Will 3M See A Sharp Decline In Q2 Earnings?

3M (NYSE: MMM) will report its Q2 2023 results on Tuesday, July 25. We expect the company’s revenues to come in at $7.9 billion, aligning with the consensus estimate. This would mark a year-over-year decline of about 9%. Earnings will likely come in at about $1.73 on a per-share and adjusted basis, in line with the $1.72 consensus estimate and 30% below its prior-year quarter figure of $2.48. See our interactive dashboard analysis on 3M Earnings Preview for more details on how the company’s revenues and earnings will likely trend for the quarter. So, what are some of the trends that are likely to drive 3M’s results?

Although the company will likely continue to benefit from the pricing actions, lower demand for respirators will probably be a drag on its top line. Looking at Q1 2023, 3M’s revenues were down 9%, with all segments seeing a y-o-y decline. Furthermore, the operating margin contracted about 400 bps to 17.9% on an adjusted basis and over 300 bps down on a reported basis due to elevated input costs. Our 3M Operating Income Comparison dashboard has more details. Lower revenues and a fall in operating margin resulted in a 25% decline in 3M’s earnings to $1.97 on a per-share and adjusted basis. 3M announced a restructuring plan earlier this year aimed at improving its margin profile, and it will record a charge of $175 to $250 million in Q2’23.

Looking at 3M’s stock price, we believe that it has room for growth. We estimate 3M’s valuation to be $118 per share, about 15% above its current price of $103. Our forecast is based on a 14x P/E multiple for MMM and expected earnings of $8.64 on a per-share and adjusted basis for the full-year 2023. The company has guided for adjusted EPS to be in the range of $8.50 to $9.00 for the full-year 2023. The 14x P/E multiple compares with the last three-year average of about 16x. We have assigned a slightly lower P/E multiple for 3M compared to its historical average due to the uncertainties around  ongoing litigation. Last month, 3M agreed to pay $10.5 billion to $12.5 billion to settle the “forever chemicals” lawsuit. ^[1] The other major ongoing litigation for 3M is about defective earplugs.

While 3M stock looks like it has room for growth, check out how 3M Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

What if you’re looking for a portfolio that aims for long-term growth? Here’s a value portfolio that’s done much better than the market since 2016.

[1] Month-to-date and year-to-date as of 7/19/2023
[2] Cumulative total returns since the end of 2016

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1. 3M Settles ‘Forever Chemicals’ Litigation for Up to $12.5 Billion, Kris Maher and John Keilman, The Wall Street Journal, June 22, 2023 [↩]