3M Co.’s sales growth in the second quarter fell short of Wall Street expectations amid sluggishness in China and Europe, but profit grew 2.6 percent and margins improved.
Chief Executive Inge Thulin said 3M was hurt by “somewhat softer” demand for materials used in consumer electronics, such as adhesives and films that go into screens for computers, tablets and phones. The company also pointed to weakness in its renewable-energy business, including film for solar panels.
The Maplewood-based maker of adhesives, abrasives and films reduced its forecast for full-year earnings per share to between $7.80 and $8, down from the range of $7.80 to $8.10 predicted three months ago. In 2014, earnings per share were $7.49.
The company, whose best-known products include Scotch tape and Post-it Notes, said operating profit margins in the second quarter were 23.9 percent, up 1.1 percentage points from the already strong year- earlier level. Much of that improvement came from lower raw-material costs.
The company reported strong demand for water-purification filters, masking tape used for painting, and materials that go into airplanes, cars and roofing shingles.
Executives spent a large chunk of a conference call defending themselves against analysts’ suggestions that they overpaid for Capital Safety, a maker of harnesses and other fall-protection equipment. The company agreed last month to buy Bloomington-based Capital Safety for $1.8 billion from KKR & Co., which paid $1.1 billion for the business in 2011. It said the purchase will cut earnings per share by four cents in the first 12 months of ownership and won’t meet 3M return-on-capital standards for five or six years.
Some analysts questioned why 3M didn’t buy back more shares instead of buying Capital Safety. Thulin called Capital Safety a high-class asset that will augment 3M’s line of personal-safety gear, which also includes face masks, ear plugs and reflective material. The company says increasingly strict worker- safety rules around the world drive demand for such equipment.
Profit was $1.30 billion, or $2.02 per share, up from $1.27 billion, or $1.91 per share, a year earlier. Wall Street had expected earnings of about $2 a share, according to FactSet. Sales fell 5.5 percent to $7.69 billion, well below analyst forecasts of around $7.8 billion. Organic sales, excluding currency effects and recent acquisitions, grew just 1.8 percent, far below the company’s long-run target of 4 percent to 6 percent. General Electric Co., another giant industrial conglomerate, had 5 percent organic growth in the latest quarter.
Organic sales grew 4.1 percent in the U.S. and 17 percent in Mexico but were down 1 percent in Western Europe and 2 percent in China. The company supplies adhesives and abrasives to Mexico’s burgeoning auto industry.
The company had expected recovery in Western Europe as a weak euro boosts exports. “So far we have not seen it,” Thulin said. “Probably it will come later in the year.”
Shares lost 3.8 percent to $149.50 on Thursday.
