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3M goal: Increase earnings per share by 8 to 11 percent

November 16, 2018

Just four months after taking the helm, 3M’s CEO revealed the company’s growth strategies for the next five years to Wall Street analysts, noting that auto, safety and health care products should again help drive growth.

“As we work to deliver a strong close to 2018, we are positioning our company for success in 2019 and beyond,” said CEO and President Mike Roman during Investor Day at 3M’s Maplewood headquarters. “Our team is focused on growth, operational execution and delivering for our customers and shareholders.”

3M, with $31.6 billion in annual revenue, expects its businesses to grow more than others in their sectors, despite pressures from unfavorable currency exchange rates, rising material costs and the extra expenses resulting from new U.S. trade tariffs and retaliatory moves from trading partners.

To overcome such challenges, 3M will rely on its “playbook” of key tools, Roman and other executives told analysts.

Using portfolio management, business transformation, innovation and a culture that relies on the cross-application of 3M technologies to solve customer problems, 3M expects annual sales will grow 3 to 5 percent by 2023. Earnings per share will jump 8 to 11 percent. And the company expects to convert 100 percent of its free cash flow back to the company and shareholders.

For the year 2019, the company known for its TV and cellphone optical films, Scotch tape and respirators, said sales will grow 1 to 3 percent and earnings will reach $10.60 to $11.05 a share. Next year, 3M also expects to spend $2 billion (or 6 percent of sales) on research and development; $1.7 billion to $2 billion on new capital expenditures; and about $2 billion to $4 billion buying back 3M shares, officials said.

Roman, who took over as CEO in July, said 3M’s “first priority is investing in innovation and organic growth.”

Investors generally liked what they heard. The stock rose $6.85 to close Thursday at $204.91 a share. That’s significant. During the last month of extreme stock volatility for industrial stocks, 3M shares have traded between $183 a share and $205.

Analysts noted Thursday that 3M’s sales and earnings five-year targets largely matched Wall Street’s average expectations.

But Julian Mitchell from Barclays said in a research report: “We think the organic sales targets look a little aggressive, particularly in light of the fact that 2019 is guided to grow slightly below the medium-term plan.”

Mitchell added, however, that Barclays welcomed 3M’s margin goals “and the potential pivoting from [stock] buyback to more mergers and acquisitions.”

Along with sales targets for 2019 to 2023, 3M officials said they will also strive to boost productivity and profit margins by closely evaluating each 3M business and working to either improve the product division or sell it. Mergers and acquisitions will also be part of the mix during the next five years.

3M spent nearly $8 billion buying 12 companies during the last five years. The company focused on doing “fewer but larger” deals that could help 3M drive growth during a period of slow industrial growth.

Roman said 3M’s new five-year plan builds upon strategies employed by former 3M CEO Inge Thulin.

Under Thulin, 3M introduced products aimed at keeping the sensors in self-driving cars clean and at embedding microchips and other coded materials in road signs and car cameras so that “smart cars” can better “read” the road even in inclement weather.

At the same time, 3M also spent three years divesting several high-profile businesses — such as library book tracking and Passport IDs — so it could spend billions acquiring behemoths such as Capital Safety and Scott Safety.

Roman said the emphasis on work and personal-safety equipment will continue, as will 3M’s commitment to high-growth products in the automotive electrification, advanced wound care, safety, biopharma filtration and data analysis arenas.

Under Roman, 3M is expected to expand its use of exploratory new products such as ones 3M is working on to cool the batteries of electric vehicles and to use its optical films to project data and images on the windshields of high end cars. The auto arena, including 3M’s collision-repair products, have reliably delivered strong sales growth for 3M for years.

3M officials told analysts that it will be important to extend the value of new products and innovative discoveries “over the long term.”

Looking to the year 2025, officials plan to increase their sustainability goals surrounding water, energy, climate, trees and other raw materials.

Dee DePass • 612-673-7725

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