3M Posts Higher Quarterly Profit, Raises Forecast
3M , whose products range from Scotch tape to optical films for liquid crystal displays, on Thursday posted a higher quarterly profit driven by strong results in the safety and security, and health care businesses.
The company, considered a bellwether for the U.S. economy, also raised its 2007 profit forecast.
"The quarter really showed the company is back on track and performance has taken off," Morningstar analyst Scott Burns said. "(Chief Executive George) Buckley needed to clean out the skeletons and I think the second quarter last year was where a lot of that happened."
Investors watch large manufacturers like 3M for clues on the strength of the U.S. economy. Last week the Federal Reserve said U.S. industrial output rose slightly more than expected in June, while the capacity use-rate at factories, mines and utilities increased to its highest level since last October.
3M said its second-quarter net income rose 4 percent to $917 million, or $1.25 a share, from $882 million, or $1.15 a share, in the year-earlier quarter.
Excluding one-time items, it earned $1.23 a share, topping analysts' average forecast of $1.18, according to Reuters Estimates.
Sales at the St. Paul, Minnesota-based company rose 8 percent to $6.14 billion, above the $6.06 billion analysts had expected.
Excluding the branded drug business it recently sold, sales rose almost 12 percent. Foreign currency translation boosted sales by 2.7 percentage points.
International sales volume in ongoing businesses rose 10 percent.
"Our growth spanned the entire company, with particularly outstanding results from our safety, security and protection services and health-care businesses," Buckley said in a statement.
"As a result of this strong first-half performance, we are raising our earnings outlook for 2007," he added.
3M raised its outlook for 2007 profit to a range of $5.40 to $5.60 a share, up from its prior forecast of $5.20 to $5.45.
Analysts were expecting $4.86.
The forecast includes a one-time gain of 60 cents to 70 cents a share, mostly due to the sale of the branded drug business.
3M expects sales in local currencies for the year, excluding the divestiture of the branded drug business, to rise 7 percent to 10 percent. It previously forecast 6 percent to 10 percent.
The company, which also makes such products as Post-It notes and Thinsulate insulation, surprised analysts and investors in April when it did not raise its full-year profit forecast despite a far-stronger-than-expected quarterly profit.
Buckley said at the time 3M was simply being conservative by waiting another quarter to draw conclusions.
"Given their level of outperformance, it was only a matter of time before they raised (the forecast)," said Longbow Securities analyst Dmitry Silversteyn, who has a "neutral" rating on the stock.
"They raised it to such a degree that it will probably allow them to do it again if third-quarter results come in strong as well, so I don't think this is necessarily the limit to where earnings can go for 2007," he said.