Electronics, Energy Hit Post-it Maker 3M -- WSJ
July 27 2016 - 2:04AM
Dow Jones News
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 and energy unit,
which accounts for about 15% of sales, slipped 2 percentage points
from last year to 19.3%. Sales for the unit dropped 10%.
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% increase 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.
Overall 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 polled by Thomson Reuters expected $2.07 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
Corrections & Amplifications: Analysts polled by Thomson
Reuters had expected 3M to report earnings per share of $2.07. An
earlier version of this article incorrectly said analysts had
expected profit of $2.02 a share.
Write to Bob Tita at robert.tita@wsj.com
(END) Dow Jones Newswires
July 27, 2016 02:49 ET (06:49 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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