Diversified conglomerate 3M Company MMM recently lowered its guidance for 2015, citing weak macroeconomic conditions across the globe. Share prices reacted sharply on the news as the stock was down 6% to close at $148.13 as on Dec 15, 2015. However, the company offered some respite from the skepticism evident among investors through a relatively healthy initial guidance for 2016.
3M currently expects organic growth in 2015 to be approximately 1%, versus the prior guidance of 1.5%-2%. GAAP earnings are anticipated to be approximately $7.55 per share, down from earlier expectations of $7.60 to $7.65.
For 2016, the company anticipates GAAP earnings in the range of $8.10 to $8.45 per share, a year-over-year increase of 7%-12%. Organic local-currency sales growth is expected to be 1%-3%, while free cash flow conversion rate is anticipated to be 95%-105%.
Portfolio management, investment in innovation and business transformation are the three key levers on which 3M intends to focus on to gain a competitive advantage in the industry. 3M also intends to continue investing in capital expenditures and research and development to support organic growth as it aims at a prudent capital structure strategy and increased capital deployment. 3M's global footprint, diversified product portfolio and the ability to penetrate into different markets have been its forte.
In order to fuel its growth engine, 3M has initiated some prudent steps to strengthen and focus on its core portfolio of businesses. Since 2012, the company has pruned its businesses from 40 to 26, thereby improving customer relevance, productivity and speed through a leaner operating structure. At the same time, 3M has maintained a steady investment in R&D to develop innovative products. The company expects to invest $1.8 billion in R&D in 2016 for higher organic growth and complement it through strategic acquisitions.
Furthermore, 3M is standardizing its business processes through a new, global ERP system. The company expects these efforts to result in $500 to $700 million in annual operational savings by 2020, and an additional $500 million reduction in working capital.
3M currently has a Zacks Rank #3 (Hold). Some better-ranked stocks that currently look promising in the industry include CUI Global, Inc. CUI, Federal Signal Corp. FSS and Macquarie Infrastructure Corporation MIC, each carrying a Zacks Rank #2 (Buy).
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