Consumer-products companies 3M (NYSE: MMM) and Johnson & Johnson (NYSE: JNJ) both posted results on Tuesday that investors clearly found less than inspiring.
Minnesota-based 3M -- which makes Post-it Notes, medical and surgical supplies, and Scotch tape, among other products -- reported net income of $928 million, or $1.28 per share -- a 1% dip from the $935 million, or $1.30 per share, for the final quarter of 2009. Sales were up 9.6% to $6.71 billion. The analysts' consensus expectation included earnings of $1.27 per share on sales of $6.59 billion, or just a penny below the actual results on the EPS line.
The one-cent beat, unlike the stronger quarters turned in by the likes of General Electric (NYSE: GE) and DuPont (NYSE: DD), compelled the market to shave 2% from 3M's shares to $88.50 in Tuesday's trading. As an erstwhile analyst, I'm inclined to defend the notion of forecasts that land as close to actual results as possible. But in 3M's case, without a tax rate reduction from 26.8% to 25.3%, earnings would have slid about $0.02 below the forecast.
Among the company's six sectors, the Electro and Communications unit led the parade with a 20.3% hike in its sales. Industrial and Transportation -- the biggest unit with $2.1 billion in revenues -- was up 10.4%, while Display and Graphics increased its contribution to the top line by 10.2%. In contrast, while sales for the Health Care segment were up 5.9%, fully 4.3% of the growth was tied to an acquisition. Last year's Health Care results got a boost from the scare related to the H1N1 "swine flu."
Perhaps because 3M is considered an economic bellwether, along with such other major (although disparate) companies as Caterpillar and Procter & Gamble -- both of which will report this week -- CEO George Buckley discussed the nation's economy at some length during his post-release call. As he said, "I don't expect to see big improvements in the U.S. until employment takes a turn for the better." On that basis, "we will spend cautiously in the early part of this year."
But despite 3M's uninspiring results, increasing costs, lower margins, and an economy that is still struggling, management's expectations remain somewhat positive. In fact, the company raised its forecast for 2011 to $5.95 to $6.20 per share, versus the prior range of $5.90 to $6.10.
My inclination regarding 3M's shares is to remain on the sidelines, at least until more economically sensitive companies have checked in during this earnings season. By then, we should have a better notion of whether, for instance, DuPont's surprising thumping of the analysts' numbers or 3M's flattish results is more indicative of future trends.
