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Why 3M’s Electronics and Energy Segment Operating Margin Jumped in 4Q16

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3M’s Electronics & Energy segment 4Q16 performance

The Electronics and Energy segment is the fourth-largest revenue contributor for 3M (MMM), with a revenue share of 16.5% in 4Q16. The segment reported revenue of $1.21 billion in 4Q16, representing a 1% fall, as compared to $1.22 billion in 4Q15. The Electronics and Energy segment witnessed a 0.6% fall in organic sales, with an additional impact of -0.4% from foreign exchange translation.

The fall this segment’s revenue was mainly driven by flat sales in electronics and the decline in display materials and systems business. Energy-related sales fell 2%. Geographically, this segment’s sales grew in Latin America and Canada, while US sales remained flat. Sales in Asia-Pacific and EMEA (Europe, the Middle East, and Africa) fell.

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Net income and margin

The Electronics and Energy segment reported an operating income of $326 million in 4Q16, as compared to $202 million in 4Q15, representing a whopping rise of 61.3% YoY (year-over-year). This increase in operating income was mainly driven by restructuring actions taken in 4Q15.

The segment reported an operating profit margin of 26.9% in 4Q16, as compared to 16.6% in 4Q15, representing a rise of 1,030 bps (basis points) YoY. The segment’s margin rose due to restructuring and gains from the sale of intellectual property rights.

Investors can get exposure to 3M by investing in the Industrial Select Sector SPDR ETF (XLI), which had 5.1% of its portfolio in 3M on January 24, 2017. The fund’s top holdings include General Electric (GE), Boeing (BA), and Honeywell (HON), which had weights of 9.2%, 4.4%, and 4.4%, respectively.

In the next part, we’ll review the performance of 3M’s Consumer segment in 4Q16.

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