MMM Earnings Preview: Margins and growth in focus

3M (MMM) is set to release its Q3 2024 earnings report pre-market on Tuesday, October 22. Analysts expect earnings per share (EPS) of $1.90, with a high estimate of $2.00 and a low of $1.78, reflecting a slight 1.7% upward revision over the last 30 days. Revenue is anticipated to come in at $6.06 billion. For the full year, 3M’s EPS is projected at $7.26, and full-year revenue is estimated at $23.62 billion. Investors are watching closely for how 3M performs in light of a forecasted earnings move of +/- 3.9% and a consensus "Buy" rating, with an average price target of $141.

3M reaffirmed its full-year guidance on September 12, maintaining its forecast for EPS between $7.00 and $7.30 and organic revenue growth of 0-2%. This has positioned the company to report organic sales growth within the middle of that range for the remainder of FY24. Key metrics to watch include the company's organic growth rate and margin improvements, both of which have been critical focal points since CEO Bill Brown took the helm earlier this year. Analysts have been especially impressed with Brown's focus on restructuring, which has begun yielding positive results.

Despite these positive developments, 3M still faces several challenges, including the ongoing weakness in consumer spending, which has affected segments such as automotive aftermarket, home improvement, and packaging. Analysts expect the company's Consumer segment to continue struggling in Q3. Conversely, its Transportation & Electronics and Safety & Industrial divisions are expected to perform better, with mid-single-digit growth anticipated in key areas like automotive OEM and industrial adhesives.

Mizuho recently raised its price target on 3M to $146, reflecting optimism about the company’s ongoing restructuring and the potential for continued margin improvement. However, Mizuho remains neutral on the stock, noting that further upside would require 3M to demonstrate sustained GDP+ growth—a challenge given the company’s historical underperformance relative to GDP growth. Morgan Stanley is less optimistic, issuing an Underweight rating with a price target of $125, citing concerns over weakening consumer spending and the company's recent re-rating.

3M's profitability in Q3 is likely to be a key focus for analysts and investors. The company has made strides in improving its margins, benefiting from restructuring and cost-cutting efforts. However, with a backdrop of global macroeconomic uncertainty and rising operational costs, maintaining these gains will be critical to the company's longer-term success. In the previous quarter, 3M’s adjusted EBITDA expanded by 430 basis points, contributing to a 39% year-over-year rise in its adjusted EPS.

3M delivered a strong performance in Q2 2024 under its new CEO, William Brown, who took the reins in May. Brown's leadership has been well-received, as evidenced by a double-digit earnings beat and a solid 1.2% year-over-year growth in organic revenue. The company's restructuring efforts, which included streamlining its operations and shifting to a global business unit structure, have already shown positive results. In Q2, 3M’s adjusted EPS from continuing operations surged 39% to $1.93, reflecting the impact of these changes and setting an optimistic tone for the future. As a result, 3M raised the low end of its adjusted EPS forecast for FY24 to $7.00-7.30, up from $6.80-7.30.

Growth was primarily driven by the Transportation & Electronics segment, which posted a 3.3% organic growth. Electronics showed a particularly strong performance, with a low-double-digit organic increase, highlighting improving demand in consumer electronics. 3M’s auto OEM business also posted nearly 5% growth in Q2, sustaining momentum from Q1. However, not all segments fared as well; the Safety & Industrial division saw only modest growth of 1.1%, while the Consumer segment experienced a 1.4% decline due to weak discretionary spending, which 3M expects to persist throughout the year.

Despite some challenges, including a cautious end-market environment and a $10.3 billion settlement related to PFAS levels, there is optimism surrounding 3M’s restructuring efforts and its early success under Brown's leadership. The leaner company has shown resilience in a tough global economy, and with continued focus on cost structure improvements and organic growth, analysts are increasingly bullish on the company's long-term prospects. Deutsche Bank has upgraded the stock to a Buy, citing potential upside of 18% and targeting a price of $150.

Overall, investors will be closely watching 3M's Q3 earnings report for signs of further margin improvements and any updates on the company's organic growth trajectory. While there is optimism surrounding the company’s restructuring efforts, challenges like weak consumer demand and ongoing legal liabilities will need to be addressed in order to sustain the stock's recent momentum.