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3M (MMM) Faces Inflationary Pressures, Expects EPS to be Hurt

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3M Company MMM communicated concerns over the possible impacts of higher raw material costs on its earnings. This along with other short-term headwinds was discussed by the company’s executive vice president and CFO, Monish Patolawala, at Morgan Stanley Laguna Conference held on Sep 13.

The conglomerate’s shares declined 1.2% in the past two trading sessions, eventually closing at $182.42 yesterday.

Inside the Headlines

As noted, the shortage of semiconductors is a major concern for the company. The stressed supply chain is hurting businesses in the automotive and electronics markets. Auto builds are expected to be down 6% in the second half of 2021 as compared with a fall of 3% mentioned earlier. The impacts of the Delta variant of the pandemic can also be felt across businesses globally.

For healthcare, 3M noted that the demand for elective procedures in the third quarter will likely be at the lower end of the previously mentioned 90-95% of the pre-pandemic demand level. This might even fall below the lower end of the projections in adverse situations. Also, office supply businesses might experience a setback from the delay in returning to workplaces.

Inflation in prices of raw materials, including resins and polypropylene, as well as woes related to jobs and labor are concerning for the quarters ahead. Congestion at ports is adding to logistics issues. Better pricing is only able to partially offset the impact of the woes.

For 2021, the headwinds are now expected to hurt earnings at the higher-end of 65-80 cents per share mentioned previously. The impacts on the operating margin are expected to be 100-150 basis points (bps) in the third quarter as compared with a 50-100-bps adverse impact stated previously.

A brief on projections provided by 3M in July along with its second-quarter results is given below:

The company’s adjusted earnings are expected to be $9.70-$10.10 per share for 2021, whereas its sales are predicted to increase 7-10% year over year (with organic sales growth of 6-9%). Earlier, it anticipated adjusted earnings of $9.20-$9.70 per share and revenue growth of 5-8% (with organic growth of 3-6%).

Zacks Rank, Price Performance and Earnings Estimates

With a market capitalization of $107.2 billion, 3M currently carries a Zacks Rank #3 (Hold). Healthy prospects in some end markets, solid product offerings and marketing capabilities are beneficial for the company. Supply-chain issues along with woes related to raw material and logistic costs are concerning.

In the past three months, the company’s share price has decreased 7.4% against the industry’s growth of 7.6%.

Zacks Investment Research
Zacks Investment Research

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Meanwhile, the Zacks Consensus Estimate for 3M’s earnings is pegged at $10.11 for 2021 and $10.89 for 2022, marking increases of 3.4% and 2.8% from the 60-day-ago figures, respectively. Estimates for the third quarter are unchanged at $2.45.

3M Company Price and Consensus

3M Company Price and Consensus
3M Company Price and Consensus

3M Company price-consensus-chart | 3M Company Quote

Stocks to Consider

Three better-ranked stocks in the industry are Raven Industries, Inc. RAVN, Crane Co. CR and Danaher Corporation DHR. While Raven presently sports a Zacks Rank #1 (Strong Buy), both Crane and Danaher carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates of the above-mentioned companies improved for the current year. Also, the earnings surprise for the last reported quarter was a positive 100.00% for Raven, 31.65% for Crane and 20.59% for Danaher.

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3M Company (MMM) : Free Stock Analysis Report

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