3M Trims EPS Guidance Amid Flat Sales

3M (NYSE:MMM) reported its third quarter earnings on October 25, 2016. While the company met the consensus estimates for sales, it beat the EPS expectations by a penny. 3M also trimmed its EPS guidance for the year, sending the company’s stock down by close to 3%.

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Positive growth was again delivered in three business groups of Consumer, Safety & Graphics, and Health Care. 3M’s Consumer segment witnessed 3% growth, with positives seen in all businesses; Safety & Graphics grew 2% organically, led by roofing granules and commercial solutions; its Health Care segment saw organic growth of 1.5%, slightly tempered when compared to earlier quarters, as a result of softness in the US healthcare market. While the Industrial segment growth declined by 1%, the company expects a return to positive growth in the fourth quarter. The company’s Electronic & Energy segment fell 8%, in line with the guidance provided by the company in the previous earnings call. Despite a challenging macro environment, the company delivered a margin improvement to the tune of 40 basis points to ~25%, ranging from 32% in Health Care to almost 23% in Industrial.

The company has been active in terms of portfolio adjustments in the quarter. In September, 3M acquired Semfinder, a Switzerland-based medical coding technology company, which is a leading developer of precise semantic coding of medical services. This acquisition will enable 3M to accelerate the availability of its 3M 360 Encompass System in countries adopting electronic medical records, and hence, accelerate penetration into international markets. The company also announced its agreement with Verily Life Sciences (formerly Google Life Sciences), an Alphabet company, to develop new population health measurement technology for managing clinical and financial performance. The joint technology platform, between 3M and Verily, will be used to analyze population-level data sets, with the aim of aiding hospitals get meaningful information, which can be used to improve healthcare quality, while at the same time reduce costs. These two partnerships reflect the company’s focus on the Health Care segment to drive growth for it in the future. Besides these, 3M also finalized the sale of a non-core protective films business, in order to further enhance and focus on its Industrial portfolio. The company is also making good progress on its ERP rollouts, with two occurring in West Europe. ERP (Enterprise Resource Planning) has now been deployed in 15 countries, and in four of the company’s largest European distribution centers.

The company has lowered its EPS guidance range, now expecting the GAAP earnings to be in the range of $8.15 to $8.20 per share, from a prior range of $8.15 to $8.30. This narrowed ranged now equates to an EPS growth of 8%.  3M also expects a flat sales growth, again at a lower end of an earlier range of flat to up 1%. Foreign currency will negatively affect sales by 1%, versus a prior range of a 1% to 2% decline. Full year gross repurchases are expected to be $3.5 billion to $4.5 billion, as against a prior goal of $4 billion to $6 billion. This has been a result of 3M’s shares trading at all-time highs in the third quarter. The Industrial and Electronics & Energy segments are expected to have improved growth rates in 2017, but a number of headwinds will persist. These include pension, which is estimated to be a headwind of $150 million in 2017, and foreign currency translations.

Have more questions on 3M? Have a look at these links below:

• Will 3M’s Health Care Division Again Drive Growth In The Third Quarter?
• 3M Teams Up With Alphabet’s Verily For Population Health Management Tools
• Why Did 3M Acquire Semfinder?
• How Will 3M Grow Its Consumer Segment In The Future?
• What Trends Will Ensure Growth For 3M From Developing Markets In The Future?
• How Important Is The US For 3M?
• How Does 3M Compare With Its Peers In Terms Of R&D Spending?

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