3M Co. (MMM) said Thursday that it will cut capital spending by 30% this year and shelve share buybacks as it cut earnings guidance for 2009.

The diversified U.S. manufacturer predicted that an upturn in demand for its products will begin to emerge in by the third quarter, with year-over-year growth returning by the end of 2009.

"The first quarter will probably be the toughest quarter of this recession for 3M," George Buckley, chairman and chief executive, told analysts on a conference call.

The company, whose products range from Scotch brand tape to furnace filters and medical supplies, cut its 2009 earnings outlook to a range of $4.30 to $4.70 a share, in line with Wall Street's recent view for $4.42. The company in December forecast profit of $4.50 to $4.95 a share.

It expects organic sales volumes to decline between 5% and 9% from its earlier outlook of a 3% to 7% decline.

The company intends to cut capital spending in 2009 from $1.5 billion in 2008. Funding for research and development activities is expected to hold steady at about 5% of annual sales. "Nothing has changed there," Buckley said. "We will, of course, prioritize our R&D."

The company said the dismal holiday shopping season contributed to a steep decline in the company's display and graphics unit, with sales down 28% in the December quarter.

"Clearly, the weak holiday season experienced by consumer electronics retailers had huge impact on our sales," said Patrick Campbell, chief financial officer.

The unit provides optical lens and film components for the flat screen TVs, cell phones and other products with display screens, and has been hit by a "large number" of order cancellations.

The unit accounted for 13% of the company's $25.2 billion in sales in 2008.

Investors have been especially focusing on 3M's health-care unit as a recession-resistant business. It accounted for 22% of 3M's 2008 operating profit, down from 30% in 2007.

During the fourth quarter, health-segment profit fell 12% on a 2.1% slide in sales, though operating income was up 4.5%.

Buckley said the far-reaching credit crisis on all sectors and geographic markets of the world's economy has diminished 3M's ability to combat the recession with its diverse business lineup and broad global market penetration.

"Under those circumstances geographic market diversity is less helpful," he said. "The fourth quarter is different from any quarter we've seen before."

Just one of the company's six business segments reported increased sales - safety, security and protection services' sales rose 2.9%.

The Minnesota-based company reported net income of $536 million, or 77 cents a share, for the quarter, down from $851 million, or $1.17 a share, a year earlier.

Revenue decreased 11% to $5.51 billion, hurt by a stronger dollar. The mean estimate of analysts polled by Thomson Reuters was for earnings of 93 cents on revenue of $5.67 billion.

The company outlined a host of cost-reduction initiatives Thursday aimed at conserving cash, led by the 30% reduction in capital spending for 2009.

The company has suspended stock buybacks and predicted that additional layoffs are likely on top of the 3% cut in the company's 75,000-employee workforce in December.

It also announced that merit-pay raises will be suspended, saving about $235 million this year. Elimination of an accumulated vacation-time policy is expected to save $100 million in each of the next two years.

Amid losses from pension investments, 3M said it expects to increase its contributions to pensions to $600 million to $850 million from $400 million in 2008.

3M's stock was last down 1.7% at $56.35 a share.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com

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