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3M (NYSE:MMM) finished -3.6% on Friday, reversing lower after opening with a strong gain following a Q2 earnings topper and upwardly revised full-year profit guidance, as adjusted organic sales growth came in below expectations, according to Citi analysts.
Q2 adjusted organic sales growth of 1.5% was “modestly below our expectation and reflects still mixed demand trends across MMM’s end markets (particularly consumer and autos and now electronics),” Citi analyst Andrew Kaplowitz wrote.
However, the analyst also said productivity actions and a focus on operational performance could drive profitability and let 3M (NYSE:MMM) hit its 2025 guidance.
Barclays analyst Julian Mitchell also noted that 3M’s (NYSE:MMM) organic sales growth guidance has been cut to the low end of the previous range, which management had signaled.
Also, CEO Bill Brown provided a somewhat downbeat outlook on the economy and consumer sentiment during the earnings conference call, saying macroeconomic trends reflect “a global economy that remains sluggish and moving laterally, not materially improving or worsening,” as reported by MarketWatch.
The CEO also said 3M’s (MMM) consumer electronics business likely will soften in this year’s H2 “due to slower demand for premium devices,” the auto parts business will remain “challenged,” and consumers likely will remain “subdued” through the rest of the year.
3M’s (MMM) tariff burden lightened during Q2, with Brown saying the company now expects a gross tariff impact of $0.20/share for the full year, down from its prior estimate of $0.60/share, thanks in part to easing trade tensions between the U.S. and China.
“Things have stabilized at least a little bit,” the CEO said on the call, adding that the company expects to offset half of the tariff’s impact through cost cuts and price increases.
3M (MMM) faces significant potential legal liabilities, and is generating less cash, both of which increase its risk, said Edward Jones analyst Faisal Hersi, who has a Sell rating on the stock.
Litigation alleging groundwater pollution could take several years to resolve and potentially result in billions of dollars in liabilities, Hersi says, believing the stock will trade on litigation-related news, rather than company fundamentals: “If 3M receives a negative ruling from its ongoing litigation, there could be significant downside for the stock.”