That 135-point drop in the Dow Jones Industrial average on Thursday? You can blame much of that on 3M, which reported a 5% drop in sales in the first quarter of 2019—$7.86 billion versus analyst expectations of $8.02 billion. 3M shares plunged 12.9% on the news, the company’s worst day since Oct. 19, 1987, one of the sharpest U.S. market crashes in history, reported Bloomberg. In addition to shareholders, some 2,000 3M workers also will pay a price in the form of layoffs, the company announced.
“The first quarter was a disappointing start to the year for 3M,” said Mike Roman, 3M CEO, in a press release distributed on April 25. “We continued to face slowing conditions in key end markets, which impacted both organic growth and margins, and our operational execution also fell short of the expectations we have for ourselves. As a result, we have stepped up additional actions—including restructuring—to drive productivity, reduce costs and increase cash flow as we manage through challenges in some of our end markets.”
The job cuts will affect all business groups and regions, said 3M, and is expected to save $100 million pretax in 2019 and $225 to $250 million annually.
Operating income dropped in all five of its business units. Healthcare was the only unit to post a gain in sales—a negligible 0.3%—but that was offset by “foreign currency translation,” which decreased sales by 3.6%.
Q1 results also took a hit from set asides for current and future litigation. 3M took a $548 million charge in the quarter, setting aside a reserve of $235 million for “certain environmental matters and litigation” and an additional $313 million to address current and expected coal mine dust lawsuits in Kentucky and West Virginia, reported Bloomberg.
Roman took over as CEO of the storied, $33-billion brand in July 2018, moving up the ranks during a 30-year career at 3M. His mission is to return the company to the steady performance it was known for under his predecessor, Inge Thulin, reports Bloomberg. Thulin served as 3M CEO from June 2012 to June 2018. The first-quarter results show that Roman has his work cut out for him.
“While we take actions to manage through the near-term, we also continue to invest in growth to position 3M for the future,” added Roman in the press release. “We recently implemented a significant portfolio realignment from five to four business groups, which will enable us to better serve our customers and global markets. Moving forward, I am confident that we are making the necessary changes and focused on the right priorities to accelerate 3M into a stronger future.”
The restructuring measure comes a few months after 3M announced it would acquire M*Modal’s technology business in a deal valued at $1 billion, reported sister brand MD+DI in its article on the job cuts. "The technology business specializes in conversational artificial intelligence–powered systems that can help physicians efficiently capture and improve the patient narrative," wrote Managing Editor Omar Ford.
Whether or not the acquisition can improve the 3M narrative, at least in the healthcare business unit, remains to be seen.
Image courtesy Francis Bonami/Adobe Stock.