Tags: 3m | revenue | research | spending

3M Cuts Revenue-Growth Goal While Boosting Research Spending

Thursday, 08 Nov 2012 12:12 PM


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3M Co. lowered its annual revenue-growth target as Chief Executive Officer Inge Thulin pledged to boost research spending at the maker of products including dental braces and Scotch tape as part of his five-year plan.

3M is targeting revenue growth from existing businesses of 4 percent to 6 percent per year, the St. Paul, Minnesota-based company said in a statement Thursday, a reduction from a goal of 7 percent to 8 percent set by Thulin’s predecessor, George Buckley, in 2009. Thulin, who became CEO in February, said research spending will rise to 6 percent of sales by 2017. That’s up from 5.3 percent of sales 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.”

The recession in Europe and a slowdown of economic growth in Asia has hurt 3M’s sales this year, forcing the company in October to reduce its 2012 earnings forecast. Thulin has responded by cutting costs and creating new units to focus on mining, energy and aerospace to boost growth.

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.

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.

Acquisitions will only be a “compliment” to growing sales from existing businesses and won’t be a key strategy, Thulin said. The company last month agreed to pay $860 million for Ceradyne Inc., a maker of ceramics used in energy, aerospace and defense industries. 3M also scrapped an $550 million agreement to acquire the office-products unit of Avery Dennison Corp. because of U.S. Justice Department opposition.

Thulin, who joined 3M in 1979 and rose through the company’s health business, said businesses with sales of $2.5 billion are under strategic review to either fix, scale, sell or close them. The units, which he didn’t name, are all profitable and need to be addressed because they operate in a tough competitive environment, Thulin said.

Retirement Plan

3M set a goal of annual earnings per share 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, according to a slide presentation. Stock repurchases are expected to be $7.5 billion to $15 billion over the period.

3M fell 0.5 percent to $88.98 at 11:26 a.m. in New York. The shares had gained 9.4 percent this year through Thursday.

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