Industrial conglomerate which brought the world Post-It-Notes, 3M Inc (NYSE:MMM) is suffering due to consequences of the trade war between US and China. Besides scotch-tapes, the company also has a drug delivery business and makes pretty much everything, automotive adhesives and touchscreen displays included. And it is also known to regularly buy and sell businesses as part of its strategy.
And according to Bloomberg, the newest sale that the company is exploring is of its drug delivery unit. Consequently, shares rose about 4% to $171.01 during the morning trade on Friday.
Divestiture Strategy
The St. Paul, Minnesota-based company had its biggest-ever deal by buying a bandage maker this year for $4.4 billion. Last year, it sold a communications business for about $900 million. Its CEO, Mike Roman, spoke on Thursday and although he did not name a business segment in particular, he clearly emphasized that if there is a better ‘natural' owner out there, the company's management will divert that asset as part of its strategy to create value for shareholders.
What would be strange, however, is that the company would consider selling part of its very bright segment, healthcare. In its latest quarter, total sales of this segment rose 4.7 percent.
Headwinds
On October 24th, third quarter revenue fell below analyst estimates as sales amounted to $8.0 billion, which is a year-on-year drop of 2 percent. The company has cut its full-year profit forecast as many other US corporations who are suffering from the consequences of the intensifying trade war. Its organic local currency sales declined 1.3 percent. But its acquisitions, net of divestitures, increased sales by 0.6 percent.
Due to its diversified business model, this conglomerate belongs to two sectors, the industrial goods and diversified machinery. But, the landscape of both industries is filled with fierce competitors. And its market capitalization of $94.99 billion is not enough to make it invincible. There's General Electric (NYSE:GE) with historical ties to no other than Thomas Edison, Danaher Corporation (NYSE:DHR) but also many others.
And 3M's transportation and electronics segment sales fell 4.4 percent in the latest quarter. Meanwhile, despite not generating as much profit after accounting for expenses as its peers nor doing such a good job of managing its assets, GE's stock rose 2.87 percent on Friday, December 6th. Although Wall Street has somewhat mixed reviews, it is overall also a stock with reasonable ROI potential.
Outlook
Back in the good old days, this was the one company that didn't have a "Pepsi to its Coca Cola". By all means, it defied being pigeonholed. But a lot has changed since it was founded in 1902 and after its many innovations that became parts of our everyday lives. Until 2016, it managed to outperformed the market for three consecutive years. But, it is not immune to a weakening macroeconomy that now remains a challenge. And 3M needs to continue improving its operational effectiveness, managing costs, reducing inventory levels but moreover, it needs new innovations to generate strong growth and premium returns.
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