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Earnings Scorecard: 3M Company - Analyst Blog
11/21/2011 5:30:00 PM
3M Company ( MMM ) reported modest results for the third quarter of 2011. The company achieved year-over-year top-line growth of 9.6%, as five out of six segments saw revenue growth. The bottom-line slipped 1% however, missing our estimate by 9 cents.
Third Quarter Highlights
Total revenue in the quarter increased 9.6% year over year to $7.5 billion. Acquisitions contributed 3.7% to total growth, foreign exchange added 3.1%, organic volume growth 1.9% and higher year-on-year selling prices 0.9%.
A weakness in electronic markets as well as declining growth in developed economies negatively affected organic volume in the quarter. Quite a number of customers reduced their inventories due to expectations of lower demand from their customers, which affected sales in the quarter.
The company reported third-quarter 2011 earnings per share of $1.52, below the Zacks Consensus estimate of $1.61. Earnings per share inched down 1% year over year. Profits were impacted by the economic crisis prevailing in Europe and the rapid contraction of the electronics end market.
The operating income for the quarter was also flat year over year at $1.58 billion.
Agreement of Analysts
None of the 7 analysts covering the stock raised their fourth quarter estimates in the last 7 days, although there was one downward revision. There were no revisions to first quarter estimates in the past 7 days.
For fiscal 2011 also, there was no revision in the estimates (either upward or downward). However, for fiscal 2012, there was one downward revision.
We believe that such negative sentiments are the result of the ongoing sovereign credit risk prevailing in Europe and lower underlying demand in the company's electronic end markets. These negatives were exacerbated by the inventory destocking in the optical business in the last quarter.
Some of the analysts also believe that 3M is currently not in a position to outperform its competitors as well, as they see no visible backlog or order rates and a general lack of consumer confidence. In addition, the continuous downward pressure in the company's Display & Graphics segment, which accounted for approximately 13% of the company's total revenue for the third quarter of 2011, will also tell on its results. The segment continues to be impacted by price erosion and supplier/ product consolidation.
The negative sentiment is expected to carry through into fiscal 2012 as well, as indicated by the 11 analysts that have lowered their estimates in the past 30 days. This follows 3M's weak guidance for fiscal 2012, which was impacted by lower expectations for the Display & Graphics segment, the Industrial and Transportation segment (33.7% of the company's total revenue for the third quarter of 2011) and the Electronics and Communications segment (11.0% of the company's total revenue for third quarter 2011).
Magnitude of Estimate Revisions
The Zacks Consensus Estimate for the upcoming fourth quarter moved down a penny in the last 7 days to $1.31 while that for the first quarter of 2012 remained unchanged at $1.51.
Again, the Zacks Consensus Estimate for fiscal 2011 remained unchanged in the last 7 days, while that for 2012 lost a penny.
The third quarter earnings surprise for 3M was a negative 9 cents or (5.59%). The surprise percentage over the last four quarters is indicative of a negative trend. However, going by the fact that estimates have been lowered recently, the company could report in-line results for the fourth quarter.
3M expects to see continued slow growth until the end of 2011, as weakening economies continue to challenge business growth. Lower demand from customers will be mitigated by cost management and regulated operation in developed economies. Developing markets are seen as a prime benefactor.
3M is globally recognized for its innovations, which are supported by some of its well-known brands, such as Nexcare, Post-it, Scotch, Scotch-Brite and Scotchgard. We believe that the expansion of facilities and new product launches should bolster its prospects across most end markets.
3M Company together with its subsidiaries operates as a diversified technology company with manufacturing operations spread over 60 countries worldwide. It has more than 35 business units organized into six segments: Consumer and Office, Display and Graphics, Electro and Communications, Healthcare, Industrial and Transportation, Safety, Security and Protection Services Business.
The company currently holds a Zacks #4 Rank which indicates a short term (1-3 months) Sell rating on the stock.
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