Can 3M’s new CEO change things?
Good days for investors 3M company (NYSE:MMM) has been virtually non-existent for the past few years. Since June 2021, the company’s stock price has fallen more than 52%, from $206 per share to its current price of $98 per share. In fact, the annualized return for 3M stock over the past five years is -13.7%, and the 10-year annualized return is -2.9%.
But Tuesday was one of the rare good days for 3M, with shares up 5%, and continued to rise 3% by Wednesday morning, topping $100 per share. There was one very clear catalyst for this movement. They just hired a new CEO, William Brown.
Brown, who will join the company on May 1, comes from a defense industry background and served as chairman and CEO of L3Harris Technologies. Investors are hoping Brown can turn the fortunes of the Dow Jones titan around.
legal issues
A household name, 3M has about 60,000 products, many of which people use every day, such as Post-it notes, Scotch tape, and electronic and industrial products for a variety of industries.
However, the company has continued to receive negative notoriety over the past few years due to a series of controversies that have resulted in billions of dollars in legal verdicts. 3M in particular has faced thousands of lawsuits over its combat earplugs. It was claimed that these earplugs caused hearing loss and tinnitus in the soldiers who used them. In August 2023, the company agreed to a settlement to pay $6 billion to the plaintiffs in the lawsuit by 2029.
The announcement comes just months after 3M agreed to pay $10.3 billion to settle hundreds of lawsuits over PFAS (or per- and polyfluoroalkyl substances) contamination. The company is one of the world’s largest producers of PFAS, sometimes called ‘forever chemicals’ because they take a long time to break down. They are found in a variety of products and can contaminate water and soil and cause health problems.
The $10.3 billion settlement, agreed to in June 2023, will go to hundreds of public water utilities for PFAS treatment and remediation over the next 13 years. Additionally, 3M plans to stop manufacturing PFAS by the end of 2025.
From the company’s perspective, these incidents not only hurt 3M’s bottom line, but also damaged its brand and reputation. Clearly, Brown has a lot on his proverbial belt.
What can Brown do?
Brown replaces Mike Roman, who took over as chairman after serving as CEO for six years. Roman oversaw this difficult period for the company, but also led some restructuring measures last year to streamline operations. The moves included a cost-cutting plan that saw the company lay off about 8,500 employees last year and the spinoff of 3M’s healthcare business, which accounted for about 25% of sales last year. The spinoff, called Solventum, is expected to begin trading on the New York Stock Exchange under the ticker “SOLV” in April.
Some investors might wonder why there’s so much excitement about Brown’s hiring. Analysts say companies that promote from within typically bring external signals that they are seeking big change. Brown also served at L3Harris and United Technologies, where he gained experience guiding companies through mergers and acquisitions and earned a reputation for driving efficiencies and improving margins. This is everything 3M needs from him.
The best thing about 3M over the years has been its dividend. This is the best on the market. This has been one of the most consistent dividends, increasing for 65 consecutive years, making 3M a Dividend King. It also has the highest rate of return at 6.1%. It will be interesting to see how the dividend will be affected following Solventum’s spin-off.
This week’s rally is more about pent-up excitement about the positive than meets the eye. Therefore, investors should not expect a quick fix for 3M, as a turnaround takes time and execution.
