Post-it maker (and so much more) 3M (NYSE:MMM) reports Q1 2006 earnings results tomorrow morning. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.
What analysts say:
- Buy, sell, or waffle? Fifteen analysts follow 3M, splitting their votes 9-to-6, buy-to-hold.
- Revenues. Analysts are looking for 8% improvement in sales tomorrow, to $5.6 billion.
- Earnings. Profits are expected to rise nearly 11%, to $1.14 per share.
What management says:
Earlier this month, 3M issued the kind of news that investors love to hear: an upward revision in earnings guidance. The company held firm on sales guidance, reiterating its expectation of 8% organic growth, but boosted profits expectations up to $1.15 to $1.16 per share. And both of those numbers are after expensing stock options. In other words, with the new guidance only two weeks old, it's pretty much a lock that 3M will beat consensus expectations tomorrow.
What management does:
Judging from the company's trends in profitability, the better-than-expected earnings should perhaps have been expected after all. Gross, operating, and net margins have all been growing on a rolling basis over the last 18 months.
|
Margins % |
9/04 |
12/04 |
3/05 |
6/05 |
9/05 |
12/05 |
|---|---|---|---|---|---|---|
|
Gross |
50.2 |
50.2 |
50.3 |
50.3 |
50.4 |
51 |
|
Op. |
22.5 |
22.9 |
23.1 |
23.3 |
23.4 |
23.8 |
|
Net |
14.7 |
14.9 |
15.2 |
15 |
15.1 |
15.1 |
The Fool says:
None of the above should surprise subscribers of Motley Fool Inside Value, either. Just three months ago, lead analyst Philip Durell re-upped his recommendation of the stock, citing its respectable dividend, continued share repurchases, and powerful production of free cash flow.
That said, there's one general risk and one specific item that you can keep an eye on tomorrow. Generally, Philip warns that a recession -- which various market pundits have been predicting ever since the yield curve inverted (briefly) back in January -- would hurt 3M, as indeed it would hurt most companies. Specifically, Philip suggests that Fools keep an eye on 3M's income statement to ensure that the company doesn't sacrifice R&D spending to boost its bottom line. With the company collecting 30% of its revenues from sales of products that didn't even exist five years ago, research spending is key to 3M's future. Or, to put it more succinctly, 3M is more than just Post-it Notes.
To read more on Philip's strategy, and take a 30-day free trial to Inside Value, just click here.
Competitors:
- ACCO Brands (NYSE:ABD)
- Apogee (AMEX:ATA)
- Avery Dennison (NYSE:AVY)
- Corning (NYSE:GLW)
- GE (NYSE:GE)
- Johnson & Johnson (NYSE:JNJ)
Fool contributor Rich Smith does not own shares of any company named above.
