3M Shares Slip as Q2 Earnings, Sales Miss Analyst Expectations

Executives at the industrial supplies manufacturer were also questioned about historically unusual pricing changes 3M made during the April through June period.

3M Shares Slip as Q2 Earnings, Sales Miss Analyst Expectations
Despite a surprising turnaround from its electronics and energy unit, 3M’s stock slipped on Tuesday after the company reported sales and earnings below analyst expectations.
The Maplewood-based industrial supplies manufacturer reported a nearly 2 percent uptick in second quarter sales over the prior year. The $7.81 billion result, however, was about $70 million short of what analysts polled by Zacks Investment Research predicted.
3M’s earnings spiked considerably during the April to June period. Improved operating expenses and money received from the sale of a business unit pushed the company’s earnings to $1.58 billion, a 22 percent year-over-year rise. But its earnings per share of $2.58 came up a penny short of analysts’ estimate.
Company shares fell about 5 percent on Tuesday from the prior day’s $210 closing price.
Four out of five 3M business groups reported sales increases over the year-ago period. The largest growth—approximately 7.5 percent—came from its electronics and energy division, which has struggled to drive sales growth as demand for films to cover smartphone screens and other related products had waned the past two years.
The company’s safety and graphics business reported 3M’s sole divisional sales drop, a roughly 1 percent fall year-over-year.
Sales from 3M’s industrial group, its largest of the five, increased 2.5 percent, while its health care and consumer groups reported sales increases of about 2 percent and 0.5 percent, respectively.
Asia played a major part in the company’s sales growth during its second quarter, as strong demand in China, Hong Kong and Japan led to a 10 percent uptick for the region. 3M also performed well in certain South American countries, but saw a less than 2 percent rise in sales in the U.S., Europe, Africa and the Middle East.
“Our team posted another quarter of strong and broad-based organic growth,” 3M CEO Inge Thulin said in a statement. “We also continued to deliver premium margins and returns, while accelerating investments to support growth and strengthen the portfolio—which is part of our playbook to build and even stronger and more competitive 3M.”
Thulin and 3M CFO Nicholas Gangestad drew some concern from analysts during a conference call Tuesday morning when Gangestad admitted that 3M lowered the pricing in certain units in the second quarter to gain market share.
“I don’t think I’ve ever heard of 3M trying to drive volumes or market share gains through price,” said Morgan Stanley analyst Nigel Coe during the call.
“On the pricing front, there have been these isolated places where we’ve taken action,” answered Gangestad. “In the second half of the year, we expect a more normal price growth for 3M as we’ve put in plan some actions to be bringing price back to a more normal level than we’ve historically experienced.”
Thulin also noted that 3M’s business model “is to introduce a product that is adding value either through different design or improved productivity, and then we’re driving price based on that.”
Following the earnings spike it experienced in the second quarter, 3M upped its guidance for the year. Instead of earnings per share in the range of $8.70 to $9.05, it now expects a range of $8.80 to $9.05.
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