Nov. 21, 2022 1:38 PM ET
By Stephen Simpson
Summary
3M posted poor results for the third quarter, even relative to low expectations, as the company showed below-average pricing leverage and weak volumes.
Guidance reinforces 3M's weak leverage vis-a-vis a short-cycle slowdown, with few significant growth drivers in the near term.
3M has seen some hiccups in its litigation recently, but a comprehensive settlement is still the likely outcome for its earplug and PFAS litigation.
My biggest concern with 3M remains its lack of apparent willingness to embrace real change - while other multi-industrials have embraced new growth drivers, 3M has not.
3M's valuation is undemanding, and weak sentiment could set up a rebound in the coming quarters, but I'm finding it harder to believe in management's long-term vision (or that there is one).
There's really not much positive to say about 3M (NYSE:MMM) since my last update on the company. Even against a backdrop of low expectations, the company has managed to come up short, with weaker-than-expected results in businesses tied to consumer electronics and healthcare. On top of that, the company has seen some adverse legal judgements, albeit these are early-stage rulings that aren't likely to fundamentally alter the picture.
My issues with 3M still run deeper than all of this. I praised the company in my last article for finally taking some value-building steps (spinning off Health Care and attempting to ring-fence some of its legal liabilities), but the fact remains that the company has been painfully reticent to reposition itself for the future and is increasingly looking like a short-cycle cyclical focused on squeezing margin and cash flow out of legacy businesses.
Down a bit since my last update, 3M has continued to underperform the industrial group, and while there are a few worse performers out there (Stanley Black & Decker (SWK) comes to mind), there aren't many. I do see some relative value here, and the dividend is good, but I'm still quite concerned that management seems to have little vision for the future beyond "that worked in the past … so let's do that again".
TO READ THE REST OF THE STORY:
https://seekingalpha.com/article/4559585-litigation-and-economic-cycles-dominate-the-3m-discussion-but-there-are-longer-term-growth-issues-to-consider