3M delivers strong second quarter, beating expectations

3M Co., the Maplewood-based giant best known for making Scotch tape and Post-it notes, beat expectations for its second quarter with growth across all five businesses, continued investment in the company and further refining of its core operations.

"Our team delivered record sales and a double-digit increase in earnings per share, while keeping our commitment to investing in our business and returning cash to shareholders," newly promoted CEO Mike Roman told analysts during a conference call Tuesday. "Going forward we will continue to prioritize 3M's portfolio, strengthen our innovation capabilities and accelerate our transformation, while developing our people."

The results, he said, included organic growth of 6 percent across all business groups and geographic areas.

For the quarter ended June 30, revenue rose 7.4 percent to $8.4 billion. Net earnings jumped 17 percent to $1.86 billion, or $3.07 a share. Excluding divestitures and other one time items, adjusted earnings were $2.59.

The consensus from Wall Street analysts had forecast earnings of $2.58 a share and revenue of $8.37 billion.

Still, 3M narrowed its earnings guidance for the full year. Officials credited that move with the recent divestiture of a large fiber-optics communications markets division. 3M's stock initially fell 2 percent in early trading Tuesday but closed up about 1 percent.

During the quarter, its Safety and Graphics unit saw the biggest jump in sales — 15.8 percent to $1.8 billion — aided by acquisitions and led by its personal safety, commercial solutions and transportation safety products.

The Industrial unit, 3M's largest division, saw sales rise 6.8 percent to $3.1 billion. Industrial's solid performance served as further proof that 3M has largely recovered from the global sluggishness caused by the 2016 and 2017 downturns in China, Japan and the oil/gas, mining, and electrical sectors. The unit saw growth in separation and purification, advanced materials, abrasives and industrial adhesives and tapes businesses, officials said.

On a geographic basis, Europe, Asia and the United States reported the strongest growth during the quarter, followed by Latin America and Canada.

Analysts questioned officials during Tuesday's conference call about issues ranging from 3M's new guidance, growing automotive business, the impact of President Donald Trump's new trade tariffs and about 3M's strategy for rising prices on products in the face of rising raw material costs.

Roman and Chief Financial Officer Nick Gangestad told analysts 3M was well-positioned to continue increasing product prices should global trade wars continue to escalate without relief. The officials also said 3M invested in products related to the aftermarket automotive customers and dental patients.

Deane Dray of RBC Capital Markets noted that it looks like 3M's new Clarity line of braces will compete directly with Invisalign.

Roman noted that dental care "is an important business for us. We are recognized as a leader in a number of positions. … We continue to innovate and look to invest and grow this business as we move ahead."

It has been a busy quarter for the global giant.

3M spent $365 million on capital expenditures during the quarter, up $63 million from a year ago.

In May, 3M successfully defended itself against the first of many defective product lawsuits regarding its Bair Hugger surgical blanket. Separately, the company settled other lawsuits, officials said.

In June, 3M sold its fiber optics telecommunications markets division to Corning Inc. for $870 million. Effective July 1, Roman, a 3M lifer and 3M's chief operating officer, became CEO, succeeding Inge Thulin, who will remain on as executive chairman of the board.

3M on Tuesday updated its guidance for 2018. 3M now expects earnings to be $9.08 to $9.38 per share vs. $8.68 to $9.03 previously forecast.

However, excluding the impact from the telecommunication markets business divestiture gain, a first-quarter legal settlement, and expenses related to the federal corporate tax cuts, 3M now expects adjusted 2018 earnings to be $10.20 to $10.45 per share.

That compares to the prior forecast of $10.20 to $10.55 per share. The update to the range reflects the effect of the divested income associated with the communication markets business which was not included in prior guidance, Gangestad said.

3M's stock closed Tuesday at $200.67, down from its January record high of $259.77 per share.

Dee DePass • 612-673-7725