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What's in the Offing for 3M (MMM) This Earnings Season?

Zacks Equity Research

3M Company MMM is scheduled to release second-quarter 2019 results on Jul 25, before the market opens.

The company delivered better-than-expected results in one of the last four quarters while reported in-line results in one and lagged estimates twice. Average earnings surprise was a negative 3.37%. In the last reported quarter, its earnings of $2.31 lagged the Zacks Consensus Estimate of $2.50.

In the past three months, 3M’s shares have moved down 21.3% compared with the industry’s decline of 3.3%.

Let us see how things are shaping up for 3M this quarter.

Factors to Affect Q2 Results

3M has refrained from projecting financial numbers for the second quarter of 2019 but the conglomerate believes that its consumer and health care businesses are likely to do well. It also noted that softness in electronics and automotive end markets as well as in the China business will remain concerning.

The Zacks Consensus Estimate for the Consumer segment’s revenues for the second quarter is pegged at $1,197 million, suggesting growth of 6.6% from the previous quarter’s reported figure. Health Care’s revenue estimate is pegged at $1,503 million, down 2.4% sequentially.

In the second quarter, the company believes to see organic sales and earnings performance similar to first-quarter 2019 results. Notably, first-quarter earnings lagged estimates by 10.8% while fell 10.8% year over year due to weak end markets, rise in costs of sales and fall in operating results. Organic sales in the quarter were down 1.1% year over year.

In addition, restructuring actions undertaken by 3M will have adverse impacts on the quarter’s results. The company estimates recording pre-tax restructuring charges of 20 cents in 2019. Savings related to these restructuring actions are likely to be $100 million, which will be realized in the second half of the year.

Investments for research and development as well as growth programs and any inflation in raw material costs might put pressure on 3M’s margins. Also, unfavorable movements in foreign currencies might be an issue (forex woes are predicted to lower sales by 1% in the year).

It is worth mentioning here that 3M is working on inventory reduction and indirect cost savings to improve cash flow. Also, realignment of business segments from the earlier five segments to four — Safety & Industrial, Health Care, Transportation & Electronics, and Consumer — will be beneficial. The change, effective from the second quarter, will enable the company to better serve customers, improve operational efficiency and strengthen portfolio.

Earnings Whispers

Our proven model provides some idea about the stocks that are about to release their earnings results. Per the model, a stock needs a combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for a likely earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The case with 3M has been provided below.

Earnings ESP: 3M has an Earnings ESP of 0.00% as the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $2.04.

3M Company Price, Consensus and EPS Surprise


3M Company Price, Consensus and EPS Surprise

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

Zacks Rank: The company currently carries a Zacks Rank #3.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies in the industry that you may want to consider as these have the right combination of elements to post an earnings beat this quarter, according to our model.

John Bean Technologies, Inc. JBT presently has an Earnings ESP of +1.71% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Axon Enterprise, Inc. AAXN has an Earnings ESP of +10.96% and a Zacks Rank #2 at present.

Terex Corporation TEX currently has an Earnings ESP of +1.56% and a Zacks Rank #3.

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