What Is 3M?
Thirty-six yards of Scotch Tape costs just a few dollars. While most of us have a roll or two on hand, it’s hardly a daily staple. Yet 3M Co. (MMM), the company that produces Scotch Tape, had a market cap of $79.8 billion as of May 15, 2020. Are adhesives really that big of a business? When coupled with dozens of other enterprises under one roof, the answer is yes.
- The company posted revenues of $32.1 billion in 2019.
- Constantly striving for innovation and new products, 3M invested more than $3.6 billion in R&D in 2018.
- 3M generates revenue from sales of about 55,000 products across five segments: Industrial, Safety and Graphics, Electronics and Energy, Health Care, and Consumer.
3M generates billions in net sales each year from the sale of products across five different business segments. In more than a decade of history, 3M has become one of the world's leading providers of miscellaneous products across all of these industries and others. The company sells its products both directly to consumers and through a host of wholesalers, retailers, and distributors. It also invests heavily in research and development (R&D) to continue to improve and grow its product lines. In 2019, the company invested more than $3.6 billion in R&D and capital expenditures.
The Minnesota Mining and Manufacturing Company got its start in the early 20th century by extracting corundum, a mineral that is one level below diamond on the Mohs Hardness Scale. These days, 3M has expanded beyond corundum to the point that it sells a more diverse line of products than just about any industrial conglomerate on the market. 3M shows consistent healthy financials. In 2019, although 3M faced declines in key end markets such as China, automotive and electronics, according to the company's annual report, "3M maintained operating margins of nearly 22%, even while reducing inventory levels by $370 million— which reflects the strength of the 3M model."
3M's Business Model
Beyond Scotch Tape (and the more contemporary, but equally revolutionary, Post-It Note), 3M produces an almost incomprehensible 55,000 items. The company organizes those numerous operations into four main business segments: Safety and Industrial, Transportation and Electronics, Healthcare, and Consumer Business.
3M's Safety and Industrial Business
Safe and industrial business dwarfs all the other segments is 3M’s operations. It’s all but impossible to come up with a representative list of 3M’s industrial offerings in part because there are so many of them. Membrane switch spacers? Foam fabricators? 3M makes it all. The former is a layer that goes between other layers in, say, the keypads of the cardio machines at your gym. The latter is used to make gaskets and soundproofing insulation. These are products that most of us take for granted but are engineering marvels.
Under 3M's safety operations, you won't find products, but you will find enhancements that make products functional, for example, the reflective sheeting on highway signs or the roofing granules that keep the interior of your house insulated. 3Ms safety and industrial business composed 36% of 3M's total net sales in 2019.
3M began as the Minnesota Mining and Manufacturing Company, a mining operation.
3M's Transportation and Electronics
3M’s true genius is adding value to already marketable products made elsewhere. Instead of making computer screens, 3M's Transportation and Electronics sector makes the glare filters that cover them. For inkjet printer cartridges, 3M provides the flexible circuits that are inside the cartridges. From power cables to pressure-sensitive resins, most of 3M’s Transportation and Energy products are far removed from everyday consumer use. However, 3M is the leading company in the United States for pressure-sensitive tape as of July 2019, and the company produces products for over 25% of the American market. This segment accounted for 30% of the company's total net sales for 2019.
3M's Healthcare Business
Unlike Transportation and Electronics, 3M’s Healthcare business includes recognizable items, such as surgical drapes and teeth whiteners. But even in a realm as specialized as healthcare, 3M still runs the gamut. Healthcare products include everything from coding software and metered-dose inhalers to stethoscopes and personal-use items. That last category includes “invisible” tooth braces, skin cleansers, and antiseptic foam. Healthcare accounted for 23% of 3M's total net sales in 2019.
3M's Consumer Business
Unsurprisingly, 3M’s consumer operations include office supplies. That’s in addition to other products that you may not associate with the 3M brand but likely encounter in everyday use, such as air conditioner filters, bandages, sponges, shower pads, and many of the insulation products that line snow boots and winter coats. Less prominent but equally important, 3M produces household swabs that determine lead levels and stainless steel skirtings. Despite its stature, consumer operations is the smallest of 3M’s segments. Consumer business accounted for almost 16% of the company's total net sales in 2019.
3M operates manufacturing facilities in more than three dozen countries around the globe.
Big Goals for the Future
In recent years, 3M has embarked on a large-scale reshuffling of its business model, moving from 40 different business lines to 23. In 2018, the company sold off its communication markets business in an effort to further streamline. Investors should expect that 3M will continue to make adjustments along these same lines into the future. Through 2023, 3M has financial goals including 8 to 11% growth in earnings per share and 3 to 5% organic sales growth.
3M's uniquely varied lines of business are both a tremendous advantage and also a challenge. Unlike highly specialized companies, 3M does not focus its efforts entirely in one area. As a result, 3M's product offerings are diversified and resilient in the face of major changes in any one area. On the other hand, because 3M is involved in production in so many different industries, it must work that much harder to ensure that its products remain relevant across many channels.
Because many of 3M's products are ancillary items designed to improve the performance or marketability of existing products, 3M is subject to changes in many industries. 3M also faces competition from a huge number of rivals, given its broad focus across industries. Similarly, a change in global economic circumstances could mean significant turbulence in 3M sales. With so many products in its arsenal, 3M is also dependent upon clear and controlled lines of components, compounds, distribution, and more.
A History of Success
3M has been part of the Dow Jones Industrial Average since 1976, which is longer than all but five of the index’s other 29 components. That fact alone indicates 3M’s formidable ability to adapt to change in an endless milieu of creative destruction. The company specializes in businesses in which few aspiring entrants have either the patience or the capital to build market share. 3M’s profit centers are myriad.
Most recently, 3M has responded to the COVID-19 pandemic. Since January 2020, 3M has doubled production of N95 respirators to 1.1 billion per year at its global manufacturing facilities in the United States, Asia, and Europe. 3M will double its capacity again to 2 billion per year by 2021. 3M is also partnering with other companies to develop innovative solutions to protect healthcare workers and first responders.
Putting it all together, it’s a safe bet that 3M will still be flourishing once many current Dow components have come and gone.