Bloomberg News

3M Declines After Cutting Forecast, Missing Profit Estimates

October 25, 2011

(Updates with closing price in the fifth paragraph.)

Oct. 25 (Bloomberg) -- 3M Co. fell the most since 2008 after the maker of LCD television parts and Scotch-Brite sponges cut its 2011 forecast and posted profit that trailed analysts’ estimates for the first time in 10 quarters.

Earnings will be $5.85 to $5.95 a share this year, the St. Paul, Minnesota-based company said today in a statement. 3M had predicted $6.10 to $6.25, including a 22-cent cost related to pension benefits.

Electronics sales are slowing after several quarters of what 3M called “very good growth.” The company, whose stock rallied 14 percent this month before today, is seeing the effect of a slowdown in developed countries earlier than other manufacturers because some of its products, such as components for liquid-crystal-display TVs, are tied to consumer demand.

“It was definitely a disappointing quarter,” said Jeff Windau, an analyst at Edward Jones & Co. in St. Louis who recommends buying the shares. “The display and graphics and electronics segment are driving the downward results today.”

3M dropped 6.3 percent to $77.04 at the close in New York, the largest drop since Dec. 1, 2008. The stock has declined 11 percent this year.

Third-quarter net income fell 1.6 percent to $1.09 billion, or $1.52 a share, from $1.11 billion, or $1.53, a year earlier. The average of 15 analyst estimates compiled by Bloomberg was $1.61.

Sales rose 9.6 percent to $7.53 billion, trailing the average analyst estimate of $7.78 billion. Of the gain, acquisitions added 3.7 percentage points and foreign-exchange rates accounted for 3.1 percentage points, 3M said.

‘Economic Softening’

“The economic softening that we experienced late in the second quarter continued into the third,” Chairman and Chief Executive Officer George W. Buckley said in the statement. “Early evidence suggests slower growth will persist through year-end.”

Industrial companies such as United Technologies Corp., Honeywell International Inc. and Danaher Corp. boosted earnings forecasts last week after posting third-quarter profit that outstripped analysts’ estimates.

Sales of products used in LCD televisions remained weak, 3M said today. Government austerity measures in western Europe also reduced sales, the company said. Demand in developing countries remains strong and 3M will skew its capital spending this year of $1.3 billion to $1.5 billion toward international markets, according to a slide presentation.

‘Operational Discipline’

Buckley, whose contract as CEO ends on his 65th birthday in February, said the company will respond to slower growth with cost cuts and “operational discipline” in developed nations. Speculation that Buckley may step down next year increased after 3M in May appointed Inge Thulin, 57, as chief operating officer, a newly created position.

Revenue at the Display and Graphics unit fell 12 percent to $935 million as sales from optical systems used for LCD televisions declined.

Industrial and Transportation sales, which make up about a third of 3M’s revenue, rose 19 percent to $2.58 billion as demand in Japan rebounded in a recovery from the March earthquake and tsunami that shut down production. Sales also rose for the health care; consumer and office; and safety, security and protection services units.

U.S. economic growth is forecast to slow to 1.7 percent this year, according to estimates of 82 economists compiled by Bloomberg, from 3 percent last year. Growth in Europe is expected to slide to 1.6 percent from 1.8 percent.

The slowdown in demand for 3M, which supplies components to other manufacturers as well as producing consumer goods, may signal rough times for industrial companies, said Windau, the Edward Jones analyst.

“3M does tend to be a little bit more of a leading indicator with some of these products,” he said. “It’s definitely something we’re going to need to watch.”

--Editors: Cecile Daurat, John Lear

To contact the reporter on this story: Thomas Black in Monterrey at tblack@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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