Good days for investors within the 3M Company (NYSE:MMM) have been few and much between over the past few years. Since June 2021, the corporate’s stock price has fallen greater than 52% from $206 per share all the way down to its current price of $98 per share. Actually, over the past five years, 3M stock has an annualized return of -13.7%, and its 10-year annualized return is -2.9%.
Nevertheless, Tuesday was one in every of those rare good days for 3M as its price jumped 5%, continuing into Wednesday morning with one other 3% gain that brought it over $100 per share. There was one very clear catalyst for the move: the hiring of a latest CEO, William Brown.
Brown, who will start May 1, comes from the defense industry, where he was the chairman and CEO of L3Harris Technologies. Investors are hoping Brown can turn the fortunes of this Dow Jones titan around.
Legal problems
As a household name, 3M has some 60,000 products, a lot of which individuals use on daily basis, like Post-It Notes and Scotch tape, and electronics and industrial products for a wide range of industries.
Nevertheless, the corporate has been on the receiving end of a gradual stream of negative notoriety over the past few years from one controversy after one other, leading to billions of dollars in legal judgements. Specifically, 3M faced hundreds of lawsuits for its Combat Arms Earplugs, which were alleged to have caused hearing loss and tinnitus among the many military members who used them. In August 2023, the corporate agreed to a settlement within the case — through which it would pay out $6 billion to the plaintiffs through 2029.
That announcement got here just months after 3M agreed to pay $10.3 billion to settle tons of of lawsuits over PFAS — or per- and polyfluoroalkyl substances — contamination. The corporate is one in every of the world’s largest producers of PFAS, that are also called “eternally chemicals” as they take an extended time to interrupt down. They’re present in many alternative products and might contaminate water and the soil and cause health problems.
The $10.3 billion settlement reached in June 2023 will go to tons of of public water suppliers for PFAS treatment and remediation over the following 13 years. Further, 3M will exit PFAS manufacturing by the top of 2025.
From an organization perspective, these cases not only hurt 3M’s bottom line but in addition damaged its brand and popularity. Clearly, Brown has quite a bit on his proverbial plate.
What can Brown do?
Brown will replace Mike Roman, who moves to the chief chairman role after six years as CEO. Roman oversaw this difficult period for the corporate but in addition shepherded some restructuring moves last yr to streamline operations. Those moves included an expense reduction initiative that involved some 8,500 layoffs last yr and the spin-off of 3M’s healthcare business, which accounted for about 25% of its revenue last yr. The spin-off, called Solventum, will begin trading on the Recent York Stock Exchange in April under the ticker “SOLV.”
Some investors could also be wondering why there’s a lot excitement around Brown’s hiring. Analysts say the proven fact that the corporate, which usually promotes from inside, brought in an outsider signals that it’s searching for major changes. Brown also brings experience guiding firms through mergers and acquisitions from his tenure at L3Harris and United Technologies and has a popularity for driving efficiencies and improving margins — all things that 3M will need him to do.
The most effective thing about 3M through the years has been its dividend, which is amongst the most effective available on the market. It has been one of the consistent dividends on the market, with 65 straight years of increases, making 3M a Dividend King. It also has one in every of the best yields at 6.1%. It is going to be interesting to see how the dividend is impacted following the spin-off of Solventum.
This week’s rally is more about pent-up excitement for something positive than anything tangible. As such, investors shouldn’t expect any quick fix for 3M because the turnaround will take time and execution.