3M Earnings Preview: Profits In Europe Will Soften The Blow From Emerging Markets

| About: 3M Company (MMM)
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3M (NYSE:MMM) will announce its third quarter earnings Thursday, October 24. The diversified industrial company will likely post moderate growth in its sales and earnings, driven by growth from the emerging markets.

In the first half of this year, 3M posted average growth in the face of slow global economic growth and a weak consumer electronics market. The company's sales rose 2.4% annually to $15.4 billion and earnings rose 2.2% annually to $3.32 per share. In the third quarter, we anticipate 3M's growth to accelerate due to improvements in the global electronics market. However, at the same time, the extended slowdown in Europe will continue to temper the company's growth from the emerging markets.

We currently have a stock price estimate of $115 for 3M, around 5% below its current market price.

Emerging Markets Will Drive 3M's Third Quarter Growth

Emerging markets such as Latin America and Asia Pacific will drive growth in 3M's third quarter results. The fast growing economies of these regions are providing 3M with strong penetration opportunities across its businesses especially in the healthcare and consumer segments.

In healthcare, 3M provides products that include medical and surgical supplies, skin infection prevention products, dental products and health information systems. Sales of these products from the developing regions are rising, driven by the rapidly rising income levels of people in these regions. Sales of 3M's consumer products, which include Scotch-tapes and Post-it notes, are also rising from the emerging regions as a result of these trends. Overall, the growth from the emerging markets is lifting 3M's results significantly as Asia Pacific and Latin America constitute close to 40% of 3M's worldwide sales.

Europe Will Likely Temper Growth From The Emerging Regions

At the same time, Europe also constitutes around 20% of 3M's total sales. The slowdown in the region will likely temper 3M's growth from the emerging regions in the third quarter. In the first half of this year, the company's organic local-currency sales from Europe, the Middle-East and Africa (EMEA) grew at a low rate of 0.5% annually. This compares to year-over-year growth of nearly 8% in 3M's organic local-currency sales from Latin America. Thus, in the third quarter, we anticipate Europe to continue to temper 3M's growth from the emerging regions.

For the full year 2013, 3M expects its earnings to rise to $6.60-6.85 per share, from $6.32 per share last year, with organic local-currency sales growth of 2-5% y-o-y.

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