3M Slumps as Profit Forecast Trails Estimates on Drop in LCD Screen Demand

3M Co. (MMM) tumbled the most in almost nine months after reporting lower-than-expected profit margins and sales because of lower demand for products used in LCD televisions.

3M fell $5.14, or 5.4 percent, to $89.93 at 4 p.m. in New York Stock Exchange composite trading, the biggest decline since Oct. 28 and the sixth largest drop today on the S&P 500 Index. (SPX) Shares of the 

Profit margins were 21.6 percent, below an estimate of 22.1 percent from 

“We are hard pressed to give the company the benefit of the doubt here and the lower margins are a disappointment,” Tusa said in a report today.

The maker of 

LCD TV Weakness

Revenue in display and graphics dropped 7 percent to $973 million in the second quarter as optical systems sales slid 22 percent, the company said. Weakness at the unit, 3M’s third- biggest, was caused by “a larger-than-anticipated contraction in the LCD TV end-market demand,” Chief Executive Officer George W. Buckley said today in a statement.

Net income in the quarter advanced to $1.16 billion, or $1.60 a share, from $1.12 billion, or $1.54, a year earlier, the company said. Analysts predicted $1.59 a share, the average of 15 estimates in a Bloomberg survey.

A lower 

Organic Growth

Sales rose 14 percent to $7.68 billion, topping an average projection of $7.62 billion from analysts. Acquisitions added 4 percentage points and foreign exchange boosted sales by 6.1 percentage points.

Japan’s earthquake in March reduced sales gains in the quarter by 2.4 percentage points and earnings by 7 cents per share, the company said.

The “organic growth rate was weak due to Japan and optical systems,” said Winoker, who has an “outperform” rating on the stock. “Margins were OK but not great.”

The worst of 

The drop in the optical unit may be most pronounced in the third quarter because demand was still strong a year ago. It will improve in the fourth quarter compared with a year earlier, when sales began to weaken, Buckley said.

3M faces a 4 percent price increase in raw materials, which make up about 25 percent of cost of sales, Buckley said. The company will offset the rising expenses with price increases, he said. During the quarter, selling prices rose 0.8 percent.

Acquisition activity may slow because targets have become more expensive, Buckley said. The company lowered the sales contribution of acquisitions to a range of 3 to 4 percentage points from an earlier estimate of 4 to 6 percentage points.

3M has completed 12 purchases since the end of the second quarter last year, according to Bloomberg data. The largest was the $810 million purchase of Arizant Inc., a maker of surgical patient-warming solutions.