May 29 2014, 7:48am CDT | by Forbes
3M generates a third of its revenues from its Industrial segment. The segment offers products that cater to automotive original equipment manufacturers and the automotive aftermarket (auto body shops and retail) as well as the electronics, appliance, paper and printing, packaging, food and beverage, and construction markets. Its product portfolio consists of various tapes, adhesives, sealants, ceramics, filtration and purification products, and products used for the manufacture, repair and maintenance of automobiles, aircrafts and other specialty vehicles.
Lately, sales of 3M’s water filtration and automotive OEM products have been growing at double digit rates. Driven by the sales of these products, 3M’s Industrial segment’s revenue grew 3.1% in the first quarter of 2014. In this article, we take a look at the factors driving sales of these products and their outlook going forward.
Growing Awareness And Adoption Of Purification Products In Developing Countries
3M’s purification business offers air and water filtration products for residential, commercial and industrial use. The use of water filtration products has historically been much higher in developed countries such as the U.S. and the U.K. due to greater consumer emphasis on filtration. Additionally, the higher disposable income in these countries makes the purchase of filters more viable for much of the population.
Lately, awareness about water related health concerns has been growing in developing countries leading to an increase in demand for filtration products. Also, with the emergence of a strong middle class, disposable income in developing countries has been increasing. This allows the population to consider spending on improving their living standards, thereby driving sales for filtration and healthcare products.
The global market for water purification equipment is expected to grow 10% annually though 2018. Most of the growth will come from Asian markets, particularly India and China. In India, the water purification equipment market is expected to grow 24% annually through 2018. Growth is expected to be slower in developed countries such as the U.S., which is expected to grow at around 6% per year.
3M may continue to benefit from this growth by leveraging its vast international presence. Additionally, 3M’s filters may be given preference over others due to its certification by the Water Quality Association, a trade association representing the water treatment industry in the U.S. This adds to the credibility of 3M’s products and assures consumers of effective water purification.
Booming U.S. Automotive Industry Helps Drive Sales For Automotive OEM Products
In 2009, North American light vehicle production fell to 8.6 million units due to the global economic slowdown. However, due to a gradual economic recovery, the U.S. automotive industry is back on a growth path with 15.5 million light vehicles produced in 2013. Additionally, the average vehicle age has been at a record high, driving the need for servicing and maintenance. These trends have been driving growth in sales of 3M’s automotive OEM products. North American light vehicle production is expected to grow at a rate of 4% in 2014 driven by increase in consumer spending and high average vehicular age. Continued growth in vehicle production will help sustain 3M’s automotive OEM sales.
3M expects its industrial segment to grow 3%-6% in 2014. We believe this growth will be aided by the continued strengthening of the global economy and growth in end markets such as chemicals, industrials, construction and packaging.
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