Business News

3M Reports Fourth-Quarter and Full-Year 2008 Results

Thursday 29. January 2009 - - Company Posts Record Annual Sales Despite Rapid Fourth-Quarter Economic Deceleration - - Company Adjusts Earnings Expectations for 2009 -

Full-Year 2008 Highlights:

Sales of $25.3 billion, up 3.3 percent from 2007 and up 6.5 percent excluding the company’s optical systems business
Local-currency sales, including acquisitions, up 1.4 percent
Reported operating income of $5.2 billion versus $6.2 billion in 2007; excluding special items (a-i), operating income was $5.5 billion in both years
Reported earnings per share of $4.89 versus $5.60 in 2007; excluding special items (a-i), earnings were $5.17 per share versus $4.98 in 2007, an increase of 3.8 percent
Returned $3 billion to shareholders in 2008 through cash dividends and repurchases of shares
Fourth Quarter 2008 Highlights:

Sales down 11.2 percent to $5.5 billion, or down 8.1 percent excluding optical
Local-currency sales, including acquisitions, down 6 percent
Reported operating income of $755 million versus $1.3 billion in 2007; excluding special items (a-i), operating income was $974 million versus $1.3 billion in 2007
Reported earnings per share of $0.77 versus $1.17 in 2007; excluding special items (a-i), earnings were $0.97 per share versus $1.19 in the prior year

3M (NYSE:MMM) today reported 2008 sales of $25.3 billion, an all-time record for the company. Sales were up 3.3 percent from a year ago. Reported net income for 2008 was $3.5 billion, or $4.89 per share, versus $4.1 billion, or $5.60 per share, in 2007. Excluding special items (a-i), 2008 earnings were $5.17 per share versus $4.98 per share in 2007, up 3.8 percent.

Fourth-quarter sales were $5.5 billion, a decrease of 11.2 percent. Fourth-quarter net income was $536 million, or $0.77 per share, versus $851 million, or $1.17 per share, in the fourth quarter of 2007. Excluding special items (a-i), net income in the fourth quarter of 2008 was $676 million, or $0.97 per share, versus $863 million, or $1.19 per share, in the fourth quarter of 2007.

“3M drove record sales in 2008 despite a dramatic fourth-quarter economic downturn,” said George W. Buckley, 3M chairman, president and CEO, “and we are responding to lower demand with aggressive cost management and operational discipline. 3M employees are doing an outstanding job managing through worldwide market challenges and are positioning our company to seize the upside when growth resumes.”

Buckley continued, “We streamlined our operations throughout 2008 and we will continue to optimize to protect against the downside throughout 2009. In addition, we plan to reduce capital expenditures by about 30 percent and aggressively attack working capital in order to conserve cash. Finally, we remain focused on gaining share by delighting our current customers and winning new ones. Throughout our 106-year history, we have weathered many economic storms, and expect to emerge from this one stronger and more competitive than ever.”

Reflecting the ongoing global economic uncertainty and continued challenges in many of its end-markets, 3M adjusted its 2009 sales and earnings expectations. The company is now planning for organic sales volumes to decline between 5 percent and 9 percent in 2009, versus a previous planning assumption of negative 3 percent to negative 7 percent. As a result, the company is now planning for 2009 earnings to be in the range of $4.30 to $4.70 per share, down from a previous range of $4.50 to $4.95. These estimates exclude any potential special items.

Full-Year Key Financial Highlights

For the full-year 2008, sales increased 3.3 percent to $25.3 billion, driven by a 1.4 percent increase in local-currency sales, including acquisitions. Local-currency sales growth was led by 3M’s three largest businesses—with growth of 18.3 percent in Safety, Security and Protection Services; 6.8 percent in Health Care; and 4.6 percent in Industrial and Transportation. Local-currency sales declined in the three remaining businesses, with Consumer and Office down 0.3 percent, Electro and Communications down 1.7 percent and Display and Graphics down 17.9 percent. Sales in 3M’s international operations grew 4 percent and now constitute 64 percent of total sales, the highest in 3M’s history.

Full-year net income was $3.5 billion, or $4.89 per share, versus $4.1 billion or $5.60 per share in 2007. Excluding special items (a-i), 2008 net income was $3.7 billion, or $5.17 per share, versus $3.6 billion, or $4.98 per share, in 2007. Per-share earnings increased 3.8 percent on this basis.

Fourth Quarter Key Financial Highlights

Fourth-quarter worldwide sales totaled $5.5 billion, down 11.2 percent compared to the fourth quarter of 2007. Local-currency sales including acquisitions decreased 6 percent and foreign exchange impacts were negative 4.9 percent in the quarter. Local-currency sales including acquisitions increased in two businesses during the quarter—up 13.2 percent in Safety, Security and Protection Services and up 4.5 percent in Health Care. Sales in local currencies for the other four 3M business segments dropped during the fourth quarter, with Industrial and Transportation down 6.3 percent, Consumer and Office down 6.5 percent, Electro and Communications down 12.3 percent, and Display and Graphics down 25.8 percent.

Fourth-quarter net income was $536 million, or $0.77 per share, versus $851 million, or $1.17 per share, in the fourth quarter of 2007. Included in these results is a net loss from special items (a-i) of $140 million, or $0.20 per share, in the fourth quarter of 2008, and a net loss of $12 million, or $0.02 per share, in last year’s fourth quarter. Excluding special items (a-i), fourth-quarter 2008 net income was $676 million, or $0.97 per share, versus $863 million, or $1.19 per share, in last year’s fourth quarter.

Fourth Quarter Business Segment Discussion
(Operating income and margin figures exclude special items)

Industrial and Transportation

Sales down 11.3 percent to $1.7 billion
Local-currency sales declined 6.3 percent, including a 3.2 percent benefit from acquisitions
Volume declines were heavily influenced by customer plant shut-downs across the manufacturing sector, along with customer inventory reduction efforts
Automotive aftermarket business posted positive sales growth for the quarter; most other businesses and geographic regions posted negative sales and operating income growth
Profits of $239 million with operating margins of 14.3 percent
Health Care

Sales of $1 billion, down 2.1 percent
Local-currency sales growth of 4.5 percent including 2.2 percent from acquisitions
Solid growth in core infection prevention and skin and wound care products
Positive sales growth in both the U.S. and Asia Pacific
Operating income of $298 million, up 4.5 percent, with company-leading margins of 28.9 percent
Safety, Security and Protection Services

Sales increased 2.9 percent to $769 million
Local-currency sales up 13.2 percent, including 15.7 percent from acquisitions, primarily Aearo Technologies
The 2008 divestiture of HighJump Software, Inc. hurt sales growth by 2.9 percent
Overall sales growth led by personal protection equipment
Regional sales growth led by the U.S. and Asia Pacific
Profits down 3.5 percent to $128 million; operating margins of 16.7 percent
Consumer and Office

Sales down 11.2 percent to $765 million
Local-currency sales down 6.5 percent, hurt by the poorest fourth-quarter retail industry sales performance in recent memory
Positive local-currency sales growth in home care and do-it-yourself businesses; sales declined in all major geographies
Operating margins of 15.5 percent, with profits of $119 million
Display and Graphics

Sales of $685 million, down 28.4 percent, with local-currency sales down 25.8 percent
Optical systems’ sales down 48 percent, driven by weak consumer demand for electronics and OEM customer plant shutdowns; optical diluted overall Display and Graphics’ sales growth by 21 percentage points in the quarter
Local-currency sales in traffic safety systems up nearly 3 percent as highway infrastructure projects continue to grow steadily
Operating margins of 10.2 percent on profits of $70 million
Electro and Communications

Sales declined 15.3 percent to $590 million
Local-currency sales down 12.3 percent, driven by weak demand and customer inventory reduction in the electronics, residential construction and telecommunications industries
Electrical markets won another contract from a major utility for its ACCR overhead power cable solution
Profits of $86 million, with margins at 14.5 percent