3M Plans Job Cuts to Rein in Expenses as Legal Troubles Grow

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3M
,
the maker of Post-it notes and Scotch tape, plans to eliminate jobs in a cost-cutting drive as its legal woes worsen, according to a report from Bloomberg.

Michael

Vale
,
the chief of

3M
’s
head of safety and industrial division, announced the job cuts in a memo to employees of that part of the company, Bloomberg reported.

“3M is taking decisive actions to position the company for continued growth, while also adjusting to the challenging macroeconomic environment,” a 3M spokeswoman told Barron’s in an emailed statement. “As we prioritize our investments and resources, we will be adjusting on an ongoing basis the roles and responsibilities needed for future growth.”

News of potential cost cutting comes shortly after a Friday decision from a U.S. court preventing 3M from putting a subsidiary dealing with product litigation from faulty earplugs into bankruptcy protection. That move was designed to limit the total liability owed by 3M.

The company faces roughly 290,000 earplug product liability suits, according to Wall Street estimates. Analysts also project the total cost of settlements and litigation fees could hit up to $10 billion.

“Today’s news of workforce reductions at Safety & Industrial (which produced the Combat Arms Earplugs) is clearly going to unsettle investors,” William Blair analyst Nicholas Heymann tells Barron’s. He rates shares at Hold.

3M stock is off 1.2% in early trading, but shares are down 12% over the past month while the S&P 500 and

Dow Jones Industrial Average
have given up about 5%.

3M faces addition costs for cleaning up chemicals produced long ago that have been found in groundwater. Friday, the Environmental Protection Agency moved to declare the chemicals—known as PFOA and PFAS–hazardous substances.

The liabilities have weighed on 3M stock in recent months. The stock has fallen 30% this year, almost twice as much as the 17% drop in the S&P 500. Shares are down about 50% from their 2018 record high.

The economy hasn’t helped the stock either. Rising inflation, along with other problems, pushed second-quarter operating profit margins down to about 21% from 23% a year ago.

Trying to manage costs amid falling profitability is another reason any company starts laying off workers. The size of the job cuts couldn’t be immediately determined, but Vale said in the memo that other parts of 3M would see similar actions, according to Bloomberg.

Liabilities and economic headwinds have left 3M stock without many supporters on Wall Street. Only one out of 21 analysts covering the stock rates shares Buy. That’s less than 5%. The average Buy-rating ratio for stocks in the S&P 500 is about 58%.

The average analyst target price is about $144, roughly 15% higher than recent levels. That appears to be an insufficient margin of safety, given 3M’s issues, for analysts to start upgrading the stock.

William Blair’s Heymann believes investors are worried about the sustainability of 3M’s dividend, which costs the company about $3.4 billion each year. 3M’s projected cash flow covers that amount, but legal liabilities are a wild card.

Write to Brian Swint at [email protected] and Al Root at [email protected]