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How 3M Company’s Products Look After Your Health

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Jun. 28 2016, Updated 1:04 p.m. ET

Revenues and profitability

Revenues from 3M Company’s (MMM) Healthcare segment rose from 16.7% ($5 billion) of total annual revenue in 2011 to 17.5% ($5.4 billion) in 2015. The Healthcare business is 3M’s crown jewel, with margins in the segment ranging between 30% and 32% in the last five years.

The segment’s operating income contribution has therefore been higher compared to its revenue share, hovering around 23% of the company’s total operating income.

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Healthcare business classification

3M’s Healthcare segment provides products and services that serve hospitals, pharmaceuticals, and the food testing and food manufacturing end markets. Products can be broadly categorized into medical devices, oral care, pharmaceuticals, health information systems, and food safety. Under the pharmaceuticals business, 3M supplies drug delivery systems such as inhalers.

In healthcare information systems, the company develops computer software that captures, stores, manages, and transmits information either related to patient health or to optimize the operations of healthcare organizations.

3M’s food safety products aid food processors in testing the microbiological quality of food. The sales distributions of the Healthcare segment’s underlying businesses are provided below.

  • Medical & Surgical:
    1. Infection Prevention – $1.5 billion, or 28% of Healthcare segment
    2. Critical & Chronic Care Solutions – $1.2 billion, or 22% of Healthcare segment
  • Health Information Systems – $0.8 billion, or 15% of Healthcare segment
  • Food Safety – $0.3 billion, or 5.6% of Healthcare segment
  • Oral Care Solutions – $1.2 billion, or 22% of Healthcare segment
  • Pharmaceuticals – Drug Delivery Systems – $0.4 billion, or 7.4% of Healthcare segment
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Healthcare revenue model

3M sells its healthcare products majorly through retailers, distributors, and dealers. The Healthcare Information Systems business, which provides information technology services to hospitals, is an exception wherein 3M engages directly with hospitals.

Key ETFs

Investors interested in trading in the healthcare space can look into the Health Care Select Sector SPDR ETF (XLV) and the iShares US Healthcare Providers ETF (IHF).

Major holdings in IHF include UnitedHealth Group (UNH) with a weight of 13.4%, Express Scripts Holding (ESRX) with a weight of 7.2%, and Aetna (AET) with a weight of 6.4%.

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