3M’s Revenue Grows On Health Care and Electronics & Energy Segments

MMM: 3M Company logo
3M Company

3M (NYSE:MMM), a multinational conglomerate, announced its third quarter results on October 23. Its revenue grew 2.8% year-on-year, to reach $8.14 billion. [1] All five of 3M’s business segments – Industrial, Safety and Graphics, Health Care, Electronics & Energy, and Consumer – posted positive organic local currency sales growth in the quarter, in line with the company’s guidance. Organic local currency sales do not include the impact of acquisitions or currency fluctuations. 3M’s sales were primarily driven by its Health Care and Electronics & Energy segments. Its earnings per share increased 11.2% driven by a 5.9% increase in net profits and share buybacks of $1.22 billion.

During its third quarter meet, 3M narrowed its full year earnings per share guidance to the range of $7.40 – $7.50, from its earlier range of $7.30 to $7.55. [2] The company reiterated its revised guidance for capital expenditure of $1.5-$1.6 billion and its intention to invest $5 billion to $10 billion in acquisitions through 2017.

See our complete analysis of 3M here

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Drug delivery products and health information systems drive 3M’s Health Care segment

In the third quarter, 3M’s Health Care segment grew 5.4% year-on-year [3] (organic local currency growth) driven by sales of its drug delivery products and health information systems.

  • Drug delivery products are used to deliver drugs to a patient’s body. For example, inhalers and injections. Not only do they offer a convenient way to provide medicines to patients, in some cases they also help increase the life cycle of the medicine. They also help increase efficiency of certain drugs. The drug delivery market is expected to reach $198 billion in 2017. [4] 3M has a large number of drug delivery products that will enable it to cater to this growing market.
  • Information technology is used in the healthcare sector for storage, retrieval, and transfer of patient medical information through digital means. This helps in increasing efficiency and also leads to considerable financial benefits, which is encouraging hospitals to invest in healthcare IT. A growing complexity of healthcare operations, the shift towards paperless environment, and a proliferation of smart devices are driving the demand for healthcare IT systems.  The market for healthcare IT systems is projected to reach $66 billion by 2020. [5] In order to strengthen its position in the healthcare IT market 3M acquired Treo Solution, [6] a healthcare data analytics and business intelligence provider, in April 2014. Sales from Treo Solutions added 0.5% growth to 3M’s Health Care segment in the third quarter.

Going forward, we expect to see growth in 3M’s Health Care segment driven by other products as well. These products cater to the infection prevention, disposable medical supplies, food safety, and dental and orthodontic markets. These markets are expected to grow driven by greater awareness of health and prevention, a growing aging population, and an increase in life spans and implementation of government healthcare reforms.

  • Dental equipment and consumables market will likely cross $30 billion by 2018 driven by the growing demand for cosmetic dentistry and increase in dental hygiene awareness. [7] [8] The products include restoratives, adhesives, crowns, impression materials, professional tooth whiteners and orthodontic appliances.
  • Growing need for healthcare driven by increasing awareness in developing countries will help drive growth in sales of disposable medical supplies such as medical tapes, dressings, wound closure products and orthopedic casting materials. The disposable medical supplies market is expected to grow to more than $200 billion by 2016, growing at an average rate 6.4% annually. [9]
  • With the number of cases of food poisoning increasing due to consumption of contaminated food, food testing at various stages of the supply chain has been gaining importance, thereby driving sales of food safety testing products. The food safety testing products market is forecast to grow to $14 billion by 2018. [10]
  • Developed countries have well established health care systems and stringent safety standards, which meet the needs of the countries’ population. In contrast, developing countries have fewer healthcare facilities with weak regulation and lower standards of care, which lead to higher chances of infections in patients. As the healthcare sectors in developing countries expand, modernize and adopt better healthcare and infection prevention standards, sales of infection prevention products such as surgical drapes, masks and sterilization assurance equipment will increase. The demand for infection prevention products is expected to reach $130 billion by 2017, growing at a rate of 6.4% annually, primarily driven by developing countries. [11]

The various products that 3M offers as a part of its healthcare portfolio have an addressable market of greater than $600 billion. With its extensive Research & Development and acquisitions dedicated to its Health Care segment, 3M has the capability to offer products to cater to the growing needs of this market. 

Display materials drive Electronics & Energy sales

In the third quarter, sales of 3M’s Electronics & Energy segment grew 4.3% (organic local currency growth) year-on-year driven by growth in display materials and systems. [3] 3M’s display materials include films that help enhance viewing pleasure on devices with displays and adhesives that help bonding display parts, lens, LCDs, and touch screens. These products are purchased by electronic original equipment manufacturers (OEM) and display manufacturers.

The sales of display materials and systems are highly dependent on sales of consumer electronics. In 2013, the U.S. Consumer Electronics industry generated $207 billion. [12] The growing demand for smartphones, tablets, and LCD, UHD and OLED TVs will continue to drive growth in the U.S. Consumer Electronics industry, sales for which are expected to cross $211 billion in 2014.

Continued growth in sales of consumer electronics will help drive sales for 3M’s display materials in the coming quarters. 3M expects its Electronics & Energy segment to grow 3-7% in 2014. [13]

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  1. 3M’s Q3 Earnings Press Release, October 23 2014, www.3m.com []
  2. 3M’s (MMM) CEO Inge Thulin on Q3 2014 Results – Earnings Call Transcript, October 23 2014, www.seekingalpha.com []
  3. 3M’s Q3 Earnings Presentation, October 23 2014, www.3m.com [] []
  5. Healthcare IT Market, www.prweb.com []
  6. 3M Completes Acquisition of Treo Solutions, April 1 2014, www.3m.com []
  7. Global Dental Consumables Market Research Report, www.webrtc-solutions.com []
  8. Dental Equipment Market, www.marketsandmarkets.com []
  9. Global Market for Disposable Medical Supplies To Reach Nearly $200 Billion, www.prnewswire.com []
  10. Food Safety Testing Market worth $14,030.2 Million By 2018, www.marketsandmarkets.com []
  11. World Infection Prevention Products, www.freedoniagroup.com []
  12. Industry Sales Data, www.ce.org []
  13. 3M’s CEO Hosts 2014 Outlook Meeting Conference (Transcript), Dec 18 2013, www.seekingalpha.com []