3M To Continue Its Good Run In The Second Quarter

2017 as been a good year for 3M. Its stock has been trending upwards since the beginning of the year, rising almost 20%. This has been a result of the strong performance posted by the company in the first quarter, as well as the focus the company has placed on its three levers, which will ensure growth in the long term.

Analysts expect this feel-good factor of the company to continue in its second quarter earnings, as well. 3M is set to report its second quarter earnings on July 25th, wherein a growth in both revenue and earnings per share is anticipated. An EPS of $2.54 on revenues of $7.86 billion has been estimated, implying a growth of 22.1% and 2.6%, respectively.

Focus On The Three Levers

3M continues to execute on its three levers, which will help ensure growth in the long term.

1. Portfolio Management- The company recently announced the purchase of Scott Safety from Johnson Controls, which will help to strengthen its position in the attractive personal safety market. It has also sold its Identity Management business, its Tolling and Automated License/Number Plate Recognition business, and its Electronic Monitoring business, all in its Transportation Safety division, in order to focus on “connected roadways.”

2. Investing in Innovation- The company invested $471 million in RD in the first quarter, or 6.1% of the sales, up from $450 million in the year ago period. This included increasing the resources in the field to bring the scientists and application engineers closer to the market.

3. Business Transformation- The roll-out of the new ERP (Enterprise Resource Planning) system in Western Europe was almost complete, as of end-March 2017.

In addition to this, the company also undertook an investment of $136 million in the first quarter, which included $36 million to accelerate growth in the core platforms. These growth investments are expected to continue throughout the year, contributing to 50 to 100 basis points of growth in 2017.

Growth Led By Industrial, Electronics Energy Segments In The First Quarter

3M delivered sales growth in four of its five business segments in the quarter. However, what was most surprising was that its best performing segment was Electronics Energy, which underwent a major decline in 2016 as a result of the softness in the electronics market. This time around the segment posted revenue growth exceeding 11%, with a 70 basis points improvement in the margins. The Industrial segment had another stellar quarter, with 6% growth. The automotive OEM business continued to lead sales growth in the segment, increasing double digits organically, and also outpacing the rate of global car and light truck builds by more than 400 basis points.

Even Safety Graphics and Health Care segments published a rise in sales, by 3.4% and 2.3%, respectively. Personal safety and roofing granules helped to deliver growth in Safety Graphics, while for Health Care, it was the double digit growth in both drug delivery systems and food safety that helped to spur the sales. The consumer segment was the only weak point for the company, with sales declining almost 1%, wherein a fall in the stationery and office supplies business weighed down the sales.

Geographically the growth was broad-based across all areas, with Asia Pacific leading the company, particularly in China, Hong Kong, and Japan. In Europe, Middle East, and Africa, while an organic growth of 4% was reported, negative foreign currency translations resulted in a marginal decline in sales of 0.1%. Focusing on the margins, a 100 basis points decline was noted. However, the company made investments to the tune of $136 million of strategic investments, as mentioned earlier, to strengthen the company for the future. This resulted in the drop, as excluding this, the margins were up 80 basis points over the last year, driven by strong organic growth and a sound operational performance.

Click Here To See Our Complete Analysis Of 3M

Have more questions on 3M? Have a look at these links below:

  • Industrials Segment Drives Growth For 3M In Its Fourth Quarter
  • As A Part Of Its Growth Strategy, 3M Divests From Some Of Its Businesses
  • RD: One Of The Driving Factors Behind 3M’s Growth
  • 3M Teams Up With Alphabet’s Verily For Population Health Management Tools
  • What Trends Will Ensure Growth For 3M From Developing Markets In The Future

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for 3M .

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