MMM 3M Company

By Bob Tita 

3M Co. trimmed its sales outlook for the year, as the company topped second-quarter profit expectations despite continued falling sales in its struggling electronics and energy business.

The company, whose thousands of consumer and industrial products include Post-it Notes, Scotch tape and Ace bandages, reported slightly lower sales in during the quarter. 3M said it now expects organic sales -- which don't include revenue from business acquisitions or currency translations -- to be flat to up 1% this year. The company had previously forecast sales growth of 1% to 3%.

The company attributed the lowered sales outlook to sluggish markets for its products -- particularly in electronics -- and weak economies in key geographic regions, especially Asia and Latin America

The reduced sales outlook ratchets up the pressure on the St. Paul, Minn., company to extract high profit margins from its businesses to meet profit expectations. On Tuesday, the company narrowed its profit forecast for 2016 to a range of $8.15 to $8.30 a share from $8.10 and $8.45 a share previously.

3M reported profit margin gains in most of its five business groups with the electronics and energy unit being the biggest laggard. The operating margin from the electronics unit, which accounts for about 15% of sales, slipped 2 percentage points from last year to 19.3%. The business supplies components used in cellphones, computers and other consumer electronics gadgets. The company said electronics-related sales dropped 14% during the second quarter amid weak markets for consumer electronics. Meanwhile, sales of energy-related components dropped 2% because of lower sales to the telecommunications industry. Operating profit from the electronics business dropped 18%.

Earlier in the year, 3M predicted the electronics and energy business would improve as year progressed. But Chief Financial Officer Nicholas Gangestad said during a conference call, "We expect these challenges to persist. We will continue to see declines in our electronics and energy business."

Solid gains in other 3M businesses offset the weakness in the electronics unit. The health-care business logged a 3% increase in sales and a 4.3% in operating income. Sales from the safety and graphics unit, which supplies granules for roofing shingles and reflective materials, grew 4.7% as operating profit grew 12.8%.

3M said it doesn't expect the recent Brexit vote in Britain to have a significant effect on the company's performance, noting the U.K. accounts for about 3% of the company's sales.

Over all for the quarter, 3M reported a profit of $1.29 billion, or $2.08 a share, compared with $1.3 billion, or $2.02 a share, a year earlier. Analysts expected $2.02 a share. Total sales from the quarter edged down 0.3% to $7.66 billion, while analysts were expecting $7.71 billion.

Joshua Jamerson contributed to this article

Write to Bob Tita at robert.tita@wsj.com

(END) Dow Jones Newswires

July 26, 2016 11:08 ET (15:08 GMT)

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