REG - 3M Company - Half-year Report <Origin Href="QuoteRef">MMM.N</Origin> - Part 6
03/08/2016 07:07
- Part 6: For the preceding part double click ID:nRSC0594Ge
Energy (9.1) % - % - % (0.9) % (10.0) %
Consumer 2.7 % - % - % (1.0) % 1.7 %
Total Company (0.2) % 1.9 % (0.5) % (1.5) % (0.3) %
Sales in U.S. dollars in the second quarter of 2016 decreased 0.3 percent, substantially impacted by foreign currency
translation, which reduced sales by 1.5 percent. Total company organic local-currency sales (which includes organic volume
impacts plus selling price impacts) decreased 0.2 percent, with growth in Health Care, Consumer, and Safety and Graphics
more than offset by declines in Industrial, and Electronics and Energy. Four of 3M's five business segments achieved
operating income margins in excess of 23 percent. Worldwide operating income margins for the second quarter of 2016 were
24.4 percent, compared to 23.9 percent for the second quarter of 2015.
3M continued to invest for long-term success through research and development, commercialization and acquisitions.
Acquisitions increased second quarter sales growth by 1.9 percent, which related to acquisitions closed in 2015. In August
2015, 3M (Safety and Graphics Business) acquired Capital Safety, a leading global provider of fall protection equipment. In
August 2015, 3M (Industrial Business) also acquired Membrana, a leading provider of microporous membranes and modules for
filtration in life sciences, industrial and specialty segments. For additional detail, refer to Note 2 in the Consolidated
Financial Statements in 3M's Current Report on Form 8-K dated May 17, 2016 (which updated 3M's 2015 Annual Report on Form
10-K).
Divestitures reduced second quarter sales growth by 0.5 percent. As part of its portfolio management process, in the fourth
quarter of 2015, 3M (Safety and Graphics Business) divested the license plate converting business in France and
substantially all of the library systems business. In the first quarter of 2016, 3M completed the sale of the remaining
portions of its library systems business. Also, in the first quarter of 2016, 3M (Industrial Business Group) divested the
assets of 3M's pressurized polyurethane foam adhesives business (formerly known as Polyfoam). This business is a provider
of pressurized polyurethane foam adhesive formulations and systems into the residential roofing, commercial roofing and
insulation and industrial foam segments in the United States with annual sales of approximately $20 million. The Company
recorded a pre-tax gain of $40 million in the first quarter of 2016 as a result of the sale of Polyfoam and the remaining
portion of the library systems business. Refer to Note 2 in the Consolidated Financial Statements for additional detail.
Six months ended June 30,
2016 2015 % change
Net Oper. Net Oper. Net Oper.
(Dollars in millions) Sales Income Sales Income Sales Income
Business Segments
Industrial $ 5,207 $ 1,232 $ 5,288 $ 1,204 (1.5) % 2.4 %
Safety and Graphics 2,911 756 2,804 699 3.8 % 8.2 %
Health Care 2,787 915 2,693 848 3.5 % 7.8 %
Electronics and Energy 2,325 437 2,636 563 (11.8) % (22.5) %
Consumer 2,179 519 2,159 499 0.9 % 4.0 %
Corporate and Unallocated 5 (129) (2) (174) - -
Elimination of Dual Credit (343) (76) (314) (69) - -
Total Company $ 15,071 $ 3,654 $ 15,264 $ 3,570 (1.3) % 2.3 %
Six months ended June 30, 2016
Organic
Worldwide local- Total
Sales Change Analysis currency sales
By Business Segment sales Acquisitions Divestitures Translation change
Industrial (1.6) % 2.4 % (0.2) % (2.1) % (1.5) %
Safety and Graphics 2.4 % 6.9 % (2.4) % (3.1) % 3.8 %
Health Care 5.6 % 0.4 % - % (2.5) % 3.5 %
Electronics and Energy (10.4) % - % - % (1.4) % (11.8) %
Consumer 2.7 % - % - % (1.8) % 0.9 %
Total Company (0.6) % 2.0 % (0.5) % (2.2) % (1.3) %
Sales in U.S. dollars in the first six months of 2016 decreased 1.3 percent, substantially impacted by foreign currency
translation, which reduced sales by 2.2 percent. Total company organic local-currency sales (which includes organic volume
impacts plus selling price impacts) decreased 0.6 percent, with growth in Health Care, Consumer, and Safety and Graphics
more than offset by declines in Industrial, and Electronics and Energy. Four of 3M's five business segments achieved
operating income margins in excess of 23 percent. Worldwide operating income margins for the first six months of 2016 were
24.2 percent, compared to 23.4 percent for the first six months of 2015.
In March 2015, 3M (Health Care Business) acquired Ivera Medical Corp., a manufacturer of health care products that
disinfect and protect devices used for access into a patient's bloodstream. Additional acquisition and divestiture impacts
that impacted six months ended June 30, 2016 results are provided in the second quarter discussion above.
Sales by geographic area:
Percent change information compares the second quarter and first six months of 2016 with the same periods last year, unless
otherwise indicated. From a geographic perspective, any references to EMEA refer to Europe, Middle East and Africa on a
combined basis.
Three months ended June 30, 2016
Europe, Latin
United Asia Middle East America/ Other
States Pacific & Africa Canada Unallocated Worldwide
Net sales (millions) $ 3,112 $ 2,144 $ 1,665 $ 739 $ 2 $ 7,662
% of worldwide sales 40.6 % 28.0 % 21.7 % 9.7 % - 100.0 %
Components of net sales change:
Volume - organic 0.1 % (5.3) % 1.5 % (2.4) % - (1.3) %
Price 0.3 (0.1) 1.5 7.2 - 1.1
Organic local-currency sales 0.4 (5.4) 3.0 4.8 - (0.2)
Acquisitions 2.1 1.0 2.7 2.3 - 1.9
Divestitures (0.6) (0.2) (0.7) (0.3) - (0.5)
Translation - (0.2) (1.7) (10.5) - (1.5)
Total sales change 1.9 % (4.8) % 3.3 % (3.7) % - (0.3) %
Sales in U.S. dollars increased 3.3 percent in EMEA and 1.9 percent in the United States, while sales declined 3.7 percent
in Latin America/Canada and 4.8 percent in Asia Pacific. Currency impacts reduced second quarter 2016 worldwide sales
growth by 1.5 percent.
Worldwide selling prices rose 1.1 percent in the second quarter of 2016. 3M has been raising selling prices in a number of
developing countries to help offset the impact of currency devaluations. 3M also continues to generate positive selling
price changes across most of its businesses, boosted by world-class innovation and strong new product flow, both of which
are important elements of the 3M business model.
Foreign currency translation reduced year-on-year sales in all major geographies, driven by a 10.5 percent translation
impact in Latin America/Canada, as the Brazilian Real weakened versus the U.S. dollar compared to second quarter 2015 by 11
percent. The Euro and Yen strengthened versus the U.S. dollar compared to second quarter 2015 by 2 percent and 14 percent,
respectively.
In Latin America/Canada, organic local-currency sales grew 4.8 percent, led by Health Care at 8 percent, Industrial at 6
percent, and Safety and Graphics at 5 percent. Organic local-currency sales were flat in Consumer, and Electronics and
Energy. Organic local-currency sales grew 5 percent in Mexico and declined 2 percent in Brazil.
In EMEA, organic local-currency sales increased 3.0 percent, as West Europe was up 3 percent and Central/East Europe and
Middle East/Africa grew 2 percent. Organic local-currency sales growth in EMEA was led by both Health Care and Industrial
at 4 percent, while both Electronics and Energy, and Safety and Graphics grew 2 percent. Organic local-currency sales
declined 2 percent in Consumer.
In the United States, organic local-currency sales growth was 0.4 percent, with growth of 5 percent in Safety and Graphics,
4 percent in Health Care, and 3 percent in Consumer. Organic local-currency growth was flat in Electronics and Energy, and
declined 5 percent in Industrial. Similar to the first quarter, U.S manufacturing activity remained soft in the second
quarter, which impacted portions of 3M's Industrial business.
In Asia Pacific, organic local-currency sales declined 5.4 percent. Organic local-currency sales growth was led by Health
Care at 7 percent, and Consumer at 6 percent, while Safety and Graphics declined 3 percent, and Industrial declined 4
percent. Electronics and Energy declined 15 percent, as 3M continues to experience soft end-market demand and channel
inventory adjustments in consumer electronics. Organic local-currency sales declined 1 percent in Japan and 7 percent in
China/Hong Kong. Excluding electronics, organic local-currency sales in Japan increased 2 percent and China/Hong Kong
declined 2 percent.
Six months ended June 30, 2016
Europe, Latin
United Asia Middle East America/ Other
States Pacific & Africa Canada Unallocated Worldwide
Net sales (millions) $ 6,038 $ 4,357 $ 3,244 $ 1,432 $ - $ 15,071
% of worldwide sales 40.1 % 28.9 % 21.5 % 9.5 % - 100.0 %
Components of net sales change:
Volume - organic 0.2 % (5.3) % 1.1 % (2.5) % - (1.6) %
Price 0.1 (0.2) 1.3 7.0 - 1.0
Organic local-currency sales 0.3 (5.5) 2.4 4.5 - (0.6)
Acquisitions 2.4 1.0 2.7 2.3 - 2.0
Divestitures (0.6) (0.2) (0.7) (0.3) - (0.5)
Translation - (1.4) (2.3) (13.1) - (2.2)
Total sales change 2.1 % (6.1) % 2.1 % (6.6) % - (1.3) %
Sales in U.S. dollars increased 2.1 percent in both the United States and EMEA, while sales declined 6.1 percent in Asia
Pacific, and 6.6 percent in Latin America/Canada. Currency impacts reduced first six months 2016 worldwide sales growth by
2.2 percent. Worldwide selling prices rose 1.0 percent in the first six months of 2016.
In Latin America/Canada, organic local-currency sales grew 4.5 percent, led by Health Care at 8 percent, and Industrial at
7 percent, and Safety and Graphics at 3 percent. Organic local-currency sales were flat in both Electronics and Energy, and
Consumer. Organic local-currency sales grew 8 percent in Mexico and was flat in Brazil.
In EMEA, organic local-currency sales increased 2.4 percent. Central/East Europe and Middle East/Africa grew 4 percent, and
West Europe was up 2 percent. Organic local-currency sales growth in EMEA was led by Health Care at 5 percent, and
Industrial at 3 percent, while Safety and Graphics grew 2 percent, and Electronics and Energy grew 1 percent. Organic
local-currency sales declined 3 percent in Consumer.
In the United States, organic local-currency sales grew 0.3 percent, with growth of 4 percent in both Health Care, and
Safety and Graphics, and growth in Consumer of 3 percent, largely offset by declines in Electronics and Energy of 1 percent
and Industrial of 5 percent. U.S manufacturing activity was soft in the first half of 2016, which impacted portions of 3M's
Industrial business.
In Asia Pacific, organic local-currency sales declined 5.5 percent. Organic local-currency sales growth was led by Health
Care at 9 percent, and Consumer at 6 percent, while Safety and Graphics was flat, and Industrial declined 4 percent.
Electronics and Energy declined 16 percent, as 3M continues to experience soft end-market demand and channel inventory
adjustments in consumer electronics. Organic local-currency sales declined 5 percent in Japan and 6 percent in China/Hong
Kong. Excluding electronics, organic local-currency sales in Japan increased 1 percent and China/Hong Kong decreased 1
percent.
Managing currency risks:
As discussed above, the stronger U.S. dollar negatively impacted sales and earnings in the second quarter and first six
months of 2016 compared to the same period last year. 3M utilizes a number of tools to hedge currency risk related to
earnings. 3M uses natural hedges such as pricing, productivity, hard currency and hard currency-indexed billings, and
localizing source of supply. 3M also uses financial hedges to mitigate currency risk. In the case of more liquid
currencies, 3M hedges a portion of its aggregate exposure, using a 12, 24 or 36 month horizon, depending on the currency in
question. In the second quarter of 2014, 3M began extending its hedging tenor for certain major currencies, most notably
the Euro and Yen, from a previous term of 12 months to a term of 24 months, and in the first quarter of 2015 extended this
to 36 months. For less liquid currencies, financial hedging is frequently more expensive with more limitations on tenor.
Thus this risk is largely managed via local operational actions using natural hedging tools as discussed above. In either
case, 3M's hedging approach is designed to mitigate a portion of foreign currency risk and reduce volatility, ultimately
allowing time for 3M's businesses to respond to changes in the marketplace.
Financial condition:
3M generated $2.545 billion of operating cash flows in the first six months of 2016, an increase of $127 million when
compared to the first six months of 2015. Refer to the section entitled "Financial Condition and Liquidity" later in MD&A
for a discussion of items impacting cash flows.
In February 2016, 3M's Board of Directors authorized the repurchase of up to $10 billion of 3M's outstanding common stock,
with no pre-established end date. In the first six months of 2016, the Company purchased $2.055 billion of its own stock,
compared to $2.581 billion of stock purchases in the first six months of 2015. As of June 30, 2016, approximately $8.7
billion remained available under the February 2016 authorization. The Company expects to purchase $4 billion to $6 billion
of its own stock in 2016. In February 2016, 3M's Board of Directors declared a first quarter 2016 dividend of $1.11 per
share, an increase of 8 percent. This marked the 58th consecutive year of dividend increases for 3M. In May 2016, 3M's
Board of Directors declared a second quarter 2016 dividend of $1.11 per share.
3M's debt to total capital ratio (total capital defined as debt plus equity) was 50 percent at June 30, 2016, and 48
percent at December 31, 2015. 3M currently has an AA- credit rating with a stable outlook from Standard & Poor's and has an
A1 credit rating with a stable outlook from Moody's Investors Service. The Company generates significant ongoing cash flow
and has proven access to capital markets funding throughout business cycles.
3M expects to contribute approximately $200 million to $400 million of cash to its global defined benefit pension and
postretirement plans in 2016. The Company does not have a required minimum cash pension contribution obligation for its
U.S. plans in 2016.
RESULTS OF OPERATIONS
Net Sales:
Refer to the preceding sections entitled "Sales and operating income by business segment" and "Sales and operating income
by geographic area" for discussion of sales change.
Operating Expenses:
Three months ended Six months ended
June 30, June 30,
(Percent of net sales) 2016 2015 Change 2016 2015 Change
Cost of sales 49.5 % 50.2 % (0.7) % 49.6 % 50.3 % (0.7) %
Selling, general and administrative expenses 20.4 20.2 0.2 20.3 20.4 (0.1)
Research, development and related expenses 5.7 5.7 - 5.9 5.9 -
Operating income 24.4 % 23.9 % 0.5 % 24.2 % 23.4 % 0.8 %
3M expects global defined benefit pension and postretirement expense in 2016 (before settlements, curtailments, special
termination benefits and other) to decrease by approximately $320 million pre-tax when compared to 2015, which impacts cost
of sales; selling, general and administrative expenses (SG&A); and research, development and related expenses (R&D). Refer
to 3M's Current Report on Form 8-K dated May 17, 2016 (MD&A section entitled Critical Accounting Estimates - Pension and
Postretirement Obligations and Note 11, Pension and Postretirement Benefit Plans) for background concerning the change to
the spot yield curve approach and other factors, which will result in decreased expenses in 2016. The year-on-year decrease
in defined benefit pension and postretirement expense for the second quarter and first six months of 2016 was $90 million
and $165 million, respectively. The first six months of 2015 includes the impact of a first quarter 2015 Japan pension
curtailment gain of $17 million.
The Company is investing in an initiative called business transformation, with these investments impacting cost of sales,
SG&A, and R&D. Business transformation encompasses the ongoing multi-year phased implementation of an enterprise resource
planning (ERP) system on a worldwide basis, as well as changes in processes and internal/external service delivery across
3M.
Cost of Sales:
Cost of sales includes manufacturing, engineering and freight costs.
Cost of sales as a percent of net sales improved by 0.7 percentage points in both the second quarter and first six months
of 2016 when compared to the same periods last year. Cost of sales, measured as a percent of sales, decreased due to
selling price increases and raw material cost decreases. Selling prices increased net sales year-on-year by 1.1 percent and
1.0 percent in the second quarter and first six months, respectively, while raw material cost deflation in both the second
quarter and first six months was favorable by approximately 3.5 percent year-on-year. In addition, cost of sales decreased
due to lower defined benefit pension and postretirement expense (of which a portion impacts cost of sales).
Selling, General and Administrative Expenses:
SG&A increased 0.6 percent in the second quarter of 2016 and declined 2.0 percent in the first six months of 2016, when
compared to the same periods last year, with year-to-date results benefiting from first quarter 2016 divestiture gains (as
discussed in Note 2), foreign currency translation, and productivity benefits related to the fourth quarter 2015
restructuring. In addition, lower defined benefit pension and postretirement expense benefited SG&A. SG&A, measured as a
percent of sales, was 20.3 percent of sales in the first six months of 2016 compared to 20.4 percent in the first six
months of 2015.
Research, Development and Related Expenses:
R&D, measured as a percent of sales, was 5.7 percent of sales for both the three months ended June 30, 2016 and 2015, and
was 5.9 percent of sales for both the six months ended June 30, 2016 and 2015. R&D in dollars were flat in the second
quarter of 2016 and decreased $14 million in the first six months of 2016 compared to the same periods last year,
benefitting from foreign currency translation and lower defined benefit pension and postretirement expense. 3M continued to
invest in its key growth initiatives, including more R&D aimed at disruptive innovation programs with the potential to
create entirely new markets and disrupt existing markets.
Operating Income:
3M uses operating income as one of its primary business segment performance measurement tools. Refer to the table below for
a reconciliation of operating income margins for the three months and six months ended June 30, 2016 versus the same
periods last year.
Three months ended Six months ended
(Percent of net sales) June 30, 2016 June 30, 2016
Same period last year 23.9 % 23.4 %
Increase/(decrease) in operating income margin, due to:
Selling price and raw material impact 1.3 1.2
Pension and postretirement benefit costs 1.1 1.0
Productivity from restructuring 0.4 0.4
Strategic investments (0.3) (0.2)
Foreign exchange impacts (0.3) (0.2)
Acquisitions - (0.1)
Organic volume and utilization (1.1) (0.9)
Legal and other (0.6) (0.4)
Current period 24.4 % 24.2 %
Operating income margins were 24.4 percent in the second quarter of 2016, compared to 23.9 percent in the second quarter of
2015, an improvement of 0.5 percentage points. The first six months of 2016 improved by 0.8 percentage points. 3M continues
to benefit from the combination of higher selling prices and lower raw material costs, plus lower year-on-year defined
benefit pension and postretirement expense, in addition to productivity benefits related to the fourth quarter 2015
restructuring. Items that reduced operating income margins included strategic investments, as 3M took actions to better
optimize its manufacturing footprint and accelerated growth investments across its businesses, in addition to foreign
currency impacts (net of hedge gains). Acquisitions had a minimal impact on operating income margins due to solid
performances from both Capital Safety and Membrana. Organic volume declines and related utilization impacts included the
impact of lower asset utilization, particularly in electronics, and to a lesser extent, in the industrial businesses. The
legal and other penalty in the preceding table, largely related to a second quarter 2016 unfavorable arbitration ruling on
an insurance claim (discussed in Note 12). In the first six months of 2016, legal and other impacts were partially offset
by first quarter 2016 divestiture gains.
Interest Expense and Income:
Three months ended Six months ended
June 30, June 30,
(Millions) 2016 2015 2016 2015
Interest expense $ 38 $ 35 $ 85 $ 66
Interest income (7) (7) (12) (11)
Total $ 31 $ 28 $ 73 $ 55
Interest expense was higher in the second quarter and first six months of 2016 compared to the same periods last year,
largely due to higher average debt balances, which was partially offset by favorable foreign exchange impacts on
inter-company financing activities.
Provision for Income Taxes:
Three months ended Six months ended
June 30, June 30,
(Percent of pre-tax income) 2016 2015 2016 2015
Effective tax rate 29.6 % 28.1 % 28.2 % 28.8 %
The effective tax rate for the second quarter of 2016 was 29.6 percent, compared to 28.1 percent in the second quarter of
2015, an increase of 1.5 percentage points. The effective tax rate for the first six months of 2016 was 28.2 percent,
compared to 28.8 percent in the first six months of 2015, a decrease of 0.6 percentage points. The change in tax rates was
driven by a number of factors as referenced in Note 6, including the 2016 adoption of ASU No. 2016-09 (discussed in Note
1). The company updated its tax rate guidance for total year 2016 to 29.0 to 29.5 percent (from 29.5 to 30.5 percent), as a
result of additional net benefits from the 2016 adoption of ASU No. 2016-09. Refer to Note 6 for additional discussion.
The effective tax rate can vary from quarter to quarter due to discrete items, such as the settlement of income tax audits,
changes in tax laws and employee share-based payment accounting; as well as recurring factors, such as the geographic mix
of income before taxes.
Net Income Attributable to Noncontrolling Interest:
Three months ended Six months ended
June 30, June 30,
(Millions) 2016 2015 2016 2015
Net income attributable to noncontrolling interest $ 2 $ 3 $ 5 $ 5
Net income attributable to noncontrolling interest represents the elimination of the income or loss attributable to non-3M
ownership interests in 3M consolidated entities. The primary noncontrolling interest relates to 3M India Limited, of which
3M's effective ownership is 75 percent.
Currency Effects:
3M estimates that year-on-year currency effects, including hedging impacts, decreased pre-tax income by approximately $40
million for the three months ended June 30, 2016, and decreased pre-tax income by approximately $90 million for the six
months ended June 30, 2016. This estimate includes the effect of translating profits from local currencies into U.S.
dollars; the impact of currency fluctuations on the transfer of goods between 3M operations in the United States and
abroad; and transaction gains and losses, including derivative instruments designed to reduce foreign currency exchange
rate risks and any impacts from swapping Venezuelan bolivars into U.S. dollars. 3M estimates that year-on-year derivative
and other transaction gains and losses decreased pre-tax income by approximately $10 million for the three months ended
June 30, 2016, which resulted in a minimal impact for the six months ended June 30, 2016.
Significant Accounting Policies:
Information regarding new accounting standards is included in Note 1 to the Consolidated Financial Statements.
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which modifies
certain accounting aspects for share-based payments to employees including, among other elements, the accounting for income
taxes and forfeitures, as well as classifications in the statement of cash flows. The Company early adopted ASU No. 2016-09
as of January 1, 2016. Prospectively beginning January 1, 2016, excess tax benefits/deficiencies have been reflected as
income tax benefit/expense in the statement of income resulting in a $59 million tax benefit in the quarter ended June 30,
2016, and $140 million benefit for the six months ended June 30, 2016. 3M typically experiences the largest volume of stock
option exercises and restricted stock unit vestings in the first quarter of its fiscal year. Refer to Note 1 for additional
detail.
PERFORMANCE BY BUSINESS SEGMENT
Disclosures related to 3M's business segments are provided in Note 14. The reportable segments are Industrial; Safety and
Graphics; Health Care; Electronics and Energy; and Consumer.
Corporate and Unallocated:
In addition to these five operating business segments, 3M assigns certain costs to "Corporate and Unallocated", which is
presented separately in the preceding business segments table and in Note 14. Corporate and Unallocated includes a variety
of miscellaneous items, such as corporate investment gains and losses, certain derivative gains and losses, certain
insurance-related gains and losses, certain litigation and environmental expenses, corporate restructuring charges and
certain under- or over-absorbed costs (e.g. pension, stock-based compensation) that the Company may choose not to allocate
directly to its business segments. Because this category includes a variety of miscellaneous items, it is subject to
fluctuation on a quarterly and annual basis.
Corporate and Unallocated operating income in the second quarter and first six months of 2016 when compared to the same
periods last year decreased by $14 million and improved by $45 million, respectively. 3M's defined benefit pension and
postretirement expense allocation to Corporate and Unallocated decreased by $63 million and $126 million, respectively, in
the second quarter and first six months of 2016 when compared to the same periods last year. In the second quarter and
first six months of 2016, the pension and postretirement benefit was partially offset by an unfavorable second quarter 2016
arbitration ruling (discussed in Note 12).
Operating Business Segments:
Information related to 3M's business segments for the second quarter and first six months of both 2016 and 2015 is
presented in the tables that follow. Organic local-currency sales include both organic volume impacts plus selling price
impacts. Acquisition impacts, if any, are measured separately for the first twelve months post-transaction. The divestiture
impacts, if any, foreign currency translation impacts and total sales change are also provided for each business segment.
Any references to EMEA relate to Europe, Middle East and Africa on a combined basis.
Industrial Business:
Three months ended Six months ended
June 30, June 30,
2016 2015 2016 2015
Sales (millions) $ 2,631 $ 2,632 $ 5,207 $ 5,288
Sales change analysis:
Organic local currency (1.4) % 1.4 % (1.6) % 2.0 %
Acquisitions 2.8 - 2.4 -
Divestitures (0.2) - (0.2) -
Translation (1.3) (7.9) (2.1) (7.4)
Total sales change (0.1) % (6.5) % (1.5) % (5.4) %
Operating income (millions) $ 615 $ 608 $ 1,232 $ 1,204
Percent change 1.2 % (1.2) % 2.4 % (2.3) %
Percent of sales 23.4 % 23.1 % 23.7 % 22.8 %
The Industrial segment serves a broad range of markets, such as automotive original equipment manufacturer (OEM) and
automotive aftermarket (auto body shops and retail), electronics, appliance, paper and printing, packaging, food and
beverage, and construction. Industrial products include tapes, a wide variety of coated, non-woven and bonded abrasives,
adhesives, advanced ceramics, sealants, specialty materials, 3M purification (filtration products), closure systems for
personal hygiene products, acoustic systems products, and components and products that are used in the manufacture, repair
and maintenance of automotive, marine, aircraft and specialty vehicles. 3M is also a leading global supplier of precision
grinding technology serving customers in the area of hard-to-grind precision applications in industrial, automotive,
aircraft and cutting tools. 3M develops and produces advanced technical ceramics for demanding applications in the
automotive, oil and gas, solar, industrial, electronics and defense industries.
Second Quarter 2016 results:
Sales in Industrial totaled $2.6 billion, down 0.1 percent in U.S. dollars. Organic local-currency sales decreased 1.4
percent, acquisitions added 2.8 percent, divestitures reduced sales by 0.2 percent, and foreign currency translation
reduced sales by 1.3 percent. The organic local-currency sales decline reflected the continued economic challenges in the
global industrial sector. Manufacturing activity in the U.S. remained soft in the second quarter, which impacted portions
of 3M's Industrial business.
On an organic local-currency sales basis:
· Sales grew in automotive OEM, automotive aftermarket, and abrasives, which was offset by declines across the rest of
the portfolio.
· Sales declined in 3M purification, industrial adhesives and tapes, and aerospace commercial transportation.
· Sales also declined in advanced materials, primarily due to ongoing weakness in the oil and gas end markets.
· Geographically, sales increased 6 percent in Latin America/Canada and 4 percent in EMEA, while Asia Pacific declined
4 percent and the United States declined 5 percent.
Acquisitions and divestitures:
· Acquisition sales growth related to the August 2015 acquisition of Membrana, a leading provider of microporous
membranes and modules for filtration in the life sciences, industrial, and specialty segments.
· 3M completed its sale of the assets of 3M's pressurized polyurethane foam adhesives business (formerly known as
Polyfoam) in January 2016 as discussed in Note 2.
Operating income:
· Operating income margins increased by 0.3 percentage points to 23.4 percent, helped by fourth quarter 2015
restructuring actions, and lower raw material costs.
First Six Months 2016 results:
Sales in Industrial totaled $5.2 billion, down 1.5 percent in U.S. dollars. Organic local-currency sales decreased 1.6
percent, acquisitions added 2.4 percent, divestitures reduced sales by 0.2 percent, and foreign currency translation
reduced sales by 2.1 percent. The organic local-currency decline reflected the continued economic challenges in the global
industrial sector.
On an organic local-currency sales basis:
· Sales grew in automotive OEM, and automotive aftermarket.
· Sales declined in abrasives, 3M purification, industrial adhesives and tapes, and aerospace commercial
transportation.
· Sales also declined in advanced materials, primarily due to ongoing weakness in the oil and gas end markets.
· Geographically, sales increased 7 percent in Latin America/Canada and 3 percent in EMEA, while Asia Pacific declined
4 percent and the United States declined 5 percent.
Acquisitions and divestitures:
· Acquisition sales growth related to the August 2015 acquisition of Membrana, a leading provider of microporous
membranes and modules for filtration in the life sciences, industrial, and specialty segments.
· 3M completed its sale of the assets of 3M's pressurized polyurethane foam adhesives business (formerly known as
Polyfoam) in January 2016 as discussed in Note 2.
Operating income:
· Operating income margins increased by 0.9 percentage points to 23.7 percent, helped by fourth quarter 2015
restructuring actions, and lower raw material costs.
· In addition, the gain on sale of the Polyfoam business was partially offset by acquisition impacts, which resulted
in a net operating income margin benefit of 0.5 percentage points.
Safety and Graphics Business:
Three months ended Six months ended
June 30, June 30,
2016 2015 2016 2015
Sales (millions) $ 1,499 $ 1,432 $ 2,911 $ 2,804
Sales change analysis:
Organic local currency 2.3 % 4.9 % 2.4 % 4.4 %
Acquisitions 6.9 - 6.9 -
Divestitures (2.3) - (2.4) -
Translation (2.2) (9.0) (3.1) (8.3)
Total sales change 4.7 % (4.1) % 3.8 % (3.9) %
Operating income (millions) $ 411 $ 364 $ 756 $ 699
Percent change 12.8 % 3.1 % 8.2 % 4.1 %
Percent of sales 27.4 % 25.4 % 26.0 % 24.9 %
The Safety and Graphics segment serves a broad range of markets that increase the safety, security and productivity of
people, facilities and systems. Major product offerings include personal protection products, such as respiratory, hearing,
eye and fall protection equipment; traffic safety and security products, including border and civil security solutions;
commercial solutions, including commercial graphics sheeting and systems, architectural design solutions for surfaces, and
cleaning and protection products for commercial establishments; and roofing granules for asphalt shingles.
Second Quarter 2016 results:
Sales in Safety and Graphics totaled $1.5 billion, an increase of 4.7 percent in U.S. dollars. Organic local-currency sales
increased 2.3 percent, and foreign currency translation reduced sales by 2.2 percent. Acquisitions added 6.9 percent, while
divestitures reduced sales by 2.3 percent.
On an organic local-currency sales basis:
· Sales growth was led by roofing granules, as demand increased in the replacement shingle market, and by commercial
solutions.
· Sales grew slightly in personal safety, while sales declined slightly in traffic safety and security.
· Sales increased 5 percent in both Latin America/Canada and the United States, and 2 percent in EMEA. Sales declined
3 percent in Asia Pacific.
Acquisitions and divestitures:
· Acquisition sales growth reflects the acquisition of Capital Safety in August 2015. Capital Safety is a leading
global provider of fall protection equipment.
· In the fourth quarter of 2015, 3M divested its license plate converting business in France and substantially all of
its library systems business. In the first quarter of 2016, 3M divested the remainder of the library systems business as
discussed in Note 2.
Operating income:
· Operating income totaled $411 million, up 12.8 percent.
· Operating income margins were 27.4 percent of sales, compared to 25.4 percent in the same quarter last year,
benefiting from higher selling prices and lower raw material costs, plus fourth quarter 2015 restructuring actions.
First Six Months 2016 results:
Sales in Safety and Graphics totaled $2.9 billion, an increase of 3.8 percent in U.S. dollars. Organic local-currency sales
increased 2.4 percent, and foreign currency translation reduced sales by 3.1 percent. Acquisitions added 6.9 percent, while
divestitures reduced sales by 2.4 percent.
On an organic local-currency sales basis:
· Sales growth was led by roofing granules, commercial solutions, and personal safety, while sales declined in traffic
safety and security.
· Sales increased 4 percent in the United States, 3 percent in Latin America/Canada, and 2 percent in EMEA, while
sales in Asia Pacific were flat.
Acquisitions and divestitures:
· Acquisition sales growth reflects the acquisition of Capital Safety in August 2015. Capital Safety is a leading
global provider of fall protection equipment.
· In the fourth quarter of 2015, 3M divested its license plate converting business in France and substantially all of
its library systems business. In the first quarter of 2016, 3M divested the remainder of the library systems business as
discussed in Note 2.
Operating income:
· Operating income totaled $756 million, up 8.2 percent.
· Operating income margins were 26.0 percent of sales, compared to 24.9 percent in the same period last year,
benefiting from higher selling prices and lower raw material costs, plus fourth quarter 2015 restructuring actions.
Health Care Business:
Three months ended Six months ended
June 30, June 30,
2016 2015 2016 2015
Sales (millions) $ 1,404 $ 1,364 $ 2,787 $ 2,693
Sales change analysis:
Organic local currency 4.9 % 3.4 % 5.6 % 3.2 %
Acquisitions - 0.7 0.4 0.7
Translation (1.9) (7.8) (2.5) (7.4)
Total sales change 3.0 % (3.7) % 3.5 % (3.5) %
Operating income (millions) $ 460 $ 440 $ 915 $ 848
Percent change 4.3 % 1.3 % 7.8 % (1.5) %
Percent of sales 32.7 % 32.3 % 32.8 % 31.5 %
The Health Care segment serves markets that include medical clinics and hospitals, pharmaceuticals, dental and orthodontic
practitioners, health information systems, and food manufacturing and testing. Products and services provided to these and
other markets include medical and surgical supplies, skin health and infection prevention products, inhalation and
transdermal drug delivery systems, oral care solutions (dental and orthodontic products), health information systems, and
food safety products. Effective in the third quarter of 2015, the Company formed the Oral Care Solutions Division, which
combined the former 3M ESPE and 3M Unitek divisions.
Second Quarter 2016 results:
Health Care sales totaled $1.4 billion, an increase of 3.0 percent in U.S. dollars. Organic local-currency sales increased
4.9 percent, and foreign currency translation reduced sales by 1.9 percent.
On an organic local-currency sales basis:
· Sales growth was broad-based across the Health Care portfolio, led by food safety, health information systems, and
medical consumables (which includes critical and chronic care solutions, and infection prevention).
· On a geographic basis, sales increased 8 percent in Latin America/Canada, 7 percent in Asia Pacific, and 4 percent
in both EMEA and the United States.
· In developing markets, Health Care organic local-currency sales grew 8 percent, with particular strength in
China/Hong Kong, Taiwan, and Mexico.
Operating income:
· Operating income increased 4.3 percent to $460 million.
· Operating income margins were 32.7 percent, compared to 32.3 percent in the same period last year, driven by the
combination of higher selling prices and lower raw material costs, plus organic volume increases.
First Six Months 2016 results:
Health Care sales totaled $2.8 billion, an increase of 3.5 percent in U.S. dollars. Organic local-currency sales increased
5.6 percent, acquisitions added 0.4 percent, and foreign currency translation reduced sales by 2.5 percent.
On an organic local-currency sales basis:
· Sales growth was broad-based across the Health Care portfolio, led by food safety, and health information systems.
· On a geographic basis, sales increased 9 percent in Asia Pacific, 8 percent in Latin America/Canada, 5 percent in
EMEA, and 4 percent in the United States.
· In developing markets, Health Care organic local-currency sales grew 10 percent.
· 3M continues to increase investments across the businesses to drive efficient growth into the future.
Acquisitions:
· Acquisition sales growth related to the March 2015 purchase of Ivera Medical Corp. Ivera is a manufacturer of health
care products that disinfect and protect devices used for access into a patient's bloodstream.
Operating income:
· Operating income increased 7.8 percent to $915 million.
· Operating income margins were 32.8 percent, compared to 31.5 percent in the same period last year, driven by the
combination of higher selling prices and lower raw material costs, plus organic volume increases.
· Acquisitions had a minimal impact on operating income margins.
In September 2015, 3M announced that it would explore strategic alternatives for its Health Information Systems Division
(HIS), which included spinning-off, selling, or retaining the business. In February 2016, following an in-depth exploration
of strategic alternatives, the Company announced its intent to retain and further invest in HIS.
Electronics and Energy Business:
Three months ended Six months ended
June 30, June 30,
2016 2015 2016 2015
Sales (millions) $ 1,181 $ 1,312 $ 2,325 $ 2,636
Sales change analysis:
Organic local currency (9.1) % (2.9) % (10.4) % 1.4 %
Divestitures - (0.7) - (0.8)
Translation (0.9) (4.2) (1.4) (4.1)
Total sales change (10.0) % (7.8) % (11.8) % (3.5) %
Operating income (millions) $ 229 $ 278 $ 437 $ 563
Percent change (18.1) % (5.3) % (22.5) % 7.7 %
Percent of sales 19.3 % 21.3 % 18.8 % 21.4 %
The Electronics and Energy segment includes solutions that improve the dependability, cost-effectiveness, and performance
of electronic devices; electrical products, including infrastructure protection; telecommunications networks; and power
generation and distribution. This segment's electronics solutions include optical film solutions for the electronic display
industry; high-performance fluids and abrasives; high-temperature and display tapes; flexible circuits, which use
electronic packaging and interconnection technology; and touch systems products. This segment's energy solutions include
pressure sensitive tapes and resins; electrical insulation; infrastructure products that provide both protection and
detection solutions; a wide array of fiber-optic and copper-based telecommunications systems; and renewable energy
component solutions for the solar and wind power industries.
Second Quarter 2016 results:
Electronics and Energy sales totaled $1.2 billion, down 10.0 percent in U.S. dollars. Organic local-currency sales declined
9.1 percent, and foreign currency translation reduced sales by 0.9 percent.
On an organic local-currency sales basis:
· Sales decreased 14 percent in 3M's electronics-related businesses, with declines in both electronics materials
solutions and display materials and systems. 3M continues to be impacted by weak end market demand across most consumer
electronic applications. In addition, channel inventory remains high, and 3M expects these challenges to persist into the
second half of 2016.
· Sales decreased 2 percent in 3M's energy-related businesses, as declines in electrical markets and renewable energy
were partially offset by growth in telecommunications.
· On a geographic basis, sales were up 2 percent in EMEA, and were flat in both Latin America/Canada, and the United
States. Sales declined 15 percent in Asia Pacific, where 3M's electronics business is concentrated.
Divestitures:
· 3M completed the sale of its static control business in January 2015.
Operating income:
· Operating income decreased 18.1 percent to $229 million.
· Operating income margins were 19.3 percent compared to 21.3 percent in the same period last year, as lower organic
volume and foreign currency effects were only partially offset by lower raw material costs.
· In addition, as announced in late April 2016, 3M took actions within Electronics and Energy in the second quarter to
better position the business going forward, with the majority of these actions impacting the electronics side of the
business. These actions reduced second quarter 2016 operating income margins by approximately 0.8 percentage points.
First Six Months 2016 results:
Electronics and Energy sales totaled $2.3 billion, down 11.8 percent in U.S. dollars. Organic local-currency sales declined
10.4 percent, and foreign currency translation reduced sales by 1.4 percent.
On an organic local-currency sales basis:
· Sales decreased 16 percent in 3M's electronics-related businesses, with declines in both electronics materials
solutions and display materials and systems. 3M continues to be impacted by weak end market demand across most consumer
electronic applications. In addition, channel inventory remains high, and 3M expects these challenges to persist into the
second half of 2016.
· Sales decreased approximately 1 percent in 3M's energy-related businesses, with declines in electrical markets,
telecommunications, and renewable energy.
· On a geographic basis, sales increased 1 percent in EMEA, were flat in Latin America/Canada, and declined 1 percent
in the United States. Sales declined 16 percent in Asia Pacific, where 3M's electronics business is concentrated.
Divestitures:
· 3M completed the sale of its static control business in January 2015.
Operating income:
· Operating income decreased 22.5 percent to $437 million.
· Operating income margins were 18.8 percent compared to 21.4 percent in the same period last year, as lower organic
volume and foreign currency effects were only partially offset by lower raw material costs.
· In addition, as discussed in second quarter results, actions taken to better position the business going forward
reduced operating income margins.
Consumer Business:
Three months ended Six months ended
June 30, June 30,
2016 2015 2016 2015
Sales (millions) $
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