Three years ago, 3M Co. began preparing for the recovery of the American economy by appointing a group of executives in every product unit to focus on the U.S.
On Thursday, that work paid off as growth in the U.S. powered 3M to record sales and profits in the third quarter and led executives to raise their outlook for the rest of the year.
The company's performance helped drive a rally on Wall Street. 3M's shares rose 4.4 percent, the second-biggest gainer in the Dow Jones industrial average, following Caterpillar Inc., which rose 5 percent after strong results. The Dow climbed 1.3 percent.
3M gets about two-thirds of its revenue from outside the U.S. and Chief Executive Inge Thulin has focused on international growth since taking charge in 2012.
But after the U.S. led all regions with 6 percent revenue growth for 3M in the July-to-September period, Thulin recalled work done begun in May 2011, when he was 3M's chief operating officer, to bring more focus to its domestic operations.
"We had at that point in time very much an organization that the many functions were global versus having accountability" for the U.S., Thulin said during a conference call with analysts after the results were announced.
"We are capitalizing on the economic situation in the United States," he added. "And I believe that we also have moved our organization to a much more focused execution model in the United States. So it's both and it's broad-based."
The Maplewood-based maker of Post-it notes, Scotch tape and industrial abrasives said its profit grew 5.9 percent to $1.3 billion, or $1.98 a share, which beat analysts' average expectations by a penny. Sales grew 2.8 percent to $8.14 billion.
By product division, 3M's health care business delivered the largest gains of the quarter as demand shot up for 3M's transdermal patches, other drug delivery products and digitized medical record systems. Health care division sales rose 4.7 percent and operating income rose 1.4 percent.
3M's largest division, industrial products, saw sales rise 3 percent to $2.8 billion for the quarter amid solid demand from aerospace, transportation, filtration and automotive customers. Its operating income rose 7.9 percent. Industrial product sales in the U.S. jumped 8 percent, Nicholas Gangestad, 3M's chief financial officer, said.
Counting all products, the U.S. sales jump of 6 percent was faster than a 4.5 percent gain in the second quarter and a 2.6 percent jump in the first. "You are actually seeing acceleration," Ajay Kejriwal, analyst at FBR Capital Markets, said to 3M executives on the conference call.
Another positive change landed in 3M's formerly problematic and revamped electronics and energy business. It recorded a 3.5 percent gain to $1.5 billion amid growth in screen display materials and systems. The growth in electronics offset a 2 percent dip in energy-related products.
3M's safety and graphics business saw sales rise 1.3 percent and its consumer business rose 2 percent.
Executives said they now expect full-year earnings in a range with a midpoint of $7.45 a share, up from a prior range with a midpoint of $7.43.
The stronger U.S. economy carries one downside for the firm: the effect of the stronger dollar on its overseas revenue. "3M estimates foreign currency impacts will reduce sales by approximately 1.5 percent for the year versus a previous estimate of approximately 1 percent," the company said.
JPMorgan Chase analyst Steve Tusa told Thulin during the call, "Clearly there was some very good execution [in the quarter] against the foreign exchange and global environments out there. The margin was definitely stronger than what we were expecting."
Dee DePass • 612-673-7725
