3M Slashes FY19 Profit View Despite Q3 Earnings Beat

3M Slashes FY19 Profit View Despite Q3 Earnings Beat
October 25, 2019

 

The post-it manufacturer 3M Company (NYSE: MMM) reported fiscal 2019 third-quarter earnings that beat analysts’ estimates. The company, however, missed 3Q19 revenue estimate of analysts. The abrasives manufacturer also lowered its FY 2019 profit outlook in the middle of a “challenging macroeconomic environment.” Following the weak results, the stock of 3M lost $6.87 or 4.07% to close at $161.89.

Maplewood, Minnesota-based company posted third-quarter revenues of $7.99 billion, down 2.4% from $8.152 billion in the similar period last year. For the quarter ended September 2019, the owner of the Scotch brand of tapes reported earnings of $1.58 billion, or $2.72 per share, compared with $1.54 billion, or $2.58 per share, in the prior-year period, aided by a gain from divestment of gas and flame business. Analysts polled by Thomson Reuters had anticipated earnings of $2.49 per share on revenues of $8.20 billion.

The company’s CEO Mike Roman spoke high of the performance amid challenging business environment. Roman said: “While the macroeconomic environment remains challenging, we executed well and built on the progress we made in the second quarter. We continued to effectively manage costs and reduce inventory levels, while generating strong margins and cash flow.”

Segment-wise,

  • Safety and Industrial – sales of $2.8 billion, down 5.7% on a y-o-y basis
  • Transportation and Electronics – sales declined 4.4% to $2.5 billion
  • Health Care – sales increased 4.7% to $1.7billion
  • Consumer – sales rose 1.7% y-o-y to $1.3billion

Operating cash flow at the end of the third quarter was $2 billion. Free cash flow was $1.70 billion, with conversion rate of 106%. During the quarter, the company returned $1 billion to shareholders in the form of dividends and share repurchases.

Going forward, 3M anticipates 4Q 2019 GAAP earnings to be in the range of $2.05 to $2.15 per share. The earnings range has taken into account an estimated negative impact of $0.15 per share from the recently completed takeover of Acelity, Inc.

For FY 2019, GAAP earnings are expected to be between $8.20 and $8.30 per share, versus earlier expectation of $8.25-$8.75 a share. Excluding litigation-related charges of $0.72 per share in the first-quarter, deconsolidation of Venezuelan subsidiary charge of $0.28 per share and the gas and flame detection business divestment gain of $0.21 per share, 3M now projects 2019 earnings to be in the range of $8.99 to $9.09 per share versus earlier expectation of $9.25 to $9.75.

Regarding future growth plans, Mike Roman said: “We also continue to make good progress on our strategic priorities, including our recently-closed acquisition of Acelity, which is an exciting addition to 3M’s health care portfolio. Moving ahead we’ll continue to focus on driving operational improvements and investing for the future, which will position us for strong growth and premium returns as our markets recover.”

The third-quarter revenue miss and downwardly revised FY 2019 profit outlook are expected to keep the stock bearish in the short-term.

The historical price chart indicates that the stock is trading below its 50-day moving average. Furthermore, the stochastic oscillator is in the bearish zone. As a result, we can expect the stock to remain under selling pressure in the near-term.

mmm - technical analysis - 25th Oct 2019

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Richard W

Richard W

Richard is the guy who know everything there is about the financial industry, working in a top firm for over 15 years, he will give the lowdown on some of the biggest companies in the world


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