CHICAGO, Jan 25 (Reuters) - 3M Co  said on Tuesday that profitability suffered last quarter as higher advertising and research spending ate into its margins and warned that rising raw material costs would pressure its bottom line.

Shares moved lower in afternoon trading.

The warnings came as the diversified manufacturer, best known for its tape and office products but a huge supplier of industrial adhesives and abrasives, as well as healthcare and electronics products, reported a quarterly profit that actually topped Wall Street expectations and raised its outlook for full-year 2011 earnings.

The St. Paul, Minnesota, company posted a fourth-quarter profit of $928 million, or $1.28 a share, compared with $935 million, or $1.30 a share, a year earlier.

Sales rose 9.6 percent to $6.7 billion, lifted by especially strong growth in Asia and Latin America.

Analysts, on average, had expected 3M to report a profit of $1.27 a share on sales of $6.6 billion, according to Thomson Reuters I/B/E/S.

But fourth-quarter results were only slightly higher than Wall Street had expected and appeared to disappoint investors wowed by recent blowout earnings from companies such as DuPont  and General Electric Co.

"They beat by a penny, which isn't overwhelming," said Oliver Pursche, co-portfolio manager of the GMG Defensive Beta Fund. MPDAX.O

"If you're an investor and you own this stock, you're happy with the results and you have no reason to want to sell. That said, if you have cash in hand and you're looking for a growth-oriented company, there are -- in the short term -- alternatives that may seem more attractive."

On a conference call to discuss the results, Chief Executive George Buckley also expressed doubts about the strength and sustainability of the U.S. economic recovery.

In a sign of the company's caution, 3M said it plans to hold back discretionary spending to protect its margins in the face of rising raw material costs, higher pension costs and tax rates and a lackluster economic recovery in the United States, where a high unemployment rate and chronic weakness in the housing market have soured consumer sentiment.

"We will spend cautiously in the early part of this year, to see where things go," Buckley told analysts on the call.

"I don't expect to see big improvements in the U.S. until employment takes a turn for the better."

Even so, 3M raised its forecast for 2011 earnings to a range of $5.95 to $6.20 a share, up from a previous forecast of $5.90 to $6.10. It earned $5.63 a share in 2010.

 

3M posted double-digit percentage sales increases in several businesses in the fourth quarter, including a 20.3 percent jump in sales of products to the electronics industry and a 10.4 percent rise in sales of products to the automotive and aerospace industries.

The company, whose sales of healthcare products like respirators and surgical masks jumped last year as a result of the H1N1 scare, said those sales were up just 5.9 percent during the fourth quarter, lifted largely by a recent acquisition.

3M shares were down $2.51 or 2.8 percent at $87.81 in late afternoon trading on the New York Stock Exchange, after falling as low as $87.20.