Upbeat Third Quarter Earnings Prompts A Rise In 3M’s Stock

The feel-good factor surrounding 3M (NYSE:MMM) this year continued in the third quarter, wherein both sales and earnings exceeded expectations. Earnings of $2.33 per share were up over 8% year-on-year, and beat consensus estimates by 12 cents, while sales of $8.17 billion came in 6% higher than last year. The stock price for the company has been trending upwards for much of this year and increased another 5% on the earnings release. The company’s robust performance was driven by positive organic growth across all business groups and geographic areas, along with operating margin expansion to 25% for the quarter. As a result of the spectacular performance throughout this year, the company has lifted its earnings guidance upwards to a range of $9 to $9.10 per share, versus a prior range of $8.80 to $9.05. The company also forecasts the organic local-currency sales to grow at 4% to 5%, up from a previous guidance of 3% to 5%.

Progress On The Three Levers

3M continues to execute on its three levers, which will help ensure growth in the long term.

1. Portfolio Management- The company completed the purchase of Scott Safety from Johnson Controls, which will help to strengthen its position in the attractive personal safety market. It has also sold its Identity Management business, its Tolling and Automated License/Number Plate Recognition business, and its Electronic Monitoring Business in its Transportation Safety division in order to focus on “connected roadways.”

2. Investing in Innovation- The company invested $463 million in R&D in the second quarter, or 6% of the sales, up from $427 million in the year-ago period. This included increasing the resources in the field to bring the scientists and application engineers closer to the market.

3. Business Transformation- The roll-out of the new ERP (Enterprise Resource Planning) system remains on track, with West Europe almost complete. The company has also started its deployment in the United States.

In addition to these, the company has undertaken an investment of $104 million to accelerate growth in the core platforms this year. These are expected to continue throughout the year, contributing to a 50 to 100 basis points of growth in 2017. Furthermore, 3M has also invested a significant sum to optimize its portfolio and manufacturing footprint, as part of its five-year plan laid out in March 2016.

Factors That Will Impact The Fourth Quarter

1. Divestiture of the electronic monitoring business is expected to have a net positive impact of $0.12 to the earnings in the fourth quarter.

2. The Scott Safety income, net of the acquisition and integration costs, is anticipated to reduce earnings per share by $0.08.

3. A recent closure of a debt tender offer, to retire a certain amount of high coupon debt, will result in a non-operating charge, estimated to have a $0.11 impact to the EPS.

4. The aforementioned investments undertaken to strengthen the portfolio and optimize the footprint will negatively impact Q4 EPS by $0.06 to $0.10.

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

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• What Trends Will Ensure Growth For 3M From Developing Markets In The Future

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