3M To Ax 2,500 Manufacturing Jobs Citing Turbulent Macroeconomic Forces

Key takeaways

• 3M announced poor Q4 results and a weak outlook for 2023
• As part of the announcement, 3M announced a layoff of 2,500 workers, mostly in manufacturing
• The company plans to continue with its announced healthcare spin off and other efforts to streamline the business

3M is a major American company that operates in the healthcare, industry, consumer goods, and worker safety industries. It offers products like adhesives, personal protective equipment, electrical materials, medical products, and healthcare software.

This week, 3M announced low profit estimates and that it would cut 2,500 jobs due to an uncertain economy.

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Background

3M has more than a century of history behind it. It began as the Minnesota Mining and Manufacturing Company in 1902 as a mining venture led by five businessmen. Though that venture ultimately failed, the company pivoted and began developing other products, such as sandpaper.

Over the next decades, 3M expanded its product line, creating products as varied as the first asthma inhaler to stage blood used for theatrical and movie productions.

Today, it sits on the list of dividend aristocrats, companies that are established and successful enough to have increased their dividend each year for at least 25 years running. 3M has one of the longest histories of dividend increases among members of this aristocracy, with over 60 years of dividend growth.

That long history of stability is one of the reasons that 3M’s announcement had such a major impact on the company, tanking its stock price by about 6%.

3M isn’t alone in making job cuts. Dow, another major manufacturing company that focuses primarily on chemicals, announced poor results. In the announcement, it also said that it would cut about 5% of its workforce, laying off 2,000 workers due to higher production costs following Russia’s invasion of Ukraine and COVID-19 lockdowns in China.

3M makes job cuts

On Tuesday, 3M announced that it would cut 2,500 jobs worldwide, released results from Q4 2022 and forecast its outlook for 2023.

Overall, the news was negative. Q4 sales were 6% lower than in the year before and net income was halved to $541 million. Organic sales growth also came in at 0.4%, far lower than the expected 1% to 3%.

3M noted that it expects trends in December to continue through the first half of 2023, meaning sales of some products, like electronics, could be down by as much as 10% to 30%.

3M CEO Mike Roman blamed the slowdown on “rapid declines in consumer-facing markets . . . along with significant slowing in China due to COVID-related disruptions.”

The announcement of job cuts noted that the layoffs would largely be concentrated in 3M’s manufacturing division. The company employs about 95,000 people, 50,000 of whom work in manufacturing. That means that a 2,500-person layoff represents about 5% of the company’s manufacturing staff.

Healthcare spin-off and other streamlining efforts

3M is a massive company that is involved in many different industries. In 2022, the company announced plans to spin off its healthcare business into a standalone company.

3M expects the spin-off to accomplish multiple goals, such as:

• Enhancing each company’s agility
• Allowing for more effective capital allocation to spur growth
• Provide compelling investment profiles to different types of investors

In his recent announcement, Roman noted that investors should expect additional actions from 3M in the coming year. These actions will include the completion of the previously announced spin-off and other efforts to streamline 3M’s business operations.

One thing he hinted at is efforts to improve the company’s supply chains, saying “we are putting a focus on supply chain and how we position ourselves closer to customers.”

What it means for investors

3M’s layoffs are part of an ongoing trend. Many businesses, especially in the world of tech, have cut headcount in the past weeks. Most layoff announcements have cited high inflation and economic uncertainty as one of the major reasons for layoffs, leading people to fear an oncoming recession.

Given the plunge in 3M’s stock price, this may present an exciting opportunity for interested investors. 3M has a century-long history of success and is one of the longest-tenured members of the dividend aristocrats. The recent dive in its stock price has given it a dividend yield of more than 5%, which could be highly appealing to people who want to generate income from their portfolio.

Some analysts find layoffs at 3M far more concerning than at the tech businesses that have announced layoffs recently. Tech is historically a boom-and-bust industry, and it experienced significant growth over the past few years. The layoffs in tech, for the most, cut some of the headcount additions made over the course of the pandemic.

Layoffs at major manufacturing and consumer goods companies, like 3M, could be more indicative of an oncoming recession because layoffs are typically rarer in that industry.

Investors will have to consider whether the company can continue its history of success and maintain its strong trend of dividend growth, or if the company will fail to adapt to high inflation and the new realities of a post-pandemic economy.

The bottom line

In today’s uncertain economy, deciding how to invest and when to buy into the market can be difficult. Stock prices have been volatile due to interest rate hikes from the Fed, high inflation, layoff announcements, and general economic uncertainty. Though investors may find great opportunities, they’ll have to be ready to weather that volatility.

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