How Is 3M Expected To Perform In 2016?

3M (NYSE:MMM) held its 2017 Outlook Meeting Conference on December 13, 2016, wherein it provided details regarding its expected performance in this year, as well as its outlook for 2017. In 2012, 3M outlined the strategies it would adopt going forward, and undertook a decision to conduct portfolio management work that is ongoing. Since 2012 to early 2016, 3M has pruned its businesses from 40 to 26, thereby improving customer relevance, productivity, and speed, through a leaner operating structure. At the same time, 3M has steadily invested in R&D to develop innovative products. The company has stated its intentions to invest $1.8 billion in R&D during Financial Year 2016, to drive organic growth, and complement it through strategic acquisitions. During 2016, the company expects to achieve a revenue which is close to $31 billion, with a 24% operating margin. Of the company’s five different segments, its Industrial is the largest revenue generator, with an expected revenue of about $10 billion, with the other businesses contributing between $4 billion and $6 billion each.

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3M’s revenue is expected to grow by 2% in 2016. While Q1 results were dampened as a result of negative foreign currency effects, and the Electronics and Energy segment declined 18% due to a soft end market demand and high channel inventory, a recovery is expected. The company’s three businesses of Consumer, Safety & Graphics, and Health Care were the revenue generators for the company. This trend has continued till the third quarter. In the third quarter, 3M’s Consumer segment witnessed 3% growth, with positives seen in all businesses.  Safety & Graphics grew 2% organically, led by roofing granules and commercial solutions; Health Care segment saw organic growth of 1.5%, slightly tempered when compared to earlier quarters, as a result of softness in the US healthcare market. While the Industrial segment growth declined by 1%, the company expects a return to positive growth in the fourth quarter. The company’s Electronic & Energy segment fell 8%, in line with the guidance provided by the company in the previous earnings call. Despite a challenging macro environment, the company delivered a margin improvement to the tune of 40 basis points to ~25%, ranging from 32% in Health Care to almost 23% in Industrial. A leading position in a number of markets served by its Industrials segment is expected to drive growth.

Moreover, a number of acquisitions made by 3M will result in improved sales in the future. The slowdown in the Electronics and Energy segment has led the company to take actions, such as the reduction of 250 positions worldwide, with the majority of reductions on the electronics side of the business. The Healthcare segment is expected to be a key growth driver in the future, with high growth rates expected in China. Furthermore, the company’s decision to invest and grow its Health Information Systems business will prove to be beneficial as strong growth rates are predicted for the Healthcare IT market (CAGR of 5%-8% during 2015-2020). In a meeting held with its investors and analysts, President and CEO of 3M, Inge G. Thulin, also discussed plans to strengthen and streamline its supply chain, and how a greater focus on lean six sigma would result in improved customer service, operational efficiencies, and an increased cash flow.

The company has been active in terms of portfolio adjustments in the year. In September, 3M acquired Semfinder, a Switzerland-based medical coding technology company, which is a leading developer of precise semantic coding of medical services. This acquisition will enable 3M to accelerate the availability of its 3M 360 Encompass System in countries adopting electronic medical records, and hence, accelerate penetration into international markets. The company also announced its agreement with Verily Life Sciences (formerly Google Life Sciences), an Alphabet company, to develop new population health measurement technology for managing clinical and financial performance. The joint technology platform, between 3M and Verily, will be used to analyze population-level data sets, with the aim of aiding hospitals to get meaningful information, which can be used to improve healthcare quality, while at the same time reduce costs. These two partnerships reflect the company’s focus on the Health Care segment to drive growth in the future.

3M, on December 6th, also announced that it has entered into an agreement to sell its prescription eyewear business to HOYA Vision Care, a global leader in the eyeglass lens industry. This business is a part of 3M’s Personal Safety division, which is in the Safety & Graphics business. While the terms of the transaction were not disclosed, it was stated that it is expected to close in the first quarter of 2017, subject to closing conditions. 3M’s prescription eyewear business offers a wide variety of frames, prescription lenses, and premium coating solutions on customized products. The business, with over 90 years of experience as an industry leader in the safety prescription eyewear category in North America, has annual global sales of approximately $45 million. After a thorough strategic review, the company decided to divest itself from the business, in order to focus on the core personal safety business, according to Bernard Cicut, vice president and general manager, Personal Safety division. Besides these, 3M also finalized the sale of a non-core protective films business, in order to further enhance and focus on its Industrial portfolio. The company is also making good progress on its ERP (Enterprise Resource Planning) rollouts, with two occurring in West Europe. ERP has now been deployed in 15 countries, and in four of the company’s largest European distribution centers.

Have more questions on 3M? Have a look at these links below:

• 3M Carries On With Its Portfolio Restructuring
• 3M Trims EPS Guidance Amid Flat Sales
• Will 3M’s Health Care Division Again Drive Growth In The Third Quarter?
• 3M Teams Up With Alphabet’s Verily For Population Health Management Tools
• Why Did 3M Acquire Semfinder?
• How Will 3M Grow Its Consumer Segment In The Future?
• What Trends Will Ensure Growth For 3M From Developing Markets In The Future?
• How Important Is The US For 3M?
• How Does 3M Compare With Its Peers In Terms Of R&D Spending?

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