3M stock rebounds on improved outlook as investors look past settlement losses

3M took a hefty loss this summer after agreeing to pay $6 billion to settle lawsuits over its Combat Arms earplugs.

Yet the Maplewood-based industrial giant saw its stock price rebound from a decade-long low on Tuesday as investors saw hints of a turnaround beneath the pricey settlement.

3M had a loss of $2 billion for the third quarter, or -$3.74 per share, when it recorded a $4.2 billion charge for the earplug settlement. Excluding one-time costs, 3M earned an adjusted $2.68 per share, beating Wall Street expectations.

"We're executing well and taking advantage of stabilizing supply chains," CEO Mike Roman said in an interview Tuesday. "We're also seeing benefits from our restructuring and delivering on what we said we would do."

Wall Street analysts expected adjusted earnings — which takes out PFAS (forever chemicals) production, ongoing litigation and health care spinoff costs — of $2.34 per share.

3M stock rose 5% Tuesday to close at $90.12 per share. The company's stock price had recently reached its lowest point in more than a decade.

Productivity improvements and benefits from restructuring helped increase profit margins even as sales shrank. Adjusted earnings were up 3% year over year.

The Post-it note and N95 mask manufacturer had $8.3 billion in total sales during the quarter. 3M's third-quarter revenue was $8.6 billion last year.

"With the uncertainty we have in a number of end markets — softer retail spending in some discretionary categories, consumer electronics down year over year — we're maintaining good spending discipline," Roman said.

Sales were down across nearly every business group. The auto parts segment was a bright spot of growth but is now threatened by the ongoing autoworkers strike.

"We're staying connected on what happens week to week and impacting our demand," Roman told analysts on a conference call Tuesday morning. "It has had some impact, but relatively small impact to this point."

Roman highlighted the company's $600 million auto electrification business as a way the company is "prioritizing emerging global trends that have attractive growth rates and customer needs that match up well with our capabilities."

"Our material science expertise has led us to build a new business, and we see similar opportunities in other core platforms such as safety, home improvement and consumer electronics," he said.

3M increased its financial forecast for the rest of 2023 and now expects an adjusted annual profit of $8.95-$9.15 per share, up from $8.60-$9.10. Sales are expected to fall 5% year over year.

"We are very focused on our priorities by driving improved performance through strong operational execution, progressing on our restructuring actions and spending discipline, successfully spinning off health care and reducing risk by managing litigation exposures," said Monish Patolawala, 3M president and chief financial officer.

The planned health care spinoff has been pushed into the first half of 2024; the company initially wanted to finish the separation by the end of this year.

"We've got a team that's ready to take that business forward," Roman said.