Can Organic Sales and High Costs Hurt 3M (MMM) Q1 Earnings?

3M Company MMM is scheduled to release first-quarter 2019 results on Apr 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 two and lagged estimates once. Average earnings surprise was a negative 0.67%. In the last reported quarter, its earnings of $2.31 surpassed the Zacks Consensus Estimate of $2.27.

In the past three months, 3M’s shares have increased 13.5% compared with the industry’s growth of 16.4%.

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

Factors to Affect Q1 Results

Inflation in raw material costs has been an issue for 3M for quite some time now. The company predicts that raw material costs, including the adverse impacts of tariffs, will rise year over year in 2019 (with earnings impact of 10-20 cents per share). However, pricing actions and productivity initiatives will bring in some relief. Also, unfavorable movements in foreign currencies are predicted to lower sales by 1% in the year.

In addition, 3M’s inorganic moves — including the buyout of the technology business of M*Modal and the divestiture of the communication markets business will lower earnings per share by 15 cents in 2019. Also, a likely increase in the tax rate and interest expenses might be concerning.

It is worth mentioning here that 3M does not provide quarterly projections. But a look at its annual projection will fairly provide a picture for the to-be-reported quarter. For 2019, the company decreased earnings guidance from $10.60-$11.05 per share to $10.45-$10.90. Also, organic sales are predicted to be 1-4% versus previously mentioned 2-4%.

We provided our revenue estimates for 3M’s segments here. For the first quarter of 2019, the Zacks Consensus Estimate for revenues of 3M’s Industrial, Safety and Graphics, and Electronics and Energy segments are pegged at $3,043 million, $1,761 million and $1,238 million, respectively. These estimates reflect decline of 3.2% for Industrial, 1.2% for Safety and Graphics, and 8.3% for Electronics and Energy from the respective revenues generated in the year-ago quarter.

3M’s solid product portfolio, business transformation initiatives and investments for boosting innovation will be boons. These, along with the company’s focus on improving productivity, should help in margin expansion. Its key priorities — Portfolio, Innovation, Transformation, and People and Culture — are strengthening its capabilities. It also remains focused on rewarding shareholders handsomely.

Among the segments, revenue estimates for Consumer and Health Care segments are pegged at $1,134 million and $1,556 million, reflecting growth of 0.6% and 1.3%, respectively.

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 -2.27% as the Most Accurate Estimate of $2.45 is below the Zacks Consensus Estimate of $2.50.

3M Company Price, Consensus and EPS Surprise


3M Company Price, Consensus and EPS Surprise | 3M Company Quote

Zacks Rank: The company carries a Zacks Rank #4 (Sell).

Note that we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) 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 they have the right combination of elements to post an earnings beat this quarter, according to our model.

Sun Hydraulics Corporation SNHY has an Earnings ESP of +1.05% and a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

HD Supply Holdings, Inc. HDS has an Earnings ESP of +1.43% and a Zacks Rank #3.

ITT Inc. ITT has an Earnings ESP of +0.60% and a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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