3M Surges as Cost Cuts Push Profit Beyond Analyst Estimates

  • Scotch tape maker's earnings, sales surpass expectations
  • Shares post their biggest advance since October 2011

3M Co. jumped the most in more than four years after the maker of Post-it notes and Scotch tape cut costs to fight the effects of a strong dollar.

The company, which generates about two-thirds of its revenue abroad, overhauled its operations last quarter to reduce U.S. expenses and strengthen its business in Europe and Latin America. That helped it post profit and sales for the period that beat analysts’ estimates.

“We made investments and took actions to propel ourselves for the future,” Chief Executive Officer Inge Thulin said Tuesday on a conference call with analysts. “Across our enterprise we controlled the controllable while investing in our business and returning cash to our shareholders.”

The results announced Tuesday capped a year in which a sluggish global economy added to the currency headwinds against 3M’s sales. The company has emphasized international growth and new-product development since Thulin assumed the top post in 2012.

The shares rose 5.2 percent to $144.78 at the close in New York, the largest advance in the Dow Jones Industrial Average and 3M’s biggest since October 2011. The stock fell 8.3 percent last year, the first annual decline in four years.

Fourth-quarter sales decreased 5.4 percent to $7.3 billion, with foreign-currency translation reducing the total by 5.8 percent, 3M said in a statement. That was still enough to beat analysts’ estimates of $7.2 billion.

Restructuring Charge

The company in October announced a restructuring effort that included 1,500 job cuts, the charge for which reduced fourth-quarter earnings by 14 cents a share. The action will generate savings of $130 million in 2016, 3M said.

“The tailwind that 3M has from restructuring in 2016 is appealing as a differentiator and 3M’s portfolio is far better than most,” Scott Davis, a Barclays Plc analyst, said in a note.

Profit in the quarter fell 8.3 percent to $1.66 a share, the St. Paul, Minnesota-based company said. Analysts had expected earnings of $1.62 a share, according to the average of 13 estimates compiled by Bloomberg.

While revenue declined across 3M’s divisions, the results were “ahead of our low expectations in all five segments,” Steven Winoker, an analyst at Sanford C Bernstein & Co., said in a note. On an organic, local-currency basis, revenue rose 4.5 percent in the health-care unit and 2.7 percent in the consumer business.

The company said it paid $628 million in dividends and repurchased $1.1 billion of stock in the quarter.

More Deals

3M said last week that it would sell the assets of its pressurized polyurethane foam adhesives business as Thulin continued reshaping the company. He made several portfolio changes last year, including agreements to buy a filtration business from Polypore International Inc. for $1 billion and a safety-equipment maker for about $2.5 billion.

Thulin said the company would remain “willing and open” to additional deals this year.

Profit in 2016 will be $8.10 to $8.45 a share, 3M said, reaffirming an earlier forecast. Organic local-currency sales will rise 1 percent to 3 percent.

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