With some of the major conglomerate names set to report their quarterly results this week, I wanted to take a closer look at the upcoming earnings for one of those companies and share my thoughts on what needs to happen in order for 3M (NYSE:MMM) to meet and/or surpass analysts' expectations.
Headquartered in St.Paul, Minnesota, 3M, which divides its business up into a total of five segments (Industrial, Safety & Graphics, Electronics & Energy, Health Care, and Consumer) is a global innovation company that never stops inventing. Over the years, its innovations have improved daily life for hundreds of millions of people all over the world and the company has done everything from making driving at night easier to making buildings safer and even making consumer electronics lighter.
Recent Trend Behavior
On Tuesday, shares of MMM, which currently possess a market cap of $94.95 billion, a forward P/E ratio of 17.65, and a dividend yield of 2.36% ($3.42), settled at a price of $145.12/share. Based on a closing price of $145.12/share, shares of MMM are trading 0.50% above their 20-day simple moving average, 1.33% above their 50-day simple moving average, and 8.84% above their 200-day simple moving average.
These numbers indicate a short-to-long term uptrend for the stock, which generally translates into a buying mode for most near-term traders and many long-term investors. If the company can demonstrate a stronger-than-expected earnings performance when it announces Q2 results on July 24, there's a very good chance the company's trend behavior will continue to move in a very positive direction.
Upcoming Earnings Outlook
When it comes to the company's upcoming Q2 earnings, there are a number of things potential investors should consider. For instance, analysts are currently calling for MMM to earn $1.91/share in terms of EPS (which is $0.12/share higher than what the company had reported during Q1 2014, and $0.20/share better than what the company had reported during the year-ago period) and $8.09 billion in terms of revenue when its latest earnings are released on July 24.
In order to meet and/or exceed its quarterly EPS estimates, I'd like to see a 3%-to-6% increase in the company's Q2 Industrial segment-based sales (as compared to Q1's Industrial segment-based sales of $2.8 billion), a 2%-to-5% increase in the company's Q2 Safety and Graphics segment-based sales (as compared to Q1's Safety and Graphics segment-based sales of $1.4 billion), a 2%-to-4% increase in the company's Q2 Health Care segment-based sales (as compared to Q1's Health Care segment-based sales of $1.4 billion), a 1%-to-2.5% increase in the company's Q2 Electronics and Energy segment-based sales (as compared to Q1's Electronics and Energy segment-based sales of $1.3 billion), a 3%-to-6% increase in the company's Q2 Consumer segment-based sales (as compared to Q1's Consumer segment-based sales of $1.1 billion), a 4%-to-6% increase in the company's Q2 operating income (as compared to Q1's operating income of $1.7 billion), and lastly a 3%-to-5% increase in the company's revenues (as compared to Q1's revenues of $7.83 billion).
Japanese Subsidiary Acquisition Could Fuel Future Earnings Growth
On July 16 it was announced that 3M would buy Sumitomo Electric Industries' (OTCPK:SMTOY) 25% stake in Sumitomo 3M for $885M - taking full control of the subsidiary. According to 3M's CEO Inge G. Thulin, "This investment allows 3M to gain full control of one of its most successful subsidiaries, and this strategic acquisition is in a business we all know very well, as we have grown the business' profitably for over 50 years". Not only does the acquisition make sense, it will also add roughly $0.08/share to the company's full-year earnings beginning in 2015, which is certainly something long-term investors should consider when looking to enhance their current position in the company.
For those of you who may be considering a long-term position in 3M, I'd actually look to keep a closer eye on the company's recent acquisition over the next 6-12 months since any sustainable growth by this subsidiary could positively impact the company's earnings growth well beyond the FY2015. In terms of the company's upcoming quarter, steady increases in its segment-based sales across all five segments as well as a steady increase of at least 3% in terms of its revenues could help 3M meet or even surpass analysts' expectations when it announces earnings on July 24.
Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in MMM over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
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