Can 3M’s New CEO Turn Things Around?

Good days for investors in the 3M Company (NYSE:MMM) have been few and far between over the past few years. Since June 2021, the company’s stock price has fallen more than 52% from $206 per share down to its current price of $98 per share. In fact, over the past five years, 3M stock has an annualized return of -13.7%, and its 10-year annualized return is -2.9%.

However, Tuesday was one of those rare good days for 3M as its price jumped 5%, continuing into Wednesday morning with another 3% gain that brought it over $100 per share. There was one very clear catalyst for the move: the hiring of a new 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, many of which people use every day, like Post-It Notes and Scotch tape, and electronics and industrial products for a variety of industries.

However, the company has been on the receiving end of a steady stream of negative notoriety over the past few years from one controversy after another, resulting in billions of dollars in legal judgements. Specifically, 3M faced thousands of lawsuits for its Combat Arms Earplugs, which were alleged to have caused hearing loss and tinnitus among the military members who used them. In August 2023, the company agreed to a settlement in the case — in which it will pay out $6 billion to the plaintiffs through 2029.  

That announcement came 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, which are also called “forever chemicals” as they take a long time to break down. They are found in many different products and can contaminate water and the soil and cause health problems.

The $10.3 billion settlement reached in June 2023 will go to hundreds of public water suppliers for PFAS treatment and remediation over the next 13 years. Further, 3M will exit PFAS manufacturing by the end of 2025.

From a company perspective, these cases not only hurt 3M’s bottom line but also damaged its brand and reputation. Clearly, Brown has a lot on his proverbial plate.

What can Brown do?

Brown will replace Mike Roman, who moves to the executive chairman role after six years as CEO. Roman oversaw this difficult period for the company but also shepherded some restructuring moves last year to streamline operations. Those moves included an expense reduction initiative that involved some 8,500 layoffs last year and the spin-off of 3M’s healthcare business, which accounted for about 25% of its revenue last year. The spin-off, called Solventum, will begin trading on the New York Stock Exchange in April under the ticker “SOLV.”

Some investors may be wondering why there’s so much excitement around Brown’s hiring. Analysts say the fact that the company, which typically promotes from within, brought in an outsider signals that it is seeking major changes. Brown also brings experience guiding companies through mergers and acquisitions from his tenure at L3Harris and United Technologies and has a reputation for driving efficiencies and improving margins — all things that 3M will need him to do.

The best thing about 3M over the years has been its dividend, which is among the best on the market. It has been one of the most consistent dividends out there, with 65 straight years of increases, making 3M a Dividend King. It also has one of the highest yields at 6.1%. It will 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 should not expect any quick fix for 3M as the turnaround will take time and execution.

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