3M Says Japan Disaster Recovery May Exceed Katrina Spending
3M Co. (MMM) said rebuilding work in Japan may total $200 billion, more than the projected spending after Hurricane Katrina, and the company is ramping up production of respiratory-protection products for the recovery.
Japan’s efforts probably will spur faster growth after an initial economic lull, 3M said in an investor presentation on its website today. The cost may be $50 billion to $150 billion, according to the presentation, while Chief Executive Officer George Buckley said the total may reach $200 billion.
The top end of St. Paul, Minnesota-based 3M’s forecast for Japan’s post-earthquake reconstruction would exceed the $70 billion to $130 billion that the U.S. government estimated would be required to rebuild the Gulf Coast after hurricanes Katrina and Rita in 2005.
“Japan has got the capability economically, and psychologically and skill-wise, to be able to rebuild,” Buckley said at conference for investors. “Ultimately, this could turn out to be quite a good opportunity.”
3M, the maker of products ranging from Scotch Tape to sandpaper, is well positioned to work on the recovery, and is boosting output of safety-related gear, Chief Financial Officer Patrick Campbell said. These include 3M’s N95 respirators, said Jacqueline Berry, a company spokeswoman.
Japan represents about 9 percent of 3M’s sales, and the company has 2,700 workers there, all of whom are safe. About 10 employees lost homes, Buckley said. 3M’s five manufacturing sites in the Asian country suffered only minor damage, executives said. 3M’s largest businesses in Japan are industrial and consumer-related.
“We do have good insurance in Japan,” Campbell said. “This is going to take a long time to figure out who’s going to pay, on what policies and what the interpretation is going to be.”
3M climbed $1.14, or 1.3 percent, to $88.69 at 4:50 p.m. in New York Stock Exchange composite trading. The shares have gained 2.8 percent this year.
The devastation from the earthquake and tsunami in Japan has created demand for construction, telecommunications, electrical and safety products, as well as earth-moving equipment, boats and cars, Buckley said.
3M is reviewing global supply lines to make sure it can meet customer needs after disruptions to Japanese roads, fuel supplies and utilities, Campbell said.
“The big issue in Japan right now is the logistics,” Campbell said.
There is no society more organized and disciplined than Japan’s, where roads were cleared for emergency responders on March 12, a day after the earthquake and tsunami, Buckley said.
“There’s $70 billion of insured property in that part of Japan,” Buckley said. “The Japanese government says they’re going to put $150 billion into the economy there, so $50 to $150, $50 to $200 billion, possibly of reinvestment in Japan there,” he said.
Once such disruptions are corrected, 3M is poised to benefit from the reconstruction, Steven Winoker, a New York- based analyst with Sanford C. Bernstein & Co., wrote in a note yesterday. He has an “outperform” rating on the shares.
“While we understand there is no immediate damage to operations, we have no doubt that near-term supply chain disruptions will be another headwind for the business,” Winoker wrote. “Once lines are restored we would expect 3M to participate more broadly in rebuilding efforts than most.”
3M’s top management is going through transition, with Campbell retiring this year and Buckley’s employment contract expiring next year on his 65th birthday.
In response to a question at the meeting, Buckley said he was still interested in defeating the competition and “going out and slaying dragons,” and said the decision on whether he stays as CEO rests with 3M’s board.
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