A Strong Brand Portfolio Continues to Remain Key to 3M's Success

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Aug 16, 2015

At a recent Jefferies 2015 Industrials Conference, 3M’s (MMM, Financial) chief financial officer, Nick Gangestad, spoke about the company’s comprehensive financial vision and where 3M’s key strengths are in the quarters ahead. For investors, 3M provides an ideal brand story in the consumer goods sector. Its vision is to provide innovative products for both businesses and consumers. In his presentation, Nick Gangestad spoke of three key aspects the company is focused on to grow revenue across all of its business lines. Growth, innovation and operational excellence were the three aspects the CFO reported as key revenue goals for the firm.

Further simplifying 3M’s business, the CFO went on to discuss the firm’s five business segments. Within the firm’s five business segments are where the company’s brand portfolio can truly be evidenced. In the consumer goods market 3M’s businesses are focused on five segments which can also be seen as sector plays for the firm’s brand portfolio. The five segments include Industrial, Health Care, Consumer, Electronics and Energy and Safety and Graphics. Managing the firm’s business segments in this way allows it to achieve the greatest benefit from its global brand portfolio. Furthermore, some of 3M’s most broadly known brands are found in its Consumer segment which includes Post It and Scotch brand tape.

Overall, management’s operating structure provides transparency for investors. Its current four-year plan, as well as its steady dividend payouts, are also factors helping to make it a leading investment in the consumer goods industry. Management’s Jefferies Industrials Conference presentation reiterated why the company is a key core holding in consumer goods for investors.

For dividend focused investors specifically, the company’s steady dividend payout rate is enticing. As noted in management’s presentation, the company expects to pay total dividends of $4.10 per share in 2015, an increase of 20% from the previous year.

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In 2015, 3M also completed three acquisitions which are expected to contribute greatly to its four-year plan. On March 13, 3M completed its transaction of Ivera Medical Corporation, a health care company focused on vascular access technology solutions for the health care industry. On August 3, 3M completed its acquisition of Capital Safety which will integrate its protection equipment business with 3M’s safety business contributing to revenue in 3M’s Safety and Graphics business division. 3M is still awaiting final approval for its third acquisition from Polypore International, Inc. of Separations Media. Separations Media provides innovative solutions and products in the filtration business and will contribute to revenue in 3M’s Industrial business division.

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On July 23, the company reported its earnings results for the second quarter of 2015 which included integration of the Ivera Medical Corporation business. Revenue for the quarter was $7.69 billion, just slightly below analysts’ expectation of $7.55 billion and down 5.5% from the comparable quarter. Earnings per share for the quarter were $2.02 up 6% from the comparable quarter and $0.02 above analysts’ average estimate.

In general, U.S. revenue growth has fueled sales for the company overall. In the second quarter revenue from sales in the U.S. were up 4.1%. Global growth overall for 3M has been subdued given global macroeconomic factors. Historically 3M has showed it has business models in place to capture significant revenue and market share in global developed and emerging economies. This has been one of its greatest strengths globally. Since consumer goods sales are highly correlated with improving global economies, investors will likely see 3M leading in the consumer goods sector where global economies are improving.

In the second half of the year 3M’s stock price is down 3.89% to a closing price of $148.28 on August 14. As the global economy continues to struggle investors may likely see further declines in 3M’s stock price in the short-term. However, its revenue from acquisitions and growth potential in improving global economies overall makes the lower price a good value opportunity for long-term investors.