What To Expect From 3M’s Q3?

3M (NYSE: MMM) will report its Q3 2024 results on Tuesday, October 22. We expect the company to post mixed results, with revenue of $6.12 billion and earnings of $1.88 per share, compared to the consensus estimates of $6.06 billion and $1.90, respectively. 3M has been facing headwinds amid a weak demand environment, and it is expected to weigh on its sales in Q3. Our dashboard on 3M’s FY 2024Q3 Earnings Preview has more details on the company’s revenues and earnings for the quarter.

What Trends Will Drive 3M’s results?

3M’s sales growth has been tepid lately due to supply chain disruptions, high inflation, a strengthening dollar, and slowing economic growth. 3M’s consumer business has also been facing headwinds amid lower automotive aftermarket, home improvement, auto-care, and packaging sales. With a weak consumer sentiment, we think that 3M will likely see a low single-digit decline in sales to around $6.1 billion in Q3. Although the company’s prior-year quarter sales stood at $8.3 billion, it included $2.1 billion in Health Care sales. 3M on April 1, 2024, completed the planned spin-off of its health care business, which is now an independent company — Solventum – and is listed on the NYSE as SOLV.  3M now has only three segments – Safety & Industrial, Transportation & Electronics, and Consumer. 3M has seen its profitability improve lately, a trend expected to continue in the near term. With a slight decline in sales and margin expansion, we expect it to report adjusted earnings of $1.88 per share.

How Did 3M Fare In Q2?

3M’s revenue of $6.3 billion (reported) in Q2 was down 0.5% y-o-y. Transportation and Electronics segment sales were down 2.2%, Safety & Industrial revenue was down 0.2%, and the Consumer segment saw a 2.4% decline in sales. 3M saw its adjusted EBITDA expand by 430 bps y-o-y to 26.2% in Q2. This led to a solid 39% y-o-y rise in the bottom line to $1.93 on an adjusted basis. 3M expects its full-year organic sales to rise as much as 2%, and its adjusted earnings per share to be in the range of $7.00 and $7.30, higher than its prior estimate of $6.80 and $7.30.

What Does This Mean For MMM Stock?

MMM stock has outperformed the broader markets, with a 52% rise this year, compared to 22% gains for the S&P 500 index. This outperformance can partly be attributed to the spin-off of its health care business, which will help the company in streamlining its operations. However, if we look at a slightly longer term, MMM stock has performed worse than the broader market in each of the last three years. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile, and it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

We estimate 3M’s valuation to be $117 per share, about 13% below its current price of $135. At its current levels, MMM stock is trading at 19x forward expected earnings of $7.21 in 2024. The 19x figure is higher than the stock’s average P/E ratio of 15x over the last three years.

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

[1] Returns as of 10/21/2024
[2] Cumulative total returns since the end of 2016

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