3M misses Q2 rev. estimates, slashes FY16 rev. outlook

Tougher business conditions continue to impact the performance of several well known multinational companies. The latest addition to that list is 3M Company (NYSE: MMM).

The renowned manufacturer of post-it products reported lackluster fiscal 2016 second-quarter revenue that missed the analysis estimates. On the other hand, the quarterly earnings met the analysts’ estimates. However, it is not expected to trigger interest among investors due to the reasons given below. Thus, we believe that the share price of 3M would remain range bound for the rest of the third-quarter. The stock closed at $178.36 on Friday.

The Maplewood, Minnesota-based company reported fiscal 2016 second-quarter net sales of $7.66 billion, marginally down from $7.686 billion in the second-quarter of 2015. The Q2 revenue also missed the Wall Street estimates of $7.71 billion. 3M clarified that the exchange conversion rate had a negative impact of 1.5% on the net sales of the company.

3M

The Industrial division posted flat y-o- y sales of about $2.6 billion. Safety and Graphics division reported revenue of $1.5 billion, up 4.7% on a y-o- y basis. The Healthcare segment recorded revenue of $1.4billion, which represents a growth of 3% from last year. The Consumer segment reported revenue of $1.1 billion, up 1.7% from the comparable period of fiscal 2015. However, the growth recorded by all these segments was wiped off by a 10% y-o- y decline in revenue to $1.2 billion in the Electronics and Energy segment. The company is expected to face considerable headwinds in the third-quarter as well due to the uncertainty caused by the outcome of the Brexit referendum.

The company posted quarterly earnings of $1.291 billion or $2.08 per share, compared to $1.3 billion or $2.02 per share in the similar period last year. The second-quarter earnings were in line with the Street estimates. But for a decline in the number of outstanding shares, the company would have posted a fall in the second-quarter earnings per share, compared to prior year’s similar quarter.

Considering the difficult business scenario, the management of 3M trimmed its fiscal 2016 revenue growth outlook. 3M now anticipates the fiscal 2016 revenue to grow by only one percent compared to the prior year. The previous revenue estimate was a range of 1% to 3%.

The company also slashed its upper end of the earnings per share guidance, while raising the lower end of the guidance range. For the full year 2016, the company expects earnings to be in the range of $8.15 to $8.30 per share, compared to the prior estimate of $8.10 to $8.45 per share.

Considering the decline in the Q2 revenue and slash in the fiscal 2016 revenue outlook, fundamentally, we can anticipate the share price to remain range bound with bearish bias.

After consolidating between 165 and 170 for nearly three months, the stock has broken above to touch a high of 180. The RSI is declining from the overbought region. Thus, technically, we expect the price to re-test the level of 170. The unimpressive second quarter results would support the downtrend as well.

So, purchasing a one touch put option would benefit the trader at this point in time. The suggested strike price for the one touch put option trade is $172 or above. Likewise, the binary trader should negotiate a time period of at least four weeks for the contract to expire.