3M soars in stock’s best day ever as upbeat outlook points to fresh start
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3M (NYSE:MMM) skyrocketed to its highest in nearly two years, +23% in Friday’s trading to top all gainers on the S&P 500 and Dow Jones indexes while contributing more than 150 points to the DJIA, after beating Q2 earnings expectations and raising its full-year outlook.
The gain was the stock’s largest percent increase on record, according to Dow Jones, based on available data back to January 1972.
The quarter marks something of a fresh start for 3M (MMM), with the legal settlements for “forever chemicals” in drinking water and the Combat Arms earplugs – which have been headwinds for years – and the spinoff of the healthcare business now behind it.
J.P. Morgan analyst Stephen Tusa praised 3M’s (MMM) “strong beat” on operating profit and free cash flow, Bloomberg reported, and given this was new CEO Bill Brown’s first print in the seat, “we appreciate the conservatism here.”
RBC’s Deane Dray said the “tepid” guidance boost implies that H2 2024 consensus numbers “need to come down a bit,” but new CEO Bill Brown likely is motivated to keep expectations low early on and set up 3M (MMM) for a cadence of “under-promising and over-delivering.”
“As I look ahead, I am focused on three priorities: driving sustained organic revenue growth, increasing operational performance, and effectively deploying capital,” Brown said on the earnings conference call.
Brown also outlined plans to reduce the organization’s complexity in an effort to boost results, including “shifting from a geographic to a global business unit structure” and centralizing the company’s supply chain activities; as an example, he said a Command strip passes through five factories and two distribution centers before it reaches the customer.
“We’ll take a fresh look at what cost is embedded in that complexity,” Brown told Bloomberg in an interview.
3M (MMM) has more than 25K suppliers but more than 80% of its raw materials are sourced from single companies, Brown also said.
The descriptions of 3M’s (MMM) antiquated manufacturing operations recall the 1970s rather than “anything we’ve heard of in the modern era,” Melius Research analyst Scott Davis said, but “the good news, perhaps, is that Bill has the guts to call all of this out… You can’t fix a problem if you aren’t willing to admit that it’s a problem.”