3M Co. recorded its biggest drop in almost five years after announcing sales and profit targets for 2024 below Wall Street expectations, suggesting that investors are losing faith that the largest restructuring effort in history of the company can lead it to better times.
The consumer and industrial products maker said adjusted earnings will not exceed $9.75 per share this year, below the $9.81 median analyst estimates compiled by Bloomberg. Organic sales are expected to be flat or increase 2%, 3M said, while analysts had forecast the figure would grow 2.7%.
Shares of 3M plunged as much as 13% on Tuesday in New York trading, the biggest drop of any company in the S&P 500 index and the manufacturing giant’s biggest intraday drop since April 2019.
Despite earnings reports in the last quarter of the year that exceeded analysts’ estimates, The overall economic environment remains weak for the maker of Post-it notes, touch-screen materials and healthcare products, CEO Mike Roman said.
“Although we have work to do, our actions are helping us improve our operational performance and create a more competitive 3M“Roman declared during a conference call with analysts.
Adjusted earnings were $2.42 per share in the fourth quarter, better than the $2.31 expected by analysts. The company’s adjusted operating margin of 20.9% came in just below Wall Street’s forecast of 21.2%.
3M’s forecasts “reflect a certain conservatism, given the still uncertain dynamics of the end market, and could put the company in a good position to meet its outlook, supporting share appreciation over time,” Citi analyst Andrew Kaplowitz said in a note to clients.
The company said the spinoff of its healthcare unit remains on track for completion in the first half of this year. Even though electronic markets are stabilizing, industrial demand is uneven, retail spending remains sluggish and China remains weak, Roman said.
“We are not seeing significant changes in end markets entering 2024,” he said in an interview. Additionally, a higher tax rate and other expenses represented a 29-cent headwind to the company’s full-year profit forecast, said 3M President Monish Patolawala.
“This is a little worrying for the sector in general this quarter,” Melius Research analyst Scott Davis said in a client note. “Anyone who leads below consensus can get a slap in the face.”
The selloff was a marked pivot in sentiment. 3M had begun to turn around last year as it made progress in resolving its enormous legal liabilities and operational improvements began to take root.
Profit margins and cash generation grew in the second half of 2023, helped by the biggest restructuring drive in its history. This fueled the appreciation of the shares and won the applause of analysts after a long period of difficulties and uneven demand.