3M shares fall on investor worries

By Ben Klayman

CHICAGO (Reuters) - 3M Co (MMM.N), whose products range from Scotch tape to optical films for liquid crystal displays, on Friday posted a stronger-than-expected quarterly profit, but shares fell almost 7 percent as investors worried about falling profits in the LCD television market.

3M, considered a bellwether for the U.S. economy, also raised its full-year profit outlook for the second consecutive quarter but lowered the high end of its forecast for sales growth.

"My initial reaction is this was a very ho-hum quarter," said Wayne Titche, chief investment officer of AMBS Investment Counsel in Grand Rapids, Michigan, and co-manager of the AHA Diversified Equity Fund.

Net income in the third quarter rose 7.4 percent to $960 million, or $1.32 a share, compared with $894 million, or $1.18 a share, in the year-earlier quarter.

Excluding one-time items, it earned $1.29 a share, 2 cents above what analysts polled by Reuters Estimates had expected.

Sales rose more than 5 percent -- helped by strong demand in health care and overseas -- to $6.18 billion, below the $6.26 billion analysts had expected. Excluding recently divested businesses, sales rose 9.4 percent.

"Obviously, not everything went perfectly. It never does," 3M Chief Executive George Buckley said on a conference call with analysts. "I would have preferred growth a little bit above 9.4 percent."

Buckley cited the weak U.S. housing market, which has hurt 3M's roofing granules business and won't soon rebound.

He also said there is slower growth of optical films for LCD TVs at the top end of the market, where 3M is strongest. Over the next several months, the company will offer new products in the low end of the market, which is more popular but offers lower margins.

"Defending our position here will cost us some price in the fourth quarter," Buckley said.

JP Morgan analyst Stephen Tusa said results in 3M's display and graphics business, which includes optical films, were weaker than expected. Margins also came in light due to heavy spending to increase capacity in some segments, he added in a research note. He has an "overweight" rating on 3M.

Investors watch large manufacturers like 3M for clues on the strength of the U.S. economy.

Caterpillar Inc (CAT.N), the world's largest maker of earth-moving equipment, on Friday reported a lower-than-expected quarterly profit and narrowed its outlook for the year, thus lowering the mid-point of the range by 15 cents a share.

St. Paul, Minnesota-based 3M raised its 2007 profit outlook to a range of $5.54 to $5.62, including a net gain of 60 to 65 cents a share for one-time items such as the sale of its branded drug business in Europe. Analysts are expecting $4.96 before one-time items.

In July the company, which also makes such products as Post-It notes and Thinsulate insulation, raised its 2007 profit forecast to a range of $5.40 to $5.60 a share.