3M Sinks as Wall Street Sees `Warning Signs' in Weaker Forecast

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(Bloomberg) -- 3M Co. investors were bracing for a poor start to 2018, but they probably weren’t expecting it to be this rough.

The maker of Post-it notes plunged Tuesday after rising costs and weak demand for automotive and dental products prompted cuts to this year’s sales and profit forecasts. The revision came about a month after the company said organic growth was being hurt by challenges in the vehicle and consumer-electronics markets.

The diminished outlook adds to the pressures on 3M as it prepares for a transition at the top. The company said last month that Chief Operating Officer Michael Roman will take over for Inge Thulin as chief executive officer in July. Profit is also taking a hit from increased prices rise for crude oil and freight transportation.

“While a slower first quarter was telegraphed in March, weaker margins were not, and neither was a guidance cut to the high end of the range,” Steve Tusa, an analyst at JPMorgan Chase & Co., said in a report. “There are more questions than answers here now.”

For a Gadfly column on the threat to new 3M CEO’s honeymoon, click here

3M tumbled 7.1 percent to $200.49 at 10:27 a.m. in New York after sinking as much as 7.3 percent for the biggest intraday decline since Feb. 5. The stock logged the biggest drop by far on the Dow Jones Industrial Average.

The shares fell 8.3 percent this year through Monday, compared with a decline of less than 1 percent for a Standard & Poor’s index of industrial companies.

Earnings Outlook

Adjusted earnings this year will be $10.20 to $10.55 a share, down 15 cents on the top end, the St. Paul, Minnesota-based company said in a statement. Analysts had been anticipating $10.53 a share, according to the average of estimates compiled by Bloomberg. Organic revenue will rise by no more than 4 percent, 3M said, down a percentage point from the previous forecast.

3M reported adjusted earnings in the first quarter of $2.50 a share, matching analysts’ estimates. The profit was 98 cents a share on the basis of generally accepted accounting principles. That included an $897 million charge related to the settlement of a lawsuit with Minnesota over allegations that a former Scotchgard ingredient tainted drinking water.

Including the settlement and the impact of the U.S. tax overhaul, 3M said 2018 profit will be $8.68 to $9.03 a share.

“We see warning signs flashing at the operating level,” Deane Dray, an analyst at RBC Capital Markets, said in a note to clients. “While this guidance cut is relatively small, the implications are magnified, given that it is happening so early in the year.”

©2018 Bloomberg L.P.

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