Will Currency Woes Drag 3M Company's (MMM) Q2 Earnings? - Analyst Blog
Industrial goods manufacturer 3M Company MMM is scheduled to report its second-quarter 2015 results before the opening bell on Jul 23.
In the last quarter, the company delivered a negative earnings surprise of 3.7%. 3M has delivered earnings beats in just two of the trailing four quarters, and met in one. Let’s see how things are shaping up for this announcement.
Growth Factors in the Past Quarter
The results of the soon-to-be-reported quarter are expected to benefit from 3M’s recent acquisitions of Ivera Medical Corp. and Polypore International Inc.’s Separations Media business. 3M purchased Ivera to expand its healthcare operations and further bolster this lucrative segment. On the other hand, Polypore’s Separations Media business was slated to boost 3M’s existing core filtration platform in high-growth segments and strengthen its position in technology, manufacturing and branding. These businesses are expected to boost 3M’s top line in the upcoming quarter.
The company is extremely active on the acquisition front, and unlocks great growth opportunities this way. 3M expects to invest between $5 billion and $10 billion for acquisitions through 2017. In fact, 3M also decided to acquire Capital Safety – a leader in fall protection equipment and services – for $2.5 billion, which will significantly expand its high-growth Personal Safety business. This is the company’s largest acquisition ever and will considerably boost 3M’s bottom line in the coming quarters.
Additionally, the company has been making efforts to reposition its portfolio by divesting assets that no longer fit its corporate strategy, thus streamlining its operations and making them more profitable.
Portfolio management, investment in innovation and business transformation are the three key levers on which the company intends to focus moving forward. 3M also aims to continue investing in capital expenditures and research and development to support organic growth as it aims at a capital structure strategy and increased capital deployment.
However, foreign currency headwinds might once again prove to be a drag on 3M’s upcoming results. Also, the company faces other risks like local legislation, monetary devaluation, exchange control restrictions and unstable political conditions, which may lead to a decline in revenues and pose a threat to the earnings of the company.
Earnings Whispers
Our proven model does not conclusively show that 3M is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here as you will see below:
Zacks ESP: 3M’s Most Accurate estimate is pegged at $1.99 per share, which is in line with the Zacks Consensus Estimate. The Earnings ESP is thus 0.00%.
Zacks Rank: 3M’s Zacks Rank #3 (Hold), when combined with a 0.00% ESP, makes surprise prediction difficult.
Meanwhile, we caution against stocks with Zacks #4 and 5 Ranks (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks That Warrant a Look
Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
The Cheesecake Factory Incorporated CAKE has an Earnings ESP of +1.61% and carries a Zacks Rank #2 (Buy). It is scheduled to report results on Jul 22.
Amazon.com Inc. AMZN has an Earnings ESP of +33.33% and holds a Zacks Rank #2. It is scheduled to report results on Jul 23.
Caterpillar Inc. CAT has an Earnings ESP of +6.40% and carries a Zacks Rank #1 (Strong Buy). It is scheduled to report results on Jul 23.
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