What Are the Financial Objectives of 3M Company’s 5-Year Plan?



3M Company’s five-year plan

In February 2016, 3M Company (MMM) set financial objectives for the five-year period from 2016 to 2020 that were slightly below its previous expectations. The company sees its revenues rising organically by 2%–5% annually through 2020, below its previous forecast of 4%–6%.

Its revision was based on slowing industrial (XLI) activity in its major markets, which have continued to restrain growth in its sales. 3M expects its earnings per share to rise by 8%–11% through 2020. It expects to earn an average return on invested capital of 20%.

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Reinvestments from cash

3M expects to generate between $45 billion and $50 billion in cash flow from operations in the next five years. The company also intends to add $10 billion–$15 billion worth of leverage to reach aggregate deployable capital of $55 billion–$65 billion in the 2016–2020 period. We’ll discuss why 3M intends to add leverage in the next part of this series.

With 6% of sales marked for research and an additional 4.5%–5% of sales marked for capital expenditure, 3M expects to direct a total of $16 billion–$19 billion to both items.

The company also intends to pay $14 billion–$15 billion in dividends and $1 billion–$2 billion for its global retirement plans between 2016 and 2020. This leaves additional cash of $24 billion–$29 billion, which will be utilized for acquisitions and share repurchases. We believe that shareholders have few reasons to be unhappy about this deal.

Key ETFs

Investors interested in trading in the industrials space can look into the Vanguard Industrials ETF (VIS) and the Industrial Select Sector SPDR ETF (XLI).

Major holdings in VIS include General Electric (GE) with a weight of 12.2%, 3M Company with a weight of 4.3%, and United Technologies (UTX) with a weight of 3.7%.


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