Demand for many of 3M Co.’s products “remains muted,” the company’s chairman and CEO said Jan. 23, adding that the consumer and industrial goods conglomerate’s ongoing work to shape up will include more divestitures.
Speaking after 3M reported a fourth-quarter profit of $945 million on sales of $8.0 billion—in late 2022, those numbers were $541 million and $8.1 billion, respectively—Mike Roman lauded his team’s 2023 restructuring push, which involved laying off thousands of workers globally and pushing toward the pending spinoff of 3M’s healthcare group. That, he said, has set the stage for more bottom-line gains this year; 3M’s adjusted operating margin rose nearly two percentage points in the fourth quarter to 20.9%.
But Roman and CFO Monish Patolawala also laid out meager 2024 organic sales forecasts: None of the company’s four divisions—safety and industrial, transportation and electronics, healthcare and consumer products—are expected to produce growth of more than a few percentage points and the consumer group is forecast to shrink slightly. They said overall sales in the first quarter are in line to be down slightly from early 2023.
That means there’s more restructuring and “portfolio optimization” to be done.
“We will continue implementing our geographic prioritization strategy. We will also step up our efforts to prioritize our product portfolios based on market potential, right to win, supply chain complexity, margins and returns,” Roman said on a conference call with analysts. “For example, in our consumer business, we have identified approximately 5% of the portfolio where we have limited market growth and a poor right to win. While exiting these portfolios will impact consumers’ growth rate in the near-term, these actions will better focus our efforts […] and ultimately drive improved growth and margins.”
The consumer group at 3M is home to personal health and cleaning products as well as Filtrete filters and the famous Scotch and Post-It brands. Its organic sales slipped 2.2% in Q4 and were down nearly 5% for all of 2023 while its adjusted margin stayed level at 18%. Selling off about 5% as Roman sketched out would involve businesses with about $250 million in annual revenues.
Investors didn’t like the core message delivered by Roman and his team. Shares of 3M (Ticker: MMM) were down more than 11% to about $96 in afternoon trading Jan. 23, a move that lopped nearly $600 million from the company’s market capitalization. The stock is down about that much over the past six months.
The 3M team's cautious sales growth outlook for 2024 is similar to that of the leaders of industrial goods distributor Fastenal Co. After a year in which that company's sales rose 5% to more than $7.3 billion, executives recently said they'll benefit from some easier comparisons to 2023 but added that buying activity in early 2024 has remained “subdued.“
“Our customers remain cautious. They remain fairly tight with their spending,“ CFO Holden Lewis told analysts Jan. 18. “When I asked the leadership about what their customers are saying about 2024, I would say that the forward-looking statements are probably, on balance, more optimistic than the current statements. I also suspect that's always true.“
The ongoing restructuring and planned spinoff of healthcare—which last year generated operating profits of $1.6 billion on sales of nearly $8.2 billion—also means 3M’s story remains noisy. The healthcare plan is on track to be completed by mid-year, Roman and Patolawala said, and accounting for various financial considerations as part of that will make comparisons tricky for a while. On top of that, the executives said they also plan to soon finalize settlements related to lawsuits about its alleged pollution of public water supplies and deficient earplugs used by members of the military.
