Maplewood-based 3M’s strong earnings and rosy outlook (PDF) buoyed investors and was credited in part with lifting the overall market Tuesday.
Viewed as an economic bellwether because of its diversified and global business portfolio, the company (NYSE:MMM) reported record total sales of $7.3 billion, up 15.2 percent from a year ago.
It recorded solid earnings across all six business segments. Earnings rose 15.5 percent to $1.49 per share, and operating margins for the quarter were 21.6 percent.
Along with positive news Tuesday from the likes of General Electric, Ford, Caterpillar, United Parcel and Cummins Engine, 3M’s better-than-expected earnings boosted investors’ and traders’ confidence that the global economy is improving.
3M stock shot up $1.82, or 1.93 percent, to close at $95.94 on 8 million shares traded, nearly 2.4 times the average daily volume. The S&P 500 hit a multiyear high of 1347.24, up 11.99 points or 0.9 percent. The Dow rose 115.49 points or 0.93 percent to close at 12,595.37.
In a conference call with analysts, George W. Buckley, 3M chairman, struggled to find something negative to say about the quarter. Except for the impact from the natural disasters in Japan, the company’s performance exceeded its own plan across the globe, he said.
Superlatives kept coming — “tremendous start to the year … superb performance… really quite remarkable,” he said, describing one business unit or country’s performance after another. “Can you believe Germany’s sales growth came in 24.3 percent in March, just slightly behind China?” he exclaimed at one point.
While the company’s growth continues to be driven by emerging markets in Asia Pacific (+24 percent), and Latin America/Canada (+19.5), Buckley also was encouraged by a “very, very strong” performance in western Europe (+13.1) and the United States (+ 10.2). “We’re hoping it’s not a flash in the pan but [has] turned real corner.”
Chief Financial Officer David Meline noted that for the first time in its history, 3M is investing more capital overseas than in the United States to take advantage of that growth. “As we see recovery in demand, we are adding capacity internationally, close to where the growth is. You are seeing that shift happening as we speak.”
“You’ve got to speculate to accumulate. We see this massive opportunity in Latin America and Asia and are pumping money into those areas,” Buckley added.
3M had earlier announced that capital spending would total $1.4 billion this year, up from $1.1 billion in 2010.
Buckley, who has been critical of the Obama administration’s economic policies, did make a few cautionary statements about the uncertainty in the economy.
He said the current economic environment — with a weak dollar, rapidly rising oil prices, high commodity prices and treasury yields — present a “similar set of economic circumstances” to 2008. The difference today, he said is that there is plenty of liquidity and the banking sector is healthy. He also said he expects “housing prices still have some way to fall this year.”
The disaster in Japan cut into the company’s growth by 0.7 of a percentage point and hit earnings by an estimated $0.03 per share in the quarter. The company expects the negative impact to continue into Q2 but could actually drive growth by the end of the year and into next year as the country rebuilds, Buckley said.
3M experienced 4 percent cost inflation in Q1 and expects the same for the rest of the year, based on higher prices for oil and other commodities. So far, the company has been able to increase prices to keep pace, posting the first positive net price benefit (1 percent) in six quarters. 3M will continue to increase prices in selected businesses throughout the year, he added.
Buckley also said 3M’s balanced business portfolio insulates the company from underperformance in any one business.
Saying the company is no longer a “one- or two-trick pony,” Buckley said 3M is less dependent on its optical business than it was a few years ago when a price war for LCD TVs hit 3M hard.
In 2005, 3M’s optical business contributed 18 percent of total operating profit and 8 percent of sales. Today, the optical business contributes only 7 percent of operating profit and less than 6 percent of sales, Buckley said.