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What's in the Offing for 3M (MMM) This Earnings Season?

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3M Company (MMM - Free Report) is scheduled to release fourth-quarter 2020 results on Jan 26, before market open.

The company delivered better-than-expected results thrice in the trailing four quarters, while lagged estimates once. Earnings surprise was a positive 1.85%, on average, for the period. In third-quarter 2020, its earnings of $2.43 per share surpassed the Zacks Consensus Estimate of $2.27 by 7.05%.

In the past three months, 3M Company’s shares have inched up 0.5% compared with the industry’s growth of 13.5%.

Key Factors to Influence Q4 Results

3M’s focus on investing in innovation, growth opportunities and digital capabilities, coupled with its strong product offerings, and aim to generate healthy free cash flow, is likely to have positively impacted its operations in the fourth quarter. Also, it is likely to have witnessed synergistic gains from acquisitions. Notably, acquisitions positively impacted sales by 1% in October.

Further, solid demand in personal safety, general cleaning, home improvement, biopharma filtration, data center and semiconductor markets is anticipated to have boosted fourth-quarter top-line performance. In particular, the company anticipates the hike in demand for respirators owing to the coronavirus outbreak to boost its sales by 300 basis points (bps) in the fourth quarter on a year-over-year basis.

3M appears to have performed resiliently amid the challenges caused by the pandemic in the quarter, as evident from its sales growth of 3% and 8% recorded in October and November 2020, respectively. Notably, the company’s businesses in the Americas, Europe, Middle East and Africa as well as Asia Pacific performed well in the first couple of months of the quarter. Apart from these, various initiatives being undertaken by the company including the streamlining of its operational structure and adoption of new operating model (global) are expected to get reflected in fourth-quarter results.

However, the impacts of the pandemic-related headwinds and high debt level are likely to have hurt its performance in the quarter. Also, given 3M’s diverse geographic presence, its operations are subject to geopolitical issues, macroeconomic challenges and forex woes. For instance, in the third quarter of 2020, foreign currency adversely impacted its operating margin by 30 bps. A stronger U.S. dollar might have hurt the company's overseas business in fourth-quarter 2020.

Further, in the third quarter, 3M’s research and development expenses increased 4.1% year over year. This trend is likely to have continued in the fourth quarter, given its focus on investing heavily in research and development of products to hold its position in the highly competitive market. This might have hurt its margins and profitability in the quarter under review.

On a segmental basis, the Zacks Consensus Estimate for Safety and Industrial’s sales, pegged at $3,047 million, suggests growth of 8.4% and 0.8%, from the year-ago and quarter-ago reported figures, respectively. The consensus estimate for Healthcare’s sales is pegged at $2,228 million, indicating growth of 4.1% and 3.1% from the respective year-ago and quarter-ago reported numbers. For Consumer, the Zacks Consensus Estimate is $1,342 million, suggesting a rise of 5.8% year over year but a decline of 5.3% sequentially. Transportation and Electronics’ consensus estimate, pegged at $2,256 million, suggests a year-over-year decline of 1.5% and a sequential fall of 2.5%.

Earnings Whispers

According to our quantitative model, a stock needs to have the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

But that is not the case here as we will see below.

Earnings ESP: 3M has an Earnings ESP of -0.76% as the Most Accurate Estimate is pegged at $2.17, lower than the Zacks Consensus Estimate of $2.19.

3M Company Price and EPS Surprise

3M Company Price and EPS Surprise

3M Company price-eps-surprise | 3M Company Quote

Zacks Rank: The company carries a Zacks Rank #3.

Key Picks

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 season:

Danaher Corporation (DHR - Free Report) has an Earnings ESP of +5.87% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Axon Enterprise, Inc has an Earnings ESP of +0.93% and a Zacks Rank #2.

A. O. Smith Corporation (AOS - Free Report) has an Earnings ESP of +5.29% and a Zacks Rank of 3, at present.

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