3M’s Impressive 2017 To Continue In Its Final Quarter

2017 was a good year for 3M (NYSE: MMM). Its stock trended upwards for most of the year, rising over 30%. This has been a result of the strong performance posted by the company in the first and third quarter, as well as the focus the company has placed on its three levers, which will ensure growth in the long term. Though the stock took a hit after the second quarter earnings, the rebound in the stock price was almost immediate. Analysts expect this feel-good factor of the company to continue in its fourth quarter as well. 3M is set to report its Q4 and FY 2017 results on January 25th, wherein an improvement in both revenue and earnings per share is anticipated. An EPS of $9.10 on revenues of $31.5 billion has been estimated for the full year, implying a growth of 11.5% and 4.6%, respectively.

We have a $210 price estimate for 3M, which is below the current market price. The chart above has been made using our new, interactive platform.

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- In December, 3M announced its plans to sell almost all of its Communication Markets Division to Corning Incorporated for $900 million. Earlier in the quarter, 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 third 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 investments which continued throughout the year, are expected to contribute 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 Earnings

1. Divestiture of the electronic monitoring business is expected to have a net positive impact of $0.12 on 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 an 11 cents impact to the EPS.

4. 3M expects to realize a gain of 40 cents per share as a result of the sale of Communication Markets Division, net of actions related to the divestiture.

5. The aforementioned investments undertaken to strengthen the portfolio and optimize the footprint will negatively impact Q4 EPS by $0.06 to $0.10, once the sale is complete.

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

• What Trends Will Ensure Growth For 3M In Western Europe In The Future?
• How China Can Power 3M’s Growth In The Future
• What Trends Will Ensure Growth For 3M From Developing Markets In The Future

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