Bloomberg News

3M Profit Beats Estimates as Auto, Aerospace Demand Rise

January 26, 2012

(Updates with closing share price in ninth paragraph.)

Jan. 26 (Bloomberg) -- 3M Co., the maker of Post-it Notes and fuel system tuneup kits, reported higher profit than analysts had estimated as demand increased for aerospace and auto industry products.

Net income rose 2.8 percent to $954 million, or $1.35 a share, from $928 million, or $1.28, a year earlier, the St. Paul, Minnesota-based company said today in a statement. The average of 16 estimates compiled by Bloomberg was $1.31.

“U.S.-based industrial segments led the charge,” C. Stephen Tusa, an analyst at JPMorgan Chase & Co. in New York who rates the shares “neutral,” said in a note today. “This was a better quarter for 3M when compared to recent misses.”

3M has benefited as U.S. auto sales rose 10 percent last year and as aircraft makers have boosted production amid demand for more fuel-efficient planes. Sales for 3M’s industrial and transportation unit increased 14 percent during the quarter.

The company in October had reduced its full-year profit forecast for 2011, citing slowing growth, especially in western Europe and the electronics industry. 3M today affirmed its 2012 forecast of earnings per share of $6.25 to $6.50.

3M’s quarterly sales rose 5.7 percent from a year earlier to $7.09 billion, matching analysts’ estimates. Excluding acquisitions and foreign exchange, revenue was up 3.3 percent.

The sales gain for the industrial and transportation unit helped overcome revenue declines of 8.9 percent for display and graphics and 2.7 percent for electronics and communications. Other units with increases were health care, 5.3 percent; consumer and office, 6 percent; and safety, 9.3 percent.

‘Resilient’ Results

“We were resilient enough to achieve these results in the face of deteriorating demand in both western Europe and consumer electronics,” Chief Executive Officer George Buckley said in the statement.

3M rose 1.3 percent to $87.58 at the close in New York. The shares have declined 2.2 percent during the past 12 months, as the Standard & Poor’s 500 index has gained 1.7 percent.

Optical film sales in the quarter fell 17 percent, based on local currencies, on lower demand from makers of liquid-crystal- display televisions. Weak sales for electronics will continue, Chief Operating Officer Inge Thulin told analysts on a conference call today.

The drop in electronics-related sales was caused by “production adjustment across much of the industry,” he said. “We expect these adjustments will continue until inventories are back in line with demand.”

Acquisition Effect

The company on Jan. 3 agreed to buy Avery Dennison Corp.’s office products unit, the market leader in the label business, for $550 million. 3M said today that it expects cost savings of as much as $80 million over three years and that the purchase will reduce earnings by 6 cents a share in the first 12 months.

3M said it plans to increase pension contributions this year to $800 million to $1 billion, from $600 million last year. The company said it bought back $2.7 billion of shares in 2011.

First-quarter earnings will be reduced by 4 cents a share for restructuring, including a voluntary early retirement program in the U.S., 3M said. Annual earnings won’t be affected because of benefits later in the year from the restructuring, Chief Financial Officer David Meline said on the call.

3M didn’t discuss whether Buckley will retire Feb. 23 under a renewing contract that terminates on his 65th birthday, or have his tenure extended. Buckley said on the call that the board will announce a decision “at the appropriate time.” In December, Buckley said he would like to stay on as CEO.

‘Not the Informer’

“They are trying to figure out what is the best way forward,” he said today. “I don’t think there’s much else I can say about it because, in a sense, I’m being informed, not the informer.”

3M in May named Thulin, who was director of international operations, as chief operating officer. Analysts such as Jeff Windau of Edward Jones & Co. said then that the appointment bolstered the idea that Thulin is a likely candidate to replace Buckley.

“We’d love to see Buckley stick around for quite a while,” said Kevin Walkush, an analyst at Jensen Investment Management in Chicago, which held 2.9 million 3M shares as of September. “We like where the company is going under his leadership.”

--Editor: James Langford, 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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