Solventum, the health care products company spun out of 3M earlier this year, is facing a sagging operating margin more than 10 percentage points lower than the figure reported a year before.
3M spinoff Solventum ‘off to a solid start’ but needs stronger growth
Solventum, Minnesota’s newest major public company, raised its guidance Thursday and reported $2.08 billion in sales.
The Minnesota Star Tribune
November 8, 2024 at 2:21PM
The 13% operating margin did not scare investors, though, as the company on Thursday raised its full-year outlook for earnings per share to a range between $6.50 and $6.65. CEO Bryan Hanson said while the company is “clearly off to a solid start, it is not lost on us that revenue growth remains below market.”
Overall, Solventum reported adjusted net profits of $285 million on $2.08 billion in sales for its second-ever quarter, which ended Sept. 30. The companywide operating margin for the quarter was 13%, compared to 24% for the divisions one year ago.
Maplewood-based Solventum, which will move its headquarters to Eagan in 2026, said its business selling purification products generated $238 million in sales for the quarter compared with $242 million a year prior and reported a quarterly operating margin of 8%, the slimmest among all of the company’s businesses.
Solventum is investing to increase its sales capacity in its filtration and purification business, where sales of drinking water filtration products and dialysis-related offerings are in decline.
Solventum is reportedly also exploring a sale of the segment. On the earnings call Thursday, Hanson noted the company is “actively assessing the value contribution and the strategic alignment of our markets and businesses.” He has said buying and selling parts of Minnesota’s newest major public company will be a key strategy for the company’s “transformation and turnaround.”
Solventum’s adjusted net profit fell more than 40% compared to the performance of the same four divisions when they were a part of 3M. Yet Solventum’s most recent quarterly performance beat the revenue and profit expectations of analysts polled by Yahoo Finance, and the company narrowed its organic sales guidance to the upper half of its previously announced range of 0% to 1%.
Solventum, which has 22,000 employees with 1,180 currently in the east metro, spun off from 3M on April 1. Hanson said the company is on track to complete the majority of its separation activities on its original timeline of 12 to 24 months.
Wells Fargo analysts said in a note to investors that they do not expect Solventum to prioritize mergers and acquisitions in the short term as it reduces debt.
“We see the company’s end markets in good shape, but believe that it will take time for an experienced management team to create shareholder value as it repositions for growth and disentangles from the spin,” the analysts said in the note.
Solventum reported moderate sales growth for its health information systems and medical-surgical businesses. Chief Financial Officer Wayde McMillan said “challenging market conditions” offset sales for the company’s dental solutions business, which posted an operating margin of 23%, almost triple that of the purification and filtration business. Sales dropped for the dental business from $331 million to $313 million in the most recent quarter.
Solventum reported earnings per share on an adjusted basis of $1.64, surpassing Wall Street expectations by 25 cents. For the same quarter last year, the divisions had a profit of $2.87 per share.
“This performance turnaround will take time,” Hanson said. “But rest assured: We are moving with urgency while also being thoughtful and strategic about building and investing for the long term.”
The InPen app paves the way for the launch of the company’s “Smart MDI” system combining a smart insulin pen that tracks doses and a monitor that makes real-time glucose readings for people who make multiple daily injections.
