the maker of Post-it notes and Scotch tape plans to cut jobs in a cost-cutting effort as legal problems worsen, according to a Bloomberg report.
head of the safety and industrial division, announced the job cuts in a memo to employees of that division of the company, Bloomberg reported.
“3M is taking decisive action to position the company for continued growth while adapting to the challenging macroeconomic environment,” a 3M spokeswoman said. Barron’s in a statement sent by email. “As we prioritize our investments and resources, we will continually adjust the roles and responsibilities required for future growth.”
News of the possible cost reduction comes shortly after a US court ruled Friday that 3M has been barred from placing a subsidiary involved in cases of defective earmuff products into bankruptcy protection. This move was designed to limit the total liability owed by 3M.
The company faces about 290,000 earplug product liability lawsuits, according to Wall Street estimates. Analysts also predict that the total cost of the settlements and legal fees could reach $10 billion.
“Today’s news of job cuts at Safety & Industrial (which produced the Combat Arms earmuffs) will clearly upset investors,” says William Blair analyst Nicholas Heymann. Barron’s. He rates stocks in Hold.
3M stock fell 1.2% in early trading, but shares have fallen 12% in the past month, while the S&P 500 and
Dow Jones Industrial Average
about 5% have dropped out.
3M is facing additional costs for cleaning up chemicals that have been produced for a long time and have been found in the groundwater. On Friday, the Environmental Protection Agency moved to declare the chemicals—known as PFOA and PFAS—hazardous.
Liabilities have weighed on the 3 million stock in recent months. The stock is down 30% this year, nearly double the S&P 500’s 17% drop. Shares are down about 50% from their 2018 record high.
The economy didn’t help the stock either. Rising inflation, along with other problems, pushed second-quarter operating profit margins to about 21% from 23% a year ago.
Trying to manage costs amid falling profitability is another reason any company starts laying off workers. The size of the job cuts could not be immediately determined, but Vale said in the memo that other 3M divisions would see similar actions, according to Bloomberg.
Liabilities and financial headwinds have left 3M stock without many supporters on Wall Street. Only one in 21 analysts who cover equity rates is Buy. That’s less than 5%. The average market-to-market ratio for S&P 500 stocks is about 58%.
The average analyst price target is about $144, about 15% higher than recent levels. That seems to be an insufficient margin of safety given 3M’s issues for analysts to start upgrading the stock.
William Blair’s Heymann believes investors are concerned about the sustainability of 3M’s dividend, which costs the company about $3.4 billion each year. 3M’s projected cash flow covers that amount, but legal liabilities are a wild card.
Write to Brian Swint at brian.swint@dowjones.com and Al Root at allen.root@dowjones.com
