3M Co. (MMM:US) Chief Executive Officer Inge Thulin cut his predecessor’s target for annual sales growth at the maker of tape and dental braces as he puts his stamp on the company’s strategy for the next five years.
The new goal is to increase revenue 4 percent to 6 percent a year at existing businesses, Thulin said today. That’s a reduction from the 7 percent to 8 percent sought by predecessor George Buckley in 2009. Thulin, who took the helm in February, said research outlays will rise to 6 percent of sales by 2017, from 5.3 percent in 2011.
“Innovation is at the center of our plan, so it is essential that we strengthen our commitment to R&D,” said Thulin, who in June called Buckley’s sales goal a “stretch target.”
Europe’s recession and Asia’s slowing economies have hurt sales, forcing 3M to pare its 2012 earnings forecast last month. Thulin is shrinking costs and adding units to focus on mining, energy and aerospace to spur growth at the St. Paul, Minnesota- based manufacturer. He said today businesses, which together have a total of $2.5 billion in sales, are under strategic review to either be fixed, scaled up, sold or closed.
Thulin’s five-year revenue growth goal would outpace an average of 3 percent from 2003 to 2012. Developing markets will drive the expansion, with sales in those regions rising to 40 percent to 45 percent of 3M’s total sales by 2017 from 35 percent in 2012, Thulin said.
“The re-basing of the organic growth targets looks more realistic,” Steve Tusa, a New York-based analyst with JPMorgan Chase & Co., said in a note today. Tusa has a neutral rating on the stock. “We like the re-focus on R&D.”
China Sales Growth
Sales in China will rise to as much as $5 billion by 2017 from $2.2 billion this year. In Latin America, sales will increase to as much as $5 billion from $2.6 billion in 2012. Sales to the mining, oil and gas industries will double to $2 billion over the next five years, he said.
The company expects to make about $1 billion to $2 billion of acquisitions (MMM:US) a year that will add about 1 to 3 percentage points to annual sales growth. Acquisitions will only “complement” sales from existing businesses and aren’t a major growth strategy, Thulin said.
3M last month agreed to pay $860 million for Ceradyne Inc. (CRDN:US), a maker of ceramics used in energy, aerospace and defense industries. The company also scrapped a $550 million agreement to acquire the office-products unit of Avery Dennison Corp. (AVY:US) because of U.S. Justice Department opposition.
Thulin, who joined 3M in 1979 and rose through the company’s health business, declined to say which businesses are included his review process to fix or shed. He said they are all profitable even as they have declined 1.5 percent annually for the last four years.
“The question we look at is: ‘How do you fix that or do you do something different?’ ” Thulin said. “It’s not an urgent thing, but it will be done I can promise you that.”
3M set a goal of annual earnings per share (MMM:US) growth of 9 percent to 11 percent for the next five years and said return on invested capital will be more than 20 percent. That’s compared with average annual earnings per share growth of 11 percent and return on invested capital of 22 percent from 2003 to 2012.
The company’s earnings will be helped by less cash contributions to its retirement plan, which are expected to decline by 50 percent over the five-year period, and lower taxes. Stock repurchases are expected to be $7.5 billion to $15 billion over the period.
3M fell (MMM:US) 0.9 percent to $88.55 at the close in New York. The shares have gained 8.3 percent this year, compared to an advance of 9.5 percent for the Standard & Poor’s 500 Index.
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