MMM vs. UTX: Which Stock is Poised for Better Q3 Earnings?

The earnings season is in full swing with about 180 S&P 500 companies reporting this week. About 87 S&P 500 companies have already released their results till Oct 20. Total earnings for these companies (accounting for 24.7% of the index’s total market capitalization) are up 9.4% year over year on 7.3% higher revenues, with 71.3% beating earnings estimates and 70.1% surpassing top-line expectations. Based on the hitherto observed pattern, the third quarter is anticipated to register modest single-digit percentage earnings growth on a year-over-year basis.  

Per the latest Earnings Preview, overall earnings for all the S&P 500 companies are expected to be up 2.6% on 5% growth in revenues. It represents a slightly tempered growth projection compared with the double-digit growth rate of the previous quarter, largely due to drag from the insurance industry that was hit hard by devastating hurricanes Harvey and Irma. However, experts widely believe that earnings growth is likely to improve steadily in 2018 and beyond.

The Industrial Products sector appears modest. For the sector, earnings are expected to improve 2.6% year over year while sales are touted to rise 5% due to thrust on the manufacturing industries.

Let’s have a sneak peek at two major Industrial Products stocks scheduled to report earnings tomorrow to see how things are shaping up for the upcoming results.

3M Company MMM believes stronger automotive and aerospace solutions, industrial adhesives and tapes abrasives, as well as its automotive aftermarket businesses will bolster its Industrial segment’s revenues in the quarters ahead. The Zacks Consensus Estimate for revenues from 3M’s Industrial segment is currently pegged at $2,656 million for third-quarter 2017, higher than $2,582 million reported in the year-ago quarter.

New contract wins are anticipated to augment sales of the company’s food safety, drug delivery systems and medical consumables businesses in the third quarter. This will likely reinforce the Health Care segment’s revenues. On the other hand, increased penetration in original equipment manufacturing platform and higher consumer electronics sales are expected to support Electronics and Energy segment’s revenues in the to-be-reported quarter. Additionally, increased consumer health care, home care and home improvement sales are anticipated to propel revenues of the company’s Consumer segment in the quarter.

The Zacks Consensus Estimates for revenues from Safety and Graphics, Health Care, Electronics and Energy and Consumer segments are currently pegged at $1,481 million, $1,413 million, $1,302 million and $1,225 million, respectively for the third quarter, higher than the corresponding tallies of $1,448 million, $1,361 million, $1,293 million and $1,209 million recorded in the year-ago quarter.

For the impending quarter, the company has an Earnings ESP of -0.17% as the Most Accurate estimate of $2.19 per share is below the Zacks Consensus Estimate of $2.20 per share. 3M currently has Zacks Rank #3 (Hold), making an earnings prediction uncertain. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 for a likely earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

3M Company Price and EPS Surprise

 

3M Company Price and EPS Surprise | 3M Company Quote

However, our previous earnings model predicted earnings beat with an Earnings ESP of +1.05%. (Read: Will Industrial Sales Drive 3M Company's Q3 Earnings?)

The financial performance of United Technologies Corporation UTX depends largely on the conditions of the construction and aerospace industries. The company is also heavily dependent on the U.S. government’s budgetary allocation for defense. A reduction in capital spending for the commercial aviation or defense industries is likely to have a significant effect on the demand for its products.

The Zacks Consensus Estimate for UTC Climate Control and Security segment revenues is currently pegged at $4,566 million, significantly down from $4,712 million in the second quarter. Revenues from Otis and Pratt & Whitney are also expected to be sequentially low with respective estimates of $3,075 million and $3,661 million compared with reported revenues of $3,131 million and $4,070 million in the prior quarter.UTC Aerospace Systems’ revenues are likely to be $3,619 million compared with $3,640 million in the previous quarter.

Our proven model does not conclusively show that United Technologies is likely to beat earnings this quarter as it does not possess the key components. Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -1.16% with the former currently pegged at $1.66 and the latter at $1.68.

United Technologies Corporation Price and EPS Surprise

 

United Technologies Corporation Price and EPS Surprise | United Technologies Corporation Quote

Moreover, United Technologies has a Zacks Rank #4 (Sell). (Read More: Low Revenues to Hurt United Technologies Q3 Earnings?)

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