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Why 3M Stock Is Soaring despite Its Q2 Profit Dropping

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3M (MMM), a diversified technology company, reported its Q2 earnings today before markets opened. In the second quarter, its sales fell 2.6% YoY (year-over-year) to $8.2 billion, and its EPS plunged by 37.5% YoY to $1.92. Its adjusted EPS fell 28% YoY to $2.20. The company is struggling with low demand in China’s automotive and electronics sectors.

MMM stock up despite a decline in profits

Despite 3M’s profit falling significantly, its stock had risen 1% as of 11:00 AM ET today. It rose more than 4% in pre-market trading. This increase may be due to analysts forecasting even weaker numbers for the company, as well as 3M’s guidance reiteration. Wall Street expected 3M to report sales and adjusted EPS of $8.05 billion and $2.05, respectively. The company maintained its 2019 adjusted EPS expectation of $9.25–$9.75 and organic local-currency sales growth guidance of -1% to 2%.

CEO on the results

3M chairman and CEO Mike Roman said, “Our execution was strong in the face of continued slow growth conditions in key end markets, as we effectively managed costs and improved cash flow. Moving ahead we remain focused on continuing to drive operational improvements, investing for the future and delivering for our customers and shareholders.”

Worst one-day drop

Investors may recall that 3M stock saw its worst one-day decline in nearly 30 years on April 25. The drop came after the company announced it was cutting 2,000 jobs due to weak demand in China’s automotive and electronics sectors. The company adjusted its production to align with demand.

Year-to-date price performance

This year, 3M stock has fallen 3.8%, while the Dow Jones Industrial Average (DIA) has gained 16.9%. Considering the stock’s decline, investors are taking heart in the company’s better-than-expected earnings. However, for a complete turnaround in analyst and investor sentiment, the company needs to show that it can deliver consistent profits despite slowdown concerns.

Peers’ earnings

3M reported its results a day after Caterpillar (CAT), which reported disappointing Q2 earnings. It attributed that weakness to demand slowing down in China. The company also said that it is now expecting earnings near the lower end of its previous guidance range, making investors concerned.

Boeing (BA) also disappointed markets, reporting a record loss of $2.9 billion in the second quarter. Most of the company’s loss was due to its 737 MAX planes’ grounding. United Technologies (UTX) reported its results on Tuesday, beating analysts’ expectations. For the second time this year, the company increased its 2019 profit guidance. Honeywell (HON) released its results on July 18. Its EPS of $2.10 beat analysts’ estimate of $2.08, but its sales missed their forecast.

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