Will The Industrial Segment Return To Positive Growth In The Fourth Quarter For 3M?

3M (NYSE:MMM) is set to report its fourth quarter and financial year 2016 earnings on January 24, before the markets open. While an almost flat revenue growth is expected in the fourth quarter, for the full year it is estimated to decline at 0.5%. An impressive 12.7% growth is expected in the earnings per share of the company in the last quarter of the financial year, while for the full year the metric is expected to be at 7.5%.

The main event to take place in the fourth quarter is the company’s decision to divest itself from some of its businesses. 3M, on December 6th, 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. The business, with over 90 years of experience as an industry leader in the safety prescription eyewear 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. The company will retain its safety non-prescription eyewear business, referred to as Plano Eyewear.

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On December 8, 3M also announced its decision to sell its identity management business, within the Traffic Safety and Security Division, to Gemalto, the world leader in digital security, for $850 million. There are three components included in the business which will become a part of Gemalto’s Government Programs business – the biometric offerings that 3M got following the Cogent acquisition, a document reader line and 3M’s secure materials business. On the whole, these three areas generate $215 million annually, and the annual profit from the operations stands at $58 million. Headquartered in the US, and present on three continents, 3M’s Identity Management Business offers biometric end-to-end solutions, enabling identity verification and authentication. It is used by governments, law enforcement, border control, and civil identification bodies worldwide. The business has a highly skilled team of 450 experts, that has developed biometric algorithms (finger, face, iris, etc.), and is at the forefront of innovation with the latest multi-modal biometric solutions.

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.

In the third quarter, the company delivered positive growth in three of its business groups – Consumer, Safety & Graphics, and Health Care. 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. 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. 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. 3M’s leading position in a number of markets served by its Industrials segment is expected to drive growth in the future. Moreover, the Health Care segment, as well as a number of acquisitions made by 3M, should also ensure positive growth in the long term.

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

• As A Part Of Its Growth Strategy, 3M Divests From Some Of Its Businesses
• How Will 3M’s Industrial Segment Perform In 2017?
• R&D: One Of The Driving Factors Behind 3M’s Growth
• How Is 3M Expected To Perform In 2016?
• 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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