3M: Strengths, Weaknesses, Opportunities, Threats

One of the best ways to develop a picture of any company is with the SWOT analysis -- a look at a company's strengths, weaknesses, opportunities, and threats. Today, I'd like to focus on 3M (NYSE: MMM  ) , the Minnesota-based conglomerate.

Strengths

  • Leadership. CEO George Buckley is highly respected, and 3M is repeatedly recognized as a top company for developing leaders.
  • Innovation. Get a load of these stats: 567 patents awarded; 6,700 researchers worldwide; more than 1,000 Ph.Ds on staff; and nearly $1.3 billion spent on R&D in 2009.
  • Geographically diverse. Sixty-three percent of sales are outside of the United States; the company has operations in more than 65 countries.
  • Diverse in terms of revenue streams, too. 3M has six key business units, none of which account for more than 33% of sales.
  • Financially strong. Paid a dividend every quarter since 1916.

Weaknesses

  • Litigation. The company needs to fight its patents in court and in the recent past has brought or settled suits against fellow well-financed companies DuPont (NYSE: DD  ) and Avery Dennison (NYSE: AVY  ) .
  • Continual reinvestment. The downside of innovation: Continual reinvestment is necessary for 3M to maintain innovation and keep the product pipeline strong.
  • Pension obligations. 3M has a well-funded pension and last year moved from defined-benefit to defined-contribution plans for new workers, but it still faces rising expenses related to pension and retirement benefits.

Opportunities

  • Growth in emerging markets. In the recently completed second quarter, sales in emerging economies grew 38% year over year.
  • Growth by acquisition. This strategy has served 3M well of late, and it plans to continue spending money on acquisitions this year.
  • As the company calls it, "Managing the entire pyramid." What this means is owning the entire value chain in current product classes it controls -- not just the high end.
  • Adjacencies. Enter markets similar to areas it is currently in, such as renewable energy, water infrastructure, architecture, and lighting.

Threats

  • Acquisitions gone wrong. From the company's 10-K: "Future results will be affected by the Company's ability to integrate acquired businesses quickly and obtain the anticipated synergies."
  • Rules, regulations, and lawsuits. Again, the 10-K says it best: "The Company's future results may be affected by various legal and regulatory proceedings, including those involving product liability, antitrust, environmental or other matters."
  • Raw materials costs. Fluctuations in commodity or energy costs pose a threat to profits.
  • Cheaper competitors. The company may have to accept lower margins to compete on price with lower-cost manufacturers.
  • Currency rates. Because the majority of 3M's sales are abroad, a strong dollar would dent the bottom line.

What have I missed? Fill in the SWOT blanks in the comments box below.

3M is a "core" Motley Fool Inside Value recommendation. If you'd like to see the six stocks senior analyst Joe Magyer likes more than 3M at today's prices, click here to try the service free for the rest of August.

Brian Richards is online managing editor of The Motley Fool. Brian owns shares of 3M, which, as mentioned, is an Inside Value recommendation. The Fool has a disclosure policy.


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