3M Co. announced its latest five-year strategic plan Tuesday during an investor day that reiterated some prior financial targets and generally failed to impress Wall Street.
3M stock fell $1.89 to close at $164.39 a share Tuesday. after the company hosted the investor day with Wall Street analysts at its Maplewood headquarters.
During the meeting, 3M officials reaffirmed their prior earnings guidance for 2016. Full-year profits are expected to range from $8.10 to $8.45 a share, while same-country sales are expected to rise only 1 to 3 percent.
Like most multinational conglomerates, 3M is wrestling with the high U.S. dollar, resulting in negative foreign currency exchange rates, and economic slowdowns in China, Canada, Brazil, parts of Europe and a host of other countries that were once hot growth markets.
The $30 billion company — which makes Scotch tape, Post-it notes, respirators, cellphone screen brightening films and thousands of other products — has operations in 70 countries and sells products to customers in 200 countries. The global slowdown has affected 3M's growth targets, analysts said.
3M officials said Tuesday that over the next five years, earnings should grow 8 to 11 percent on same-country or same-currency sales that grow 2 to 5 percent between 2016 and 2020.
Officials also expect 3M to realize a 20 percent return on capital investments and a 100 percent conversion of free cash flow.
"These objectives reflect our confidence in driving efficient growth [meaning] strong sustainable growth and premium returns well into the future," 3M CEO Inge Thulin told the analysts. "Going forward we remain focused on controlling the controllable, investing for the long term and leveraging our scientific capabilities to create even greater value for our customers and shareholders."
Thulin added that 3M's future "playbook" will rely on three key levers: the management of a portfolio that includes more than 55,000 products; innovation investments; and business transformations. Those levers are "the theme to everything you will see and we are executing on all of them," Thulin said.
The initiatives are expected to help 3M become more relevant to customers, more agile and more competitive. In the end, 3M will leverage its technology, brands manufacturing capabilities and global reach to deliver value to customers and investors, Thulin said.
3M's investor day, which was closed to the public and media, also involved presentations by the heads of each of 3M's five key business groups, the company's chief financial officer, and the head of 3M's supply chain, among others.
Edward Jones Research Analyst Matt Arnold said the meeting did little to alter his positive outlook on 3M's long-term future.
"We did not hear anything that should materially change the narrative for 3M investors either way," he said. "The stock is down about 1.2 percent, which is not an abnormal move at all for the shares. Year to date, 3M has outperformed industrial peers by a meaningful amount, so today's move could simply be normal profit-taking by shorter-term investors. We continue to find the story appealing for those with a long-term window."
Arnold added that he continues to like 3M "best in class margins" and research and development investments. Both "should continue to drive organic growth," he said. Future acquisitions also could add to growth.
However, Moody's Investors Service downgraded 3M's senior unsecured debt rating, noting concerns that the company might be becoming less conservative due to its willingness to take on much more debt to fund future acquisitions and share repurchases. At the same time, Moody's altered its rating outlook from negative to stable.
After years of sleepy purchases, 3M ended 2015 with two huge acquisitions. The deals, one for $2.5 billion and the other for $1 billion, expanded 3M's offerings in worker-safety products and ultra-filtration products. A third, much-smaller acquisition expanded 3M's offerings of health care products that disinfect hospital IVs and catheters.
Thulin told analysts Tuesday that 3M will continue to look for acquisitions that make sense for the company and that add value to its customers and technology platforms.
Some analysts welcomed that move, which had worked well for 3M in the past. "Acquisitions appear to still be a high priority for putting capital to work," Arnold said. "While it sounds like the appetite for very large deals remains low, the appetite for multiple midsize deals in the $1 billion-plus range appears to be relatively high for the next several years."
Moody's officials, however, signaled caution about just how far 3M might be willing to go in deploying capital.
Depending on the level of new acquisitions, share repurchases and dividends and cash flow declines, "Moody's estimates [the] debt [to earnings ratio] to be approximately two times in 2017. This compares to debt/EBITDA [ratio] of only one in 2013. Similarly, free cash flow/debt is estimated to be less than 15 percent in 2017, down from 30 percent in 2013."