Strong dollar hits 3M profits

The US economic flu has spread to conglomerate Minnesota Mining & Manufacturing, most commonly known as 3M, causing the company to issue a profit warning for its most recent three-month period and for the year.

The St. Paul, Minnesota-based company on Monday blamed continued weakness in the domestic economy, an increasing slowdown in European and Asian economies and continuing negative impacts from the strong US dollar for expected lower profits.

It is clear that economic weakness is now manifesting itself in Europe and Asia Pacific in addition to the United States

3M chief executive W. James McNerney "Some say the US economy may be strengthening, but there's as much of a head wind coming from Europe and Asia," said David Begleiter, an analyst with ABN AMRO.

"Half of 3M's sales are from overseas."

Analysts have noted that weaker overseas sales have been a running theme among companies expecting lower profits.

"The common theme in first-quarter conference calls was that although the US economy was horrible, Europe and Asia were holding up well," said Goldman Sachs analyst Jack Kelly. "Not anymore."

Shares of 3M, part of the Dow Jones Industrial Average, initially fell after the announcement but by afternoon were showing positive, up $2.20 in New York Stock Exchange trading.

Spillover

Despite their diversified businesses, conglomerates such as 3M have been battered as the flagging US economy spills over into other areas of the world.

Last week car and truck parts maker Eaton Corporation said it expects lower profits for the second quarter and the year, also citing weakness in overseas markets.

Danaher Corporation, another conglomerate that relies on overseas sales for about a third of its profits, said last week it expects to meet earnings for the second quarter but expects to fall short for the year.

"It seems like those [companies] where people had high expectations, the stocks do get hammered," Goldman Sachs' Kelly said.

"Where people had pre-announced before, it has had much more or a muted impact, and I would put 3M in the latter category."

3M's expectations

3M, known for such ubiquitous products as Post-It paper notes and Scotch tape, still expects to earn $1.14 a share in the second quarter - the three months ending 30 June - slightly lower than the $1.19 a share analysts had been expecting and the $1.18 a share it recorded for the same period last year.

3M also said slower growth in Europe and Asia and the persistently strong US dollar would continue to impact results in the second half of 2001.

The company noted that "while global economic conditions remain difficult to predict", it expects that earnings for the year will range from $4.50 to $4.75 a share, noting that the low end of the range assumes that the US economy remains at current levels for the remainder of this year.

Previously, 3M expected 2001 earnings of $4.75 to $5.00 a share. In 2000, the company earned $4.68 a share.

In making the announcement on Monday, 3M chief executive W James McNerney said that based on recent sales trends, "It is clear that economic weakness is now manifesting itself in Europe and Asia Pacific in addition to the United States.

In assuring investors, Mr McNerney added the company plans to "aggressively" implement several initiatives that would allow the company to compete more effectively.

"When the major global economies begin to recover, we will be well-positioned to deliver solid and consistent earnings growth," he said.