Will Inflationary Pressure Dampen 3M's (MMM) Q2 Earnings?
3M Company MMM is scheduled to release second-quarter financial numbers on Jul 25, before market open.
The company has an impressive earnings surprise history, having outperformed the Zacks Consensus Estimate in three of the preceding four quarters, the average beat being 6.6%.
Let’s see how things have shaped up for 3M’s second-quarter earnings.
3M Company Price and EPS Surprise
3M Company price-eps-surprise | 3M Company Quote
Factors to Note
Softness in disposable respirator demand within the Safety and Industrial segment is likely to have weighed on 3M’s second-quarter performance. The Zacks Consensus Estimate for Safety and Industrial revenues indicates a 3.5% decline from the year-ago reported number. For the second quarter, the company expects organic sales to be hurt by approximately 1.5% from a decline in disposable respirator demand.
Amid inflationary pressure, reduced consumer electronics demand is expected to have affected the Transportation & Electronics unit’s revenues. The Zacks Consensus Estimate for Transportation & Electronics revenues indicates a 16.7% decline from the year-ago reported number.
Reduced consumer spending, induced by inflationary pressure, is expected to have weighed on the Health Care and Consumer segments. Weakness in the Health Information Systems business is likely to have weighed on the Health Care segment, while a decline in home improvement, home health and auto care businesses is expected to have dented Consumer segment revenues. The Zacks Consensus Estimate for Health Care revenues indicates a 5.9% decline from the year-ago reported number. The same for the Consumer segment hints at a 6.1% decrease from the year-ago reported number.
The slowdown in China due to coronavirus-induced disruptions and softer demand across industrial end markets are also likely to have weighed on 3M’s second-quarter performance. Raw material cost inflation is expected to have dented the company’s earnings.
Given 3M’s international exposure, foreign currency headwinds are likely to have weighed on its top line. For the second quarter, 3M expects total adjusted sales to be in the range of $7.7-$7.9 billion, reflecting a decline of 6-8% from the year-ago period. The Zacks Consensus Estimate for total revenues in the second quarter suggests a 10% drop from the year-ago reported figure.
However, pricing actions, restructuring savings and spending discipline are expected to have supported 3M’s margin performance. Improvement in supply chains is likely to have aided the company’s performance.
What Does the Zacks Model Say?
Our proven model does not conclusively predict an earnings beat for 3M this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates, which is not the case here, as elaborated below.
Earnings ESP: 3M has an Earnings ESP of 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $1.65. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: 3M currently carries a Zacks Rank #3.
Highlights of Q1 Earnings
3M’s first-quarter 2023 adjusted earnings of $1.97 per share surpassed the Zacks Consensus Estimate of $1.60. The bottom line declined in double digits year over year due to a decrease in disposable respirator demand and the exit of the company’s Russia operations. Net sales of $8,031 million outperformed the Zacks Consensus Estimate of $7,635 million. However, the top line declined 9% year over year due to foreign currency headwinds and the impact of divestitures.
Stocks to Consider
Here are some companies, which according to our model, have the right combination of elements to beat on earnings in this reporting cycle.
Emerson Electric Co. EMR has an Earnings ESP of +2.35% and a Zacks Rank #2. The company is scheduled to release third-quarter fiscal 2023 (ended Jun 30, 2023) results on Aug 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Emerson pulled off a trailing four-quarter earnings surprise of 4.5%, on average. The stock has gained 5.5% in the past three months.
Allegion plc ALLE has an Earnings ESP of +3.94% and a Zacks Rank #3. The company is slated to release second-quarter 2023 results on Jul 26.
Allegion delivered a trailing four-quarter earnings surprise of 12.5%, on average. The stock has rallied 17.7% in the past three months.
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Emerson Electric Co. (EMR) : Free Stock Analysis Report
3M Company (MMM) : Free Stock Analysis Report
Allegion PLC (ALLE) : Free Stock Analysis Report
