Business News

3M Reports Second-Quarter Results

Thursday 23. July 2009 - Operating Income Margins Exceed 20 Percent on Sales of $5.7 Billion

3M (NYSE: MMM) today announced second-quarter earnings of $1.12 per share on sales of $5.7 billion, with operating income margins of 20.8 percent (a). Sales and per-share earnings declined 15.1 percent and 15.8 percent year-on-year, respectively. On a sequential basis, sales and per-share earnings increased 12.4 percent and 51.4 percent, respectively, and operating income margins improved by 5 percentage points. Free cash flow (h) conversion was 160 percent of net income, with strong contributions from reduced capital expenditures and lower inventory levels.

Excluding special items (b-e), net income was $843 million and earnings were $1.20 per share, down 14.9 percent and 13.7 percent, respectively. Operating income margins increased 50 basis points year-on-year to 22.6 percent. 3M’s Health Care and Consumer and Office businesses each delivered double-digit year-on-year profit improvements.

“We drove strong results in the second quarter, exceeding our own expectations for profits, sales and free cash flow,” said George W. Buckley, 3M chairman, president and CEO. “Operating discipline was key to the quarter, as discretionary spending was well-controlled and restructuring actions proceeded according to plan. 3M employees across the globe are undaunted in facing this recession, and I applaud their efforts.”

Buckley said that while sales were helped by improved demand for consumer electronics and respiratory products used to prevent the spread of the H1N1 virus, 3M’s sound operational strategy and early actions to address the recession were at the core of the strong Q2 performance.

“Our second-quarter results give us confidence in both our plan and in our ability to execute that plan,” Buckley continued. “While the exact shape and timing of the economic recovery is unknown, we will move ahead efficiently and energetically so that 3M emerges from the downturn an even stronger company.”

The company raised its 2009 sales expectations. 3M now expects 2009 organic sales volume to decline between 10 percent and 13 percent, versus a previous planning assumption of negative 11 percent to negative 15 percent. The company also expects 2009 full-year earnings to be in the range of $4.10 to $4.30 per share, versus a previous range of $3.90 to $4.30. All estimates quoted exclude special items.

Key Financial Highlights

Second-quarter worldwide sales totaled $5.7 billion, a year-on-year decrease of 15.1 percent. Local-currency sales including acquisitions decreased 9.4 percent, currency translation effects reduced sales by 5.5 percent and divestitures reduced sales by 0.2 percent.

Local-currency sales including acquisitions increased 2.2 percent in Health Care, but declined by 1.4 percent in Display and Graphics, 2.9 percent in Consumer and Office, 10.6 percent in Safety, Security and Protection Services, 15.3 percent in Industrial and Transportation and 23.8 percent in Electro and Communications. Excluding special items (b-e), second-quarter net income was $843 million, or $1.20 per share, versus $991 million, or $1.39 per share, in the second quarter of 2008. Net income and earnings per share decreased 14.9 percent and 13.7 percent respectively, excluding special items (b-e).

Business Segment Highlights

(Operating income and margin figures exclude special items (b-e))

Industrial and Transportation

Sales of $1.7 billion, down 15.3 percent year-on-year in local currency, including a 3.3 percent benefit from acquisitions; currency impacts reduced sales by 5.4 percent.
Positive local-currency growth in both the automotive aftermarket and renewable energy businesses.
Double-digit declines in many served industries, most notably in automotive manufacturing, contributed to the sales decline.
Operating income of $329 million, with strong margins of 19.1 percent.
Sales and operating income improved by 9.2 percent and 67.2 percent, respectively, when compared to first quarter of 2009.
Health Care

Sales of $1.1 billion, up 2.2 percent year-on-year in local currency, including 1.4 percent from acquisitions; currency impacts reduced sales by 7.1 percent.
Positive local-currency growth in medical supplies, food safety and health information systems; oral care sales were flat in local currency.
Drug delivery sales declined year-on-year but improved 13 percent sequentially.
All major geographic regions posted positive local-currency sales growth.
Operating income increased 10.8 percent to $344 million, with margins of 32.3 percent.
Consumer and Office

Sales of $866 million, down 2.9 percent year-on-year in local currency, including 1.4 points of growth from acquisitions; currency impacts reduced sales by 4.9 percent.
In local-currency terms, sales rose slightly in the home care products business and declined modestly in the do-it-yourself and stationery products businesses.
Sales declined year-on-year at a double-digit rate in the office products business, impacted by slower corporate purchase activity, but increased 16 percent sequentially.
Profits up 11 percent to $208 million, with strong operating margins of 24 percent.
Display and Graphics

Sales of $808 million, down 1.4 percent year-on-year in local currency, including 4.2 points of growth from acquisitions; currency impacts reduced sales by 3.4 percent; sales rose 32 percent sequentially.
Double-digit local-currency growth in traffic safety systems, driven by the October 2008 acquisition of FAAB-Fabricauto, a leading French manufacturer of reflective license plates, and due to a solid start to the road construction season; government stimulus beginning to have a positive impact, particularly in Asia.
Optical film sales up 4 percent year-on-year and 52 percent sequentially, driven by new products for eco-friendly LCD displays along with overall improvement in LCD market volumes; significant factory productivity, yield improvements and fixed asset leverage helped to fund aggressive price reductions; profits up 18 percent year-on-year and up fourfold sequentially.
Sales were down as expected in the commercial graphics business due to continued year-on-year weakness in global advertising spending; sales improved sequentially.
Operating profits were up 9 percent to $201 million, and margins were 24.8 percent; profits more than tripled on a sequential basis.
Safety, Security and Protection Services

Sales of $794 million, down 10.6 percent year-on-year in local currency; currency translation impacts reduced sales by 7.4 percent.
Significant sequential sales increase in respiratory protection products, driven by recent H1N1 outbreak, which helped offset sales declines in the industrial channel.
Profits down 13.2 percent to $181 million, with strong operating margins of 22.8 percent.
Electro and Communications

Sales of $551 million, down 23.8 percent year-on-year in local currency; currency translation reduced sales by 3.7 percent.
Sales heavily impacted by continued weak market conditions in telecom and commercial construction.
Operating profits were down 51.7 percent to $74 million, with margins of 13.4 percent.
On a sequential basis, sales increased 14.8 percent and profits more than tripled. All major businesses and geographies posted positive sequential sales and profit growth.