3M News Center

3M Reports Higher First-Quarter Sales and Earnings; Q1 2005 EPS Increases 14.4 Percent

Monday, April 18, 2005 6:32 am CDT

Dateline:

ST. PAUL, Minn.
"Looking ahead, we will continue to leverage sales growth and productivity improvements into sustainable earnings growth despite continued slow growth in the mature economies"

ST. PAUL, Minn.--(BUSINESS WIRE)--3M (NYSE:MMM) today announced a 14.4 percent increase in first-quarter earnings per share.

The company reported net income of $809 million, or $1.03 per share, versus $722 million, or $0.90 per share in the first quarter of 2004. Net income increased 12.0 percent.

"Broad-based productivity improvements achieved through our corporate initiatives and solid growth in key areas, like optical films and health care, helped us deliver over 14 percent earnings per share growth in the first quarter," said W. James McNerney, Jr., 3M chairman and CEO. "Improved operational efficiency, sales growth, and pricing were key to overcoming slow economic growth in Western Europe and Japan and continued raw material price pressure."

Worldwide sales in the first quarter totaled $5.17 billion, 4.6 percent higher than in the year-earlier quarter. Local currency sales increased 2.3 percent, with selling prices contributing 0.5 percent. Currency effects increased sales by 2.3 percent. Local-currency sales increased 5.2 percent in Health Care; 4.5 percent in Transportation; 3.0 percent in Safety, Security and Protection Services; 2.6 percent in Industrial; and 0.6 percent in Display and Graphics; and declined 0.5 percent in Consumer and Office, and 1.4 percent in Electro and Communications.

"Looking ahead, we will continue to leverage sales growth and productivity improvements into sustainable earnings growth despite continued slow growth in the mature economies," McNerney said. "We expect to deliver higher organic growth rates the rest of this year through new product sales enabled by our diverse technology platforms; our Acceleration initiative; growth drivers, like LCD films; and our strong presence in fast-growth markets like China and Eastern Europe."

3M also reaffirmed its earnings guidance for 2005. For the year, the company expects earnings to be within a range of $4.15 to $4.25 per share. The company expects full-year local currency growth of 5 to 8 percent. Second-quarter earnings are expected to be in the range of $1.08 to $1.10 per share, with local currency growth of 4 to 7 percent.

Patrick D. Campbell, senior vice president and chief financial officer, will conduct an investor teleconference at 9 a.m. Eastern Time (8 a.m. Central Time) today. Investors can access a webcast of this conference, along with related charts and materials, at http://investor.3M.com.

Forward-Looking Statements

This news release contains forward-looking information (within the meaning of the Private Securities Litigation Reform Act of 1995) about the company's financial results and estimates, business prospects, and products under development that involve substantial risks and uncertainties. You can identify these statements by the use of words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. Among the factors that could cause actual results to differ materially are the following: (1) worldwide economic conditions; (2) foreign currency exchange rates and fluctuations in those rates; (3) the timing and acceptance of new product offerings; (4) the availability and cost of purchased components and materials, including oil-derived compounds; (5) 3M's ability to successfully integrate and obtain the anticipated synergies from acquisitions and strategic alliances; (6) generating less operating income from its corporate initiatives than estimated; and (7) legal proceedings, including the outcome of and information derived from pending Congressional action concerning asbestos-related litigation and other significant developments that could occur in the legal proceedings described in the company's Annual Report on Form 10-K for the year ended December 31, 2004 (the "Report"). Changes in such assumptions or factors could produce significantly different results. A further description of these factors is located in the Report. The information contained in this news release is as of the date indicated. The company assumes no obligation to update any forward-looking statements contained in this release as a result of new information or future events or developments.

About 3M - A Global, Diversified Technology Company

Every day, 3M people find new ways to make amazing things happen. Wherever they are, whatever they do, the company's customers know they can rely on 3M to help make their lives better. 3M's brands include Scotch, Post-it, Scotchgard, Thinsulate, Scotch-Brite, Filtrete, Command and Vikuiti. Serving customers in more than 200 countries around the world, the company's 67,000 people use their expertise, technologies and global strength to lead in major markets including consumer and office; display and graphics; electronics and telecommunications; safety, security and protection services; health care; industrial and transportation. For more information, including the latest product and technology news, visit www.3M.com.

Scotch, Post-it, Scotchgard, Thinsulate, Scotch-Brite, Filtrete, Command and Vikuiti are trademarks of 3M.

3M Company and Subsidiaries

       
CONSOLIDATED STATEMENT OF INCOME
(Millions, except per-share amounts)
(Unaudited)
 
Three-months ended
March 31
  2005     2004  
Net sales $ 5,166   $ 4,939  
Operating expenses
Cost of sales 2,537 2,436
Selling, general and administrative
expenses 1,114 1,104
Research, development and related
expenses   291     282  
Total   3,942     3,822  
Operating income   1,224     1,117  
Interest expense and income
Interest expense 20 19
Interest income   (16 )   (10 )
Total   4     9  
Income before income taxes and minority
interest 1,220 1,108
Provision for income taxes 396 366
Minority interest   15     20  
Net income $ 809 $ 722
Weighted average common shares
outstanding - basic 771.7 782.9
Earnings per share - basic $ 1.05   $ 0.92  
Weighted average common shares
outstanding - diluted 787.0 799.5
Earnings per share - diluted $ 1.03   $ 0.90  
Cash dividends paid per common share $ 0.42   $ 0.36  
 
 
3M Company and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in millions)
(Unaudited)
           
Mar. 31, Dec. 31, Mar. 31,
ASSETS   2005   2004   2004
Current assets

 

 

 

Cash and cash equivalents $ 2,669 $ 2,757 $ 1,818
Accounts receivable - net 2,899 2,792 2,904
Inventories 1,980 1,897 1,880
Other current assets   1,374   1,274   1,461
Total current assets 8,922 8,720 8,063
Investments 280 227 211
Property, plant and equipment - net 5,624 5,711 5,512
Goodwill, intangible assets and other
assets   5,929   6,050   4,192
Total assets $ 20,755 $ 20,708 $ 17,978
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings and current
portion of long-term debt $ 2,201 $ 2,094 $ 1,106
Accounts payable 1,201 1,168 1,066
Accrued payroll 492 487 471
Accrued income taxes 950 867 986
Other current liabilities   1,393   1,455   1,534
Total current liabilities 6,237 6,071 5,163
Long-term debt 707 727 1,718
Other liabilities   3,521   3,532   2,996
Total liabilities   10,465   10,330   9,877
Total stockholders' equity - net   10,290   10,378   8,101
Shares outstanding
March 31, 2005: 769,570,205 shares
December 31, 2004: 773,518,281 shares
March 31, 2004: 782,114,154 shares

 

 

 

Total liabilities and stockholders'
equity $ 20,755 $ 20,708 $ 17,978
 
 
3M Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
(Unaudited)
       
Three-months ended
March 31
2005 2004
SUMMARY OF CASH FLOW:
 
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,003 $ 942
Cash flows from investing activities:
Purchases of property, plant and equipment (235) (158)
Acquisitions, net of cash acquired - (80)
Other investing activities   (67)   19
NET CASH USED IN INVESTING ACTIVITIES   (302)   (219)
Cash flows from financing activities:
Change in debt 107 (133)
Purchases of treasury stock (671) (438)
Reissuances of treasury stock 195 134
Dividends paid to stockholders (324) (282)
Other financing activities   (57)   (12)
NET CASH USED IN FINANCING ACTIVITIES   (750)   (731)
Effect of exchange rate changes on cash   (39)   (10)
Net increase (decrease) in cash and cash equivalents (88) (18)
Cash and cash equivalents at beginning of period   2,757   1,836
Cash and cash equivalents at end of period $ 2,669 $ 1,818
 
 
3M Company and Subsidiaries
SUPPLEMENTAL CASH FLOW AND
OTHER SUPPLEMENTAL FINANCIAL INFORMATION
(Dollars in millions)
(Unaudited)
       
Three-months ended

March 31

2005 2004
NON-GAAP MEASURES
 
Free Cash Flow:
Net cash provided by operating activities $ 1,003 $ 942
Purchases of property, plant and equipment   (235 )   (158 )
Free Cash Flow (a) $ 768   $ 784  
 
Net Working Capital Turns (b)   5.6     5.3  
 

(a) Free cash flow is not defined under GAAP. Therefore, it is considered a non-GAAP measure. Non-GAAP measures should not be considered a substitute for income or cash flow data prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. The company defines free cash flow as net cash provided by operating activities less purchases of property, plant and equipment. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures. The company believes free cash flow is a useful measure of performance and uses this measure as an indication of the strength of the company and its ability to generate cash. (b) The company uses non-GAAP measures that place emphasis and focus on certain working capital assets and liabilities. 3M's net working capital index is defined as quarterly net sales multiplied by four, divided by ending net accounts receivable plus inventory less accounts payable. This measure is not recognized under U.S. generally accepted accounting principles and may not be comparable to similarly titled measures used by other companies.

(b) The company uses non-GAAP measures that place emphasis and focus on certain working capital assets and liabilities. 3M's net working capital index is defined as quarterly net sales multiplied by four, divided by ending net accounts receivable plus inventory less accounts payable. This measure is not recognized under U.S. generally accepted accounting principles and may not be comparable to similarly titled measures used by other companies.

 
3M Company and Subsidiaries
SALES CHANGE ANALYSIS
(Unaudited)
           
Three-Months Ended March 31, 2005
 
Sales Change Analysis United Inter-
By Geographic Area States national Worldwide
Volume - core 1.1 % 1.8 % 1.5 %
Volume - acquisitions 0.4   0.2   0.3  
Volume - total 1.5 2.0 1.8
Price 1.7   (0.2 ) 0.5  
Total local-currency sales 3.2 1.8 2.3
Translation -   3.7   2.3  
Total sales change 3.2 % 5.5 % 4.6 %
 
 
 
Worldwide Local- Total
Sales Change Analysis currency Trans- Sales
By Business Segment Sales lation Change
Health Care 5.2 % 2.7 % 7.9 %
Industrial 2.6 2.9 5.5
Display and Graphics 0.6 1.4 2.0
Consumer and Office (0.5 ) 2.3 1.8
Safety, Security and
Protection Services 3.0 2.6 5.6
Electro and Communications (1.4 ) 2.4 1.0
Transportation 4.5 2.8 7.3
 
3M Company and Subsidiaries
BUSINESS SEGMENTS
(Dollars in millions)
(Unaudited)

Effective January 1, 2005, as part of the continuing effort to drive growth by aligning businesses around markets and customers, the Electronics Markets Materials Division and certain high temperature and display tapes (2004 sales of approximately $350 million) within the Industrial Business transferred to the Electro and Communications Business, and the converter markets product line (2004 sales of approximately $10 million) within the Transportation Business transferred to the Display and Graphics Business. Internal management reporting for these business segment transfers commenced January 1, 2005, with segment information for all periods presented adjusted to reflect the new segment structure.

       
BUSINESS
SEGMENT Three-months ended
INFORMATION March 31
(Millions) 2005 2004
 
NET SALES
Health Care $ 1,113 $ 1,031
Industrial 904 856
Display and Graphics 862 845
Consumer and Office 699 686
Safety, Security and Protection Services 557 527
Electro and Communications 557 551
Transportation 467 435
Corporate and Unallocated   7     8  
Total Company $ 5,166   $ 4,939  
 
OPERATING INCOME
Health Care $ 309 $ 262
Industrial 184 154
Display and Graphics 286 294
Consumer and Office 122 122
Safety, Security and Protection Services 133 125
Electro and Communications 103 77
Transportation 126 119
Corporate and Unallocated   (39 )   (36 )
Total Company $ 1,224   $ 1,117  
 
3M Company and Subsidiaries
SUPPLEMENTAL UNAUDITED BUSINESS SEGMENT INFORMATION
(Dollars in millions)
(Unaudited)

3M is also including supplemental unaudited business segment information on both an annual and quarterly basis for the years ended December 31, 2004, 2003 and 2002 reflecting adjusted historical information for the new segment structure. The company has begun reporting results under this new structure effective January 1, 2005.

Supplemental Unaudited Annual Business Segment Information Based on Structure Effective January 1, 2005:

                       
Business Segment Depr. Capital
Information Net Operating and Expendi-
(Millions) Sales Income Assets Amort. tures
Health Care 2004 $4,230 $1,123 $2,636 $179 $165
2003 3,995 1,027 2,544 169 144
2002 3,560 900 2,409 166 183
Industrial 2004 3,444 610 2,451 181 154
2003 3,070 425 2,390 185 139
2002 2,943 478 2,447 168 154
Display and Graphics 2004 3,416 1,133 2,647 178 261
2003 2,970 886 2,570 159 126
2002 2,237 535 2,476 135 84
Consumer and Office 2004 2,861 542 1,468 104 106
2003 2,607 460 1,378 108 86
2002 2,444 448 1,354 108 90
Safety, Security and 2004 2,125 491 1,317 101 99
Protection Services 2003 1,928 437 1,139 100 46
2002 1,686 338 1,097 97 105
Electro and 2004 2,224 342 1,801 163 95
Communications 2003 2,101 288 1,833 165 65
2002 2,034 262 1,871 158 81
Transportation 2004 1,674 426 887 63 56
2003 1,531 388 872 68 64
2002 1,380 331 846 66 58
Corporate and 2004 37 (89) 7,501 30 1
Unallocated 2003 30 (198) 4,874 10 7
2002 48 (246) 2,829 56 8
Total Company 2004 $20,011 $4,578 $20,708 $999 $937
2003 18,232 3,713 17,600 964 677
2002 16,332 3,046 15,329 954 763
 

Segment assets for the seven operating business segments (excluding Corporate and Unallocated) primarily include accounts receivable; inventory; property, plant and equipment - net; goodwill and intangible assets; and other miscellaneous assets. Assets included in Corporate and Unallocated principally are cash and cash equivalents; insurance receivables; deferred income taxes; certain investments and other assets, including prepaid pension assets; and certain unallocated property, plant and equipment. Corporate and Unallocated assets increased approximately $2.6 billion in 2004, primarily due to increases in prepaid pension assets ($2.0 billion) and increases in cash and cash equivalents ($0.9 billion), with partial offsets in other asset accounts. Corporate and Unallocated assets increased approximately $2.0 billion in 2003 due to increases in cash and cash equivalents ($1.2 billion), increases in other current assets and other assets primarily related to higher insurance receivables and prepaid items ($500 million), and goodwill increases related to the 2003 acquisition of an additional 25% of Sumitomo 3M ($300 million). For management reporting purposes, corporate goodwill (which at December 31, 2004, totaled approximately $360 million), is not allocated to the seven operating business segments. Corporate goodwill has been allocated to the respective market segments as required by SFAS No. 142 for impairment testing.

Corporate and Unallocated operating income principally includes corporate investment gains and losses, certain derivative gains and losses, insurance-related gains and losses, certain litigation expenses, corporate restructuring program charges and other miscellaneous items. Because this category includes a variety of miscellaneous items, it is subject to fluctuation on a quarterly and annual basis. In 2004, Corporate and Unallocated operating income includes increases of $40 million in the respirator mask/asbestos litigation reserves, partially offset by a $20 million increase in the associated receivables resulting in a net cost of $20 million, and also includes a $6 million increase in implant litigation reserves and a $10 million decrease in implant receivables resulting in a net cost of $16 million. In 2003, this includes a pre-tax charge of $93 million recorded during the first quarter related to an adverse ruling associated with a lawsuit filed against 3M in 1997 by LePage's Inc. Corporate and unallocated operating income in 2003 also includes increases of $231 million in the respirator mask/asbestos litigation reserves, partially offset by a $205 million increase in the associated receivables, resulting in a net cost of $26 million. In 2002, Corporate and Unallocated operating income includes charges of $202 million related to the 2001/2002 corporate restructuring program. Depreciation and amortization of $954 million included accelerated depreciation (shortened lives) of $47 million related to the restructuring plan (recorded in Corporate and Unallocated).

Supplemental Unaudited Quarterly Business Segment Information Based on Structure Effective January 1, 2005:

                       
NET SALES First Second Third Fourth Total
(Millions) Quarter Quarter Quarter Quarter Year
Health Care 2004 $ 1,031 $ 1,049 $ 1,035 $

1,115

$

4,230
2003 946 1,017 1,012 1,020 3,995
2002 845 896 901 918 3,560
Industrial 2004 856 867 852 869 3,444
2003 756 764 759 791 3,070
2002 707 750 743 743 2,943
Display and Graphics 2004 845 884 843 844 3,416
2003 663 721 774 812 2,970
2002 507 585 574 571 2,237
Consumer and Office 2004 686 675 737 763 2,861
2003 612 637 673 685 2,607
2002 569 602 628 645 2,444
Safety, Security and 2004 527 547 525 526 2,125
Protection Services 2003 458 518 482 470 1,928
2002 413 445 423 405 1,686
Electro and 2004 551 572 557 544 2,224
Communications 2003 500 532 524 545 2,101
2002 490 532 513 499 2,034
Transportation 2004 435 409 409 421 1,674
2003 379 381 384 387 1,531
2002 347 337 350 346 1,380
Corporate and 2004 8 9 11 9 37
Unallocated 2003 4 10 8 8 30
2002 12 14 11 11 48
Total Company 2004 $ 4,939 $ 5,012 $ 4,969 $

5,091

$

20,011

2003 4,318 4,580 4,616

4,718

18,232

2002 3,890 4,161 4,143

4,138

16,332

 

Supplemental Unaudited Quarterly Business Segment Information Based on Structure Effective January 1, 2005:

                       
OPERATING INCOME First Second Third Fourth Total
(Millions) Quarter Quarter Quarter Quarter Year
Health Care 2004 $ 262 $ 274 $ 277 $ 310 $ 1,123
2003 238 263 272 254 1,027
2002 220 213 224 243 900
Industrial 2004 154 158 157 141 610
2003 122 96 106 101 425
2002 112 129 126 111 478
Display and Graphics 2004 294 312 287 240 1,133
2003 182 210 251 243 886
2002 118 147 141 129 535
Consumer and Office 2004 122 123 150 147 542
2003 110 108 128 114 460
2002 105 108 121 114 448
Safety, Security and 2004 125 136 123 107 491
Protection Services 2003 105 131 111 90 437
2002 86 92 89 71 338
Electro and 2004 77 89 92 84 342
Communications 2003 58 77 75 78 288
2002 51 82 70 59 262
Transportation 2004 119 105 104 98 426
2003 100 94 106 88 388
2002 85 79 87 80 331
Corporate and 2004 (36) (11) (7) (35) (89)
Unallocated 2003 (134) (19) (19) (26) (198)
2002 (64) (164) (7) (11) (246)
Total Company 2004 $ 1,117 $ 1,186 $ 1,183 $ 1,092 $ 4,578
2003 781 960 1,030 942 3,713
2002 713 686 851 796 3,046
 
 
3M Company and Subsidiaries
SUPPLEMENTAL UNAUDITED GEOGRAPHIC AREA INFORMATION
(Dollars in millions)
(Unaudited)
 

Effective January 1, 2005, the company realigned its reporting for the African Region, which previously was included in the Latin America/Canada Region, to the Europe and Middle East Region. 3M is including below supplemental unaudited segment information on an annual basis for the years ended December 31, 2004, 2003 and 2002 reflecting adjusted historical information for its new geographic area structure. Reporting for this new geographic area structure commenced January 1, 2005. Geographic area information, which the company uses as a secondary performance measure to manage its businesses, follows. Export sales and certain income and expense items are reported within the geographic area where the final sales to 3M customers are made.

Supplemental Unaudited Annual Geographic Area Information Based on Structure Effective January 1, 2005:

                 

Geographic Area Information

Europe,

          Middle Latin
East America Other
United and Asia and Unallo- Total
(Millions) States Africa Pacific Canada cated Company
Net sales to 2004 $ 7,878 $ 5,183 $ 5,168 $ 1,731 $ 51 $ 20,011
customers 2003 7,581 4,718 4,335 1,556 42 18,232
2002 7,426 4,111 3,431 1,316 48 16,332
Operating
income 2004 $ 1,200 $ 1,014 $ 1,874 $ 483 $ 7 $ 4,578
2003 1,213 809 1,373 427 (109) 3,713
2002 1,180 704 1,009 370 (217) 3,046
Property,
plant and 2004 $ 3,290 $ 1,288 $ 810 $ 323 $ - $ 5,711
equipment -
net 2003 3,342 1,235 724 308 - 5,609
2002 3,523 1,139 676 283 - 5,621
 

In 2003, operating income for other unallocated includes pre-tax charges of $93 million related to an adverse ruling in a lawsuit filed against 3M in 1997 by LePage's Inc. In 2002, operating income for other unallocated includes losses totaling $202 million related to the 2001/2002 corporate restructuring program.

Contact:

3M, St. Paul
Investor Contacts:
Mark Colin, 651-733-8206
or
Bruce Jermeland, 651-733-1807
or
Media Contact:
Jacqueline Berry, 651-733-3611

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