Will Low Demand Environment Dent 3M's (MMM) Q3 Earnings?
3M Company MMM is scheduled to release third-quarter financial numbers on Oct 24, before market open.
The Zacks Consensus Estimate for the company’s third-quarter earnings has been revised downward by 1.3% in the past 60 days. The company has an impressive earnings surprise history, having outperformed the Zacks Consensus Estimate in three of the preceding four quarters, while missing in one. The average beat was 13.8%.
Let’s see how things have shaped up for MMM this earnings season.
3M Company Price and EPS Surprise
3M Company price-eps-surprise | 3M Company Quote
Factors to Note
Prolonged softness in disposable respirator demand within the Safety and Industrial segment has been weighing on 3M. The Zacks Consensus Estimate for Safety and Industrial revenues in the third quarter indicates a 3.7% decline from the year-ago reported number. For the third quarter, the company expects lower disposable respirator demand and last year's exit of Russia operations to affect sales by approximately $130 million or 1.5 percentage points.
The Transportation & Electronics unit is expected to put up a weak show in the upcoming earnings due to reduced demand for consumer electronics goods, especially smartphones, tablets, and TVs. The reduced demand is due to lower consumer spending as a result of inflationary pressure. The Zacks Consensus Estimate for Transportation & Electronics revenues implies a 13.3% decline from the year-ago reported number.
Reduced consumer spending is also taking a toll on the Health Care and Consumer segments’ performances. The Healthcare segment is expected to reflect Weakness in the Health Information Systems business due to lower post-COVID-related biopharma demand. The consensus mark for Health Care revenues hints at a 0.7% dip from the year-ago reported number.
A decline in home improvement, stationery and office businesses is expected to dent Consumer segment revenues in the to-be-reported quarter. The consensus mark for Consumer segment revenues suggests a 3.5% decline from the year-ago reported number.
Raw material and energy cost inflation, slowdown in China due to coronavirus-induced disruptions and moderating demand across industrial end markets are likely to weigh on 3M’s third-quarter results. Foreign currency headwinds may hurt the top line.
Pricing actions, restructuring savings and spending discipline are likely to partly offset the adversity from cost inflation. This, in turn, is expected to support the company’s margins.
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 -0.31%. 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 Q2 Earnings
3M’s second-quarter 2023 adjusted earnings of $2.17 per share surpassed the Zacks Consensus Estimate of $1.65. The bottom line declined in double digits year over year. This includes a negative impact from pre-tax restructuring charges of $212 million. The company’s net sales of $8,325 million outperformed the Zacks Consensus Estimate of $7,955 million. However, the top line declined 4.3% year over year due to an adverse foreign currency impact of 0.9% and a 1.2% negative impact from divestitures. Organic sales fell 2.2%.
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.
Stanley Black & Decker SWK has an Earnings ESP of +3.20% and a Zacks Rank #3. The company is scheduled to release third-quarter results on Oct 27. You can see the complete list of today’s Zacks #1 Rank stocks here.
Stanley Black pulled off a trailing four-quarter earnings surprise of 47.2%, on average. The stock has gained 6.5% in a year.
Tenaris TS has an Earnings ESP of +2.89% and a Zacks Rank #3. The company is slated to release third-quarter results on Nov 1.
Tenaris delivered a trailing four-quarter earnings surprise of 7.7%, on average. The stock has rallied 16.9% in a year.
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3M Company (MMM) : Free Stock Analysis Report
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