News Column

Investors Send 3M to Historic High

January 25, 2013

Dee DePass

3M Co. stock reached another all-time high Thursday as its fourth-quarter profit met Wall Street's expectations and sales were robust overseas. Sales in Asia, excluding Japan, jumped 10 percent, best quarterly growth in nearly two years. Most of the gain was driven by China, where quarterly sales were up 16 percent.

"For the base business we see a recovery coming, and we feel optimistic about that," Inge Thulin, 3M's chief executive officer, said on the conference call about China.

Investors applauded the news, pushing the stock to a new high of $99.80 a share in early trading Thursday. Shares are up more than 16 percent for the year and closed Thursday at $99.67.

Asia, which unexpectedly became a drag for U.S. companies as growth slowed last year, may help boost sales in 2013 and make up for a recession-plagued Western Europe. 3M, similar to many large U.S. companies, has invested heavily in China and other Asian economies to make up for growth that's lagged behind developed countries.

The Maplewood-based maker of Scotch tape, Post-it Notes, LCD films for TV, laptop and cellphone screens also benefited during the quarter from price increases, lower raw material costs and a pick-up in U.S. holiday consumer sales. Customers also bought up health care supplies in advance of the new medical device tax that takes effect this year.

"Our people executed well in the face of challenging macro-economic conditions and we have built good momentum [into] 2013," Thulin told analysts Thursday.

3M's stock has been gaining momentum in recent days in anticipation of quarterly earnings results. Analysts said investors were impressed that 3M recently reset earnings expectations to more reasonable levels. In October, 3M dialed back its 2012 guidance, noting that the economy in Europe and Asia had slowed. And last month, officials issued guidance for 2013 that failed to meet the midpoint of analysts' average expectations. Still, many analysts believe 3M could benefit from the weakening U.S. dollar, which typically makes prices of U.S. products cheaper abroad.

For the quarter, total net income grew 3 percent to $1.004 billion or $1.41 per share, which was in line with analysts' consensus estimates. Fourth-quarter sales rose 4.2 percent to $7.4 billion.

Product sales in the consumer and office division, the display and graphics unit and its health care business proved robust, ranging from 8.7 percent to 5.9 percent. The electro and communications division's sales rose 1.8 percent.

Overall, "it was a very good organic-growth quarter," said Ajay Kejriwal, research analyst with FBR Capital Markets. "On the consumer business ... you had really good top-line growth."

3M's largest division, industrial and transportation, grew 3.9 percent to $2.5 billion thanks to strong demand for tapes, abrasives, and automotive, filtration, and aerospace products. 3M's recent purchase of California-based advanced ceramics maker Ceradyne added 1.2 percent to industrial sales.

While quarterly results were strong, Thulin noted that 3M's consumer electronics unit is expected to be weak during the first quarter, but should begin turning around by the end of the second quarter. Sales in Japan have also been tepid and officials are accessing the market.

3M is also working to resolve other "challenging business issues," Thulin said, noting that 3M is combining its struggling security systems division with its traffic safety systems unit.

Thulin said 3M announced last week that it will cut 300 positions worldwide and take an $8 million charge as it works to merge operations and boost efficiencies and sales. "In recent times these businesses have not performed to the standards we expect. We are addressing these issues head on," Thulin said.

He noted that government spending for security "has decreased over the last few years and those same factors have also affected our traffic safety systems business. In the big picture, bringing these two businesses together creates an opportunity to optimize the overall business and increase efficiency."

3M ended the year with $29.9 billion in sales, up 1 percent. Earnings rose 3.5 percent to $4.4 billion, or $6.32 per share. 3M affirmed its 2013 guidance Thursday, saying that earnings should reach $6.70 to $6.95 a share.

Steve Winoker, senior research analyst at Sanford C. Bernstein, questioned if 3M was being too conservative in giving such a modest sales forecast. After all, 3M "just did 4 percent," he said.

Thulin and Chief Financial Officer David Meline said they were comfortable with their 2 to 5 percent sales forecast. They added that they were optimistic but cautious given lingering global economic uncertainties.


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Source: (c) 2013 Star Tribune (Minneapolis). Distributed by MCT Information Services


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