The Global Demographic Tailwind

[DewDiligence]

3M Shoots Past 2Q09 Estimates

[The share price shares rose 10% on the week, spurred by the company’s raising 2009 EPS guidance. Considering that MMM is one of the world’s great companies and it stands to be a beneficiary of the global demographic tailwind, the valuation strikes me as reasonable in spite of the 66% rise in the share price since early March.]

http://finance.yahoo.com/news/3M-shoots-past-estimates-but-rb-1368342890.html?x=0&.v=3

›Thursday July 23, 2009, 12:07 pm EDT
By Scott Malone and Nick Zieminski

BOSTON/NEW YORK (Reuters) - Diversified U.S. manufacturer 3M Co (NYSE: MMM ) handily beat Wall Street expectations, helped by strong demand for its respiratory masks that are being snapped up by people afraid of the swine flu.

Shares of the blue-chip industrial surged nearly 6 percent on Thursday to their highest point since September and lifted the Dow Jones industrial average, even as 3M management stayed cautious about the economy's direction.

"The green shoots are certainly there, we admit that. We just want to be sure that they aren't weeds," Chairman and Chief Executive George Buckley told analysts.

3M, which also reported strong demand for its optical films used in flat-panel televisions, expects the U.S. economy to hit bottom during the ongoing third quarter, Buckley added.

The company raised its revenue forecast for the year and lifted the low end of its profit forecast. 3M management said its beat was due to aggressive cost-chopping, including some 1,600 job cuts worldwide in the quarter.

"This management is proving they're fairly capable at the switch. Very good cash management, decent forecasting of what's going on in their businesses," said Daniel Ortwerth, analyst at Edward Jones in St. Louis, who covers 3M. "It seems they have a pretty good handle on what's happening out there and how to manage it."

Across the industrial sector, CEOs have had a laser focus on costs this year, though that will not guarantee they top Wall Street expectations.

…Industrials are suffering pretty much across the board and it is too early to justify added investment in the sector, said Eric Schoenstein, principal at Jensen Investment Management in Portland, Oregon, which owns shares of 3M, Emerson Electric Co, United Tech and Danaher.

The U.S. economy still faces rising unemployment, a deteriorating commercial real estate sector, and ongoing credit problems, though the pace of declines has slowed.

"I don't know how you look at any part of '09 as any kind of recovery," Schoenstein said. A key theme for investors is what the "new normal" will look like, with slower long-term growth appearing increasingly likely, he added.

3M STILL CAUTIOUS

Despite better-than-expected results, St. Paul, Minnesota-based 3M kept a cautious tone on the economy. Management raised its revenue forecast for the year and hiked the low end of its profit forecast, but still expects double-digit percentage declines in sales and earnings.

The company, which also makes Scotch tape and medical products, expects annual sales from continuing businesses to drop by 10 percent to 13 percent, a more modest decline than its prior forecast for a fall of 11 percent to 15 percent.

It now looks for 2009 profit of $4.10 to $4.30 per share, raising the low end of its forecast from $3.90.

Second-quarter net income fell to $783 million, or $1.12 per share, from $945 million, or $1.33 per share, a year earlier. Factoring out one-time items, the company earned $1.20 per share, while analysts looked for 94 cents per share.

"The beat was across the board vs our model, with very few items to pick at. Even subtracting special items, this was an across-the-board beat," JP Morgan analyst Steve Tusa wrote in a note to clients on 3M. "Expectations were high going in, but we think this is enough, especially relative to others."‹