Yahoo Finance Key Takeaways from 3M’s 1Q16 Sales Performance
What Were 3M's Key Growth Drivers in 1Q16?
Why 3M’s sales fell
3M’s (MMM) consolidated revenues fell 2.2% year-over-year to $7.4 billion as a 1.7% decline in volume, and a 3% impact of currency translations offset the acquisitive growth of 1.6%. The results in the electronics segment, which contributed $1.1 billion to company revenues, were especially weak due to oversaturation in the smartphone market. This led to weak demand from original equipment customers. Sales in the electronic segment fell 12% organically. Sales in the industrial segment fell 3% year-over-year to $2.5 billion due to currency headwinds of 3%. Organic declines of 1.9% in the segment were offset by a 1.9% growth in acquired businesses.
3M sales growth across geographies
Among 3M’s regional markets, the United States delivered the best performance in total growth terms. Revenues in the US grew 2.3% due to the acquisitive growth of 2% and organic gains of 0.3%. Apart from the US, the EMEA region was the only market where volumes increased, which together with pricing increases of 1.2%, led to an organic growth of 1.7%. An organic decline of 5.6% in the Asia-Pacific region was led by soft demand from electronics customers in China and Japan. Overall sales in Asia-Pacific were further down at 7.6% due to currency challenges of 2.6%. The effects of a strengthening dollar were particularly steep at -15.7% in the Latin America and Canada region where overall sales fell by 9.6%.
Our take on the sales performance of 3M
In 1Q16, 3M (MMM) has done pretty well in businesses with a consumer focus, which account for ~50% of total sales. This is evident in organic gains in the consumer and healthcare units. Given the conditions of soft demand in industrial (RGI) belts across the world, weakness in industrial (IYJ) businesses is expected to persist, and these headwinds will continue to weigh heavily on the electronics business.
Despite challenging macros, we see 3M’s businesses benefitting from the resilience of a diversified portfolio as stronger units offset cyclical declines in some of the other weak segments. This makes 3M a suitable option for defensive investors. In the absence of diversification, the declines, as well as the gains, could have been larger depending on the tilt of the undiversified portfolio.
Investors interested in trading in the industrials sector could look into the Industrial Select Sector SPDR ETF (XLI) and the iShares US Industrials ETF (IYJ). Major holdings in IYJ include Honeywell (HON) at 3.3%, 3M (MMM) at 3.9%, and General Electric (GE) at 11.5%.
Browse this series on Market Realist:
