What's In The Cards For 3M Company (MMM) In Q3 Earnings?

Industrial goods manufacturer 3M Company (NYSE:MMM) is scheduled to report third-quarter 2016 results before the opening bell on Oct 25. In the last reported quarter, 3M’s earnings were in-line with the Zacks Consensus Estimate of $2.08. In the trailing four quarters, the company has beaten earnings estimates on three occasions with an average positive earnings surprise of 4.97%.

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

Key Factors in the Third Quarter

During the quarter, 3M acquired Semfinder, a premier developer of semantic coding of medical services. Semfinder provides upgraded coding technology to enable 3M speed up the availability of its 360 Encompass System across countries that are adopting the enhanced electronic medical records. The acquisition of Semfinder is likely to help 3M cater to the changing needs of the customers and enable them to develop next-generation solutions for healthcare records coding. The deal will further augment its top line while expanding 3M’s Encompass System market worldwide.

In addition, the company also inked a definitive agreement to divest its temporary protective films business to Pregis LLC, for an undisclosed amount. The held-for-sale business offers adhesive-backed temporary protective films for use in automotive, appliance, metalworking, building and construction industries. Despite annual global sales of approximately $50 million, 3M decided to divest the unit as it was deemed to be a non-core business in its strategic portfolio review. The company, in turn, decided to focus on core adhesives, sealants, and tapes businesses under its Industrial Adhesives and Tapes Division. Such focused attempts to drive organic growth are likely to translate into incremental revenues and earnings in the near future.

3M is also facing increased pension expenses as its workforce begins to retire. The related extra costs have been a drag on the company’s bottom line. In addition, as exports form a significant part of the company’s operations and growth prospects, the sustained strength of U.S. dollar will continue to negatively impact the earnings in the short term.

Earnings Whispers

Our proven model does not conclusively show that 3M is likely to beat earnings this quarter as it lacks the key components. A stock needs to have both a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is at -0.48%.

Zacks Rank: 3M’s Zacks Rank #3 when combined with a negative ESP makes surprise prediction uncertain.

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

Stocks to Consider

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

Amazon.com, Inc. (NASDAQ:AMZN) , with an Earnings ESP of +6.98% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

TransUnion (NYSE:TRU) , with an Earnings ESP of +3.03% and a Zacks Rank #2.

Navigant Consulting Inc. (NYSE:NCI) , with an Earnings ESP of +6.90% and a Zacks Rank #3.

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