3M first-quarter worldwide sales up 25% to $6.3 billion

3M (NYSE: MMM) today reported first-quarter earnings of $1.29 per share on sales of $6.3 billion. Operating income margins were 22.8 percent, up 7 percentage points year-on-year. Sales and per-share earnings increased 24.7 percent and 74.3 percent, respectively, versus the first quarter of 2009.

“By any measure, we are off to a tremendous start in 2010”

Each of the company's six business segments posted double-digit sales growth and 20 percent-plus operating income margins. Sales growth was strongest in emerging economies, where sales expanded by 47 percent versus the first quarter of 2009. Free cash flow (c) more than doubled to $925 million, a first-quarter record for the company, and free cash flow conversion was 99 percent.

Included in first-quarter 2010 earnings was a one-time, non-cash income tax charge of $84 million, or 11 cents per share, resulting from Medicare Part D changes imbedded in the recently enacted Patient Protection and Affordable Care Act. Excluding this charge, first-quarter 2010 earnings were $1.40 per share, also a record for any first quarter in 3M's history. First-quarter 2009 earnings included restructuring-related charges of $45 million after tax, or 7 cents per share.

"By any measure, we are off to a tremendous start in 2010," said George W. Buckley, 3M chairman, president and chief executive officer. "First-quarter sales were boosted by improved market penetration and new product flow along with significant growth in important end-markets such as electronics, automotive OEM and respiratory protection products. I thank the many 3M business teams around the world for an outstanding first-quarter effort."

Buckley continued, "This quarter's results clearly demonstrate the benefits of our long-term strategy of accelerating investment in higher growth programs. In addition, we are successfully driving growth in adjacent market spaces, while continuing to maintain exceptional operating returns and free cash flow. These efforts, combined with an improving economic backdrop, make me even more confident in 3M's future."

For the second consecutive quarter, 3M increased its full-year 2010 performance expectations. The company now expects organic sales volumes to grow 10 to 12 percent versus a prior expected range of 5 to 7 percent. Operating income margins, previously anticipated to be in the range of 21 to 22 percent, are now expected to exceed 22 percent for the year. Finally, the company expects that per-share earnings will be in the range of $5.40 to $5.60, excluding the Medicare Part D-related charge, versus a prior expected range of $4.90 to $5.10.

Key Financial Highlights
First-quarter worldwide sales totaled $6.3 billion, up 24.7 percent compared to the first quarter of 2009. Local-currency sales including acquisitions increased 19.8 percent and foreign exchange impacts added 5 percent to sales growth in the quarter.

Total sales grew at a double-digit rate in each of the company's six business segments, with Display and Graphics up 42.4 percent; Electro and Communications up 38.6 percent; Industrial and Transportation up 29.3 percent; Safety, Security and Protection Services up 20.4 percent; Consumer and Office up 14.7 percent; and Health Care up 12 percent. Similarly, all geographic regions posted double-digit sales growth, led by Asia Pacific at 54.1 percent and the combined Latin America/Canada region at 25.9 percent.

First-quarter net income was $1.014 billion, or $1.40 per share, versus $563 million, or $0.81 per share, in the first quarter of 2009, excluding special items (a-b). Total-company operating income margins were 22.8 percent for the quarter, with all six business segments at 20 percent or better.

Business Segment Discussion
(All figures are on GAAP basis and include the impact of special items (b))

Industrial and Transportation

• Sales increased 29.3 percent to $2.1 billion.
• Sales rose 23.7 percent in local currency; currency impacts added 5.6 percent to sales.
• Double-digit local-currency sales growth across much of the portfolio, led by automotive OEM at 67 percent, renewable energy at 64 percent and industrial adhesives and tapes at 26 percent; profits expanded in all businesses.
• Sales in local currency rose 50 percent in Asia Pacific, and all geographies drove double-digit growth in both sales and profits.
• Operating income of $454 million; operating margins improved by 11 percentage points year-on-year to 21.9 percent.

Health Care

• Sales of $1.1 billion, up 12 percent year-on-year.
• Sales up 7.6 percent in local currency; currency impacts added 4.6 percent to sales.
• Double-digit local-currency sales growth in core areas of infection prevention and skin and wound care; solid single-digit growth in oral care, drug delivery and health information systems.
• Broad-based performance drove positive sales and profit growth in all geographic regions.
• Operating income increased 13.2 percent to $347 million; operating margins were 31.1 percent.

Consumer and Office

• Sales increased 14.7 percent year-on-year to $912 million.
• Sales up 10.7 percent in local currency, which includes 2.6 percentage points from acquisitions; currency impacts added 4 percent to sales growth.
• Double-digit local-currency sales growth in home care products, particularly Scotch-Brite™ scrubbing solutions for the home, and in consumer health care, driven by recent acquisitions.
• Positive local-currency growth in all other businesses, including do-it-yourself, stationery products and office supplies.
• Local-currency sales grew in all geographic regions, led by double-digit increases in Latin America and in the United States.
• Operating income increased 32.7 percent to $219 million; operating margins were 24 percent.

Display and Graphics

• Sales of $869 million, up 42.4 percent year-on-year.
• Sales rose 38.4 percent in local currency; currency impacts added 4 percent to global sales.
• Positive local-currency sales growth and double-digit profit growth in all major businesses and geographic regions, particularly Asia Pacific and Latin America.
• Improved economic conditions drove sequential improvement in commercial graphics' sales.
• Sales doubled in optical systems versus a soft year-on-year comparison; new film solutions for eco-friendly and LED-backlit televisions continue to drive additional sales.
• Operating income increased 254 percent to $212 million, with margins of 24.3 percent.

Safety, Security and Protection Services

• Sales rose 20.4 percent year-on-year to $809 million.
• Local-currency sales up 14.7 percent year-on-year; currency translation added 5.7 percent to sales.
• Sales growth led by the personal protection products business, despite a tapering off in H1N1-related demand; also drove positive local-currency sales growth in roofing granules and in the building and commercial services business.
• Double-digit local-currency sales growth in all geographic regions.
• Operating income increased 46.1 percent to $181 million, with strong operating margins of 22.4 percent.

Electro and Communications

• Sales of $665 million, up 38.6 percent year-on-year.
• Sales rose 34.3 percent in local currency; currency impacts added 5.3 percent to sales.
• Majority of growth driven by electronics-related businesses in Asia along with electrical products for power infrastructure; commercial construction and telecom infrastructure industries remain challenging.
• Sales expanded in all geographic regions.
• Operating income increased more than six-fold to $137 million, with margins of 20.6 percent.