3M announces restructuring plans after Q1 earnings beat
American manufacturing conglomerate 3M reported first-quarter earnings per share of $1.76 and adjusted earnings per share of $1.97 on Tuesday, both well above analyst expectations for earnings of $1.58 per share.
The company said sales for the quarter, however, fell 9% year-on-year to $8bn, with organic sales falling 4.9% year-on-year, alongside a 1.3% headwind from divestitures and a 2.8% headwind from foreign currency translation due to the strength of the dollar.
It announced restructuring plans in a bid to strengthen its operations, which would involve simplifying its supply chain, streamlining its geographic footprint, reducing management layers, and further aligning business go-to-market models to customers.
3M said the plans were expected to affect all functions, businesses, and geographies and would impact around 6,000 positions globally, in addition to the reduction of 2,500 global manufacturing roles announced in January.
The company said it anticipated annual pre-tax savings of between $700m and $900m on completion of the actions.
It said the restructuring actions were expected to reduce costs and drive long-term improvement in margins and cash flow, while enabling a more efficient and effective structure for driving long-term growth.
The company said it would continue to focus its commercial efforts on high-growth markets including automotive electrification, home improvement, personal safety, electronics, and healthcare.
In addition, 3M said it would prioritise emerging growth areas such as climate technology, sustainable packaging, industrial automation, semiconductors, and next-generation consumer electronics.
Looking ahead, 3M said it expected to incur approximately half of the pre-tax charges in 2023, with $175m to $250m in the second quarter.
Those charges would be offset by pre-tax savings, and were included in its full-year guidance.
3M affirmed its full-year expectations for 2023, including adjusted total sales growth of -6% to -2%, reflecting adjusted organic sales growth of -3% to flat, adjusted earnings per share of $8.50 to $9.00, and adjusted operating cash flow of $5.8bn to $6.3bn, contributing to 90% to 100% adjusted free cash flow conversion.
“In the first quarter we continued our relentless focus on serving customers and aggressively managing costs,” said chairman and chief executive officer Mike Roman.
“Market trends were as we expected, and we made changes to improve our operations and position us for success as supply chains improve.”
Roman said that to strengthen 3M for the future, it was announcing actions to reduce costs at the corporate centre, further simplify and strengthen its supply chain structure, and streamline its go-to-market business models, which should improve margins and cash flow.
“We will continue to prioritise investments in high-growth end markets where 3M science gives us a clear competitive advantage.”
At 0710 EDT (1210 BST), shares in 3M Company were up 1.61% in pre-market trading, at $106.75.
Reporting by Josh White for Sharecast.com.