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3M Operating Earnings Rise; Overseas Sales Strong

Diversified manufacturer 3M reported higher operating earnings Tuesday as the industrial and consumer bellwether saw growth in its health-care and international businesses.

Sales in 3M's international operations climbed 10 percent last year and made up 63 percent of total sales, the highest level in the company's history.

"We see slowing growth, but (3M) is still growing, especially internationally." said Adam Fleck, an analyst with investment firm Morningstar. "International will continue to be an important driver for the company."

Indeed, the company which sells its Scotch-Brite cleaning products in more than 80 countries, said international sales would increase to 65 percent of total sales this year.

But worries about the company's ability to grow as the U.S. economic slowdown cuts business and consumer spending weighed on shares. The stock swung between gains and losses in early trading on the New York Stock Exchange and were 0.5 percent higher in late morning trade at $77.85.

"They're being negatively impacted by a slowdown in the domestic economy," said Thomas Leritz, a fund manager for Argent Capital Management in Clayton, Missouri. He said his firm wouldn't buy shares until it saw better organic sales growth, among other improvements.

Excluding one-time items, the maker of products such as Scotch tape, Post-It notes and optical films for liquid crystal displays earned $1.19 per share, up from $1.04 a year earlier.

Analysts surveyed by Reuters Estimates had expected the St. Paul, Minnesota, company to earn $1.17 per share before special items.

Net earnings fell to $851 million, or $1.17 per share, from $1.18 billion, or $1.57 per share, a year earlier. The net figures include a loss from special items in the 2007 quarter, and a gain from the sale of 3M's pharmaceuticals business in the 2006 quarter.

Fourth-quarter sales rose 7.3 percent to $6.2 billion. Analysts' average forecast was $6.12 billion.

Outlook

3M, which also makes Scotchgard fabric spray, computer privacy filters and industrial abrasives, said it expects 2008 earnings to rise at least 10 percent from 2007's $4.98 per share.

A 10 percent increase would mean earnings of $5.48 per share. Analysts' average forecast is $5.43.

Easing commodities prices, such as copper and wood pulp, are among factors that will help improve margins this year, the company said.

"That was encouraging," said Argent Capital's Leritz.

Shares of 3M have slumped almost 14 percent over the past six months as investors worry that the slowing U.S. economy will hurt demand for the company's consumer and industrial products.

The stock is selling for about 12.9 times earnings, its lowest level since 1998, according to Leritz.

"The stock is very inexpensive," he said. "The positive (for 3M) is valuation and the negative is lack of execution."

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