Can 3M’s Healthcare Segment Make Up For Weak Industrial Revenues In 2019?

by Trefis Team
Rate   |   votes   |   Share

3M (NYSE: MMM), a diversified technology company with a global presence which makes everything from adhesive tapes to air filters had a successful fiscal 2018, with the company’s revenue increasing by 3.5% to $32.7 billion while its adjusted EPS grew by 12% to $8.89. However, the ongoing U.S.-China trade war has hurt 3M’s revenues over the first half of 2019. While 3M’s healthcare segment continues to enjoy strong revenue growth , we expect the company’s top line to remain around the level seen last year. Things are expected to improve across operating divisions next year, though – helping 3M add around $1 billion to its top line by FY’2020.

Trefis captures trends in 3M’s Revenues over recent years in an interactive dashboard along with our forecast for the next fiscal year. You can view the Trefis interactive dashboard to better understand the revenue trends and division-wise revenue performance, and alter the assumptions to arrive at your own estimate for the company’s revenues. In addition, here is more Trefis Industrials data

A Quick Look At 3M’s Revenues

3M reported $32.7 billion in Total Revenues in Fiscal 2018. This included 5 revenue streams:

  • Industrial Business: $11.4 billion in FY 2018 (35% of Total Revenues). This segment serves a broad range of markets with products including vinyl, polyester, foil and specialty industrial tapes and adhesives.
  • Safety and Graphics Business: $6.3 billion in FY 2018 (19% of Total Revenues). This segment derives revenue by providing products that increase the safety and productivity of people, facilities and systems
  • Consumer Business: $4.4 billion in FY 2018 (14% of Total Revenues). This segment offers products including office supply products, stationery products, home care products and consumer health care products.
  • Healthcare Business: $5.6 billion in FY 2018 (17% of Total Revenues). Healthcare segment sells medical tapes, dressings, wound closure product as well as surgical drapes, masks and preps, electrodes and stethoscopes
  • Electronics and Energy Business: $5 billion in FY 2018 (15% of Total Revenues). The Electronics and Energy segment serves customers in electronics and energy markets. Major product offerings of this segment include: LCD computer monitors, LCD televisions handheld devices such as cellular phones and tablets, notebook PCs and automotive displays.

How Has 3M’s Historical Revenue Trended? 

  • 3M has added more than $2.6 billion to total revenue since 2016 at an average annual rate of 4.3% led by steady growth across all operating segments.
  • Asia has been the largest growth driver for 3M-contributing a bulk of the company’s growth in the last couple of years.
  • This is why headwinds in China have hurt 3M’s revenues across divisions so far this year.
  • Going forward, we expect 3M’s revenues to increase in the low single-digits range and touch $33.7 billion by FY 2020.

A Detailed Look At 3M’s segment performance and revenue change over the years:

 Industrial Segment Is 3M’s Largest Operating Segment

  • Industrial segment consistently contributes a majority of its revenues, with an average revenue share of more than 35% in the last three years.
  • Moreover, the segment’s share has marginally increased from around 34% in 2016 to more than 37% in 2018 primarily due to faster growth than the other segments.
  • The segment grew by 12% year-over-year in fiscal 2018, contributing more than $1.3 billion to total incremental revenues.
  • However, we expect the segment’s revenue to decline in 2019 before recovering to reach around $12.5 billion in revenues in FY 2020.
  • Weakness in automotive business and weak productivity are likely to weigh on the segment’s performance in 2019.
  • That said, improved market conditions should help this segment achieve steady growth over coming years.

Healthcare Is Poised To Achieve Steady Growth For The Foreseeable Future

  • Healthcare has achieved steady growth in the last few years, with revenues increasing from $5.5 billion in 2016 to $6 billion in FY 2018 led by higher organic sales in food safety, health information systems, medical solutions, and oral care.
  • We expect this segment to continue its strong growth, with revenues increasing at an average annual rate of 4% to $6.5 billion by FY 2020.
  • However, this is likely to be offset by sales decline in drug delivery systems

Safety And Graphics Has Been 3M’s Fastest Growing Segment

  • This segment has achieved robust growth in the last three years, with revenues increasing from $5.6 billion in 2016 to more than $6.8 billion in FY 2018
  • This growth has been led by higher sales in personal safety, commercial solutions, and transportation safety products, partially offset by sales decline in roofing granules
  • We expect this segment’s growth to remain flat in 2019. However,  the segment’s revenues should increase by 3% in FY’20 to cross $7 billion.

Consumer Segment’s Growth Is Expected To Slow Down

  • The segment has achieved steady growth over recent years, adding approximately $310 million in revenue over 2016-2018 (CAGR of 3.4%).
  • We expect this segment to grow by nearly 2% in 2019, with the growth slowing down to 1% in 2020. Overall, we expect this segment to add just over $150 million over the next two years.
  • The segment’s share to total revenues has remained around 15% over the years, and going forward, we expect its share to remain around its current levels

Electronics & Energy Revenues To Remain Flat

  • This segment has achieved steady growth in the last three years, with revenues increasing from $4.8 billion in 2016 to around $5.5 billion in FY 2018 (CAGR of 6.5%).
  • We expect this segment’s revenue to decline in the low single-digits range in 2019 driven by weakness in electronics-related businesses. Moreover, soft end-market demand in Consumer Electronics and factory automation will negatively impact the segment’s performance.
  • However, this will be partially offset by strong demand in Energy business. As a result, we expect the segment’s overall revenue to remain flat at $5.5 billion by FY’20

Based on our forecasts, 3M’ adjusted EPS for full-year 2019 is likely to be around $9.51. Using this figure with our estimated forward P/E ratio of 19.5x, this works out to a price estimate of $185 for 3M’s stock which is roughly 10% ahead of the current market price.

What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs

For CFOs and Finance Teams | Product, R&D, and Marketing Teams

More Trefis Data

Like our charts? Explore example interactive dashboards and create your own.

Rate   |   votes   |   Share


Name (Required)
Email (Required, but never displayed)
Be the first to comment!