3M Q223 Earnings Hampered by PFAS Litigation

Reporting its Q223 earnings today, 3M raised its full-year profit forecast and showed better-than-expected quarterly results in the face of costly PFAS and veteran earplug litigation.

The company beat analysts’ expectation of $7.87 billion in the quarter ended June 30, reporting adjusted revenue of $7.99 billion. Additionally, 3M raised guidance on adjusted per-share earnings from $8.50 - $9.00 to $8.60 - $9.10.

The raised expectations were attributed to higher product prices, cost-cutting measures, and strong operational execution. To offset high raw material and labor costs, the company increased product prices. It also reduced its total global workforce, boosting its margins by 1.4% in conjunction with improved manufacturing productivity, both parts of the restructuring plan that hopes to save the company $700 million to $900 million by 2025.

In January, 3M cut 2,500 manufacturing positions and added another 6,000 jobs to the chopping block in April. Altogether, the restructuring plan includes an expected 10% workforce reduction to focus on faster-growing areas of its business, like semiconductors. And the choice to restructure in this way seems to be working, with demand for its products slumping in 2023, strategic choices have seen the company bring in more income from its business operations, with operating cash flow rising 24% compared to 2022.

However, the biggest blow to the company’s report came in the shape of an over $10 billion settlement in a class action case combining multiple cities that claim its drinking water was contaminated with PFAS from the company. PFAS are called forever chemicals because they don’t break down in the environment and are harmful to human health, including developmental defects, liver, kidney, testicular, breast, pancreas, and prostate cancer, adverse pregnancy outcomes, infertility, reduced bone density in children, and impacts on the thyroid and immune system. Exposure to PFOA and PFOS was also found to limit the effectiveness of common vaccines across multiple studies.

PFOS, a PFAS chemical exclusively made by 3M beginning in the 1940s, was a component in firefighting foams used by the military, airports, refineries, and fire departments for decades before it was phased out in the early 2000s, according to a previous MD+DI article.

The earnings report detailed a loss of $6.84 billion, or $12.35 per share, for Q223 compared with a profit of $78 million ($0.14 per share) in 2022. Also adjusting for one-time expenses, like the over $10 billion settlement charge, it reported per-share earnings of $2.17, which is down from $2.45 in 2022. However, $2.17 still surpassed FactSet analyst expectations. The company saw its total sales fall 4.3% to $8.33, surpassing the FactSet forecast of $7.88.

PFAS litigation is not the only lawsuit problem befalling 3M. The company is still in the middle of a federal lawsuit involving 230,000 veterans who allege earplugs made by 3M’s subsidiary Aearo Technologies were defective and caused hearing problems. In a bid to resolve the claims, 3M put its Aearo unit into bankruptcy in July 2022, which would automatically freeze lawsuits. However, because 3M itself didn’t file bankruptcy, a judge would have had to agree to give the company that same protection.

Despite the hefty PFAS payout and other ongoing lawsuit issues, its overall positive Q223 earnings report sent its shares to a four-month high of nearly 6% this morning.