Despite profit rebound, investors punish 3M’s stock

After a year of layoffs, legal settlements, restructuring and setbacks, 3M ended 2023 on an upswing.

But that’s now in the past and shareholders care most about the future. Investors weren’t impressed with what 3M offered for its 2024 outlook, sending the company’s stock price down 11% Tuesday.

The Maplewood-based company beat Wall Street expectations and nearly doubled last year’s results with a fourth quarter profit of $945 million — $1.70 per share, or $2.42 on an adjusted basis. Sales reached $8 billion, a 1% drop from the year before.

“When I look at the fourth quarter, it’s a culmination of a year where we took significant steps to improve our operational performance,” said Monish Patolawala, 3M president and chief financial officer.

But Mizuho analyst Brett Linzey wrote that the “operational momentum” was overshadowed by the 2024 forecast.

3M expects 2024 profits to improve slightly over 2023 results when including health care, but sales are expected to rise slowly or remain flat amid weak demand. The company could take a further hit from settlement and spinoff costs. Ultimately, the outlook announced Tuesday did not match investor expectations.

“There’s more to do to reduce risk and uncertainty,” CEO Mike Roman said.

A year ago, 3M announced it would cut 2,500 global manufacturing jobs and followed three months later with another 6,000 layoffs across the company. Roman said the restructuring was about streamlining 3M and “getting close to customers” even as the company sheds some of its geographic reach in favor of exports.

“We delivered what we set out to accomplish,” Roman said. “We said we would exit 2023 a stronger, leaner and more focused 3M.”

Then, last summer, the company announced an up to $12.5 billion PFAS settlement with public water systems and a $6 billion settlement over its Combat Arms earplugs.

All the while, 3M’s stock price fell to its lowest level in more than a decade. It had since rebounded, especially in light of the settlements, but investors hammered the company over the less-than-stellar outlook on Tuesday. The stock closed at $96.21 per share, the first dip below $100 in more than a month.

CFRA analyst Jonathan Sakraida said Tuesday the outlook “implies muted growth across its businesses, weighed down by expected weakness in consumer discretionary spending and softness from industrial end markets.”

3M says it is still on track to spin off its health care division into a separate company by the middle of the year and to end PFAS manufacturing by the end of 2025. The 3M that emerges will be even leaner than that.

Updated guidance will go out after the spinoff is complete.

Roman said the company is looking hard at its various products and brands and may “exit some categories where we don’t have a strong right to win.”

“In the long term that positions us for better growth and better returns,” he said.

In the final full year of results before 3M spins off its health care division — a quarter of the company’s total annual revenue — it reported $32.6 billion in sales, a 4.5% decline from 2022.

Due to settlement charges, 3M had a loss of $7 billion, or $12.63 per share in 2023. On an adjusted basis, earnings were $9.24 per share, 6% lower than 2022.

Patolawala said the company will keep investing in innovation to drive growth, especially in key areas like auto electrification, climate tech and industrial automation.

“We have good momentum that helps set up 2024 for success.”