Earnings Reports for Jan. 18

Diversified manufacturing giant Minnesota Mining & Manufacturing said today it plans to boost profits by aggressively controlling costs but its stock tumbled following news of disappointing fourth-quarter earnings. Analysts said the earnings shortfall may mean the honeymoon is over for Chief Executive Officer James McNerney Jr. The long-term General Electric executive moved into the top spot on Jan. 1.

"It's a tough position for him, but by the same token, provides him with a clean slate," said Jonathan Rosenzweig, an analyst with Salomon Smith Barney.

The St. Paul-based company said late Tuesday that its fourth-quarter net income was little changed at $447 million, or $1.12 a fully diluted share, below the $1.20 that had been expected in a First Call/Thomson Financial survey of analysts. It blamed the U.S. economy, which slowed in December, plus the strength of the U.S. dollar.

"There [is] a significant slowdown in the U.S. economy," McNerney said in a conference call with analysts. "The magnitude was greater than we anticipated. The adjustments were not fast enough to achieve earnings expectations for the quarter."

The maker of Post-It Notes, Scotch tape, adhesives and abrasives said it still plans to increase 2001 earnings 10 percent by cutting costs, including headcount. No restructuring charge is planned, it said.

Analysts said few specifics were provided about how 3M plans to cut costs. 3M officials were not available to comment further.

On a telephone conference call with analysts this morning, 3M officials said they expect to achieve "significant" attrition in the company's employment levels.

"In terms of planning going forward, what we've got is significant attrition in our forecast over years, clamping down on head count additions," a 3M official said on the conference call. "Overall, headcount will be up slightly because of acquisitions."

The company, which had 74,440 employees as of Sept. 30, generally loses about 2,000 workers, or 2.7 percent, through attrition each year.

Some analysts said they were slightly skeptical about how 3M will achieve its earnings goals.

"It seems like it's going to take quite a bit of cost improvement to get 10 percent earnings improvement with the kind of weak top line they're talking about in the U.S.," said Peter Enderlin, a Ryan, Beck analyst. He noted that overseas volumes, however, so far have been strong.

Others said they are worried that the U.S. slowdown might eventually affect 3M's overseas operations as well.

"The concern going forward from here is what happens to the international revenue. What's the risk that they slowdown?" said Salomon Smith Barney's Rosenzweig.

He said the strength of the U.S. dollar shouldn't have as much of an impact on 2001 earnings as it did last year.

"Obviously the yen works against them, but the euro is working more in their favor than it was," he said.

The translation of foreign profits into U.S. dollars trimmed 5 cents a share from fourth-quarter earnings.

3M's stock, a component of the Dow 30, has outperformed the Dow Jones industrial average by more than 20 percent since about a year ago. Most of those gains came on speculation and the eventual news that 3M would name McNerney, the first outsider to run the company in its nearly 100-year history.

3M said it will issue a more detailed financial statement next week but will not hold another analyst conference call. BACK TO TOP

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