3M Sticks Together, as Rivals Break Apart
11 April 2019 - 9:29PM
Dow Jones News
By Austen Hufford
As other sprawling corporations break up or divest assets, 3M
Co. is doubling down on its future as a conglomerate.
Peers such as United Technologies Corp. and DowDuPont Inc. are
splitting up. General Electric Co. is shrinking. Arconic Inc.,
cleaved off three years ago from the aluminum giant that was Alcoa,
plans to dump more units this year.
But St. Paul, Minn.,-based 3M continues adding to its stable of
60,000 products and increasing its research budget, even as the
slowing global economy creates headwinds in some of its biggest
markets. 3M, which has 93,000 employees and 182 factories
world-wide, lowered its profit outlook for this year in January as
a result of slowing demand in China and elsewhere for cars,
electronics and other goods made with its products. 3M is scheduled
to report first-quarter earnings on April 25.
The company plans to spend about 6% of revenue on research and
development -- nearly $2 billion a year -- and 5.5% on capital
investments over the next five years. The target research amount is
higher than the 5.7% of annual revenue spent over the last five
years. Electric cars and teeth-straightening are two of the
businesses where 3M thinks its investments could generate the
biggest returns, and the company expects research spending in those
areas to grow fourfold over the next five years.
"We innovate, create new markets, new segments and we're always
moving to new places to prioritize," Chief Executive Michael Roman
said at a conference in February. Earlier this year, the company
rearranged its businesses into four segments, down from five.
Shares of 3M have fallen 2.2% over the past 12 months, compared
with an increase of 2.9% in the S&P 500 Industrials.
At many companies, such expansions add layers of management that
slow innovation and make it harder to launch new products, said
Amit Seru, a finance professor at Stanford Graduate School of
Business. 3M has managed to keep innovating for the long-term by
creating the right internal incentives and culture, he said.
"3Ms are the exception, not the rule," said Mr. Seru. "Very few
firms have been able to remain innovative for a long time."
Still, 3M is increasingly standing alone as a large company that
is still in a variety of industries, said Jiwook Jung, a professor
at the University of Illinois at Urbana-Champaign. Other companies
have been focusing on their core products because of
activist-investor pressure and buyouts.
"Although it's diversified, it has an engineering culture
producing things rather than playing with financial investments,"
said Mr. Jung.
3M says its businesses are better off together because many of
its products share technology and can be made by the same methods
and machines. The company produces its tape, film and wrappers by
the mile and sells them by the inch, employees often say.
Despite the current headwinds, 3M says its centralized research
operations and wide reach also position it to benefit when growth
picks up in the biggest countries and industries it serves. The
company said in November that it expects sales to grow faster than
global economic growth over the next five years.
3M said it encourages its scientists to think of more than one
use for technologies they invent. 3M's nonwovens -- a fabric made
of fibers that are combined to create an unstructured web rather
than of weaving threads -- was first featured in decorative
ribbons. The material is now used in cold-weather Thinsulate
outerwear, sound-muffling materials, face masks, air filters and
bandages.
3M said that it does divest divisions that don't work with its
multipurpose process. The company closed or sold 23 factories last
year, part of a plan to make even more of its products at a smaller
number of sites to improve profitability.
One division that 3M sold made devices that track sound and heat
exposure. TSI Inc. bought the business in early 2018, including a
factory in Wisconsin that employs 35 people, for less than $20
million. The factory was one of the few that made only one kind of
3M product.
3M also sold a unit that made fiber and copper wires for the
telecommunications industry to glassmaker Corning Inc. for $772
million in June 2018, its largest divestiture ever.
But most of 3M's facilities couldn't be sold as stand-alone
operations because they make such an eclectic set of products, 3M
said in its latest annual report. One Hutchinson, Minn., plant
makes products for more than half of 3M's 23 divisions.
Write to Austen Hufford at austen.hufford@wsj.com
(END) Dow Jones Newswires
April 11, 2019 07:14 ET (11:14 GMT)
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