3M (NYSE:MMM) announces third-quarter 2018 earnings Tuesday before the markets open, and the consensus is that the industrial conglomerate will provide negative guidance for the fourth quarter, sending 3M stock further into negative territory in 2018.
Down 15.1% year to date through Oct. 19 and 9.8% over the past year, a negative earnings report is the last thing 3M shareholders want. Is there any hope that MMM will deliver better than expected earnings and won’t guide lower in Q4 and beyond?
“Unless the company announces some significant changes to its worldwide portfolio, I figure it’s going to guide down again thanks to the weakness in autos,” CNBC Mad Money host Jim Cramer said Oct. 19. “It is a shame: 3M’s stock is now down more than 60 points and it still hasn’t been able to attract any substantial buyers.”
Cramer wants to see 3M do a restructuring. He believes that’s the only kind of news from earnings that will light a fire under its stock price that’s lost 23% of its value since hitting a 52-week high of $259.77 in late January.
3M’s Disappointing Year
I’ve been a big supporter of 3M this year.
First, I included 3M in my April list of great stocks that are also great businesses. I suggested that given the demise of General Electric (NYSE:GE), 3M had become the de facto industrial conglomerate worth owning.
Cramer, nor most of the investors out there, happens to view it in nearly as bright a light as I do. And that’s fine.
In May, I doubled down, suggesting that 3M stock was worth buying along with six other stocks that had lost 10% or more in April, the contrarian in me felt that it would rebound despite the disappointing earnings and lower guidance in the second quarter.
Now it looks as though the doom and gloom are going to continue for at least another quarter or two putting intense pressure on 3M’s share price.
3M Stock and Honeywell
Before you discard your MMM stock, consider that Honeywell (NYSE:HON) reported Q3 2018 earnings Oct. 19 that beat on both the top and bottom line. Honeywell’s earnings beat suggests that industrial stocks are holding their own in this time of economic uncertainty caused by the China trade war.
There is hope.
Over the last four quarters, 3M has delivered two earnings beats and two others that were in line, although the average earnings surprise of the two earnings beats was less than 3%. An earnings beat really ought to be anything in double digits, but it’s better than two earnings misses.
The reality is that higher raw material costs are putting pressure on its gross margins. Add in severe competition in some of the emerging markets (Brazil and India are two) where it does business along with volatile foreign currencies in those markets, and you’ve got a haze of uncertainty hanging over earnings.
The consensus estimate for Q3 2018 revenues is $9.1 billion, 11% higher than in the same quarter a year earlier. On the bottom line, the consensus estimate is $2.70 a share, 16% higher than the previous year, while the whisper number is a penny higher at $2.71.
Sure, 3M lowered the top end of its adjusted earnings for 2018 by a dime to $10.45 a share, and it’s possible it will do it again on Tuesday, but that’s still an annual profit of more than $6 billion.
The Bottom Line on 3M Stock
Unless 3M earnings are horrifically bad, which I highly doubt, any drop in its share price post-earnings should be viewed as an opportunity to own one of the best stocks over the long haul at a significant discount.
Come Wednesday I’d be a buyer barring any unforeseen circumstances.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.