3M 2nd-quarter profit slips but tops Street

ST. PAUL, Minn. - Manufacturing conglomerate 3M Co. said Thursday its second-quarter profit fell 17 percent as the global recession cut sales to car makers, but results still beat analyst estimates.

The Dow Jones industrial average component, which makes products ranging from Scotch tape to Post-it Notes, raised its full-year sales and earnings forecasts, and shares rose in Thursday trading.

Strong TV purchases in Asia boosted demand for 3M's LCD television films, and swine flu lifted sales of its respiratory products. Also during the quarter, retailers started restocking for back-to-school sales and replenished their warehouses.

But CEO George W. Buckley warned that scattered economic improvements could simply comprise a "false dawn," not a sustainable return to recent boom times.

Indeed, any eventual economic rebound in some industries, notably home building, will probably be at a level well below their recent peak, he said in a conference call.

The Maplewood, Minn.-based company said net income attributable to common shareholders for the three months ended in June slipped to $783 million, or $1.12 per share, from $945 million, or $1.33 per share, in the same period a year earlier.

Excluding special items, the company recorded profit of $843 million or $1.20 per share. Analysts polled by Thomson Reuters expected, on average, 94 cents per share. Analyst estimates typically exclude special items.

Revenue fell 15 percent to $5.72 billion from $6.74 billion, better than Wall Street's expectation of $5.41 billion.

3M increased its 2009 profit outlook to a range of $4.10 to $4.30 per share, excluding special items, from a previous range of $3.90 to $4.30. Analysts expect profit of $3.97 per share.

The company now anticipates a sales decline of 10 percent to 13 percent from last year, compared with its previous forecast for a decline of 11 percent to 15 percent. The improved guidance implies revenue of $22.52 billion to $22.77 billion. Analysts expect $21.75 billion.

Operating expenses in the second quarter declined 14.4 percent as the company reduced its payroll by about 1,600 employees, including about 700 through early retirements. While a smaller number of layoffs are set for this quarter, some of the positions vacated by early retirees also will be filled, said Chief Financial Officer Patrick D. Campbell.

Sales to car makers dropped 28 percent from the year-earlier level, but they climbed more than 20 percent over the January-through-March level.

3M supplies car makers with products for all major vehicle parts, including sealants, insulation, film, adhesives, coatings, tapes, filters, insulation, lights, clips, foam, nameplates and labels.

Sales of respiratory products used to prevent the spread of swine flu increased in the second quarter, as did sales of materials for traffic signs and roadway lane markings.

The results impressed analysts.

"In stark contract to competition, 3M has posted an increase in revenues and profits in its healthcare business," said Frost and Sullivan analyst Dilip Sarangan. "The move to increase its forecast for the year signals the market that the worst of the recession may be over and the company is in great position to outperform competition."

Deutsche Bank analyst David Begleiter reiterated his "Buy" rating, citing 3M's strong balance sheet and relatively low share price.

Shares rose $4.76, or 7.4 percent, to close at $69.43 Thursday. In the last 52 weeks, shares have ranged from $40.87 to $74.71.

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