There’s good news out of 3M!
The industrial giant is “accelerating the pace” of its “transformation journey”.
That sounds great. Until you read the press release, which reveals that part of that “transformation” involves sending 1,500 people on a “journey” to other occupations. To wit:
As a result of these actions, 3M initiated a restructuring that will reduce approximately 1,500 positions, spanning all business groups, functions and geographies. On a pre-tax basis, 3M took a restructuring charge of $134 million in the fourth quarter of 2019. The company expects annual pre-tax savings of $110 to $120 million, with $40 to $50 million in 2020.
A quick skim of the numbers reveals what certainly looks like lackluster demand in Asia, where sales declined in three of four business groups.
“Our team executed well in the fourth quarter and delivered results that were in-line with our expectations”, said Mike Roman, 3M chairman and CEO, before noting that the company is managing “challenges in certain key end markets”.
The shares – which plunged last April on a forecast cut and basically never recovered – dove in the premarket.
This could turn around during the regular session, but there’s not much to like here, and although we generally don’t do individual company earnings outside of the banks (and some tech names), when there’s a macro tie-in, we’ll make brief mention.
It’s hard to separate 3M’s company-specific woes from the broader environment and there’s always a strong argument to be made that execution is the problem, but, again, this looks like another poor showing in a string of disappointments.
For one thing, the midpoint of the 2020 profit guidance looks like a miss. 2020 EPS will be between $9.30 and $9.75, versus an estimated $9.60 (the range was $9.15 to $9.80).
Adjusted EPS for Q4 missed even the most pessimistic estimate from analysts, and operating income wasn’t even close. Net sales for the final quarter of 2019 were $8.11 billion, up 2.1% YoY. That number is barely passable – and I do mean barely. Bloomberg consensus was $8.11, Refinitiv was $8.12. (The range was $8 billion to $8.27 billion.)
On the bright side, maybe they can make up for it all with face mask sales.
“3M said it’s increasing output and working with distributors to ensure sufficient inventory to meet demand and supply existing customers”, Bloomberg wrote last week, in a piece documenting soaring demand for protective gear amid the Wuhan virus outbreak in Asia.
This is kind of emblematic of the issues many businesses are having. Look at SP500 over the past year. Look at NIPA profits over the past 5 years. Look at how many companies in the Russell 2000 that are unprofitable. I realize there are some apples and oranges here but strip out the corp tax cuts, lower rates, buyback impacts and results are not all that stellar.
And SP500 earnings are up about 65% in 12 years (excl the recent corp tax cut) but stocks are up over 110%?
Better hope rates stay low and the supply/demand picture stays healthy because fundamentals for corps (in general) are not great.