Recession still grips 3M

3M Co. executives on Friday painted a bleak picture of the global economy over the next few months, but they also expressed optimism that recovery signs will emerge in the second half of the year.

CEO George Buckley told Wall Street analysts that he thinks the "U.S. economy will bottom somewhere between the end of the second quarter and the end of the third quarter."

The Maplewood-based company, which generates two-thirds of its revenue outside the United States and has operations in more than 60 countries, envisions an uneven recovery to the global recession.

"Asia, with the exception of Japan, should actually help lead us out of the recession," said Buckley, who noted 3M is a "good bellwether of what is happening to the economy on a real-time basis." He forecast that Europe will lag the U.S. recovery by one or two quarters.

But Buckley and fellow 3M executives are girding themselves for more bad news before the brutal effects of the global recession start to subside.

3M lowered estimates -- again -- for both its total revenue and profit for the year. Sales, excluding those from acquisitions, are now estimated to drop by 11 to 15 percent in 2009. In January, 3M expected 2009 sales would fall by 5 to 9 percent.

The company was projecting earnings per share of $4.30 to $4.70 for 2009, but on Friday it lowered that forecast to $3.90 to $4.30.

It also is getting ready to further shrink its workforce.

About 4,700 jobs have been cut from 3M's global workforce since the second quarter of 2008.

Patrick Campbell, 3M's chief financial officer, indicated there will be additional job cuts this year, but said the "size and scope" of those reductions are still being discussed.

In early April, 3M offered early retirement packages to 3,600 employees, or 11 percent of the U.S.-based workforce. Executives haven't said how many employees they expect will volunteer for early retirement in the United States.

But Buckley said that more job cuts are coming in overseas operations. Although he didn't specify a number, Buckley said that 3M will do "further restructuring principally in Asia and western Europe."

China's stimulus boost

In surveying the economic landscape, Buckley said three key factors are delaying a recovery -- growing unemployment, low product demand and the lack of credit for some businesses.

He contends the stimulus bill signed into law by President Obama will have a limited effect on the economy in the United States. But he added that a stimulus package in China is beginning to "get traction."

3M reported total sales for the first quarter fell 21.3 percent to $5.1 billion, which was worse than the company's projection. Net income declined by 43 percent to $563 million.

Merrill Lynch analyst John Inch categorized 3M's quarterly results Friday as "exceptionally weak." He wrote in a research report that the company's performance has been volatile in recent quarters and could change quickly because it is "a short cycle manufacturer of consumable products."

3M's earnings per share of 74 cents for the first quarter missed analysts' expectations by a wide mark. Analysts expected earnings of 86 cents a share. Excluding special items, 3M recorded earnings of 81 cents a share.

Morgan Stanley analyst Scott Davis, while noting 3M's huge revenue drop during the quarter, said the company exceeded expectations in reducing costs and restructuring the business.

The stock "should outperform peers from here due to its earlier cycle recovery prospects," he wrote in a research report.

On Friday, 3M stock closed at $57, up $2.79 or 5.15 percent, on a day in which the overall market closed higher. The Dow Jones industrial average, of which 3M is a part, rose 1.5 percent to 8076.

About one-third of the quarter's revenue drop was attributed to foreign exchange rates because of the strong dollar. Among its six business units though, the financial pain was not distributed equally. In particular, 3M's sales were pummeled by weaknesses in the auto, consumer electronics and industrial manufacturing sectors. For example, the North American auto industry's production was cut in half during the quarter, which depressed 3M's auto product sales.

Health care was a far more stable business, with sales falling just 8 percent to $997 million. 3M makes everything from catheter dressings to an array of dental products.