Saying it has "tremendous momentum" heading into a likely slowdown in the global economic recovery, 3M Co. on Thursday reported an 18 percent revenue gain for the second quarter, fueled largely by strong sales in emerging markets like China, India and Latin America and increased demand for consumer electronics. Profits jumped 43 percent to $1.1 billion, the highest ever for the Maplewood-based giant's second quarter.
For the third consecutive quarter, 3M boosted its sales and earnings forecast for 2010 and noted profit margins will be the highest since 2007.
3M's positive news echoes other gains this week in the industrial sector. Last week, General Electric reported its first quarterly earnings increase since 2007. On Thursday, Caterpillar Inc. and AT&T Inc. both reported strong earnings gains that topped analysts' projections. All four companies are components of the Dow Jones industrial average, which rose nearly 2 percent to 10,322.30. All but two of the index's 30 companies saw their stock prices rise Thursday, including 3M, whose shares increased almost 3 percent to close at $84.75.
In a conference call with analysts, CEO George Buckley said 3M anticipates some slowdown in the economic rebound later this year but doesn't believe it signals another widespread downturn. "This isn't a double-dip per se, it's just a soft spot and very normal as economic growth takes a breather for a while," he said.
Even so, Buckley said 3M's rate of growth already has outpaced the broader economic recovery for more than a year, a trend that the company expects will continue. "Companies that can innovate can beat this trap" of being tied to economic cycles, he said. 3M boosted its research and development spending by 13 percent in the second quarter, with R&D investments totaling more than $690 million through the first half of this year.
Revenue for the quarter ended June 30 totaled $6.73 billion, near the top end of a range projected by the company last month. Earnings per share of $1.54 topped the $1.47 projected by analysts.
For the full year, the company now expects organic sales, which don't include price increases, currency effects or contributions from recent acquisitions, to grow 13 to 15 percent, vs. a previous estimate of 10 to 12 percent. Earnings per share should fall in a range of $5.65 to $5.80, up from an earlier projection of $5.40 to $5.60 and up significantly from the $4.52 a share posted in 2009.
In an interview, Nicholas Heymann, an analyst at Sterne, Agee & Leach in New York, said 3M's ability to develop new products and grab market share in fast-growing emerging economies debunk any notion that the company has simply been benefiting from customers restocking inventories. "This has been a deliberate strategy and it's definitely working," he said.
Although 3M may be known mostly for making Scotch tape and Post-it Notes, some of its fastest-growing sales are coming from products tied to the exploding consumer electronics market. Its electro and communications unit posted a 32 percent sales increase in the second quarter. The display and graphics unit, whose products include films for LED backlit televisions, computers and cell phones, reported a 29 percent sales gain.
The industrial and transportation segment, the company's largest, reported a 23 percent sales increase, with the Asia-Pacific region posting the strongest sales and profit growth. The health care unit had the smallest sales increase in the quarter, 6 percent; company officials said the smaller gain was due partly to a falloff in sales of products related to the H1N1 virus.
Asia also had the largest overall sales gains for 3M in the second quarter, with organic sales rising 38 percent. Organic sales increased 9 percent in the U.S., 17 percent in Latin America and Canada, 11 percent in the region that includes Europe, the Middle East and Africa.
Susan Feyder • 612-673-1723
