The last five years have been largely negative for 3M, beginning with a promising start under new CEO Mike Roman but quickly descending into disappointment with a dismal Q1 2019 performance followed by a significant stock drop. The company underwent a large restructuring, made major investments, and was attempting to recover into 2020 when the COVID pandemic harmed what 3M was building. The years since have been mostly negative for the company, as they still are recovering from sales drops and lawsuits that the company was largely unprepared for. However, it seems that 3M is approaching a critical juncture, poised to leverage lessons learned from history, a new CEO, and another strategic realignment to capitalize on emerging opportunities and the chance to put recent issues behind them.
2019 Situation
2019 was a turbulent year for 3M as a company, highlighted by a strong start to the year followed by a very poor Q1. At the time, the company had five business groups, but, as a result of the difficult quarter, 3M announced a restructuring that would lead to the loss of 2,000 jobs and change the company from five to four business groups. Four of the five groups posted sales declines in Q1 of 2019, causing a 5% YoY revenue decline that missed forecasts by about $400 million. Later in the year, the company also faced two more issues that further impacted the stock price. First, 3M acquired healthcare company Acelity for $6.7 billion, the largest acquisition in 3M history. This acquisition was financed in part by debt and also impacted the company’s stock repurchase goals at a time when the stock price was tanking. Investors viewed this as an extreme reaction to a bad Q1. Additionally, part of the blame for the poor Q1 was placed on poor performance in the China market. Trump’s trade war only further hurt 3M’s performance in China, which made up 10% of 3M’s total revenue in 2018 (World of Dividends, 2019).
The sales by business group at this point in time were as follows:
Some of these changes and plans proved successful, and others were not at all. 3M made a good investment with Acelity, as the healthcare segment continued to grow. However, most of the other changes made by 3M in 2019 were unsuccessful or backfired. First, their new global operating model and job cuts did not help the company recover from a poor 2019, as 2,300 more job cuts came at the end of 2020 due to COVID, and another 6,000 jobs were cut in 2023. Bloomberg analyst Brooke Sutherland said the following: “After all this streamlining, one might think that the company would be more, um, streamlined by now” (Sutherland, 2023). Furthermore, the stock buyback and dividend payments were a net negative to the company. During 2019, the stock price was still relatively high compared to its present value, and the company clearly had false optimism about the future. This money should have instead been saved up in preparation for future issues, especially litigation. The $214 million set aside for lawsuits was far less than the company needed, as one suit alone was settled for $10 billion recently. This mismanagement of funding no doubt contributed to the current issues facing the company, including having to spin off the entire healthcare business group. The company was investing heavily in this area in 2019 and healthcare is generally very profitable and recession-proof due to the demand for healthcare no matter what. However, 3M is now forced to spin this group off to help fund litigation and stay afloat, which will have a negative impact going forward. Finally, China has continued to be a major market for 3M, but the rest of Trump’s presidency and the ongoing trade war obviously did not help profits. This was also majorly impacted by COVID. The stock price chart for 3M can be found here: https://investors.3m.com/stock-information/quote-charts
Looking Ahead
Based on history, it seems that 3M is trying again to go through a major restructure similar to 2019-20, which came at a very bad time due to COVID. With new leadership and one less business group to worry about, it is hopeful that the company can find success this time. 3M will have to adjust to a world without operations in the healthcare arena, which provides opportunities for other business groups to see increased resources and innovations. The company is now heavily investing in “green” markets, such as carbon capture (Fowler, 2023) and using sustainable, recycled materials for its products (3M Sustainability). By leveraging strong R&D capabilities, 3M can develop new products and technologies that meet the unique needs of these markets. To stay ahead of the curve, 3M can utilize its strong innovation background in these areas and capture market share. These new markets can help 3M further evolve as a company and benefit in the long term.
Section Citations
“3m Names William Brown as New CEO.” 3M News Center, 12 Mar. 2024, news.3m.com/3M-names-William-Brown-as-new-CEO.
“3M Reports Fourth-Quarter and Full-Year 2019 Results; Implements New Global Operating Model and Streamlined Structure; Provides Full-Year 2020 Guidance.” 3M News Center, 28 Jan. 2020, news.3m.com/2020-01-28-3M-Reports-Fourth-Quarter-and-Full-Year-2019-Results-Implements-New-Global-Operating-Model-and-Streamlined-Structure-Provides-Full-Year-2020-Guidance.
“3M Stock Tumbles Most in Decades on Poor Earnings and Outlook.” CBS News, CBS Interactive, 25 Apr. 2019, www.cbsnews.com/amp/news/3m-stock-drops-most-in-decades-on-poor-earnings-and-outlook/.
“3M Sustainability.” 3M Global Impact, 3M United States, www.3m.com/3M/en_US/sustainability-us/industry-solutions/. Accessed 25 Mar. 2024.
Clough, Rick. “3M Plunges on Forecast Cut After ‘Disappointing Start’ to 2019.” Bloomberg.Com, Bloomberg, 25 Apr. 2019, www.bloomberg.com./news/articles/2019-04-25/3m-plunges-on-forecast-cut-after-disappointing-start-to-2019?embedded-checkout=true&leadSource=uverify+wall.
Elconin, Emily. “3M to Cut 2,500 Jobs as Demand Weakens, Profit Drops.” Reuters, CNBC, 24 Jan. 2023, www.cnbc.com/2023/01/24/3m-to-cut-2500-jobs-as-demand-weakens-profit-drops.html.
Fowler, Emily. “Svante, 3M Partner to Develop Material to ‘Trap’ Carbon.” ESG Today, ESG Today, 17 May 2023, www.esgtoday.com/svante-3m-partner-to-develop-material-to-trap-carbon/.
Mixson, Elizabeth. “The Trials, Tribulations & Triumphs of 3M’s Digital Transformation.” Intelligent Automation Network, IQPC, 28 May 2021, www.intelligentautomation.network/transformation/articles/the-trials-tribulations-triumphs-of-3ms-digital-transformation.
Samaha, Lee. “3M Raises Guidance and Changes CEO: Is the Stock a Buy?” The Globe and Mail, The Globe and Mail, 23 Mar. 2024, www.theglobeandmail.com/investing/markets/stocks/MMM-N/pressreleases/25002011/3m-raises-guidance-and-changes-ceo-is-the-stock-a-buy/.
Sutherland, Brooke. “6,000 More Job Cuts Won’t Fix 3M’s Problems.” Bloomberg.Com, Bloomberg, 25 Apr. 2023, www.bloomberg.com/opinion/articles/2023-04-25/3m-earnings-6-000-more-job-cuts-won-t-fix-company-s-problems.
Trefis Team. “3M To Continue Steady Growth Through 2019.” Forbes, Forbes Magazine, 5 Feb. 2019, www.forbes.com/sites/greatspeculations/2019/02/05/3m-to-continue-steady-growth-through-2019/amp/.
“Why 3m Remains a Long-Term Hold.” World of Dividends, Simply Safe Dividends, 10 May 2019, www.simplysafedividends.com/world-of-dividends/posts/2457-why-3m-remains-a-long-term-hold.