3M Co. gave in to competitive pressures and said on Friday it would cut prices on its profitable films for LCD television screens. The news sent 3M shares down 5 percent.
The news and price drop came even as the maker of Scotch tape and Post-it Notes reported that third-quarter earnings climbed 7 percent on strong growth across all regions, and the company raised its profit outlook for the full year.
But the company said it would begin selling lower-priced films for coating LCD television screens to protect its dominant position for higher-priced films. Those films have been a key, profitable 3M product but have come under pressure as TV selling prices drop.
3M had resisted dropping prices on its LCD screen films, trying to maintain its identity as a high-end product. But low-cost TV makers such as U.S.-based Vizio Inc. have been grabbing market share fast. Vizio alone had 12 percent of the flat-panel market in the second quarter, more than four times its share a year before and larger than big names like Sony, Samsung, and Sharp, according to market researcher DisplaySearch.
Chairman and CEO George Buckley said the prices would drop during the fourth quarter of this year and the first quarter of 2008.
“Long term we are genuinely very positive about this market,” he said on a conference call. “It doesn’t mean in the short run you won’t have some hand-to-hand combat. You always do.”
Shares of 3M, a Dow component, dropped $4.73, or 5 percent, to $90 in morning trading.
For the third quarter, net income grew to $960 million, or $1.32 per share, from $894 million, or $1.18 per share, in the third quarter of 2006. Excluding gains in both periods, the company earned $1.29 in the latest quarter, up from $1.17 a year ago.
Revenue rose nearly 6 percent to $6.18 billion from $5.86 billion a year ago.
Analysts surveyed by Thomson Financial expected a profit of $1.28 per share on higher revenue of $6.29 billion. Analysts typically do not include one-time charges when polled by Thomson.
3M raised its outlook for 2007 earnings for the second time, forecasting a profit of $5.54 to $5.62 per share, up from a prior estimate of $5.40 to $5.60.
The new guidance includes a gain of 60 cents to 65 cents per share to account for the completed sale of its branded pharmaceuticals business in Europe.
Analysts were expecting earnings per share of $4.97 for fiscal 2007.
Operating profit in 3M’s Display and Graphics division, which makes the LCD films, fell 1.7 percent to $288 million, even as sales grew 2 percent to $1 billion. 3M reported a slight increase in sales of LCD films for televisions and computers.
Profits in 3M’s Industrial and Transportation division, the company’s largest, rose 11.5 percent to $378 million. Sales rose 9.3 percent to $1.8 billion. In local currency, sales rose 5.4 percent, including 1.2 percent from acquisitions.
3M said growth in its electronics and communications business was dampened by a sluggish consumer market. Operating profits rose 16.4 percent to $140 million. Sales in that division grew 7.6 percent to $714 million, although that included a boost from foreign exchange.