3M calls out 'rapid declines' in consumer businesses amid spending pressures

1:21 pm ET January 24, 2023 (MarketWatch) Print

By Emily Bary

Stock falls after earnings as CFO says he's 'not satisfied' with recent performance

Shares of 3M Co. were falling toward their worst single-day decline since August as the company came up short with its earnings outlook, calling out "accelerated" pressure on consumers that could persist for at least the first half of this year.

The manufacturing giant, whose brands include Post-it Notes, Nexcare bandages, and Scotch-Brite cleaning products, also missed earnings expectations for its latest quarter. The company earned an adjusted $2.28 a share, down from $2.45 a share a year earlier, and below the FactSet consensus, which was for $2.36 a share. Organic sales growth of 0.4% lagged behind 3M's (MMM) own expectations.

Chief Executive Michael Roman blamed "rapid declines in consumer-facing markets such as consumer electronics and retail, a dynamic that accelerated in December as consumers sharply cut discretionary spending and retailers adjusted inventory levels," according to a transcript of the company's earnings call provided by Sentieo/AlphaSense.

The stock was down 5.2% in midday trading Tuesday.

3M's consumer business fared worse than the company as a whole, posting a 5.7% decline in organic sales. Chief Financial Officer Monish Patolawala highlighted on the earnings call that the U.S. consumer business especially felt pressure.

"All businesses declined organically as consumers pull back on discretionary spending and retailers aggressively took actions to reduce their inventories, particularly in the U.S.," he noted in his discussion of the consumer business, which saw a 24% drop in operating income relative to a year before.

3M executives are bracing for continued challenges.

"Looking ahead, we anticipate those trends to continue at least through the first half of 2023," Patolawala shared. The company has expectations for "soft consumer discretionary spending, along with retailer destocking to continue into the first quarter."

While the consumer unit is one of 3M's four business areas, the pressure on consumer wallets could have an impact on other areas of the company. Patolawala noted that 3M saw a low-single-digit increase in oral-care revenue during the latest quarter, despite the pullback in overall discretionary spending.

"In oral care, we will be monitoring consumer discretionary spending and its impact on patient visits, including orthodontic care," he continued.

Patolawala also spoke frankly about the business as a whole.

"We are not satisfied with our performance and the expected start this year," he said. "We are working to aggressively address our operating performance in this challenging environment."

3M's results showed as well that technology companies aren't the only ones cutting jobs in the current environment. The company disclosed in its release that it intends to eliminate 2,500 global manufacturing roles, which Chief Executive Mike Roman called "a necessary decision to align with adjusted production volumes."

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"We see an opportunity to continue to streamline our supply chain," Roman added on the earnings call.

-Emily Bary

(END) Dow Jones Newswires

January 24, 2023 13:21 ET (18:21 GMT)