3M SPINOFF SPIRALING; IMATION CORP. FAILS TO ATTRACT INVESTORS.

Byline: Daily News Staff and Wire Services

Imation Corp., spun off exactly a year ago from Minnesota Mining and Manufacturing Co., has promising products, a clean balance sheet and a close link between management pay and performance.

Yet the Oakdale, Minn.,-based data storage and imaging company, which has a manufacturing facility in Camarillo among its 14 worldwide, has failed to impress investors.

On Tuesday, Imation said it expects net income and earnings per share for the second quarter to fall below analysts' estimates, which range from 30 cents to 38 cents. The company blamed weaker-than-expected demand for several lower-capacity data storage products. Demand is increasing for higher-capacity units, the company said. As a result, Imation is expanding its stable of higher-capacity storage products to meet market demand.

Imation's share price, which dropped 1 5/16 on Wednesday to close at 24-1/8, is down 25 percent since when-issued trading began June 26, 1996. It is barely above the value of the company's assets.

While Imation has cut costs and introduced new products, those efforts have been offset by falling prices for its conventional floppy disks, X-ray film and other mainstay items, and by a strong U.S. dollar weakening its performance overseas. First-quarter revenue, reported April 30, fell from year-earlier levels. That hurt the stock and put Imation slightly behind on its ambitious three-year plan to improve profit, analysts said.

``It's been two steps forward and one step back,'' said Rebecca Runkle, a Morgan Stanley analyst. Notwithstanding the lackluster stock performance, William Monahan, Imation's chief executive officer, said he believes the company is on the right track.

``These are early days,'' Monahan said. ``We think our people are doing the right things to create success.''

The businesses that now make up Imation were languishing under 3M, a St. Paul, Minn.-based conglomerate whose 50,000 products include Post-It brand notes and Scotch brand adhesive tapes. The businesses' earnings had fallen steadily, dropping to $4.4 million in 1995 from $75.3 million in 1993.

3M announced the Imation spinoff in November 1995, saying the businesses could succeed as a separate company. When-issued trading began June 26 and the spinoff became official July 1.

Imation had one strike against it immediately: Many mutual funds that owned 3M had to sell the spinoff shares because the funds were restricted to stocks in the Standard & Poor's 500 index. Imation is part of the S&P 400 Midcap index.

As a result, Imation's stock price fell in the first few weeks to close at 23-7/8 on July 16, its first day on the New York Stock Exchange. The shares have since risen slightly, compared with a 19 percent rise in the Midcap index.

Several long-term investors remain optimistic about Imation because of plans for new products and because it's trading so close to book value.

``It's at extremely low cost and has decent fundamentals,'' said Roland Whitcomb at First Bank System's First Asset Management, which holds 1.47 million shares or a 3.45 percent stake. ``If they manage to get a more normal return on equity in the next two years, they will beat the market.''

Morgan Stanley's Runkle said that's a plus for many investors.

``This can be seen as one stock were you don't have to worry about much downside,'' Runkle said. ``There aren't that many stocks you can say that about in this market.''

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Chart: (Color) IMATION CORP. (See text)

Photo: (Color) No caption (IMATION CORP.)