How Will 3M’s Industrial Segment Perform In 2017?

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 ahead, 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 into 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 little over $30 billion in revenue, with a 24% operating margin. Of the company’s five different segments, its Industrial is the largest revenue generator with an expected revenue of over $10 billion, with the other businesses contributing between $4 billion and $6 billion each.

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For 3M’s Industrial segment, its top six markets represent more than $115 billion of addressable market opportunity in 2017, and all these markets are expected to grow. Moreover, underlying these markets are key trends that favor growth for the 3M portfolio, such as, new materials used in the construction of finished goods by 3M’s customers, increase in automation and robotics, and a rise in the need for sustainability. In particular, the two markets that face automotive seem the most exciting. These are Automotive OEM (Original Equipment Manufacturer), where 3M develops and specifies products that are a part of the building materials for the company’s automotive OEM customers, and Automotive Aftermarket, where 3M designs and specifies products that are employed in collision repair and auto care. These markets have been the growth leaders for the company in 2016, as a result of the underlying growth dynamics, as well as 3M’s ability to drive penetration in those applications.

In Automotive OEM, the key growth driver has been an increase in the build rate of automobiles and light vehicles. This trend is projected to continue in 2017, with more than 90 million vehicles expected to be produced. Besides the build rate, fuel efficiency and electrification have been other key factors, and 3M’s disruptive technologies have resulted in increased penetration across the industry. Meanwhile, in Automotive Aftermarket, the growth has been driven by a rise in the repairable accident rates, with the metric undergoing a 3.5% increase in the US alone. Moreover, the total miles driven and the increase in the size and age of the fleet have been other key drivers. In this regard, 3M’s solutions ensure efficiency and profitability to customers. In addition to these two markets, other favorable trends include an uptick in the imports and exports, which was witnessed in the latter half of 2016, and an indication of expansion in the Purchasing Manager Index (PMI) in key geographies.

3M has also been active on the M&A front to drive growth in this segment. In portfolio management, the company ensures acquisitions made add to the technology manufacturing capability already with the company. An example of this is the acquisition of Polypore’s Separations business, called Membrana. 3M has benefited as a result, with stronger sales of its water-filtration products in China and other developing countries where pollution fears are growing. The company also divested itself from its Polyfoam and Polymask businesses during 2016, in order to focus on its core adhesives, sealants, and tapes businesses.

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

• R&D: One Of The Driving Factors Behind 3M’s Growth
• How Is 3M Expected To Perform In 2016?
• 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?

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