3M, whose products range from Scotch tape to optical films for liquid crystal displays, Friday posted a stronger-than-expected quarterlyprofit, helped by strong demand in international markets.
However, shares fell almost 4 percent in early trading as analysts cited weaker-than-expected margins and disappointing results in the company's display and graphics business.
3M , considered a bellwether for the U.S. economy, also raised its full-year profit outlook for the second consecutive quarter but lowered the high end of its forecast for sales growth.
"My initial reaction is this was a very ho-hum quarter," said Wayne Titche, chief investment officer of AMBS Investment Counsel in Grand Rapids, Michigan, and co-manager of the AHA Diversified Equity Fund.
Net income in the third quarter rose 7.4 percent to $960 million, or $1.32 a share, compared with $894 million, or $1.18 a share, in the year-earlier quarter.
Excluding one-time items, it earned $1.29 a share, 2 cents above what analysts polled by Reuters Estimates had expected.
Weak Dollar Boosted Sales
Sales rose more than 5 percent from last year to $6.18 billion, below the $6.26 billion analysts had expected. The weak U.S. dollar boosted sales by 3.1 percentage points.
Excluding recently divested businesses, sales rose 9.4 percent.
JP Morgan analyst Stephen Tusa said results in 3M's display and graphics business, which includes optical films, were weaker than expected. Margins also came in light due to heavy spending to increase capacity in some segments, he added in a research note. He has an "overweight" rating on 3M.
3M on a conference call with analysts cited competition in some liquid crystal display markets, and said price and margins in that segment will be under pressure into 2008.
Investors watch large manufacturers like 3M for clues on the strength of the U.S. economy.
The Federal Reserve Tuesday reported that U.S. industrial production rose in line with expectations, suggesting that manufacturing is stable despite a tight credit market and the slumping housing sector.
Profit Outlook Raised
St. Paul, Minnesota-based 3M raised its 2007 profit outlook to a range of $5.54 to $5.62, including a net gain of 60 to 65 cents a share for one-time items such as the sale of its branded drug business in Europe. Analysts are expecting $4.96 before one-time items.
In July the company, which also makes such products as Post-It notes and Thinsulate insulation, raised its 2007 profit forecast to a range of $5.40 to $5.60 a share.
3M also said Friday it expects 2007 sales growth in local currencies to be in the range of 7 to 8 percent. It previously forecast growth of 7 to 10 percent.
"It looks like they are executing on pretty much everything they've been focusing on," said Kent Croft, president of Croft-Leominster, a Baltimore asset management firm that owns 3M shares.
3M shares were off $3.62, or 3.8 percent, at a session low of $91.11 on the New York Stock Exchange.