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Can 3M (MMM) Beat Q1 Earnings Estimates on Organic Growth?


Industrial goods manufacturer 3M Company MMM is scheduled to report first-quarter 2017 results before the opening bell on Apr 25. In the last reported quarter, 3M’s earnings beat the Zacks Consensus Estimate by a penny. In the trailing four quarters, the company topped earnings estimates on three occasions with an average positive earnings surprise of 1.9%.

Let’s see how things are shaping up for this announcement.

What is Driving the Better-than-Expected Earnings?

3M continues to deliver sustainable increase in earnings and free cash flow, benefiting from its long-term strategy of accelerating investments in high-growth programs. The company’s ability to convert high R&D spends into up-cycle market share gains and strong pricing powers are the reasons behind its success. Organic growth remains the first priority of the company as it continues to invest in infrastructure and commercialization capability.

3M has also initiated some prudent steps to strengthen and focus on its core portfolio of businesses. Since 2012, the company pruned its businesses from 40 to 26, thereby improving customer relevance, productivity and speed through a leaner operating structure. At the same time, 3M maintained a steady investment in R&D to develop innovative products. A focused operating platform is anticipated to yield higher return on investments in the impending quarter.

The company expects to further leverage its balance sheet to provide higher returns to shareholders. At the same time, it is continuing with its portfolio restructuring efforts by divesting assets that no longer fit its strategy and investing in other lucrative markets. During the quarter, 3M entered into a definitive agreement with Johnson Controls International plc to acquire the latter’s operating unit, Scott Safety. The deal, worth $2.0 billion, is expected to close in the second half of 2017. The acquisition will enable 3M to expand its portfolio within the Safety and Graphics business to provide a broader array of safety products and solutions to customers worldwide.

3M expects the transaction to be accretive to adjusted earnings by 10 cents per share in the first year of its operation. Although the deal is likely to have a minimal effect on the impending quarterly results, it is expected to have attracted similar deals and contracts in the quarter and boost revenues.

Why a Likely Positive Surprise?

Our proven model shows that 3M is likely to beat earnings this quarter as it possesses the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is perfectly the case here as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate of $2.08 and the Zacks Consensus Estimate of $2.07, is +0.48%. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

3M Company Price and EPS Surprise

3M Company Price and EPS Surprise | 3M Company Quote

Zacks Rank: 3M’s Zacks Rank #2 when combined with positive ESP makes an earnings prediction likely.

Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Panera Bread Company PNRA has an Earnings ESP of +2.21% and a Zacks Rank #3.

Pinnacle Foods Inc. PF, with an Earnings ESP of +2.17% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Treehouse Foods, Inc. THS, with an Earnings ESP of +4.62% and a Zacks Rank #2.

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