Diversified conglomerate 3M Company (MMM) is scheduled to report its third-quarter 2014 results before the opening bell on Oct 23. In the last reported quarter, 3M’s earnings exactly matched with the Zacks Consensus Estimate. Let’s see how things are shaping up for this announcement.
Growth Factors in the Third Quarter
3M has been focusing on restructuring initiatives to transfer capital from low-margin businesses to more lucrative opportunities, thus generating better return on capital. Portfolio management, investment in innovation, and business transformation are the three key levers on which the company intends to focus, moving forward. Furthermore, the company’s continued investment in research and development enables it to generate organic growth by innovating products and applications that capture premium pricing in early stages of their life cycle. This enables the company to consistently improve its margins and capitalize on its brand value.
3M has also realigned some of its businesses to increase customer relevance, scale businesses and generate cost efficiency. In the safety and graphic business group, it merged commercial graphics and building and commercial services to form a new commercial solutions division. This has brought a complete array of branding, design, protection, and maintenance solutions to its commercial customers under one division.
During third-quarter 2014, 3M completed the acquisition of its Japanese joint venture Sumitomo 3M Ltd. to be the sole owner of the entity. Post acquisition, the business will be known as 3M Japan Ltd, with 3M having full control of one of its largest subsidiaries. Sumitomo 3M has a leading market share in most of the industrial divisions including electronics and energy. The acquisition is expected to be accretive by approximately 8 cents per share to 3M’s earnings during the first year of its operation. The company also expects significant opportunities in Japan's addressable markets for healthcare, safety and graphics and consumer businesses.
However, the company’s growth objectives are largely dependent on timing and market acceptances of its new product offerings, including its ability to continually renew its pipeline of new offerings and bring those to the market at acceptable price points. 3M generally manages commodity price risks through negotiated supply contracts, price protection agreements and forward physical contracts. These make it susceptible to commodity price risks.
Earnings Whispers
Despite key business focus, our proven model does not conclusively show that 3M is likely to beat earnings this quarter as it lacks the key ingredients for a success recipe.
Zero Zacks ESP: Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at 0.00%. This indicates a likely in-line earnings.
Zacks Rank #4 (Sell): 3M’s Zacks Rank #4 when combined with 0.00% ESP reduces the predictive power of ESP. Note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and #5) should never be considered going into an earnings announcement.
Other Stocks to Consider
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
American Electric Power Co., Inc. (AEP) earnings ESP of +3.85% and Zacks Rank #2 (Buy).
The Allstate Corporation (ALL) earnings ESP of +3.70% and Zacks Rank #2.
Arlington Asset Investment Corp. (AI) earnings ESP of +7.34% and Zacks Rank #1 (Strong Buy).
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