3M, a multinational conglomerate, is currently grappling with a range of environmental and legal problems, which are expected to have a significant impact on its upcoming earnings report.
In the second quarter, analysts anticipate earnings per share of $1.73 from sales totaling $7.9 billion. However, these figures pale in comparison to the $2.48 in earnings earned from $8.8 billion in sales during the same period last year.
Unfortunately, reported earnings will not come close to meeting the anticipated $1.73 per share due to a substantial charge of over $10 billion. This charge is related to the remediation of PFAS (per- and polyfluoroalkyl substances) from water supplies. PFAS, which were manufactured in the United States from the 1940s until 2000, are known to persist in the environment and pose health risks, according to the Environmental Protection Agency.
After adjusting for taxes, investors can expect an earnings hit ranging from $12 to $14 per share.
J.P. Morgan analyst Stephen Tusa commented on the company’s situation in a recent report. He noted that while there is some growth in specific areas, declines in segments like electronics and a deteriorating China outlook offset any positive trends. Tusa’s full-year estimate for 2023 stands at $8.25, slightly lower than the consensus among other analysts. He rates 3M shares as Hold and has set a price target of $105 per share.
When 3M management addresses investors during a conference call at 9 a.m. Eastern time, it is likely that they will face questions about environmental cleanup efforts and legal liabilities. Market participants are keen to understand the potential financial implications associated with resolving all PFAS-related issues. Moreover, the company is also dealing with legal disputes stemming from allegedly faulty earplugs sold to the military.
Over the past few years, 3M has struggled with these legal and environmental challenges, and its stock performance has suffered as a result. While the S&P 500 and Dow Jones Industrial Average have seen gains of approximately 15% and 11% respectively over the past 12 months, 3M’s stock has plummeted by about 22%. Moreover, it has dropped by approximately 60% from its previous record highs achieved in early 2018.
It is evident that 3M’s path forward is filled with obstacles. The upcoming earnings report and management’s statements during the conference call will provide further insight into the company’s ability to address these issues successfully.