3M To Meet Consensus Expectations For Fiscal Year 2018

by Trefis Team
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3M (NYSE: MMM) will release its 2018 fourth quarter and full year financial results on January 29, 2018. The conference call to discuss the results will be at 9:00am E.T. The market expects the company to post revenue in the range of $32.7 billion, approximately 3.4% growth year on year (YOY). The earnings are expected to be around $9.90, for the Fiscal Year 2018. Overall the total revenue has increased 4.9% year on year (YOY) in the first nine months of Fiscal Year 2018. The company has a 3.3% organic growth which comprises 2.3% volume growth and 1% pricing growth.

 

We have a $207 price estimate for the company, which is above the current market price. View our interactive dashboard – Our Outlook For 3M In 2018 – and modify the key assumptions to arrive at your own price estimate for the company.

Factors That May Impact Future Performance:

1. Pricing Growth: 3M delivered strong pricing growth in the first three quarters of this year. In Q1, 3M was able to deliver 70 basis points of pricing growth, and excluding the electronics businesses, all segments’ selling prices were up 90 basis points. In Q2, the company delivered 110 basis points of pricing growth, followed by 120 basis points increase in the third quarter. It is expected that the Pricing growth will continue to be strong as the year ended.

2. Cost Headwinds: The raw material headwinds are expected to be more than offset by the price growth, the management anticipates the headwind to be -$0.15 per share primarily due to the tariffs and the higher than expected commodity prices and logistics expenses. In the 3rd quarter results, the management also declared that a headwind of -$0.05 was expected due to FX impact as the US dollar strengthened across the globe.

3. Acquisitions And Divestitures Aiding In The Progress: 3M is expected to continue to look at acquisitions in attractive areas, while undertaking divestitures in its underperforming units. In notable acquisitions, 3M purchased Scott Safety from Johnson Controls. In the current Fiscal it has divested its Communication Markets Division to Corning Incorporated for $870 million. 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.

4. Segment-Wise Expectation: We expect 3M to generate Total revenue of nearly $33 billion (4.1% YOY) for the year 2018. The Industrial business is expected to contribute $11.1 billion growing at a healthy rate of 5%, followed by Safety and Graphics business with $6.4 billion at a good growth rate of 8%. Health care business will contribute around $5.1 billion growing at about 3%. Electronics and Energy business and Consumer business are expected to contribute approximately $5.8 billion (growing at 2%) and $4.5 billion (growing at 1.2%) respectively.

5. China Performance: The company’s manufacturing and exports-related business, especially the automotive in its Industrials segment, has shown considerable weakness this year. Thus, growth from this region is expected to be around 10%. One factor that may work in 3M’s favor after China’s tariff retaliation is that the company has focused on local manufacturing. Thus, the impact of the steel and aluminum tariffs is expected to be minimal – approximately $10 million, or a penny per share on an annualized basis.

 

Thus, overall 3M has had a decent Fiscal year so far, with meeting consensus for the first two quarters but missing in the third quarter. The miss in the third quarter was attributed mostly to the Foreign currency fluctuations as the US dollar strengthened against many currencies around the world. The same is expected to continue and the company reduced its expected earnings for 2018 to $9.90 to $10. For the Final quarter we expect 3M to continue the modest growth similar to the first three quarters and at least meet the full year consensus estimates.

 

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