UPDATE 4-3M sees headwinds in 2011, shares dip

* Sees FY 2011 EPS $6.17-$6.37 ex-items

* Sees revenue of $29 billion to $30.5 billion

* Warns of headwinds in developed markets

* Offers organic sales growth forecast that disappoints

* Shares down 2.5 pct in early afternoon trading
(Rewrites throughout; updates shares)

By James B. Kelleher

CHICAGO, Dec 7 (BestGrowthStock) – 3M Co (MMM.N: ) said on Tuesday it
would face headwinds, especially in the developed world, that
would prevent sales from hitting internal targets in 2011, a
forecast that made its stock the biggest decliner on the Dow.

The diversified manufacturer, which makes everything from
Post-It Notes to industrial abrasives, expects organic sales to
grow 5.5 percent to 7.5 percent, below its long-run internal
target of 8 percent to 9 percent.

3M said the challenges it faces were largely macroeconomic
and concentrated in the United States and Western Europe.

The company warned that persistently high unemployment in
the United States, coupled with a growing savings rate among
U.S. consumers, would hold down results in its home market,
while “deep austerity measures in a growing number of Western
European economies and rolling debt crises” would retard growth
there.

It also said sales of its optical film, which is used to
brighten television and computers screens, would not be as
strong as it hoped in the near term because manufacturers were
discounting and more interested in price than technology.

It expects its “attachment rate” — an internal market
share measure — in the space to be just 40 percent in 2011,
down from the previous expectation of 55 percent.

Adam Fleck, an analyst at Morningstar, called the issues in
the optical film business a short-term problem for the
company.

“I don’t think 3M’s market positioning has dramatically
changed, but the business could well be a laggard over the next
several quarters,” he said.

3M, which has been on an M&A spree this year, also said it
expects to continue next year and plans to spend up to $3
billion on acquisitions.

So far in 2010, it has announced nearly a dozen
acquisitions, spending nearly $2.5 billion in the four deals
whose terms it disclosed.

Acquisitions have taken 3M, which already has a broad
lineup of consumer, industrial and medical products, into new
businesses such as biometrics and electronic people-monitoring,
and bolstered its presence in others, such as healthcare.

“Overall, 3M’s profit target is about what we were
expecting,” said Fleck. “But the firm’s continued commitment to
acquisitions is likely the biggest risk.”

He said 3M had “a pretty good track record with M&A —
60-plus acquisitions since 2005 with no write-off of goodwill
— but management must stay disciplined about purchase
prices.”

The manufacturer, which makes products ranging from Post-It
notes to industrial abrasives, expects a 2011 profit of $6.17
to $6.37 per share, excluding pension costs, on revenue of $29
billion to $30.5 billion.

Analysts’ average forecast was a profit of $6.20 per share
on revenue of $29.15 billion, according to Thomson Reuters
I/B/E/S.

Oliver Pursche, co-portfolio manager of the GMG Defensive
Beta Fund (MPDAX.O: ), which has been active in 3M shares
recently, said that, “although management is expressing some
caution over U.S. growth, we believe that the combination of
their acquisition strategy, as well as strong product lines may
lead to positive surprises on that front.”

3M said it sees more sales potential in Latin America than
in China. It said India and Latin America were “gathering
momentum in China-like fashion.”

Pursche was “particularly encouraged” by the company’s
projections about emerging market growth. He said 3M would
“benefit from the global wealth shift” that is helping to boost
growth in the developing world.

3M shares were down $2.16 at $84.72 in early afternoon
trading on the New York Stock Exchange.

Several major U.S. manufacturers are set to lay out their
2011 expectations to Wall Street this week. Executives from
General Electric Co’s (GE.N: ) finance arm brief analysts later
on Tuesday, while officials from United Technologies Corp
(UTX.N: ) and Rockwell Automation Inc (ROK.N: ) sit down with
investors later this week.
(Additional reporting by Scott Malone; editing by Dave
Zimmerman, John Wallace and Andre Grenon)

UPDATE 4-3M sees headwinds in 2011, shares dip