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Market Update

Earnings on Tap: 3M

Despite currency headwinds and weakening demand, 3M should continue to earn decent returns over the near term.

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 3M (MMM) is set to report second-quarter figures Thursday before the opening bell. Analysts are expecting earnings of $1.70 per share compared with $1.66 per diluted share reported in the year-ago period.

In the first quarter, the diversified company reported earnings of $1.61 per share, a gain of 1.3%, compared with the first quarter of 2012. Sales increased 2% year over year to $7.6 billion, marking in an all-time first-quarter record. Results, however, lagged Wall Street estimates. According to Morningstar analyst Adam Fleck, 3M's first-quarter results showed slowing end-market demand, combined with more negative currency-translation effects than originally expected (primarily because of the weakening Japanese yen). Total sales growth remained positive, but the 2.0% year-over-year rate was markedly slower than the prior quarter's 4.2%.

The company also lowered its 2013 profit outlook, citing lower demand for electronic products and foreign currency fluctuations. For the full year, the company now expects foreign exchange headwinds to negatively affect sales growth by about 1.5 percentage points versus a neutral outlook previously. Combined with softer end markets, 3M also lowered its earnings-per-share forecast to a range of $6.60-$6.85 from a prior span of $6.70-$6.95. 

However, Fleck believes the firm's long-term competitive advantages will not be dented by currency movements in any one year, and the company should continue to enjoy decent near-term growth.

The stock has rallied nearly 26% during the past six months and is presently trading above our fair value estimate.

Gazala Parveen does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.