3M’s Stock Loses 5% As CEO Plays Defense

Shares of Dow Jones component 3M were trading lower by more than 5% Tuesday on a day when the index soared higher by more than 250 points. The stock’s weakness can be directly attributed to a poor earnings report which included a surprise announcement.

Q4 Recap

3M reported fourth quarter earnings of $1.95 per share on revenue of $8.1 billion. Both figures fell short of Wall Street's expectations of $2.10 per share on revenue of $8.12 billion. Organic local-currency sales were down 2.6% year-over-year.

In addition to a top-and-bottom-line miss, 3M’s results marked deterioration in earnings from last year when the company reported EPS of $2.31 on revenue of $7.945 billion.

The Street Caught Off Guard

In conjunction with 3M’s earnings report, the company announced a restructuring of its organization which would see 1,500 people lose their jobs. Management said it expects the move to realize an annual pre-tax savings of $40 to $50 million in 2020 and $110 to $120 million in the following years.

Immediately following 3M’s earnings report, CNBC’s Becky Quick highlighted the fact that Wall Street analysts may have been caught off guard by the Tuesday announcement. Specifically, the new reorganization resulted in a negative impact of 20 cents per share in the reported quarter, and this may have not been anticipated by the Street.

CEO Clarifies

3M CEO Mike Roman sat down with CNBC’s David Faber and Jim Cramer to discuss his company’s earnings report. He told the CNBC hosts that the company delivered results that were consistent with internal expectations and guidance. 

The reorganization which is designed to better position the company to align itself better with customers while streamlining workers to better focus on growth, he said.

The company started making changes to its business model last April when it transitioned from five business units to four units, he said. Tuesday’s job cuts are a necessary move to speed up the transition to become leaner and more efficient.

2020 Guidance

3M also announced in its earnings report it expects to earn between $9.30 and $9.75 per share which was disappointing as analysts were expecting guidance to come in at $9.61.

The CEO told Cramer he is confident 2020 will be a year of growth on the top-line and bottom-line. The company also ended 2019 with record free cash flow of $5.4 billion for the full-year the CEO said he expects to show even more growth in 2020.