A softened electronics market, along with ongoing negative currency exchanges, hurt 3M Co.'s first-quarter results.
The Maplewood-based company managed to boost profits by 6 percent and beat Wall Street expectations, but sales dropped 2 percent to $7.4 billion.
Consumer electronics sales declined 18 percent, and CEO Inge Thulin said the electronics market would be soft for the rest of the year.
Thulin told analysts during a conference call Tuesday that 3M will eliminate 250 jobs from its global electronics division and take a $20 million charge.
The electronics/energy and industrial units saw sales fall 11.7 percent and 1.9 percent, respectively. The gains in the other three units — health care, consumer and safety/graphics — were not enough to offset the losses in the other two divisions.
Troubles in both sectors were anticipated by analysts, who noted slowdowns in industrial segments in China, Brazil and parts of Europe. As for electronics/energy, 3M warned in January that fourth-quarter woes might continue into the first quarter.
The accelerated electronics sales decline could signal the heyday may be over for 3M's once hot-selling cellphone, computer and TV screen-brightening films. 3M's consumer-electronic sales dips were particularly notable in China and Japan during the quarter that ended in March, said Chief Financial Officer Nick Gangestad.
Goldman Sachs equity research analyst Joe Ritchie said the electronics downturn "was the biggest surprise for the quarter from our perspective." He noted that 3M is expecting "slower smartphone shipments near term" and wondered if 3M might re-evaluate the segment long term.
Edward Jones analyst Matt Arnold noted that "both 3M and DuPont posted sizable declines in their businesses that supply inputs to the consumer electronics market today. While most consumer-facing markets were strong for 3M, especially health care, electronics were very challenging."
Thulin said softened demand for consumer electronics was only a "near term" problem. "In terms of the portfolio, this is a very, very good business for us because we have all the components for us to be competitive in this marketplace," Thulin said.
Even with lackluster demand in electronics and industrials, overall results beat Wall Street expectations. On average, analysts expected 3M to earn $1.92 per share and post revenue of $7.33 billion.
The maker of Scotch tape, respirators, Post-it notes and cellphone screen-brighteners reported that profits rose to $1.28 billion, or $2.05 per share, during the quarter. Per-share results included a 10-cent benefit from the adoption of a new accounting standard.
Officials attributed the quarter's sales decline mostly to the ongoing impact of the strong U.S. dollar and to a sudden 18 percent decline in 3M's consumer electronics business. It was the second consecutive quarter in which consumer electronic sales lagged.
While total sales fell 2.2 percent during the quarter, 3M's operating income margins rose 1.3 percentage points to 24 percent. Helping 3M were efforts that cut 5 percent from sales and administrative expenses. The cuts included the elimination of 1,500 jobs announced late last year. Raw material costs also declined during the quarter.
3M maintained its outlook for full 2016. Officials said they still expect "same currency" 2016 sales to rise 1 to 3 percent and for earnings to rise 7 to 10 percent to $8.10 to $8.45 per share. Negative currency exchange rates prompted by the high U.S. dollar are expected to tamp down sales by 1 to 3 percent.
3M's stock fell $2.20 to close at $166.18 Tuesday.
Arnold at Edward Jones said investors were displeased that 3M did not raise its full-year guidance. The stock decline was noticeable since 3M's stock had returned to trading close to its 52-week-high of $170 a share. It sank as low as $134 a share in January as investors digested the news that 3M is wrestling with the same issues as other multinationals, namely the high U.S. dollar, negative currency exchange rates, and economic slowdowns in China, Canada, Brazil, and parts of Europe.
Jim Corridore, equity analyst with S&P Global Market Intelligence, said 3M's sales were "weak" and trimmed his earnings-per-share forecast but boosted his stock estimate to $175 a share for 2016. In a note to investors, he said the change is "reflecting our view of quality of earnings per share, strong management and strong performance in a tough economic climate."
Dee DePass • (612) 673-7725
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