Back to top

Image: Bigstock

3M (MMM) to Divest Safety Prescription Eyewear Unit to HOYA

Read MoreHide Full Article

Diversified industrial goods manufacturer 3M Company (MMM - Free Report) recently inked a definitive agreement with HOYA Vision Care, a premier eyeglass lens provider across the globe, to divest its prescription eyewear business for an undisclosed amount. The transaction is expected to be completed by the first quarter of 2017, subject to mandatory closing conditions and regulatory approvals.

The held-for-sale business is part of the Personal Safety Division, which is an integral component of the Safety & Graphics segment. The prescription eyewear business offers a wide array of frames, prescription lenses and premium coating solutions on customized products. The business employs approximately 140 employees and generates annual global sales to the tune of $45 million. Post divesture, these employees will be absorbed by HOYA.

3M decided to divest the business to focus on its core personal safety businesses and will retain its non-prescription eyewear business that is widely known as the plano eyewear. Since 2012 to early 2016, the company has pruned its businesses from 40 to 26, thereby improving customer relevance, productivity and speed through a leaner operating structure. At the same time, 3M has maintained a steady investment in R&D to develop innovative products. The company expects to invest $1.8 billion in R&D in 2016 for higher organic growth and complement it through strategic acquisitions.

Despite the portfolio restructuring efforts, 3M is currently going through a lean patch with an average negative return of 4.6% in the last 90 days compared with a 0.5% decline for the Zacks categorized Diversified Operations industry. This Zacks Rank #3 (Hold) stock appears to be grappling with numerous challenges that are likely to weigh on its performance in the forthcoming quarters.

The earnings estimates of the company for the current quarter have decreased 3.1% in the last 90 days to $1.90 per share with significant downward estimate revisions. The earnings estimates for the current year have also reduced from $8.23 to $8.18 in the last three months, signifying negative investor confidence.

3M also expects a lackluster performance in the fourth quarter and has narrowed its earlier guidance for 2016 during the third-quarter earnings release. Organic local-currency sales is expected to be flat compared with 0–1% growth expected earlier. The company currently anticipates 2016 GAAP earnings in the range of $8.15 to $8.20 per share compared with the earlier projection of $8.15 to $8.30.

However, during the five-year period of 2016–2020, 3M expects 8–11% growth in earnings per share driven by an organic sales growth of 2–5%. The company expects about 20% return on invested capital during this tenure with a free cash flow conversion rate of 100%. Furthermore, 3M is standardizing its business processes through a new, global ERP system. The company expects these efforts to result in $500 to $700 million in annual operational savings by 2020, and an additional $500 million reduction in working capital. Whether such focused attempts will revive its growth momentum in the future remains to be seen.

Some better-ranked stocks in the industry include Leucadia National Corporation , Macquarie Infrastructure Corporation and Mitsubishi Corporation , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Leucadia has a long-term earnings growth expectation of 18% and has beaten estimates only once in the trailing four quarters for an average earnings surprise of 179%.

Macquarie Infrastructure has beaten estimates twice in the trailing four quarters for an average positive earnings surprise of 29.6%.

Mitsubishi has long-term earnings growth expectation of 15% and is currently trading at a forward P/E of 10.4x.

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>

Unique Zacks Analysis of Your Chosen Ticker

Pick one free report - opportunity may be withdrawn at any time

3M Company (MMM) - $25 value - yours FREE >>

Published in