UPDATE 3-3M profit meets forecasts; Japan hurts margins

* Q2 EPS $1.60 in line with estimates

* Q2 sales up 14 pct to $7.68 bln

* Sees 2011 EPS ex-items $6.32 to $6.47

* Shares down 3.3 percent (Rewrites first paragraph; adds analyst comment, byline)

By Nick Zieminski

NEW YORK, July 26 (Reuters) - 3M Co's (MMM.N) quarterly profit met Wall Street expectations on Tuesday, but its shares fell more than 3 percent as some investors were disappointed that the company did not follow the lead of its industrial peers with an earnings beat.

3M, whose products range from consumer goods like Post-It Notes to specialty films for computers and televisions, reported strong industrial demand but lower sales in its displays and graphics division, and the conglomerate said Japan's March earthquake had reduced sales and profit margins.

"If everybody else is beating and you're not, you lose," said analyst Brian Langenberg of Langenberg & Co. "It's a relative beauty contest."

Industrial peers W.W. Grainger (GWW.N), United Technologies (UTX.N), General Electric (GE.N), and Danaher (DHR.N) beat expectations this quarter, Langenberg said, while 3M's display and graphics business missed on both sales and profits, hurt in part by production disruptions in Japan.

Net earnings rose to $1.16 billion, or $1.60 per share, in the second quarter from $1.12 billion, or $1.54 per share, a year earlier.

While earnings only met analyst expectations, 3M's sales growth exceeded them. Sales rose 14 percent to a record $7.68 billion, above Wall Street forecasts of $7.60 billion.

The weaker U.S. dollar helped boost revenue, while a lower-than-expected tax rate supported earnings, several analysts noted.

The industrial and transportation segments showed the strongest sales growth, up 18 percent, while sales of consumer and office goods rose 4 percent. The only sales decline was in 3M's display and graphics segment, down 11 percent, partly reflecting lower production of liquid crystal displays.

TIGHTER CONSUMER MARKET

"A larger-than-anticipated contraction in LCD TV end-market demand affected our sales, reflecting a tighter consumer electronics market," 3M Chief Executive Officer George Buckley said.

Shares of 3M, part of the Dow Jones industrial average, were down 3.3 percent at $91.95 shortly before the market opened. The stock has outperformed its industrial peers since early June.

3M, which has greater exposure to Japan than most of its peers, said the March earthquake, which shut production of autos and consumer electronics, reduced quarterly earnings by 7 cents a share and hurt operating margins by half a percentage point. It expects the disaster to lower earnings in the back half the year by up to 5 cents a share.

Still, 3M raised the lower end of its 2011 profit forecast by 5 cents a share to a range of $6.32 to $6.47, excluding pension and other costs.

Because many of 3M's products are low-cost, quickly used and sold all over the world, the company is a barometer of global industrial health amid a European debt crisis, China's efforts to tame inflation, and stagnant economic growth in the United States.

Growth in Europe was actually the strongest in the quarter, followed by Latin America and Canada, Asia-Pacific, all up at double-digit percentage rates. U.S. sales grew a more modest 8.7 percent.

3M gets more than 30 percent of its sales from fast-growing emerging markets. (Reporting by Nick Zieminski, editing by Gerald E. McCormick and Lisa Von Ahn)