This is a summary of the second quarter fiscal 2008 earnings call conducted by 3M Company (MMM) on July 24, 2008.
Management:
Chairman, President and CEO: George W. Buckley
Senior VP and CFO: Patrick D. Campbell
Head of IR: Matt Ginter
Key Investor Issues:
- Profit was $945 million, or $1.33 a share, up from $917 million, or $1.25 a year ago.
- Excluding one-time items, profit for quarter would have been $1.39 a share, up from $1.23 a share last year.
- Quarterly sales increased 9.7% to $6.74 billion, helped by global sales, which currently account for about two-thirds of the company’s total revenue.
- Optical sales were down 36%, with profits down 54%.
- Full-year 2008 earnings are expected to increase at least 10% on 2007 earnings per share of $4.98, excluding special items.
Second Quarter Highlights:
The company posted record sales for the sixth consecutive quarter, and five of its six businesses achieved strong growth in sales and profits, including double-digit profit growth in three of its largest businesses.
Margins were 20% or better across the board.
The company converted nearly 100% of net income to free cash flow in the quarter, which enabled it to return nearly $1 billion to shareholders via combination of dividends and share repurchases.
The U.S. economy remained difficult, particularly in those areas that touch the consumer.
Commodity input prices continue to rise which pressured the company’s raw materials.
All information that is presented excludes the following special items:
Last year''s second quarter results included a net gain of $0.02 per share from special items. The second quarter of 2008 reported earnings per share of $1.33, included a net charge of $0.06 per share related to a loss on the divestiture of HighJump Software along with charges for asset activities at an industrial and transportation manufacturing facility in the UK.
Excluding special items, second quarter earnings per share were $1.39 as compared to $1.23 per share in last year''s second quarter.
Second quarter sales grew almost 10% to $6.7 billion, which represents the sixth consecutive quarter of record sales. In the company’s three largest global businesses, namely Industrial and Transportation, Health Care, and Safety, Security and Protection Services, revenues expanded at a double-digit clip.
On a local currency basis, sales were up 4.6% versus last year.
- Sales growth was strongest in international operations.
- Sales grew at a double-digit pace in Latin America, Europe and in Canada, and a 1% in Asia-Pacific.
- If Asia-Pacific results for Optical Systems are adjusted, sales growth was nearly 17% during the quarter.
- Operating income was up 8.5% to $1.5 billion as four of the six business segments delivered double-digit operating income percent increases.
Operating margins topped 22% for the quarter with all six business segments achieving 20% plus operating margins.
3M maintains superior operating margins while simultaneously investing in growth programs for the future. Earnings per share in the second quarter was $1.39, up 13% year-on-year.
The strength of the global portfolio was evident in the second quarter as sales increased almost 10% or 14% excluding the Optical business.
This 14% growth was a combination of organic growth, acquisitions, and positive currency impacts. This marks the sixth consecutive quarter of record sales. Gross margins were down slightly from last year''s comparable quarter. Raw materials rose year-on-year in the range of 3% to 4%.
- Excluding the Optical business, the company is able to offset this inflation with selling price increases along with relentless process improvements and cost reductions overall.
- Operating profit grew by 2.5% or 18%, and premium margins continued at 22.1%.
- Tax rate improved by almost two points to just under 31%, consistent with the company’s tax reduction strategy.
