3M Cuts Outlook as Demand Sputters

Industrial conglomerate 3M Co., MMM -1.18%joining a host of U.S. companies downgrading expectations for the year, reduced its forecast for 2013 earnings Thursday but said it would proceed with plans to increase spending on new factories and research.

The St. Paul, Minn-based company, whose brands include Scotch tape and Nexcare bandages, reported that first-quarter profit was up just 0.4% from a year earlier, falling short of Wall Street forecasts, partly because of lower sales of films used in making television and smartphone screens and other materials for makers of electronic devices.

The company warned that the current quarter also looks weak but promised better results in the second half and said long-term growth prospects are strong. Despite a weak global economy, 3M increased capital spending in the latest quarter 24% from a year earlier to $324 million. The company is installing a new global computer-software system to improve its business planning, striving to simplify a convoluted supply chain and expanding factories in Asia, Latin America and other fast-growing markets.

"The developing world has huge upside for us," particularly in health-care supplies, Inge G. Thulin, 3M's chief executive, said in a conference call with analysts. 3M makes bandages, orthodontic braces and other medical supplies.

For the full year, 3M expects capital spending of $1.6 billion to $1.8 billion, up from about $1.5 billion in 2012. The company also reaffirmed plans to raise spending on research and development to 6% of sales by 2017 from an average of about 5% in recent years.

In the latest quarter, 3M said it was hurt by "softer demand" for some products, including films used in consumer-electronic devices and solar-energy panels. The company also blamed the recent rise of the U.S. dollar against the Japanese yen and other currencies. A stronger dollar reduces the value of foreign sales when translated into the American currency. 3M said it expects earnings for the full year to be in a range of $6.60 to $6.85 per share, up from $6.32 in 2012. Previously, 3M forecast earnings this year of $6.70 to $6.95 per share.

3M said profit in the first quarter was $1.13 billion, virtually unchanged from a year before. Per-share earnings increased to $1.61 from $1.59 but fell short of Wall Street expectations, which averaged $1.65 a share, according to FactSet.

Sales rose 2% from a year earlier to a record $7.63 billion.

The company's operating profit margin was 21.6% in the quarter, down slightly from 21.8% a year earlier. In a research note, Jeffrey Sprague, managing partner of Vertical Research Partners, called 3M's margins "exceptional" but said "that also underscores concern that they are not sustainable."

In the industrial division—which makes adhesives, abrasives and other materials used by makers of aircraft, cars and many other items—operating income declined 2.6% to $576 million. The company cited weakness related to solar-energy materials and some automotive supplies. It reported stronger results for aerospace products, industrial adhesives and tapes, personal-care items and liquid filters.

The safety and graphics division had $335 million of operating income, up 0.4%. That division includes materials used in commercial graphics and reflective material used in traffic signs and safety vests.

The health-care division, whose products include dental supplies and dressings for wounds, had operating income of $404 million, up 0.8%.

Operating income fell 16% to $196 million at the electronics and energy division. The company blamed weak demand for film used in electronics and solar-energy products.

The consumer division, which includes Post-it notes, Scotch-Brite scouring pads and Filtrete filters, recorded operating profit of $237 million, up 0.1%.

3M's thousands of products include tape and other adhesives, abrasives, coatings and films used in myriad industrial and consumer items.