The Rising Influence of Rising Affluence

[DewDiligence]

3M Shares Fall on 2Q11 Earnings Report

[As previously noted on this board, investors expect a lot from 3M, so the stock sometimes gets hammered when 3M merely has an ok quarter rather than a great one. Such was the case on Tuesday, when the share price fell 5.4% despite the company’s reporting higher YoY earnings and record quarterly sales. 3M raised 2011 non-GAAP EPS guidance (excluding $0.22 of pension-related cost, but including a $0.07 hit from the Japanese earthquake) to $6.32-6.47 from the old range of $6.27-6.47.]

http://online.wsj.com/article/SB10001424053111903591104576469780606773692.html

›JULY 26, 2011, 12:06 P.M. ET
By JAMES R. HAGERTY

3M Co. said Tuesday it expects one of its biggest businesses, providing films used in flat-screen television sets, to remain weak in this year's second half.

Reporting its second-quarter results, the St. Paul, Minn.-based conglomerate said falling sales in that area were a drag. Earnings for the quarter were up a modest 3.5%, and sales growth, excluding acquisitions and currency effects, fell short of the company's goals.

"We think the optical business [including films used in TV sets] is going to struggle in the second half," David Meline, 3M's chief financial officer, told analysts on a conference call.

3M makes film used to enhance the brightness of liquid crystal display, or LCD, screens. As retail prices of TV sets have dropped, makers of those sets have pressured 3M and other suppliers to slash their prices. In some cases, set makers have stopped using the type of film 3M makes as a way to cut costs. Partly as a result of these pressures, operating income in 3M's display and graphics division was down 28% from a year earlier to $222 million.

George Buckley, 3M's chief executive, said the market for TV sets may be dividing more starkly into higher-end and lower-end equipment and that 3M should be able to sell its films to makers of the higher-quality sets. He added that 3M has continued to do well in selling optical films used in tablet computers and mobile phones.

A weaker economy also held back sales for 3M, whose vast array of products includes Scotch tape, Post-it Notes, medical and dental supplies, and materials used in making cars, semiconductors, batteries and solar panels. Mr. Buckley said he expected economic growth to "re-accelerate" in the U.S. and Europe after the recent slowing, though he didn't foresee "a huge growth spurt."

3M's earnings in the second quarter totaled $1.16 billion, or $1.60 a share, up from $1.12 billion, or $1.54 per share, a year earlier. Sales grew 14% to $7.68 billion. [Note the disparity between this 14% figure and the 4% “organic growth” cited below; the 10% difference consisted of 6% from acquisitions and 4% from currency.]

The company said disruptions caused by Japan's earthquake in March hurt quarterly earnings by seven cents a share. But it said the rebuilding of Japan would spur demand for many of its products, including films used on windows to reduce energy costs.

3M reported that "organic" sales growth—which excludes the effects of recent acquisitions, price changes and currency fluctuations—was 4% in the latest quarter. Mr. Buckley set a goal of raising organic growth to an average of 7% to 8% from the past norm of around 4%. During the conference call, Mr. Buckley said he hadn't changed that goal "one iota." For the full year, 3M forecast organic growth of 6% to 7.5%.‹