3M sets 2011 profit targets; sees headwinds

CHICAGO (Reuters) - 3M Co provided investors with a preliminary profit forecast for 2011 that could top Wall Street expectations, saying strong growth in emerging markets, including India and Latin America, would offset continued weakness in the developed world.

But the company warned its optical film business, which brightens television and computers screens, was experiencing temporary headwinds because of discounting by TV makers, and it gave a forecast for organic sales growth that was lower than some analysts expected, sending its shares lower in early trading.

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," he said, "but the business could well be a laggard over the next several quarters."

3M, which has been on an M&A tear this year, also said it expects to continue that buying spree 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 has disclosed.

"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 diversified manufacturer, which makes products ranging from Post-It notes to industrial abrasives, said it expects 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.

Minneapolis-based 3M said it expects organic sales to grow 5.5 to 7.5 percent, driven by 10 to 12 percent growth in emerging economies.

The organic sales growth forecast was shy of what some analysts had hoped. Fleck said it was slightly below 3M's long-run internal target of 8 to 9 percent.

3M warned that "persistently high unemployment" in the United States, coupled with a growing savings rate among U.S. consumers, would hold down results there. It said "deep austerity measures in a growing number of Western European economies and rolling debt crises" would retard growth there.

Oliver Pusche, co-portfolio manager of the GMG Defensive Beta Fund , 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 said he 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.

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

3M shares were down $1.41 to $85.47 in morning trading.

Several major U.S. manufacturers are set to lay out their 2011 expectations to Wall Street this week. Executives from General Electric Co's finance arm brief analysts later on Tuesday, while officials from United Technologies Corp and Rockwell Automation Inc sit down with investors later this week.

(Additional reporting by Scott Malone)

(Reporting by James B. Kelleher, editing by Dave Zimmerman and John Wallace)