3M Co. (MMM) on Monday said quarterly earnings rose, but its shares fell more than 5 percent as revenue and the company's 2004 earnings outlook disappointed the market.

The manufacturer of Scotch tape (search) and Post-It notes (search), whose share fall was responsible for a large part of the more than 45-point decline in the Dow Jones industrial average on Monday, said net income rose almost 25 percent, at the high end of analysts' estimates. It credited cost controls and the continued growth of its display and graphics business.

Yet revenue was lower than analysts expected, and sales in both the display and graphics unit and the industrial unit fell from first-quarter levels. In addition, the company's 2004 earnings outlook of $3.72 to $3.75 a share only matched Wall Street's existing estimates.

"After surprising on the upside the last several quarters, it's getting tougher now," said Mark Gully, an analyst with Banc of America Securities Equity Research.

3M reported second-quarter net income of $773 million, or 97 cents a share, compared with $619 million, or 78 cents a share, a year earlier.

Sales increased 9.5 percent to $5.01 billion, but fell short of the $5.14 billion analysts on average had been expecting, according to Reuters Estimates.

The weaker U.S. dollar had less of an impact than a year ago, analysts said, and selling prices fell 1 percent worldwide.

3M's display and graphics business continued to turn in the strongest performance. Sales rose 18 percent from year-earlier levels before the impact of the weaker U.S. dollar.

Analysts noted, however, that sales declined from first-quarter levels after steadily increasing for several quarters. They noted the company did improve its margins, however, pushing operating profit up 49 percent.

The unit makes optical films used to boost the brightness of liquid-crystal displays used in televisions, computer monitors and cellular phones. Other businesses in the unit include commercial graphics and traffic signs.

3M told analysts on a conference call that pricing pressures have not accelerated in its optical films business although the business remains competitive.

"In the businesses that are tied to electronics, of which optical films would be a big piece, it's obviously a volume-price game," said 3M Chief Financial Officer Pat Campbell.

Campbell also said the company's raw material prices were either flat to down in the quarter, and he wasn't concerned about the drop in selling prices as a result.

"With the cost structure we have, with the competitive position we have, we've got the flexibility now with certain customers to obviously gain some business at the same time," Campbell said.

3M's revised 2004 profit forecast was in line with analysts' forecasts, which ranged from $3.65 to $3.85 a share, with an average of $3.75 a share, according to Reuters Estimates.

For the third quarter, 3M said it expects results to match the second quarter's 97 cents a share, with sales volume up 5 percent to 7 percent.

Analysts' third-quarter estimates have ranged from 95 cents to $1.02 a share, with an average of 98 cents, according to Reuters Estimates.

3M shares fell $4.79 or 5.45 percent to $83.05 Monday on the New York Stock Exchange.