16.3M Healthcare
$4.5 Billion ($26.7B total)
KEY EXECUTIVES:
George W. Buckley, Chairman, President & CEO
Patrick D. Campbell, Sr. VP & Chief Financial Officer
Brad T. Sauer, Exec. VP, Healthcare Business
Frederick J. Palensky, Exec. VP, Research & Development and Chief Technology Officer
John K. Woodworth, Sr. VP, Corporate Supply Chain Services
Inge G. Thulin, Exec. VP, International Operations
Roger H.D. Lacey, Sr. VP, Strategy & Corporate Development
NO. OF EMPLOYEES: 80,057 (total)
GLOBAL HEADQUARTERS: St. Paul, Minn.
“Any sufficiently advanced technology is indistinguishable from magic.”
— Arthur C. Clarke
The magic is back at 3M. Five years after setting out to recapture the wizardry that transformed the company from a five-man mining and manufacturing firm into a global technological conglomerate responsible for such revolutionary inventions as masking tape, dry-silver microfilm, Post-it Notes, and immune response modifier drugs, 3M has rediscovered its serendipitous formula for achieving and sustaining growth, and reincarnating stale markets.
Finding the proper ingredients for the magical potion wasn’t easy, though. It required the company’s management team to take a new approach to growth, one that included a rekindling of creativity among engineers, scientists and researchers, and the creation of a business environment that would encourage such creativity and help it to flourish. The new approach also required the firm to take more calculated risks and burst into high-growth markets and countries.
“After the high growth rates of the 1960s and 1970s, we had been stuck in a low growth mode since 1979,” George W. Buckley, 3M chairman, president and CEO told shareholders in a letter at the beginning of the company’s 2010 annual report. “We knew that achieving consistently higher rates of growth, while maintaining the premium margins and returns we’d come to expect, was not going to be easy. In fact, many onlookers thought it was an impossible task.”
It may have seemed impossible at first, but once the company reconnected with its inner mojo, the high-end growth that 3M had lost more than three decades ago bewitchingly reappeared. In 2010, growth reached record levels—organic volumes jumped 13.7 percent (compared with an estimated worldwide Industrial Production Index growth of 8 percent), and cash flow was $4.1 billion, with a conversion rate of 100 percent. Total sales and the overall annual growth rate both hit new highs ($26.7 billion and 15.3 percent, respectively), as did the company’s operating profit of $5.9 billion, which included margins of 22.2 percent, up 140 basis points compared with 2009. Earnings per share (EPS) topped out at $5.63, a 25 percent increase compared with the firm’s 2009 EPS of $4.52.
Four of the company’s six business segments turned in double-digit sales growth in 2010 (year ended Dec. 31), with the Electro and Communications sector recording the largest increase at 28.3 percent.
The Display and Graphics segment followed closely behind, posting a 24 percent surge on $3.8 billion in sales, while the firm’s Industrial and Transportation segment reported an 18.6 percent increase on $8.5 billion in sales (this segment, incidentally, was 3M’s top revenue-generator). Consumer and Office division sales climbed 11 percent; at the back of the pack was Safety, Security and Protection Services, which garnered an 8 percent sales increase, and Health Care, which experienced a 5.3 percent hike.
Sales were just as enchanting throughout the world last year, growing most significantly in the Asia Pacific region (35 percent on $8.2 billion in revenue) and Latin America/Canada (17.2 percent on $2.9 billion in sales). Domestic sales were the most lucrative for 3M, generating $9.2 billion for the company, but they experienced one of the weakest growth rates at 8.2 percent, according to the annual report. Still, U.S. sales growth was higher than the revenue increase reported in Europe, the Middle East and Africa—4.8 percent on $6.2 billion in sales.
Much of 3M’s overall sales increase directly can be linked to its longstanding commitment to research and development. Expenditures in this area jumped 10 percent last year compared with 2009 and 12.5 percent since 2005. In total, the company has spent $7 billion on R&D over the last five years—money which Buckley claims will ensure the firm’s future.
“Research and development and new business ventures are somewhat risky in that we can’t always tell which will be successful,” Buckley said in the annual report. “But the alternative of not investing in our future is far more risky. In the coming year we expect to see growing payoffs as these ventures gain traction in the marketplace.”
Such payoffs in the Health Care sector likely will be derived from last June’s release of Tegaderm foam adhesive wound dressings, which have a higher fluid handling capacity and longer wear times compared with similar products, and the September launch of the VFlex Particulate Respirators, devices featuring V-shaped pleats that expand to provide the user with a more comfortable seal and embossed front panels that help the products retain their shape.
Future growth in the Health Care sector also is expected to come from last year’s acquisition of Arizant Inc., an Eden Prairie, Minn.-based manufacturer of blankets and hospital gowns that keep patients warm on the operating table and guard against hypothermia. Executives estimate the acquisition contributed 1.2 percent to the sector’s revenue growth, though it had little effect on operating income (which remained essentially flat at $1.3 billion).
The Arizant deal was one of three that transpired over the course of a month late last summer. At the end of August, 3M purchased Cogent Inc., a maker of fingerprint-identification devices, for $943 million, and Attenti Holdings SA, a manufacturer of electronic tracking tools, including ankle bracelets, for $230 million.
Since 2005, 3M has announced a total of 67 acquisitions, according to industry data. The $1.3 billion purchase of Cuno Inc., a water filtration devices manufacturer, in 2005 was the largest, followed by a $1.2 billion deal in 2007 for Aearo Technologies, a manufacturer of ear plugs and safety goggles.