WRAPUP 1-Weak world economy stokes desire for deals - 3M and Honeywell

Wed Sep 19, 2012 12:18pm EDT

* Weak economy makes M&A targets more attractive

* Slowing gradual, not dramatic, Honeywell CEO says

* 3M chief calls long-term growth goal a "stretch target"

By Scott Malone

BOSTON, Sept 19 (Reuters) - The chief executives of 3M Co and Honeywell International Inc said the grim global economic outlook is whetting their appetite for acquisitions.

When organic growth opportunities slow, major U.S. companies typically turn to buying other businesses as a way of quickly boosting their revenue.

Honeywell CEO Dave Cote on Wednesday suggested that the uncertain economy has led some potential takeover targets to entertain lower-priced offers from his Morris Township, New Jersey-based company.

"When times are bad and everybody is uncertain about the future, that is the right time to buy," Cote told investors from Boston. "You don't' want to buy when everybody is saying, 'Wow, things are great, this is a good time to do it,' because you're probably catching things on the peak."

Inge Thulin, who took over as CEO of 3M in February, told investors that sellers' price expectations had declined. He said he was likely to pursue larger acquisitions than his predecessor George Buckley had, though he held to the company's target of doing $1 billion to $2 billion worth of takeovers per year.

"You will see fewer but more strategically important" deals, said Thulin, whose company makes a broad range of products from Post-It notes to films used in television screens. "They should be a little bit more sizable."

The company has not given up on its effort to acquire Avery-Dennsion Corp 's office products businesses, despite U.S. antitrust objections, 3M executives added.

GRIM GLOBAL ECONOMY

Europe's continued slump and weakening demand in Asia stood out as the two executives' main concerns.

Thulin said 3M's long-standing goal of growing sales by 7.0 percent to 8.0 percent a year, factoring out the effects of acquisitions and currency fluctuations, looked like a "stretch target" in the current economy.

"The market has changed since that target was put in place. It was done in a different economic environment," Thulin said. "Now it's a stretch target in a way and in 3M we have an organization that responds very well to stretches."

Honeywell's Cote said that in recent months the global economy had grown slightly weaker, though the maker of building-control systems and cockpit electronics has not seen any sharp changes in demand.

"This is more of a steady degradation," Cote said.

Honeywell believes the company will continue to grow sales despite the overall sluggishness, Cote told investors. "Next year, I think sales will generally be up, but it's not going to be anything that's exciting."

Investors have grown warier about company's prospects in the past few months, with the companies in the widely watched Standard & Poor's 500 index now expected to post a 2.1 percent collective profit decline in the third quarter, down from forecasts that called for 3.1 percent growth when the calendar quarter began on July 1, according to Thomson Reuters I/B/E/S.

The view is not quite so dark for Thulin and Cote's sector, though. Analysts look for industrial companies to record 4.7 percent earnings growth in the quarter, though that is down from an earlier 10.1 percent growth forecast.

EUROPE IS THE BIG WORRY

Europe, gripped in a debt crisis, remains corporate America's main worry, executives said.

"The European market is mixed. Northern Europe continues to be robust ... southern Europe clearly is depressed and a whole different story," said Carlos Cardoso, CEO of U.S. tool and engineering company Kennametal Inc.

That weakness has hurt the Latrobe, Pennsylvania-based company's sales, Cardoso told investors in New York.

"The first quarter is coming slightly below what we expected," he noted. Analysts had expected to rise about 5.5 percent in the company's first fiscal quarter, which ends Sept. 30.

All three companies' shares had muted reactions to the comments from executives on Wednesday. 3M was up 32 cents at $93.75, Honeywell was down 31 cents at $61.08 and Kennametal was up 1 percent to $38.98, while the S&P 500 was essentially unchanged.

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