By James R. Hagerty
3M Co.'s sales growth in the second quarter fell short of Wall
Street expectations amid sluggishness in China and Europe, but
profit grew 2.6% and margins improved.
Chief Executive Inge Thulin said 3M was hurt by "somewhat
softer" demand for materials used in consumer electronics, such as
adhesives and films that go into screens for computers, tablets and
phones. The company also pointed to weakness in its
renewable-energy business, which includes film for solar
panels.
The St. Paul, Minn.-based maker of adhesives, abrasives and
films reduced its forecast for full-year earnings per share to
between $7.80 and $8, down from the range of $7.80 to $8.10
predicted three months ago. In 2014, earnings per share were
$7.49.
The company, whose best-known products include Scotch tape and
Post-it Notes, said operating profit margins in the second quarter
were 23.9%, up 1.1 percentage points from the already strong year-
earlier level. Much of that improvement came from lower
raw-material costs.
The company reported strong demand for water-purification
filters, masking tape used for painting, and materials that go into
airplanes, cars and roofing shingles.
Executives spent a large chunk of a conference call defending
themselves against analysts' suggestions that they overpaid for
Capital Safety, a maker of harnesses and other fall-protection
equipment. The company agreed last month to buy Capital Safety for
$1.8 billion from KKR & Co., which paid $1.1 billion for the
business in 2011. It said the purchase will cut earnings per share
by four cents in the first 12 months of ownership and won't meet 3M
return-on-capital standards for five or six years.
Some analysts questioned why 3M didn't buy back more shares
instead of buying Capital Safety. Mr. Thulin called Capital Safety
a high-class asset that will augment 3M's line of personal-safety
gear, which also includes face masks, ear plugs and reflective
material. The company says increasingly strict worker-safety rules
around the world drive demand for such equipment.
Profit was $1.30 billion, or $2.02 per share, up from $1.27
billion, or $1.91 per share, a year earlier. Wall Street had
expected earnings of about $2 a share, according to FactSet. Sales
fell 5.5% to $7.69 billion, well below analyst forecasts of around
$7.8 billion. Organic sales, excluding currency effects and recent
acquisitions, grew just 1.8%, far below the company's long-run
target of 4% to 6%. General Electric Co., another giant industrial
conglomerate, had 5% organic growth in the latest quarter.
Organic sales grew 4.1% in the U.S. and 17% in Mexico but were
down 1% in Western Europe and 2% in China. The company supplies
adhesives and abrasives to Mexico's burgeoning auto industry.
The company had expected recovery in Western Europe as a weak
euro boosts exports. "So far we have not seen it," Mr. Thulin said.
"Probably it will come later in the year."
Write to James R. Hagerty at bob.hagerty@wsj.com
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