3M looks overseas for revenue boost

3M Co. is looking less to its American back yard to power out of this recession than to improved sales in economies around the world, including benefits from a huge stimulus plan from the Chinese government.

Growth in Asia helped persuade the Maplewood-based manufacturer Thursday to raise its earnings and revenue estimates for the full year, but CEO George Buckley cautioned that high unemployment in the United States is still a roadblock to a robust recovery.

3M exceeded Wall Street's expectations in the third quarter, producing earnings per share of $1.35 compared with a $1.17 consensus estimate from analysts.

"The downturn has been a vicious lesson for all of us," Buckley said. In the third quarter, 3M's revenue dropped by 5.6 percent to $6.2 billion.

But Buckley and Patrick Campbell, chief financial officer, emphasized how the company is substantially stronger than in the first half of the year, when sales plunged by double-digit percentages.

Buckley added that he was pleasantly surprised that 3M boosted its overall sales in the third quarter by about $500 million when compared with the second quarter.

Buckley, who was skeptical of a U.S. stimulus package when it was being debated by Congress, said Thursday that very little stimulus money had filtered into the U.S. economy. However, he said, "We did see measurable impacts from stimulus money in China."

Richard Cooper, a Harvard economist, was in China in late 2008 shortly after a major stimulus plan was announced there. Before the downturn, Cooper said, China placed some big infrastructure projects on hold, because leaders were worried the economy was "overheating" or growing too rapidly.

Once the global recession hit, he said, the Chinese were able to move quickly to fund projects already planned. "In the first quarter of this year, bank credit in China just exploded," Cooper said.

The Chinese have been building roads, bridges and other public projects, and the infrastructure spending promoted strong growth in the third quarter, said Scott Anderson, a senior economist with Wells Fargo and Co.

In the United States, he said, much of the $787 billion stimulus package is yet to be spent. However, he takes a different view from Buckley. "Basically, without the stimulus package, the U.S. would still be in recession," Anderson said.

A flu fighter

3M has been a leader in making products to fight the spread of H1N1 flu, with sale of respiratory masks adding $80 million to the company's revenue in the third quarter. "Our factories have been running flat out [24/7] to keep up with demand," Campbell said, but 3M still has a backlog of orders.

The company is investing another $20 million to expand capacity for making the masks in Singapore, and Buckley expects to spend an extra $5 million to increase production in the United States.

Based on 3M's financial progress, management now expects full-year earnings of $4.50 to $4.55 per share, up from $4.10 to $4.30 in the July forecast.

Sales for the full year are now expected to be down 9.5 to 10.5 percent, better than the 10 to 13 percent sales slide projected earlier.

3M has cut thousands of jobs during the recession, but its employment picture stabilized in the third quarter, when just 200 jobs were eliminated -- most in western Europe. But don't expect 3M to go on a hiring spree as the company rebuilds sales. As it pursues growth opportunities, Buckley said, "We're going to try to do it as best we can without a lot of wholesale hiring."

Management intends to do selective hiring in areas such as e-commerce, but 3M spokeswoman Jacqueline Berry said the company hasn't spelled out where those jobs may be located.

3M's worldwide presence was a big factor in the decision of Ben Marks to buy 50,000 shares of 3M stock more than a year ago for clients of his Minnetonka-based wealth management business.

In addition to lauding 3M on Thursday for its "tight financial controls" in the third quarter, Marks said he was pleased to see the company had increased research and development spending from the second quarter.

"They are innovative and look at the markets that will experience above average growth into the foreseeable future," Marks said. He pointed to the company's desire to increase revenue by developing renewable energy and water purification products.

While Buckley previously called the first quarter the "darkest period" for 3M during the recession, he warned Thursday that the company could hit a "flat spot" late this year or early next year because there's a chance the economic recovery might plateau.

He also directly addressed uneven sales demand in regions around the world, with sales in the United States and Europe lagging Asia.

3M executives stressed that the company gained sales in all six of its business segments in the third quarter when compared with the second quarter. "We do appear to be gaining share in many places, but with such volatile swings in demand you can imagine that it's hard to know accurately how much," Buckley said.

3M stock rose 3.22 percent Thursday to close at $78.79 a share.

Liz Fedor • 612-673-7709