3M Co. (MMM:US), the maker of products from Scotch tape to auto insulation, reported first-quarter earnings that trailed analysts’ estimates as demand from Latin America slowed and foreign currencies weakened.
Net income rose 6.9 percent to $1.21 billion, or $1.79 a share, from $1.13 billion, or $1.61, the St. Paul, Minnesota-based company said today in a statement. The average estimate was for adjusted earnings per share of $1.80, according to data compiled by Bloomberg.
Emerging markets such as Latin America that were booming on the back of strong growth in China have cooled as demand for commodities has slowed and the U.S. Federal Reserve has pulled back on stimulus, said Nick Heymann, a William Blair & Co. analyst in New York. The slowdown in emerging markets probably will last through this year, he said in a telephone interview.
“There was no natural flow coming through from the economies around the world,” said Heymann, who rates 3M shares market perform. “China is dragging on the rest of emerging markets.”
Large developing nations, including Brazil and India, are struggling with currency depreciation and lower growth as interest rates rise to quell inflation. India’s central bank has raised its benchmark rate 0.75 percentage point since September and Brazil’s economy is expected to expand 1.8 percent, down from 2.3 percent last year.
3M gets about 35 percent of its revenue (MMM:US) from emerging markets, Heymann said.
The company’s shares (MMM:US) fell 1.2 percent to $136.29 at 11:14 a.m. in New York. They had slid 1.6 percent this year through yesterday, as the Standard & Poor’s 500 Index rose 1.5 percent.
3M’s sales rose 2.6 percent to $7.83 billion, trailing the average analyst estimate of $7.96 billion. Revenue declined 4.7 percent in the region that includes Latin America and Canada as volume slowed to 0.4 percent growth and currency depreciation outstripped a 6.4 percent increase in prices. Without the effect of foreign currency translation, total sales would have risen 4.6 percent.
Revenue rose 0.2 percent to $1.08 billion for the consumer unit and rose 4.8 percent to $1.37 billion for the health-care business. Industrial, the company’s largest unit, had sales of $2.78 billion, a 3.1 percent increase. Heymann said sales at all of 3M’s units were lower than his estimates.
Chief Executive Officer Inge Thulin, who took the helm in February 2012, said in December that 3M planned to use its cash more aggressively to grow and attract investors. He boosted the dividend 35 percent and said the company would borrow more to repurchase as much as $22 billion of shares over five years and spend $10 billion on acquisitions.
3M also is increasing its research and development budget and focusing on expanding businesses in health care and aerospace, while paring underperforming units. 3M is working with Goldman Sachs Group Inc. to sell portions of its electronics business, Bloomberg reported in February.
The company today reaffirmed its 2014 earnings per share forecast of $7.30 to $7.55 and sales growth excluding acquisitions of 3 percent to 6 percent.
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