3M’s Earnings Can Gain From Emerging Markets Growth Despite European Weakness

by Trefis Team
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3M (NYSE:MMM) will announce its second quarter earnings on July 25. The diversified industrial company will likely post moderate numbers driven by growth from the emerging regions, especially in Latin America, offset in part by a decline in demand from Europe and weakness in consumer electronics markets.

In the previous quarter, the company posted marginally higher sales and profits on a year-over-year basis, but it continues to face a tough business environment with Europe’s economic weakness and softness in many key markets, including weakness in renewable energy and consumer electronics.

For the full year 2013, 3M anticipates its organic sales to grow between 2% and 5% annually in local currency terms; however, due to a stronger dollar, this growth will likely be lower on currency translation. The company also anticipates its 2013 earnings to lie in the range of $6.60-$6.85 per share compared to $6.32 per share in 2012. [1]

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

See our complete analysis of 3M here

Growth From Latin America and Asia Pacific

Together, Latin America and Asia Pacific constitute over 40% of 3M’s total sales. [2] Despite weakness in the global economy these regions have continued to grow at relatively higher rates, allowing 3M to grow its sales from these regions at strong rates.

In particular, 3M’s healthcare products like medical and surgical supplies, skin infection prevention products, dental products and health information systems are growing at strong rates in these markets driven by the rising income levels. In addition, higher infrastructure spending from these emerging regions is also increasing demand for 3M’s industrial products, which include structural adhesives, tapes, industrial abrasives, auto care kits and filtration systems.

In the previous quarter, 3M’s sales from Latin America grew by 7% annually with positive sales growth across all five of the company’s segments – industrial, safety & graphics, electronics & energy, healthcare and consumer – from the region. [1] From Asia Pacific, 3M’s sales also grew across all segments except electronics & energy where growth was impacted by a weak consumer electronics market. On the whole, for the full year 2013, 3M anticipates its sales from the emerging markets to grow by 5%-10% annually in local currency terms. [3]

Europe Will Weigh On Results

However, in the second quarter, this growth from the emerging regions will likely be partially offset by a decline from Europe which is reeling from an extended economic slowdown. This region constitutes around 20% of 3M’s total sales. [2]  In the previous quarter, sales from Europe, the Middle East and Africa (EMEA) declined by 1% annually. [1] 3M currently estimates that its sales from Europe could decline by as much as 3% year-over-year in 2013. [3]

U.S. Could Add To Growth From The Emerging Regions

At the same time, we also anticipate 3M’s sales from the developing regions to be supported by moderate growth from the U.S., which constitutes around 35% of 3M’s worldwide sales. [2]

The industrial sector of the country has continued to recover, albeit slowly, and consumer demand has remained stable. However, it will be interesting to see if government austerity in the form of sequestration, which came into effect from March 1, exert any significant impact on 3M’s sales in this market.

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Notes:
  1. 3M’s first quarter earnings, Form 8-K, April 25 2013, www.3m.com [] [] []
  2. 3M’s 2012 10-K, February 14 2013, www.3m.com [] [] []
  3. 3M’s 2013 Outlook Presentation, December 12 2013, www.3m.com [] []
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