3M Co. (MMM), whose products range from Scotch tape to optical films for liquid crystal displays, posted a better-than-expected quarterly profit Thursday, driven by its health care business and growth in international markets.

The company, considered a bellwether for the U.S. economy, also raised its 2007 profit forecast, helping to push up its shares by more than 2 percent in morning trading.

"The quarter really showed the company is back on track and performance has taken off," Morningstar analyst Scott Burns said.

"(Chief Executive George) Buckley needed to clean out the skeletons, and I think the second quarter last year was where a lot of that happened."

Investors keep an eye on big manufacturers like 3M for clues on the strength of the U.S. economy.

Last week, the Federal Reserve said U.S. industrial output rose slightly more than expected in June, while the capacity use-rate at factories, mines and utilities increased to its highest level since last October.

3M said its second-quarter net income rose 4 percent to $917 million, or $1.25 per share, from $882 million, or $1.15 per share, in the year-earlier quarter.

Excluding one-time items, earnings were $1.23 per share, topping analysts' average forecast of $1.18, according to Reuters Estimates.

Sales at the St. Paul, Minnesota-based company rose 8 percent to $6.14 billion, above the $6.06 billion analysts had expected.

Excluding the branded drug business it recently sold, sales rose almost 12 percent.

Foreign currency translation boosted sales by 2.7 percentage points, while international sales volume in ongoing businesses rose 10 percent.

CONSERVATIVE APPROACH

"So far this year, we're doing rather better than our forecasts," Buckley said on a conference call with analysts.

"Therefore, we're raising both our sales and EPS forecasts for the year."

3M raised its outlook for 2007 profit to a range of $5.40 to $5.60 a share, up from its prior forecast of $5.20 to $5.45. Analysts were expecting $4.86.

The forecast includes a one-time gain of 60 cents to 70 cents a share, mostly due to the sale of the branded drug business.

3M expects sales in local currencies for the year, excluding the divestiture of the branded drug business, to rise 7 percent to 10 percent.

It previously forecast growth of 6 percent to 10 percent.

"Given their level of outperformance, it was only a matter of time before they raised (the forecast)," said Longbow Securities analyst Dmitry Silversteyn, who has a "neutral" rating on the stock.

"They raised it to such a degree that it will probably allow them to do it again if third-quarter results come in strong as well, so I don't think this is necessarily the limit to where earnings can go for 2007," he said.

The company, which also makes such products as Post-It notes and Thinsulate insulation, surprised investors in April when it did not raise its full-year profit forecast despite a far-stronger-than-expected quarterly profit.

Buckley said at the time that 3M was simply being conservative by waiting a quarter to draw conclusions, and he echoed that approach on Thursday.

The U.S. residential construction market remains weak and an industry outlook for a second-half recovery "will probably prove to be too optimistic," he said.

"Some folks would probably accuse us of being a bit conservative here with our (profit) outlook, but we think sufficient uncertainty remains in the Asian electronics markets and U.S. residential construction market," Buckley said.

3M shares were up $1.90, or 2.12 percent, at $91.52 in morning trading on the New York Stock Exchange.

The stock is up about 17 percent so far this year, easily topping the 5.8 percent increase by the Standard & Poor's 500 index.