3M: A Brighter View
3M is a giant conglomerate that makes more than 55,000 products. But for the past two quarters, investors have focused closely on one that it doesn't make: flat-panel televisions.
Weak sales of 3M's liquid crystal display screens, which go into TVs and computer monitors, contributed to poor second-quarter results, dragging down 3M's shares in July to a three-year low. On October 20, however, 3M shares (symbol MMM) rose 2.7%, to $78.47, after the St. Paul, Minn.-based manufacturer's third-quarter earnings report showed signs of rebounding flat-panel sales.
3M makes film coatings that increase the brightness of flat-panel screens and make the screens easier to see in different lighting conditions. The film-coatings business is part of 3M's displays and graphics segment, which accounts for about 17% of 3M's $21 billion in annual sales. Third-quarter sales for the unit were up 9% from the previous quarter, and earnings were up 25%. In a conference call with analysts, 3M chief executive George Buckley said the company had solved the manufacturing problems that had plagued the business in the second quarter. He also said flat-panel screen inventories returned to normal levels in the third quarter because of strong demand by consumers for flat-panel TVs and computer monitors.
The rebound in the film-coatings business was reassuring to analysts, who have been looking for indications that 3M could generate healthy growth in its existing businesses. Prudential Securities analyst Nicholas Heymann says internal growth has recently been in the 7% to 9% range, up from 1.5% to 5% over the past six quarters. As investors become more convinced that the company can maintain that range, he says, its stock price should return to its May high of $88. After the release of the earnings report, he raised his six- to nine-month price target by $7, to $92.
Overall, 3M's third-quarter sales rose 9%, to $5.9 billion, ahead of the $5.8 billion analysts were expecting. Net income of $1.18 a share was up from $1.08 a year earlier, beating analysts' estimates of $1.12. The company forecast fourth-quarter profits of $1.10 to $1.16.
3M's safety, security and protection business, which makes everything from radio frequency inventory tags to cleaning products, was the best performer in the third quarter. Sales rose 17%.