New 3M CEO seeks to develop or buy way to higher growth

3M has brought in Mike Roman as its CEO. (Reuters pic)

DETROIT: The new chief executive of 3M Co is looking at both buying companies and selling underperforming units while investing in developing the next blockbuster product in a bid to drive faster growth at the industrials group that makes products ranging from adhesive tape to air filters.

“We’re looking at acquisitions in attractive parts of our portfolio and how they can leverage our fundamental strengths,” Mike Roman told Reuters just before taking up his role on July 1. “In some cases that might also lead to divestitures.”

3M’s sales were US$31.7 billion (RM128.3 billion) in 2017, and business is growing during an economic upturn. But investors are not satisfied with the rate of growth, and the company’s shares fell 7% in April after 3M cut its organic sales growth forecast for 2018 to a range of 3% to 4% from a range of 4% to 5%.

Shares were up 1.5% on Tuesday morning at US$198.34 (RM802.54), still well below the year high of US$259.77 (RM1,051.11).

“The knock against 3M is that they are so big it’s hard for them to maintain a higher growth rate,” said Morningstar analyst Joshua Aguilar. 3M needs a significant new product it can sell across different groups in its portfolio, he said.

One promising 3M product is Novec, a non-flammable, non-conductive liquid fluorochemical that could be used to cool servers at data centers and which 3M also is testing for use in electric vehicles.

3M CEO Roman highlighted that the conglomerate has increased research and development spending to 6% of revenue from 5.5%.

3M has also beefed up its safety business, which sells products such as masks, protective clothing, and harnesses, with the acquisition of Capital Safety for US$2.5 billion (RM10.1 billion) in 2015 and Scott Safety for US$2 billion (RM8.1 billion) last October.

The company has already shed underperforming businesses. Most recently, 3M said in December it would sell most of its telecoms business to Corning Inc for US$900 million (RM3.6 billion).

William Blair analyst Nicholas Heymann said growth through acquisition makes sense for 3M, but cautioned valuations have risen a lot in the last couple of years, making it more difficult for newly purchased businesses to drive quick gains in profit.

Steel and aluminium tariffs imposed by US President Donald Trump have not hurt 3M directly, Roman said. But higher raw materials costs could cause 3M customers to move their factories.

“We haven’t seen our customers shifting production yet,” he said. “But depending on where trade negotiations go, they could shift production. But we would follow them.”