3M profit misses expectations

3M profit misses expectations

	Published : Wed, 31 Jan 2007 02:10 By : Agencies Print this Story

MINNEAPOLIS (AFX) - With a product lineup that includes Scotch tape, roofing granules and films for flat-panel TVs, 3M Co. does well when times are good. But when the economy gets a little soft, 3M's profits do, too.

The housing slowdown hurt 3M's business making roofing supplies and do-it-yourself products such as weather-stripping. And added competition is hurting profit in its business making films for flat-panel TVs.

Fourth-quarter sales still rose 8.4 percent to $5.78 billion, generating a $1.18 billion profit, the company said Tuesday. But while the sales beat analyst expectations, profits, excluding a one-time gain, didn't. Guidance for 2007 also fell below analysts' expectations.

Shares of 3M, a Dow component, sank $4.26, or 5.4 percent, to close at $74.70 on the New York Stock Exchange.

Chairman and Chief Executive George W. Buckley said there appears to be 'slightly moderating economic growth worldwide.'

'We absorbed these economic movements and more besides and still delivered reasonably good earnings growth for the quarter,' he said. 'Once again, it underscored our resiliency but it also emphasized the need to reinvent ourselves and shift some of our portfolio toward higher growth markets.'

He said 3M will have 10 plants open or under construction in China this year, and that last year it began construction on plants in Russia, Poland and India. 3M got 61 percent of its sales from outside the U.S. in 2006.

But the slowing housing market hurt the Maplewood-based company during the fourth quarter in businesses such as granules for shingles. Buckley said that one unit alone cost 3M a nickel a share in earnings during the second half.

'The shingle manufacturers completely missed their forecasts in the fourth quarter,' said Chief Financial Officer Pat Campbell. 'As a result, we went from producing all-out and incurring premium costs to meet excess demand early in the year to being virtually shut down in Q4.' Sales in that business dropped by almost half compared with the same quarter last year, he said.

Profit declined 21 percent to $225 million for the quarter in 3M's Display and Graphics division, which includes its key business making optical films for LCD televisions and computers. The downturn came even as sales grew 5 percent to $946 million. Campbell said demand for proprietary optical films and components slowed toward the end of December, and selling prices have been dropping, as expected. Profit margins on those films dropped compared with 2005 but have leveled off, Campbell said.

3M's earnings of $1.18 billion, or $1.57 per share, in the three months ended Dec. 31 were up 58 percent up from $746 million, or 97 cents per share, during the same period last year because 3M booked the sale of much of its pharmaceutical unit in December. Revenue rose 8.4 percent to $5.78 billion, up from $5.33 billion during the same period last year.

Taking out the gain of $354 million, or 47 cents per share, from selling the pharmaceutical business, 3M earned $1.10 per share, the low end of guidance of $1.10 to $1.16 from October. Analysts surveyed by Thomson Financial were expecting earnings per share of $1.14 for the fourth quarter.

3M said it would earn $5.20 to $5.45 a share for 2007, including a gain of 60 cents to 70 cents per share for the sale of its pharmaceutical unit in Europe and 21 cents per share for accounting for stock options. Excluding one-time items, 3M said it expects to earn $4.60 to $4.75 per share. Analysts were expecting $4.99 per share.

For the full year, 3M said it earned $3.85 billion, or $5.06 per share, up from $3.11 billion, or $3.98 per share, during the same period last year. Full-year revenue of $22.92 billion was up 8 percent from $21.17 billion a year ago.

Merrill Lynch analyst John Inch wrote in a note that the weak Display and Graphics profit 'potentially advances the case for selling this business. ... We think that George Buckley could be prompted to take other more decisive actions.'

Buckley downplayed that idea, though.

He said 3M's optical business has an 'incredibly woven infrastructure' inside 3M and wouldn't easily be spun off. And he said that business has been spawning other ideas that should provide future growth, 'so I am going to be very careful not to want to kill the golden goose too quickly.'