3M forecasts a stronger 2017, though analysts expected more

3M Co. executives on Tuesday told investors company revenue would grow 1 to 3 percent in 2017 as the auto, aerospace, robotics and some other industrial sectors improve.

In a discussion that showcased some of 3M's division heads, 3M Chief Executive Inge Thulin outlined a strategy of closer customer ties, efficiency investments and innovative products to drive growth.

Those strategies, plus improving global markets, should help the Maplewood-based conglomerate grow, he said.

The company's revenue was down 1 percent through the first nine months of 2016, but sales are expected to be flat for full 2016 year, Chief Financial Officer Nick Gangestad told analysts. He noted that the strengthening U.S. dollar is squeezing fourth-quarter results.

For 2017, earnings per share are expected to rise to between $8.45 and $8.80 per share. That's up from the $8.15 that Gangestad said to expect for full-year 2016. (The last official forecast for 2016 predicted earnings of $8.15 to $8.20 per share.)

While 3M's forecast for the new year marks an upturn, investors were not impressed. Analysts had expected that 3M profits for 2017 would average at least $8.64 a share, not $8.45 a share. 3M's stock fell nearly 1 percent to close at $178.83 per share Tuesday. Still, officials were buoyed by the belief that better days are in store.

"Moving into 2017, we are continuing to increase investments in targeted growth opportunities, which will help us deliver another year of efficient growth and strong cash flow," Thulin told analysts. "Equally important, our enterprise is well-positioned for long-term success, and we will capitalize as growth conditions improve."

"Over the last several years we have taken significant actions to strengthen our technology capabilities, improve our portfolio and cost structure and make us even more relevant to our customers," Thulin said.

Mike Roman, who leads 3M's industrial business, its largest unit, told analysts that the landscape is already getting better.

"Headwinds are starting to moderate and improve as we move into the new year," Roman said.

3M struggled with lackluster industrial, energy and consumer-electronics businesses in 2016 as well as a slower growth rate in its once-soaring health care business.

For the coming year, however, 3M's industrial sales are now expected to grow 1 to 3 percent, as are the sales for the safety and graphics unit. The health care division should grow 3 to 5 percent, officials said.

Chief Technology Officer Ashish Khandpur told analysts that next year 3M will invest $1.8 billion in companywide research and development, which should support growth, bulk up margins and heighten returns on invested capital. R & D spending is getting closer to 3M's goal of investing 6 percent of its total revenue in product innovation.

Some analysts at the meeting questioned why the figure wasn't even higher, considering 3M's solid cash flow standing. Thulin noted that he wanted to ensure that any R & D investments also produced smart productivity gains and that any new, disruptive technologies would indeed pay off long term.

"Some of those [investments] are riskier and take more time," Thulin said.

3M also expects to use its "portfolio management lever" to ramp up high-growth product segments and customer relationships while simultaneously divesting slow-growth and noncore businesses. 3M announced this week that it will sell its identity management systems business to Gemalto for $850 million. Thulin noted that the business was acquired through an acquisition, but was now considered slow growing, more project oriented and less essential to 3M's future. Repositioning 3M's product portfolio toward fast and sustainable growth is a key priority for 3M, Thulin said. By 2020, the business transformation strategy is also expected to deliver $500 to $700 million in annual savings.

Thulin told analysts that with regard to possible future acquisitions: "Our preference is in health care, safety and graphics and industrial. We still have work to do to make right in electronics and energy."

Dee DePass • 612-673-7725