3M Co. Earnings: Can the Stock Keep Soaring?

3M has recently hit all-time record highs, but are the fundamentals there to support further gains?

Jul 22, 2014 at 2:00PM

Photo: The Motley Fool

On Thursday, 3M (NYSE:MMM) will release its quarterly report, and the stock's recent ascent to all-time record highs has made longtime investors quite happy with the industrial giant's results. Yet although 3M has used hot areas like aerospace and energy to follow in the footsteps of General Electric (NYSE:GE) and United Technologies (NYSE:UTX), 3M also hopes that its broader approach will restart innovation in a wider range of different target industries.

3M's track record of innovation is indisputable, with well-known consumer products that have stood the test of time. But more recently, 3M has boosted its spending on research and development in order to come up with more potential blockbuster products. Given 3M's huge breadth, though, it can be nearly impossible to predict exactly where the company's next hot discovery might come from. Let's take an early look at what's been happening with 3M over the past quarter and what we're likely to see in its report.

Stats on 3M

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$8.09 billion

Change From Year-Ago Revenue


Earnings Beats in Past Four Quarters


Source: Yahoo! Finance.

Will 3M earnings get where investors want them to be?
In recent months, investors have largely kept their views on 3M earnings stable, boosting full-year estimates by a single penny per share. The stock has kept climbing, though, posting gains of 10% since mid-April.


Source: 3M.

3M's first-quarter results showed some of the challenges and successes that the company has had lately. Foreign currency headwinds held back overall sales growth to just 2.6%, with about a 7% rise in earnings. More importantly, though, 3M saw growth in nearly all of its business lines, including the industrial, electronics and energy, safety and graphics, and health care units. Only consumer products lagged behind, although the pace of 3M's growth wasn't quite as fast as most investors had hoped. Early signs showed that rising R&D spending were leading to much-anticipated organic growth, which is definitely a positive for a company that has struggled to keep up with General Electric and United Technologies in the growth arena.

One struggle for 3M comes from the debate over the best path to growth. On one hand, the company prides itself on its internal development, taking gradual steps to carve out new niches from existing business lines. Yet 3M has also turned to the mergers and acquisitions front to find growth opportunities in the past, and the company has earmarked roughly $5 billion-$10 billion for potential buyouts if it can find attractive targets to bolster its business prospects.

But 3M has been opportunistic about making the most of strong conditions in certain markets. For instance, 3M's ceramic sand screens has helped oil exploration and production companies reduce the need to replace equipment made of inferior materials, cutting downtime and making damage to expensive components less common. Similar opportunities have driven General Electric's decision to boost its role in the oil and gas services sector. Moreover, with plenty of opportunities for ceramic materials in aerospace applications, 3M hopes to boost the profile of its aerospace division in the same way that United Technologies and General Electric both have ridden the coattails of strong demand for components and other supplies.

In the 3M earnings report, watch to see whether the company emphasizes any one area of potential growth over others. Traditionally, 3M has avoided concentrating its attention to any one business, but with the stock at a high valuation, 3M needs to produce as much growth as possible to keep investors happy.

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Dan Caplinger owns shares of General Electric Company. The Motley Fool recommends 3M. The Motley Fool owns shares of General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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