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3M earnings doubled in 2Q
By Andrew Haeg
Minnesota Public Radio
July 22, 2002

3M says its earnings more than doubled in the second quarter and raised its forecasts for the year. But 3M officials say the prospects for the global and domestic economy still remain uncertain at best. 3M's report, along with strong earnings reports from several other companies, helped stabilize the stock market Monday.

3M is one of the few large corporations to enjoy higher than expected earnings in the second quarter. The Maplewood-based company reported its earnings more than doubled, to $466 million, a 131 percent increase over the same period last year.
(Image courtesy of 3M)

3M earned $466 million in the second quarter, compared to just over $200 million a year ago. The company also raised its earnings forecast for the year by at least 20 cents per share.

The profits are the result of strong sales in Asia, and cost cutting measures, including layoffs of about 10 percent of the workforce.

Despite the performance, company officials say 3M doesn't plan on expanding substantially anytime soon, because of ongoing economic turbulence.

"The global economic landscape remains uncertain, and our operating plans will continue to reflect this view," CEO James McNerney said in a statement to investors.

"We're in an environment where executives typically would be cautious," says Cori Johnson, who manages the First American Equity Income mutual fund for US Bancorp.

Johnson says consumer confidence is sputtering, while it's also becoming more expensive for companies to borrow money. Taken together, Johnson says McNerney's right to be wary.

"If they doubt the demand for their product and they have a higher cost to fund it, then all of a sudden the future returns look more iffy. And that causes executives to be reluctant to commit capital," says Johnson.

3M CEO James McNerney
3M CEO James McNerney still warns of economic uncertainty, despite the company's strong showing in the second quarter. The profits are the result of strong sales in Asia, and cost cutting measures, including layoffs of about 10 percent of the workforce.
(MPR file photo)

3M's domestic revenues fell slightly. But stronger sales in the Asia Pacific region and elsewhere abroad offset those declines, prompting 3M's overall revenues to rise for the first time in five quarters.

3M also says cost-cutting helped boost profits. The company is in the late stages of a restructuring plan announced last April that will end up eliminating 6,700 jobs.

3M is continuing to roll out a management program called Six Sigma - meant to cut waste out of the manufacturing process.

Six Sigma is just one piece of a broad transformation that company CEO James McNerney helped launch early in 2001.

American Express Financial Advisors analyst Clay Hoes says McNerney is helping put the money where the potential is.

"He's gotten the company to focus on meaningful R&D," says Hoes. "In the past, anybody who had an idea made a presentation. And they didn't really have a cohesive strategy in place to decide - how do we choose the best ideas and bring them forward?"

Now, Hoes says, 3M focuses money on ideas that have clear promise. He says one good example of this is Scotchgard.

The company discontinued the brand two years ago because of concerns that chemicals in Scotchgard products could pose a health risk to people.

Company scientists have since reformulated the product, and 3M now expects sales of Scotchgard branded products to reach $500 million in three to five years. 3M's annual sales total $16 billion dollars.

John Roberts, of Buckingham Research in New York, says it's an impressive turnaround.

"3M has refortmulated a major product and relaunched it faster than I've seen any other major company do that. And I think this company's maybe a little bit more nimble on its feet than some people have believed in the past. I think it's a great credit to them," says Roberts.

3M's stock ended the day up almost three percent. The company's share price has fallen about 12 percent since July 1.

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