HomeMy WebLinkAbout2016 07-27 3M beats profit expectations for 2Q but misses on revenue STAR TRIBUNE7/27/2016
3M beats profit expectations for 2Q but misses on revenue - StarTribune.com
BUSINESS
3M beats profit expectations for 2Q but
misses on revenue
Earnings per share hit record, while sales sag in electronics/energy
and industrial.
By Dee DePass (http://www.startribune.com/dee-depass/10644746/) Star Tribune
JULY 26, 2016 — 8:16PM
For a second consecutive quarter, 3M Co.'s electronics and industrial businesses proved
a thorn in its side, prompting the company to downgrade profit expectations for the
year even as it reported record earnings per share for the quarter.
Second-quarter sales and profits both saw slight dips, mostly because of negative
exchange rates and continued weakness in 3M's consumer electronics/energy and large
industrial businesses.
The electronics/energy business "continues to be impacted by weaker demand and
elevated channel inventories in the consumer electronics market," CEO Inge Thulin told
analysts during a morning conference call. "We'll [be] waiting until sometime in 2017 to
see a change in consumer electronics."
In the meantime, the Maplewood -based maker of Post -it notes, Scotch tape, sealants and
more is focused on boosting sales in other businesses and on controlling costs by
boosting efficiencies. With its relatively new "business transformation" strategy, 3M
expects global service centers and streamlined practices to save $500 million to $700
million in annual operating costs by 2020, Thulin said.
3M's highest sales growth in April, May and June came from its health care unit, which
grew 4.9 percent. Consumer business revenue grew 2.7 percent. Safety/graphics rose 2.3
percent. In contrast, industrial fell 1.4 percent and electronics/energy plunged 9.1
percent.
3M's stock fell 2 percent, or $1.97 per share, to close Tuesday at $177.66. Some analysts
said they were not terribly concerned about the quarter's shortcomings because of 3M's
diverse portfolio, solid profit margins and because it continued to do better than
industry peers.
"Revenues were slightly lower than we expected, but we think 3M did a good job
expanding operating margins," said S&P Global Market analyst Jim Corridore.
Earnings fell 0.6 percent to $1.29 billion, or $2.08 per share, a penny higher than what
Wall Street analysts expected, on average. Sales slid 0.3 percent to $7.66 billion, which
was lower than the $7.71 billion consensus forecast by analysts.
The effect of foreign currency translations reduced total sales by 1.5 percent and offset
gains seen from acquisitions, company officials said.
Edward Jones research analyst Matt Arnold said that the quarter overall had "no real
surprises."
"The company continued to demonstrate solid execution in a challenging economic
environment," he said. "While the reduced sales outlook is slightly disappointing, we
believe it is reflective of the economic environment where growth remains elusive, and
not anything within 3M's control."
Arnold maintained his "buy" rating on the stock, noting that 3M's diverse product
portfolio helps it "deliver more resilient earnings growth than industrial peers, with
health care and consumer exposure serving as a nice buffer to weakness in the industrial
economy."
For example, Caterpillar on Tuesday reported that its second-quarter revenue fell 16
percent and downgraded its outlook for the year.
Thulin told analysts that he was generally pleased with 3M's second-quarter results. 3M's
team controlled the controllable during an "uncertain" global environment, he said.
(http://stmedia.startribune.com/images/1mmmO9O5.jpg)
MATT ROURKE, ASSOCIATED PRESS -AP
3M's net profit and sales fell slightly in the April
(http://stmedia.startribune.com/images/ows_1364435
This photo provided by the 3M Co., shows newly
elected 3M president and CEO, Inge Thulin. 3M
announced Wednesday, Feb. 8, 2012, that Inge...
http://www.startri bune.com/3m-beats-profit-expectati ons-for-2q-but-misses-orrrevenue/388252162/ 1/2
7/27/2016 3M beats profit expectations for 2Q but misses on revenue - StarTribune.com
"We delivered another strong performance in the second quarter, marked by our highest
quarterly earnings per share in 3M history, driven by increased margins," he said. "At the
same time, we were active in deploying capital."
3M invested about 10 percent of its sales into research and development and capital
expenditures during the quarter and plans to invest $1.3 billion to $1.5 billion in capital
expenditures this year.
While analysts were encouraged by the investments, they peppered officials with
questions about 3M's electronics/energy business and when it was expected to improve.
Electronics sales alone plunged 14 percent during the quarter due to declines in
electronics materials solutions and display systems, officials explained. Energy-related
sales fell 2 percent as sales growth in telecom was offset by declines in electrical markets
and renewable energy.
Beyond electronics and energy, companywide results benefited from boosted orders for
roofing granules and safety/graphic commercial solutions. Health care sales grew across
all product segments, especially in Latin America and Asia. 3M's consumer business was
helped by strong sales of painters' tape, home improvement and consumer health care
products. Officials said the back -to -school season was off to a good start, with help from
3M's Command and Post -it products.
Companywide, Latin America, Canada and western Europe operations performed
particularly well during the quarter. U.S. sales, however, grew just 0.4 percent, while
sales from Asia Pacific fell 5.4 percent, mainly due to lackluster demand in electronics
and industrials.
3M narrowed its profit guidance for the year and now expects 2016 earnings of $8.15 to
$8.30 per share. That compares with the prior forecast of $8.10 to $8.45 per share.
3M downgraded its sales expectations, saying "same currency" sales in 2016 will grow
between zero and 1 percent. That's down from the prior forecast of 1 to 3 percent.
dee.depass@startribune.com 612-673-7725 DePassStrib
hftp://www.startri bune.com/3m-beats-profit-expectati ons-for-2q-but-misses-orrrevenue/388252162/ 2/2