3M raised its earnings outlook again, but its free cash flow has not kept pace

3M has spent this year showing that its businesses are getting better, and the profit figures bear that out. Adjusted earnings per share, which leave out litigation costs, the exited PFAS chemicals business and other special items, came to $7.11 for the first nine months, 12% more than a year earlier. What has not moved is the cash. Adjusted free cash flow, the money the operations bring in after capital spending and the measure management sets its guidance on, was $3,086 million over the nine months against $3,083 million a year before.

The September 2026 quarter widened the gap. Adjusted free cash flow fell to $1,197 million from $1,310 million a year earlier. Anurag Maheshwari, the chief financial officer, put the shortfall down to the timing of working capital, the money tied up in unpaid customer bills and stock waiting to be sold, and said he expects it to reverse in the fourth quarter. The balance sheet shows where the money sits: receivables and inventories together have grown by $1,003 million since the end of December, calculated from the reported balances.

Management kept its full-year guidance for adjusted free cash flow at about $4.8 billion, the midpoint of the range it gave in July. Take away what the first nine months produced and the guidance implies about $1.7 billion in the final quarter, roughly a third more than the same quarter of last year delivered, calculated from the reported figures. If customers pay and stock runs down as the finance chief expects, that is reachable. If they do not, the shortfall will show up in the cash guidance rather than in earnings.

The adjusted measure also leaves out cash that really did leave the company. In the quarter 3M paid about $1 billion before tax, net, for significant litigation and its exit from PFAS, against a small net receipt a year earlier. Reported operating cash flow, which counts those payments, came to $486 million, against $1,756 million a year before. William Brown, the chief executive, said the company is working with a court-appointed mediator in the federal multidistrict case over personal-injury claims linked to firefighting foam, and pointed holders to the quarterly filing for detail.

Meanwhile the money going out has run ahead of the cash coming in. Over the nine months 3M spent $4,441 million on dividends and buybacks, more than its adjusted free cash flow, and it also paid for Madison Fire & Rescue, a fire-equipment maker. Total debt was flat over the first half while 3M ran down its cash; in the third quarter it borrowed $2.4 billion and kept most of it as cash at the quarter's end. Net of cash, debt has also risen since December, but most of that rise came in the first half, calculated from the reported balances. Maheshwari said Madison brings operating profit but also higher interest and the partner's share of earnings, leaving it neutral to earnings per share this year and next; the partner in the Madison venture also put in cash of its own. It does mean that this year's buybacks rest partly on borrowed money until the working capital comes back.

None of this cancels the operating progress, and the company raised its full-year earnings guidance once more. Part of that move is accounting: adjusted results now also exclude amortisation of acquired intangible assets, and on that basis Maheshwari said the increase was $0.10 at the midpoint. The earnings have kept climbing through the year. The cash measure management guides on has not followed them yet, and the full-year figure now depends on a working-capital build unwinding within a single quarter.