Pricing gains and strong health care sales in developing nations helped 3M Co. deliver solid first-quarter growth Thursday, but results still fell short of analysts' profit and sales expectations.
The miss caused 3M's stock price to fall $1.34, or 1 percent, to $136.65. The slide came despite sales rising 2.6 percent, profits rising 6.9 percent and news that 3M would consider future acquisitions that exceed $1 billion for the first time.
"We have done quite a number of acquisitions over the years," CEO Inge Thulin told analysts during a conference call. "The biggest acquisition 3M has done has been $1 billion or so. We may need to do slightly bigger than that as we move ahead." He declined to offer specifics but emphasized that the company probably would avoid hostile deals since that is not 3M's style.
Analysts noted that it might be hard for 3M to find a reasonably priced large deal because multiple bidding can ratchet up prices. Acquisitions aside, analysts praised 3M's overall performance during the quarter.
Analyst Andrew Obin of Bank of America Merrill Lynch said 3M delivered another quarter with some of the best top-line growth in the industry. "And if you look at the margin expansion, [they] are starting to get that," he said.
Analyst Steven Winoker with Sanford Bernstein said the quarter showed "a lot of pricing power."
Thulin agreed, noting that 3M delivered a "solid quarter." He noted that the $30 billion conglomerate enjoyed several gains during the quarter including increased prices, improved performance in Japan and sales growth across all five business units, when measured in local currencies.
For the quarter, 3M grew in four of the five business units. Consumer was the one unit that saw sales slip. It dipped 0.2 percent to $1.1 billion for the quarter amid U.S. snowstorms that slowed store traffic and sales of 3M's stationery and office products.
For the year, 3M officials noted that they expect negative foreign exchange rates to clip sales by 1 percent. If exchange rates are ignored, local currency sales for the year should grow 3 to 6 percent, company officials said. They reiterated their 2014 earnings guidance of $7.30 to $7.55 per share.
During the quarter, Thulin and CFO David Meline said 3M's health care business saw the greatest growth as sales jumped 4.8 percent to $1.4 billion. Sales were particularly strong overseas and strongest for drug delivery adhesives, health information systems and food safety products.
3M's largest business, industrial, saw first-quarter sales rise 3.1 percent to $2.8 billion amid increased demand for water and furnace filters, auto manufacturer adhesives and industrial abrasives. Sales were particularly strong in Europe, Latin America, Canada and Asia.
3M's safety and graphics business only rose 1.7 percent to $1.4 billion during the quarter as frigid winter weather and storms delayed the U.S. construction season in many states. The division makes many adhesives, coatings and films used to make traffic signs, street signs and lane markings. It also makes reflective tapes and respirators that protect construction workers.
Thulin said those product sales slipped but are expected to bounce back when the weather warms up.
He also emphasized that 3M is a global business and that U.S. sales only represent about 35 percent of corporate revenue. As a result, he is "not overly concerned" with the impact of U.S. weather patterns.
3M's electronics and energy business grew 2.7 percent during the quarter to $1.3 billion. Growth proved strong in optical films used in computer tablets and energy-related products sold to telecommunications customers. Sales were particularly robust in Latin America and Asia, and weak in the United States and Europe.
In all, total corporate sales rose 2.6 percent to $7.8 billion, while profits rose 6.9 percent to $1.2 billion or $1.79 a share. Analysts had expected $7.98 billion in revenue and profits of $1.80 per share.
For the full year, officials reiterated their prior earnings guidance of $7.30 to $7.55 a share.
Dee DePass • 612-673-7725
