3M's ( MMM) second-quarter earnings came in at the low end of the reduced guidance range it gave earlier this month. The manufacturer also predicted a stabilization in the market for liquid crystal display monitors, but said the profitability of its optical film unit would be crimped by a shift toward television sets from computers.

The company also said it is experiencing capacity constraints in units other than the troubled graphics division.

3M earned $882 million, or $1.15 a share, in the latest quarter, up 17% from $754 million, or 98 cents a share, a year ago. The latest period had a net 10-cent gain, excluding which 3M earned $1.05 a share. On July 7, the company had forecast second-quarter earnings of $1.04 to $1.09 a share. Analysts were looking for $1.07 a share in the period.

Second-quarter sales were $5.7 billion, up 7.5% from a year ago. Analysts were pegging $5.68 billion.

Shares of 3M are down 12% since the July 7 profit warning. At the time, the company cited lower-than-expected sales volume and higher-than-expected capacity start-up costs in optical systems division, which makes film used in flat-panel televisions and computer displays. The comments hurt LCD makers like Corning ( GLW) and even some electronics retailers like Circuit City ( CC).

In its release Tuesday, 3M said the July 7 warning reflected the sudden impact of high inventory levels among customers.

"While forecasting demand in this business is difficult, we anticipate that inventories will return to normal in the second half of the year and sales growth will accelerate as consumer demand for LCD TV increases," 3M said. "As a result, we continue to expect record sales of our optical films in 2006. Margins will be somewhat lower due to a shift in mix from monitors to larger format LCD televisions."

3M's problems are apparently not confined to its graphics and display unit. The company said Tuesday that gross margins were lower than expected in the second quarter due to capacity constraints in a handful of its core businesses.

"We are wasting no time in our efforts to add capacity in some key areas of the portfolio," said George W. Buckley, the 3M CEO appointed in December, "and in the meantime we are aggressively working to drive out manufacturing cost in the third and fourth quarters."

"I am confident that we will manage through these challenges and deliver on our second half expectations, while continuing to invest for the future," Buckley said. "There is no doubt whatsoever that our growth agenda is advancing and delivering real results. The near term difficulties with optical in no way diminish my optimism in 3M's prospects. We have injected much-needed investment into our core businesses, particularly in terms of sales coverage, advertising, merchandising and R&D, in order to accelerate our long-term growth capability."

3M put full-year earnings at $4.55 a share to $4.65 a share including the 10-cent gain recorded in the latest quarter. Analysts were forecasting $4.54 a share excluding the gain. For the third quarter, 3M put earnings at $1.10 to $1.15 share, slightly below the Thomson First Call consensus estimate of $1.16 a share.

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