Diversified U.S. manufacturer 3M Co handily beat Wall Street expectations, helped by strong demand for its respiratory masks that are being snapped up by people afraid of the swine flu.

Shares of the blue-chip industrial surged nearly 6 percent on Thursday to their highest point since September and lifted the Dow Jones industrial average <.DJI>, even as 3M management stayed cautious about the economy's direction.

The green shoots are certainly there, we admit that. We just want to be sure that they aren't weeds, Chairman and Chief Executive George Buckley told analysts.

3M, which also reported strong demand for its optical films used in flat-panel televisions, expects the U.S. economy to hit bottom during the ongoing third quarter, Buckley added.

The company raised its revenue forecast for the year and lifted the low end of its profit forecast. In contrast, fellow industrials Danaher Corp and Cooper Industries Ltd cut the top end of their forecasts.

Danaher shares fell, and Cooper's were little changed.

3M management said its beat was due to aggressive cost-chopping, including some 1,600 job cuts worldwide in the quarter.

This management is proving they're fairly capable at the switch. Very good cash management, decent forecasting of what's going on in their businesses, said Daniel Ortwerth, analyst at Edward Jones in St. Louis, who covers 3M. It seems they have a pretty good handle on what's happening out there and how to manage it.

Across the industrial sector, CEOs have had a laser focus on costs this year, though that will not guarantee they top Wall Street expectations.

Earlier in the week, Caterpillar Inc blew past predictions and sent its stock climbing, while United Technologies Corp lowered its forecast despite aggressive cost measures and saw its shares slide.

Industrials are suffering pretty much across the board and it is too early to justify added investment in the sector, said Eric Schoenstein, principal at Jensen Investment Management in Portland, Oregon, which owns shares of 3M, Emerson Electric Co , United Tech and Danaher.

The U.S. economy still faces rising unemployment, a deteriorating commercial real estate sector, and ongoing credit problems, though the pace of declines has slowed.

I don't know how you look at any part of '09 as any kind of recovery, Schoenstein said. A key theme for investors is what the new normal will look like, with slower long-term growth appearing increasingly likely, he added.


Despite better-than-expected results, St. Paul, Minnesota-based 3M kept a cautious tone on the economy. Management raised its revenue forecast for the year and hiked the low end of its profit forecast, but still expects double-digit percentage declines in sales and earnings.

The company, which also makes Scotch tape and medical products, expects annual sales from continuing businesses to drop by 10 percent to 13 percent, a more modest decline than its prior forecast for a fall of 11 percent to 15 percent.

It now looks for 2009 profit of $4.10 to $4.30 per share, raising the low end of its forecast from $3.90.

Second-quarter net income fell to $783 million, or $1.12 per share, from $945 million, or $1.33 per share, a year earlier. Factoring out one-time items, the company earned $1.20 per share, while analysts looked for 94 cents per share.

The beat was across the board vs our model, with very few items to pick at. Even subtracting special items, this was an across-the-board beat, JP Morgan analyst Steve Tusa wrote in a note to clients on 3M. Expectations were high going in, but we think this is enough, especially relative to others.


Both Danaher and Cooper reported quarterly results that topped expectations, but lowered the top ends of their 2009 forecasts.

Danaher, maker of Craftsman tools, as well as medical and dental products, reported an 18.5 percent drop in quarterly profit, citing significant headwinds in most of its businesses because of the weak global economy.

The Washington-based company expects 2009 profit of $3.30 to $3.50 per share, lowering the top of the range by 20 cents.

Cooper, which makes electrical products and tools, reported a 45 percent decline in quarterly profit but said cost cuts supported earnings even as sales came in at the low end of its expectations.

Houston-based Cooper sees 2009 profit from continuing operations in a range of $2.30 to $2.50 per share, reducing the top end of its forecast by 10 cents. Analysts looked for $2.34 a share.

3M shares rose $3.71 to $68.38. Danaher was down 3 percent, or $2.05, at $62.03, while Cooper was up 6 cents at $33. All three trade on the New York Stock Exchange.

So far this year all three issues have outperformed the capital goods sector.

3M is up 12 percent, and Danaher and Cooper are up 13 percent. The Standard & Poor's capital goods industry group <.GSPIC> is down 6 percent over that period.

(Reporting by Scott Malone; editing by John Wallace and Jeffrey Benkoe)