Growth Markets Will Lift 3M’s Earnings Despite European Weakness

3M (NYSE:MMM) will announce its first quarter earnings Thursday, April 25. We anticipate the company to post strong growth in its sales and profits on growth from developing markets including Asia-Pacific, Latin America, the Middle East and North Africa, partially offset by a decline in demand from Europe.

For full year 2013, 3M anticipates organic sales growth of 2% – 5% in local currency terms and to grow its earnings to $6.70-$6.95 per share, from $6.32 per share last year. ^[1] The company also anticipates to pay a dividend of $2.54 per share in 2013, up from $2.36 per share in 2012. ^[2]

We currently have a stock price estimate of $110 for 3M, just ahead of its current market price.

See our complete analysis of 3M here

Rising Sales From The Emerging Regions Will Lift Results

3M sells a wide variety of products that include tapes, post-it notes, industrial adhesives, medical supplies, electric cables and optical films. As such the company’s growth is correlated to the performance of several sectors across geographies. In the first quarter, we anticipate the emerging regions, especially the healthcare sector of these regions, to drive growth in sales at 3M.

Increasing healthcare spending from emerging countries like China and India driven by rising income levels is increasing the sales of 3M’s healthcare products. The company sells medical and surgical supplies, skin infection prevention products, dental products and health information systems in this sector. In addition, the rising infrastructure spending in these countries is increasing demand for 3M’s industrial products.

In the previous quarter, 3M’s sales from Asia-Pacific and Latin America had increased across all six of its segments, namely industrial, health care, consumer and office, safety and security, display, and electronics & communications. In 2013, the company anticipates its sales from these regions to grow by 5% – 10% in local currency terms. ^[3] Asia Pacific and Latin America constitute around 30% and 12% of 3M’s worldwide sales, respectively. ^[4]

Europe Will Likely Partially Offset Growth From The Emerging Regions

However, this growth from the emerging markets will likely be partially offset by a decline in sales and profits from Europe, which is reeling under the sovereign debt crisis. The company currently estimates that its sales from Western Europe could decline by as much as 3% in 2013, on a year-over-year basis. ^[3] Europe constitutes around 20% of 3M’s total sales. ^[4]

U.S. Could Also Contribute To Sales Growth

We also anticipate 3M’s sales growth from the developing regions to be supported by moderate growth from the United States. The industrial sector of the country has continued to recover, albeit slowly and consumer demand has been strong. However, it will be interesting to see if government austerity in form of sequestration, which came into effect from March 1, exerts any significant impact on sales growth. In 2012, United States constituted 35% of 3M’s total sales. ^[4]

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Fourth quarter and full year 2012 earning results – Form 8-K, January 24 2013, www.3m.com [↩]
2. 3M’s presentation at Bank of America Merrill Lynch Global Industrial & EU Autos Conference, March 21 2013, www.3m.com [↩]
3. 3M’s 2013 Outlook Presentation, December 12 2013, www.3m.com [↩] [↩]
4. 3M’s 2012 10-K, February 14 2013, www.3m.com [↩] [↩] [↩]