UTX United Technologies Corporation

By Austen Hufford 

As other sprawling corporations break up or divest assets, 3M Co. is doubling down on its future as a conglomerate.

Peers such as United Technologies Corp. and DowDuPont Inc. are splitting up. General Electric Co. is shrinking. Arconic Inc., cleaved off three years ago from the aluminum giant that was Alcoa, plans to dump more units this year.

But St. Paul, Minn.,-based 3M continues adding to its stable of 60,000 products and increasing its research budget, even as the slowing global economy creates headwinds in some of its biggest markets. 3M, which has 93,000 employees and 182 factories world-wide, lowered its profit outlook for this year in January as a result of slowing demand in China and elsewhere for cars, electronics and other goods made with its products. 3M is scheduled to report first-quarter earnings on April 25.

The company plans to spend about 6% of revenue on research and development -- nearly $2 billion a year -- and 5.5% on capital investments over the next five years. The target research amount is higher than the 5.7% of annual revenue spent over the last five years. Electric cars and teeth-straightening are two of the businesses where 3M thinks its investments could generate the biggest returns, and the company expects research spending in those areas to grow fourfold over the next five years.

"We innovate, create new markets, new segments and we're always moving to new places to prioritize," Chief Executive Michael Roman said at a conference in February. Earlier this year, the company rearranged its businesses into four segments, down from five.

Shares of 3M have fallen 2.2% over the past 12 months, compared with an increase of 2.9% in the S&P 500 Industrials.

At many companies, such expansions add layers of management that slow innovation and make it harder to launch new products, said Amit Seru, a finance professor at Stanford Graduate School of Business. 3M has managed to keep innovating for the long-term by creating the right internal incentives and culture, he said.

"3Ms are the exception, not the rule," said Mr. Seru. "Very few firms have been able to remain innovative for a long time."

Still, 3M is increasingly standing alone as a large company that is still in a variety of industries, said Jiwook Jung, a professor at the University of Illinois at Urbana-Champaign. Other companies have been focusing on their core products because of activist-investor pressure and buyouts.

"Although it's diversified, it has an engineering culture producing things rather than playing with financial investments," said Mr. Jung.

3M says its businesses are better off together because many of its products share technology and can be made by the same methods and machines. The company produces its tape, film and wrappers by the mile and sells them by the inch, employees often say.

Despite the current headwinds, 3M says its centralized research operations and wide reach also position it to benefit when growth picks up in the biggest countries and industries it serves. The company said in November that it expects sales to grow faster than global economic growth over the next five years.

3M said it encourages its scientists to think of more than one use for technologies they invent. 3M's nonwovens -- a fabric made of fibers that are combined to create an unstructured web rather than of weaving threads -- was first featured in decorative ribbons. The material is now used in cold-weather Thinsulate outerwear, sound-muffling materials, face masks, air filters and bandages.

3M said that it does divest divisions that don't work with its multipurpose process. The company closed or sold 23 factories last year, part of a plan to make even more of its products at a smaller number of sites to improve profitability.

One division that 3M sold made devices that track sound and heat exposure. TSI Inc. bought the business in early 2018, including a factory in Wisconsin that employs 35 people, for less than $20 million. The factory was one of the few that made only one kind of 3M product.

3M also sold a unit that made fiber and copper wires for the telecommunications industry to glassmaker Corning Inc. for $772 million in June 2018, its largest divestiture ever.

But most of 3M's facilities couldn't be sold as stand-alone operations because they make such an eclectic set of products, 3M said in its latest annual report. One Hutchinson, Minn., plant makes products for more than half of 3M's 23 divisions.

Write to Austen Hufford at austen.hufford@wsj.com

(END) Dow Jones Newswires

April 11, 2019 07:14 ET (11:14 GMT)

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