How Can 3M Earnings Grow Faster?
3M is scheduled to release its quarterly earnings report tomorrow, and shareholders have sent the stock on an impressive run so far this year, with sizable gains that have outpaced the overall performance of the Dow Jones Industrials . Yet for the company to justify its higher valuation, 3M earnings need to keep pace with share-price gains, and that doesn't look very likely to happen in the near future.
3M still has plenty of good prospects for future growth, though. The question is whether 3M can reawaken its longtime innovative spirit and come out with another set of revolutionary products that will reinvigorate its business. 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 quarterly report.
Stats on 3M
Analyst EPS Estimate
Change From Year-Ago EPS
Change From Year-Ago Revenue
Earnings Beats in Past 4 Quarters
Source: Yahoo! Finance.
Can 3M earnings growth accelerate?
Analysts haven't been too upbeat in recent months about the prospects for 3M earnings, as they've cut their June-quarter estimates by $0.07 per share and shaved a full dime per share from their full-year 2013 and 2014 estimates. That hasn't held the stock back, though, with shares posting gains of more than 10% since mid-April.
What makes 3M's share-price gains so impressive is that they've come despite relatively weak growth. In its first-quarter report, 3M saw overall revenue growth slow to just 2.1%, with net income rising only slightly. Admittedly, a large part of those headwinds came from the strong dollar's currency impact on foreign revenue, but still, 3M hasn't come out with innovative blockbuster products that tend to be the long-term drivers of sales success.
One issue that 3M faces is that it's tended to be conservative with respect to emerging businesses. That stands in stark contrast to fellow Dow conglomerate General Electric , which has made gutsy bets on the energy side of its business and has seen them largely pay off. Just as GE got into wind turbines and has expanded to oil and gas services, 3M has the potential to become a much larger player in the solar industry if it chose to go beyond its supporting role for other companies and take the lead in module production or technological innovation. In addition, 3M's LED light bulb promises a 25-year life span and could seriously challenge GE in the lighting space if it put its mind to it.
Yet 3M has started to get more aggressive about capturing opportunities. With substantial cash commitments to strategic growth acquisitions and to research and development, 3M already leads GE and several of its other conglomerate peers, and it has plans to boost its R&D spending even further. Combined with its having identified Latin America, Asia, and Africa as prime candidates for expansion, especially in its health-care and consumer-business divisions, 3M is putting a long-term growth strategy in place that investors seem to have faith in.
In the 3M earnings report, watch for the company to give more specifics on its plan to jump-start its growth. With a solid dividend, investors will be willing to wait for better results, but eventually, 3M needs to come through with higher earnings and revenue if it wants to sustain its recent stock-price gains.
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The article How Can 3M Earnings Grow Faster? originally appeared on Fool.com.Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool recommends 3M and owns shares of General Electric. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.