Growth In The U.S. And European Markets Will Help Drive 3M’s Sales

April 22nd, 2014 by Trefis Team
+2.69%
Upside
93.00
Market
95.50
Trefis
MMM: 3M Company logo
MMM
3M Company

3M (NYSE:MMM) is set to release its first quarter earnings on April 24, 2014. The diversified industrial company is expected to post moderate growth in sales and earnings, driven by growth from developed markets in the U.S. and Europe and emerging markets in the Asia Pacific region. Latin American markets may continue to present headwinds as seen in the previous quarter.

In the fourth quarter 2013, 3M reported moderate sales growth of 2.4% year-on-year driven by strong growth in the U.S. The company’s net profits grew 11% to reach $1.1 billion driven by reduced cost of raw materials, higher selling price and volume growth. [1] This led to an increase of 15% in its earnings per share.

For the full year 2014, the company forecasts its earnings per share in the range of $7.30 to $7.55 with organic local currency sales growth of 3%-6%. [2] Organic local currency sales do not include the impact of acquisitions or currency fluctuations. 3M also reiterated its plan to repurchase $17 billion to $22 billion of shares over 2013 to 2017. It also intends to invest $5 billion to $10 billion in acquisitions through 2017.

Relevant Articles
  1. What’s Next For 3M Stock After A 15% Fall This Year?
  2. After A 14% Fall This Year Is 3M Stock A Better Pick Over Honeywell?
  3. What’s Next For 3M Stock After A 24% Fall This Year?
  4. Should You Pick Starbucks Over 3M Stock For Next Three Years?
  5. What’s Happening With 3M Stock?
  6. Will 3M See A Sharp Decline In Q2 Earnings?

We currently have a stock price estimate of $140 for 3M, almost in line with its current market price.

See our complete analysis of 3M here

Developed Markets Should Help Sales Growth

Sales from developed markets like the U.S and Europe account for close to 60% of 3M’s sales. Thus any growth in these economies heavily impact 3M’s sales. In the previous quarter, organic local-currency sales from the U.S. grew 4.5%, the highest local currency growth out of all the geographical regions reported by 3M. [1] Sales volume in the U.S. grew 3.1% on strong growth in the economy. Sales volume from Europe, the Middle East and Africa grew 2.7% with organic local currency sales growth of 3.4%.

We expect these growth trends to continue the first quarter of 2014 as well, given the continued growth in these economies. In the U.S., industrial activity has been rising in the first quarter. Industrial production grew 1.2% in February and 0.7 % in March. [3] Combined with the upwards trending economic growth in the U.S., we expect to see growth in 3M’s sales from the region.

Additionally, industrial activity in Europe has also been increasing. Industrial activity in the European Union grew 0.2% and 0.4% in January and February, respectively. [4] The European Union’s GDP grew 0.3% in the third quarter of 2014 and 0.4% in fourth quarter, indicating steadily progressing growth and a recovery in the economy. [5] We believe that these trends will help boost 3M’s sales in the region.

Latin American Region May Again Post Disappointing Results

In the fourth quarter of 2013, sales volume fell 4.3% in Latin America and Canada on account of the political unrest in Venezuela and Argentina. [2] However, organic local currency sales grew at a low 2.2% driven by pricing gains of 6.5%. The results that came out were contrary to expectations since the region had posted sales growth of more than 8% in each quarter since 2010. In the first quarter 2014, we expect to see slow growth in the region due to the continuing political disturbances in Venezuela. [6]

3M’s Healthcare Segment May Post Growth On Demand From Developing Markets

Driven by sales from developing markets, 3M’s health care segment outperformed all other segments with growth of 5% in 2013. [7] Rising consumer income levels in developing markets encourages these regions to focus on improving their living standards and healthcare. This has been driving strong growth in 3M’s healthcare products like medical and surgical supplies, skin infection prevention products, dental products and health information systems. In the fourth quarter of 2013, sales of 3M’s health care products grew 10% in developing markets. [2] In 2014, the company expects its sales from the segment to grow 3%-6%.

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)

Notes:
  1. 3M Announces Fourth-Quarter Results, January 30 2014, www.3m.com [↩] [↩]
  2. 3M’s CEO Discusses Q4 2013 Results – Earnings Call Transcript, January 30 2014, www.seekingalpha.com [↩] [↩] [↩]
  3. March US Industrial Production Rises, Rebounds From Cold Weather-Related Slump, April 16 2014, www.ibtimes.com [↩]
  4. Eurostat News Release, April 14 2014, epp.eurostat.ec.europa.eu [↩]
  5. Eurostat News Release, March 5 2014, epp.eurostat.ec.europa.eu [↩]
  6. Venezuela: What’s the crisis about?, February 21 2014, edition.cnn.com [↩]
  7. 3M Announces Fourth-Quarter Results, January 30 2014, www.3m.com [↩]