Tracking firm presentation (vincent wedelich) mmm 3M

1. Tracking Firm PresentationTracking Firm Presentation
3M (MMM)3M (MMM)
Finance 6332 InvestmentsFinance 6332 Investments
Presented by:Presented by:
Vincent W. Wedelich P.E.Vincent W. Wedelich P.E.

2. Firms Current Business ModelFirms Current Business Model
 Expand Manufacturing CapacityExpand Manufacturing Capacity
 Improve Supply ChainsImprove Supply Chains
 Investment in core R&DInvestment in core R&D
 LocalizationLocalization
 AcquisitionsAcquisitions

3. Manufacturing capacityManufacturing capacity
 Expand Number of overseasExpand Number of overseas
manufacturing:manufacturing:
– Four new plants are beingFour new plants are being
constructed in China,constructed in China,
– Two in PolandTwo in Poland
– One each in Korea, Mexico,One each in Korea, Mexico,
Russia, India and Canada.Russia, India and Canada.
– Seven major plant extensions areSeven major plant extensions are
under constructionunder construction
in the United States and one inin the United States and one in
the U.K., principally to meet newthe U.K., principally to meet new
demand in our health care, opticaldemand in our health care, optical
films and safety businesses.films and safety businesses.

4. Supply chainsSupply chains
 Managements philosophy is to keep capital expenditures low.Managements philosophy is to keep capital expenditures low.
 Traditionally new products were launched supply chains for manufacturing newTraditionally new products were launched supply chains for manufacturing new
products were routed through unused marginal capacity, one process in oneproducts were routed through unused marginal capacity, one process in one
plant, the next process in another, often spread across many different plants inplant, the next process in another, often spread across many different plants in
different states, and sometimes even in different countries. It was not unusualdifferent states, and sometimes even in different countries. It was not unusual
for 3M products to touch multiple plants as they wound their way in thefor 3M products to touch multiple plants as they wound their way in the
transformation process from raw materials to finished goods.transformation process from raw materials to finished goods.
 As customer demands increased and growth accelerated overseas, these longAs customer demands increased and growth accelerated overseas, these long
supply chains became increasingly stretched and worked less well, and theysupply chains became increasingly stretched and worked less well, and they
began to consume large amounts of working capital and expense.began to consume large amounts of working capital and expense.

5. Investment in core R&DInvestment in core R&D
 innovation,innovation,
 commitment to inventioncommitment to invention
 and the introduction of new products.and the introduction of new products.
(3M is legendary for their ability to innovate).(3M is legendary for their ability to innovate).

6. 7 Pillars of Innovation7 Pillars of Innovation
• From the CEO on down, the company is committed to innovation.From the CEO on down, the company is committed to innovation.
• The corporate culture, hire good people, let them get the job done in theirThe corporate culture, hire good people, let them get the job done in their
own way, tolerate mistakes.own way, tolerate mistakes.
• Innovation is impossible without a broad base of technology.Innovation is impossible without a broad base of technology.
• Talk, talk, talk; encourage networking.Talk, talk, talk; encourage networking.
• Set individual expectations and reward employees for outstanding work.Set individual expectations and reward employees for outstanding work.
• Quantify efforts.Quantify efforts.
• Research must be tied to the customers.Research must be tied to the customers.

7. LLocalizationocalization
 Where logical, 3M will keep administrative and a few otherWhere logical, 3M will keep administrative and a few other
activities centralized.activities centralized.
 But localization for 3M means increasing local customizationBut localization for 3M means increasing local customization
manufacturing of products, particularly in international markets.manufacturing of products, particularly in international markets.
 As more growth occurs overseas, 3M also will gradually grow andAs more growth occurs overseas, 3M also will gradually grow and
localize our technical resources in those areas.localize our technical resources in those areas.
 This also will be a tremendous aid to drive growth through betterThis also will be a tremendous aid to drive growth through better
product localization.product localization.

8. AcquisitionsAcquisitions
 For 3M, acquisitions are not simply about gaining volume.For 3M, acquisitions are not simply about gaining volume.
 Always get a sensible return on investment.Always get a sensible return on investment.
 Used to advance our technology baseUsed to advance our technology base
 Gain immediate new capacityGain immediate new capacity
 Fill our product linesFill our product lines
 Gain access to new marketsGain access to new markets
 Strengthen the coreStrengthen the core
 Sometimes they are about new adjacency growth areas.Sometimes they are about new adjacency growth areas.

9. Management QualityManagement Quality
 A new CEO every 5A new CEO every 5
years.years.
 This is a 104 year oldThis is a 104 year old
company that to this daycompany that to this day
still produces innovativestill produces innovative
new cutting edgenew cutting edge
products like a start up.products like a start up.
 The manufacturingThe manufacturing
conglomerate anconglomerate an
abrasives maker thatabrasives maker that
broke out by inventingbroke out by inventing
masking tape in 1925, ismasking tape in 1925, is
introducing new productsintroducing new products
a if it were a startup.a if it were a startup.
 W. James McNerney, Jr.W. James McNerney, Jr.
(2001- 2004)(2001- 2004) Chairman of theChairman of the
Board and Chief ExecutiveBoard and Chief Executive
OfficerOfficer
 George W. Buckley (2005
to present)
 Chairman of the Board,
President and Chief Executive
Officer

10. W. James McNerney, Jr. (2001 to 2004)
Chairman of the Board and Chief Executive Officer

11. George W. Buckley
(2005 to present)
Chairman of the
Board, President and
Chief Executive Officer

12. CompetitionCompetition

13. Industry PerformanceIndustry Performance
0
2
4
6
8
10
12
14
16
18
20
MMM AVY DD JNJ
Market Cap
EPS
P/E
Market Cap
6.055 = 60.55B
PE%, EPS $

14. Income StatementIncome Statement

15. Balance SheetBalance Sheet

16. Balance SheetBalance Sheet

17. Cash Flow StatementCash Flow Statement

18. Current ValuationCurrent Valuation
 Price/Earnings = 14.2 Industry = 18.9Price/Earnings = 14.2 Industry = 18.9
 Price/Book = 5.5 Industry = 3.5Price/Book = 5.5 Industry = 3.5
 Price/Sales = 2.7 Industry = 1.4Price/Sales = 2.7 Industry = 1.4
 Price/Cash Flow = 15.8 Industry = 12.0Price/Cash Flow = 15.8 Industry = 12.0
 Dividend Yield % = 2.2 Industry = 1.9Dividend Yield % = 2.2 Industry = 1.9
Morningstar (current valuation) Valuation Ratios Nov.Morningstar (current valuation) Valuation Ratios Nov.
4, 20074, 2007

19. Analyst OpinionAnalyst Opinion

21. 3M Returns vs. S&P 500 Returns 60 months3M Returns vs. S&P 500 Returns 60 months

22. Firm Specific & SystematicFirm Specific & Systematic
RisksRisks
 On going lawsuits in AntitrustOn going lawsuits in Antitrust
Risks for Rebate Cases.Risks for Rebate Cases.
 3M’s Acquisitions could open it3M’s Acquisitions could open it
up to unknown risks.up to unknown risks.
 Venturing into new countries;Venturing into new countries;
intellectual property theft.intellectual property theft.
 The constant innovation andThe constant innovation and
the time 3M takes to go tothe time 3M takes to go to
market. If it is too early thenmarket. If it is too early then
they could risk a lawsuit.they could risk a lawsuit.
 The price tracks the S&P; if theThe price tracks the S&P; if the
economy is doing well, so iseconomy is doing well, so is
3M.3M.
 Not much of a threat of entryNot much of a threat of entry
(to large).(to large).
 Rivalry between competitors;Rivalry between competitors;
this is a real risk; some of thethis is a real risk; some of the
competitors are bigger andcompetitors are bigger and
stronger than 3M.stronger than 3M.
 Pressure for substitutePressure for substitute
products. Not much risk here.products. Not much risk here.
 Bargaining power fromBargaining power from
suppliers and buyers.suppliers and buyers.

23. Major News Events that Affect theMajor News Events that Affect the
Stock in Recent PeriodsStock in Recent Periods
 3M Settles Patent Suits With 2 Companies (Lithium Ion3M Settles Patent Suits With 2 Companies (Lithium Ion
Battery) Oct. 2007Battery) Oct. 2007
 3M Closes one deal; announces another. (Standard3M Closes one deal; announces another. (Standard
Abrasives) Nov. 2007Abrasives) Nov. 2007
 3M Joins the Clinton Climate Initiative (Window Film)3M Joins the Clinton Climate Initiative (Window Film)
Nov 2007Nov 2007
 US Leading Business Mission to Vietnam Nov. 2007US Leading Business Mission to Vietnam Nov. 2007
 Is Now the Time to Panic? Investors are turning to blue-Is Now the Time to Panic? Investors are turning to blue-
chip behemoths with healthy and sustainable dividends.chip behemoths with healthy and sustainable dividends.
Nov 2007Nov 2007

24. Accordingly, 3M’s main priorities forAccordingly, 3M’s main priorities for
2007 are:2007 are:
 Keeping the growth engine going and leveragingKeeping the growth engine going and leveraging
it to the bottom lineit to the bottom line
 Creating an environment where creativity isCreating an environment where creativity is
strongly encouragedstrongly encouraged
 Improving factory costs and gross marginsImproving factory costs and gross margins
 Flawless execution of new plant and lineFlawless execution of new plant and line
startupsstartups

25. ReferencesReferences
 Yahoo (Finance)Yahoo (Finance)
 Methods of Corporate Valuation (NYU)Methods of Corporate Valuation (NYU)
 3M’s Seven Pillars of Innovation (Arndt 2006)3M’s Seven Pillars of Innovation (Arndt 2006)
 CSR Case Studies 3M (Sept 2005)CSR Case Studies 3M (Sept 2005)
 Antitrust Risks for Rebate and Customer LoyaltyAntitrust Risks for Rebate and Customer Loyalty
Programs; Le Pages Inc. V.S. 3M (May 2003)Programs; Le Pages Inc. V.S. 3M (May 2003)
 3M’s Acquistion of HighJump Will Enhance Its3M’s Acquistion of HighJump Will Enhance Its
Market Position (Woods 2004)Market Position (Woods 2004)
 Morningstar.comMorningstar.com

26. Questions?