3M’s earnings and improved outlook fuel rally and arguments over economic recovery

3M, along with several other major industrial companies, sent a much needed confidence boost to Wall St. Thursday by way of solid quarterly earnings and improved projections for the remainder of the year, sending the Dow Jones Industrial Average up 201 points or 1.9 percent.

The Woodbury-based consumer and industrial products conglomerate reported revenue of $6.7 billion, up 18 percent, which matched an all-time quarterly record set in 2008. 3M also delivered a record EPS for Q2 of $1.54, up 38 percent from a year ago. The average of analyst estimates polled by Thomson Reuters had forecast earnings of $1.48 a share on revenue of $6.66 billion.

“The strong economy was certainly a factor” in 3M’s strong growth, George Buckley, chairman, president and CEO, observed in a call with analysts, as the company continued to “take market share and… create new markets.”

“Coming off depths of the recent recession, I think it’s a remarkable achievement… only one year after such a terrible economic contraction… As we’ve done throughout the downturn, we continue to invest in and build for the future,” he added, pointing to advertising and promotion spending up 30 percent and R&D up 13 percent.

3M, often viewed as a bellwether on the economy, was joined in the good news parade by a diverse set of companies including Caterpillar Tractor, UPS, AT&T and eBay and further reinforced by a positive after-market earnings surprise from Microsoft. 

The market posted its strongest performance in two weeks. Advancers outnumbered decliners by almost seven to one on the New York Stock Exchange, and by about 4 to 1 on the Nasdaq as the stream of positive news reassured nervous traders and investors that the economic recovery is still on track.

Another view

Or…

If you don’t like that interpretation try this one, offered by Michel Shulman, who publishes the investment newsletter Short Side Trader: The positive earnings news is merely a head fake, driven by a falling dollar that has driven an export boom for American companies.  The temporary rally is driven by short sellers covering their positions. The market still ignores stubborn unemployment numbers, weak industrial production, declining home sales and a looming commercial real estate bust.

This was a day after media reports blamed Fed Chairman Ben Bernanke’s cautious testimony  before Congress with causing the market to swoon on Wednesday.

Whichever camp you’re in, 3M’s performance was impressive.

The company’s largest business segment, industrial and transportation, grew 23 percent to $2.2 billion in local currency and operating income jumped 66 percent to $476 million. Within the segment, renewable energy products grew 71 percent, automotive OEM products were up 45 percent, abrasives up 28 percent, and industrial adhesives and tapes up 22 percent.

The fastest growing segment was display and graphics products, with sales of  $1 billion, up 29.2 percent in local currency and operating profits up 69 percent to $308 million. 3M’s new film products used in LED-back-lit televisions boosted optical systems sales within the segment by 64 percent in local currency.

The other business segments in the diversified portfolio company — consumer and office products; electro and communications products; health care; and Safety, Security and Protection Services — all grew revenue and earnings as well and posted operating margins above 22 percent.

For the third consecutive quarter, 3M also increased its full-year 2010 outlook, projecting organic sales volume growth of 13 to 15 percent versus previous guidance of 10 to 12 percent. The company’s forecast for operating profit margin was bumped half a percentage point to 22.5 percent and per-share earnings in the range of $5.65 to $5.80, up from previous guidance of $5.40 to $5.60, excluding a charge for increased medical costs recorded after health care legislation passed earlier this year.

3M stock closed at $84.75 on the day, up $2.45 or 2.98 percent on nearly 7.2 million shares traded, 38 percent above average daily volume.

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