3M's CEO Discusses Q1 2012 Results - Earnings Call Transcript

3M (MMM)

Q1 2012 Earnings Call

April 24, 2012 9:00 am ET


Matt Ginter - Manager-Investor Relations

Inge G. Thulin - Chief Executive Officer, President and Director

David W. Meline - Chief Financial Officer and Senior Vice President


Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division

Deane M. Dray - Citigroup Inc, Research Division

Ajay Kejriwal - FBR Capital Markets & Co., Research Division

Abhiram Rajendran - Crédit Suisse AG, Research Division

Terry Darling - Goldman Sachs Group Inc., Research Division

Jeffrey T. Sprague - Vertical Research Partners Inc.

Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division

John E. Roberts - The Buckingham Research Group Incorporated

Nigel Coe - Morgan Stanley, Research Division

Charles Stephen Tusa - JP Morgan Chase & Co, Research Division

Laurence Alexander - Jefferies & Company, Inc., Research Division



Ladies and gentlemen, thank you for standing by. Welcome to the 3M First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, April 24, 2012. I would now like to turn the call over to Matt Ginter, Vice President of Investor Relations at 3M.

Matt Ginter

Thank you. Good morning, everyone, and welcome to our first quarter business review. With me today are Inge Thulin, 3M President and Chief Executive Officer; and David Meline, Chief Financial Officer. Before we begin, I'd like to mention a few calendar items. We will announce our second quarter earnings on Thursday, July 26 and our third quarter earnings on Tuesday, October 23. In addition, we are planning to host our next Investor Day in St. Paul on Thursday, November 8. We'll provide more details of the future. But for now, please hold these dates on your calendars. Please take a moment to read the forward-looking statement on Slide 2.

During today's conference call, we will make certain predictive statements that reflect our current views about our future performance and financial results. We base these statements on certain assumptions and expectations of future events that are subject to risks and uncertainties. Item 1A of our most recent Form 10-K lists some of our most important risk factors that could cause actual results to differ from our predictions.

So let's begin today's review, and I'll turn the program over to Inge. Please turn to Slide #3.

Inge G. Thulin

Thank you, Matt, and good morning, everyone. Thanks for joining us on the call today. I'm very pleased to report that we're off to a good start this year, with positive sales, operating income and EPS growth. In fact, we achieved an all-time Q1 sales record of $7.5 billion. Industrial and Transportation, SS&PS, Health Care and Consumer and Office all performed well, while weakness in Electronics, Display and Graphics, and Electro and Communications. As we said, we looked for the electronics market to pick up as the year goes on.

Geographically, for 3M, the Americas was strong. Asia Pacific was somewhat slower and Western Europe held its own with very good operational discipline. For the company, operating margins improved to nearly 22%, with 5 out of 6 businesses above 20%. We executed well, and the result was a 7% increase in EPS to $1.59, including a $0.04 charge for a voluntary early retirement program and some miscellaneous restructuring.

In February, we announced a 7% dividend increase, 3M's 54th consecutive annual increase. The first quarter dividend payment combined with Q1 share repurchases of over $500 million resulted in a first quarter return to shareholders of nearly $1 billion. So we're off to a good start, one that sets the right tone for the rest of the year and one that gives us confidence in our ability to deliver even against weak segments and regions and against an uncertain global economy.

I thank the 3M team for their outstanding work that achieved these very good results. The quarter highlights their ability to manage 3M's embedded systems and tools to drive operational excellence, and I'm extremely pleased with the outcome. Now David will take you through the detail of the quarter. David?

David W. Meline

Thank you, Inge. Let's begin with sales. Please turn to Slide #4. First quarter sales were $7.5 billion, up 2.4% year-on-year. Organic local currency growth was 1.8% in the first quarter, with volumes up just slightly and selling prices up 1.7%. Acquisitions added 1.5% to sales in the quarter and foreign exchange impacts reduced sales by nearly one percentage point.

On a geographic basis, total growth was the strongest in the combined Latin America/Canada region at more than 8%. Organic local currency growth was nearly 12% in the quarter, so our teams here continued to do an excellent job of building the business. Currency impacts reduced sales in the region by nearly 4%, largely due to weakness in the Mexican peso and the Brazilian real.

In the United States, sales grew 6.3% with double-digit increases in both Industrial and Transportation and in Safety, Security and Protection Services. The U.S. manufacturing sector remains quite robust and we are seeing some good growth as a result. Sales in Asia Pacific declined by 2% in the quarter, reflecting slower year-on-year demand in global consumer electronics, along with slower growth in China. Both were fully anticipated in our prior outlook, so no real surprises here.

On the electronics side, we continue to expect the market to turn positive around midyear. As for China, we are expecting below trend growth in the second quarter with better growth rates returning in the second half of the year. Sales in Europe were basically flat in Q1, with strength in Middle East Africa and Central East Europe offset by year-on-year declines in the West. In aggregate, the economies in Western Europe have stabilized at least for the moment, so things are not getting worst sequentially, but they are also not getting better. We built our 2012 plan on this basis so thus far, things are progressing as expected.

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