to 35 million per month doubling its global output to 1.1 billion respirators annually.

In a press release on April 28, 2020, the company reported its First Quarter figures. The revenues for Q1 2020 stood at $8.1 billion, indicating a 2.7 percent year on year growth. The Q1 revenue for 2019 was $7.8 billion. Organic local-currency sales grew by 0.3 percent. Acquisitions, net of divestitures, increased sales by 4.2 percent. Foreign currency translation reduced sales by 1.8 percent year-on-year.

Total sales grew 21.0 percent in Health Care and 4.6 percent in Consumer, with declines of 1.0 percent in Safety and Industrial and 5.0 percent in Transportation and Electronics. Organic local-currency sales increased 6.1 percent in Consumer, 2.2 percent in Safety and Industrial, and 1.2 percent in Health Care, with a decline of 3.0 percent in Transportation and Electronics.

On a geographic basis, total sales grew 10.1 percent in the Americas, with declines of 2.1 percent in EMEA (Europe, Middle East, and Africa) and 5.4 percent in the Asia Pacific.

The GAAP EPS for the current quarter was $2.22. The EPS for the previous quarter was $1.66. This was after a restructuring charge of $0.20. The year on year growth of EPS was 47 percent.

The free cash flow of the company was $0.88 billion which was less than that of the last quarter by $1 billion. Year on year growth of free cash flow was 35%.

The company paid $847 million in cash dividends to shareholders and repurchased $365 million of its own shares during the quarter.

Now What

In a recent article by CNN Business titled “Business is booming for these 14 companies during the coronavirus pandemic,” 3M was said to have shown a “strong growth”. This growth can be attributed to the coronavirus pandemic. As stated above, the company saw a 21 percent growth in its health care segment and 4.6 percent growth in the consumer goods segment.

The $80 million investment and these contracts will help 3M double up its production capacity again to $2 billion respirators annually. In addition to this, the company also plans to import 166.5 million respirators from its overseas facilities like china and other Asian regions, with the help of trump administration. All of this may, in the coming months, show an increase in the earnings of 3M.

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