Earnings Preview: 3M Company

3M Company Inc. ( MMM - Analyst Report ) is slated to release its fourth-quarter 2011 earnings result on Thursday, January 26, 2011. The current Zacks Consensus Estimate for fourth-quarter earnings per share (EPS) is $1.31, representing an annualized growth of 3.15%. For full-year 2011, the Zacks Consensus Estimate is $5.93, representing an annualized growth of 3.18%.

3M’s earnings were below the Zacks Consensus Estimate in the last quarter while the number was in line with the estimate in the second quarter of 2011. Moreover, in the first quarter of 2011 and fourth quarter 2010, earnings per share were above and in line with estimates, respectively. The company outperformed the Zacks Consensus Estimate with an average negative surprise of 0.02%.

Third Quarter Highlights

3M Company reported third-quarter 2011 earnings per share of $1.52, below the Zacks Consensus Estimate of $1.61. Earnings per share inched down 1% year over year.

Total revenue in the quarter increased by 9.6% year over year to $7.5 billion. Acquisitions contributed 3.7% to total growth, foreign exchange added 3.1%, organic volume growth 1.9% and higher year-on-year selling prices added 0.9%.

A weakness in electronic markets as well as declining growth in developed economies negatively affected organic volume in the quarter. A large number of the customers reduced their inventories due to expectations of lower demand from the customers, which affected its sales in the quarter.

Agreement of Estimate Revisions

In the last 30 days, of the analysts providing estimates on the stock, none changed their estimates for the fourth quarter or for full-year 2011 and 2012.

Magnitude of Estimate Revisions

In the last 7 days, earnings estimate for the fourth quarter decreased from $1.32 to $1.31, it dropped from $5.94 to $5.93 in 2011 and for 2012 from $6.30 to $6.29.

The company's estimate for fourth quarter, 30 days ago, was $1.32. From last 30 days, estimate for 2011 remain unchanged at $5.93 and for 2012 decreased from $6.34 to $6.29.

Our Take

The company expects to see a continued slow growth till the end of 2011, as weakening economies continues to challenge business growth. Lower demand from the customers will be mitigated by the company through fully fledged cost management and a regulated operation in developed economies. Developing markets are seen as the prime benefactors.

3M is globally recognized for its innovations, which is supported by some of its well-known brands, such as Nexcare, Post-it, Scotch, Scotch-Brite, and Scotchgard leading the market. We believe that continued capital expenditure with new product launches should bolster its prospects across most end markets.

However, the company’s growth objectives are largely dependent on timing and market acceptance 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.

Further, the results have been impacted by worldwide economic and capital market conditions. Negative consumer sentiment is affecting the retail store traffic. On the corporate side, lower employment levels are negatively reducing office supply purchases in most companies.

3M Company together with its subsidiaries operates as a diversified technology company with manufacturing operations spread over 60 countries worldwide. It has more than 35 business units organized into six segments: Consumer and Office, Display and Graphics, Electro and Communications, Healthcare, Industrial and Transportation, Safety, Security and Protection Services Business. The major competitors of 3M are Avery Dennison Corporation ( AVY - Analyst Report ) , EI DuPont de Nemours & Co. ( DD - Analyst Report ) and Johnson & Johnson ( JNJ - Analyst Report ) .

We continue to maintain a Neutral rating on 3M Company for the long term and a Zacks #3 Rank (Hold recommendation) over the next one-to-three months.