3M Co. shares soared Friday after raising its full-year profit forecast as its new chief executive officer vowed to reinvigorate the iconic manufacturer’s innovation engine.
William Brown
The shares were up nearly 20% as of midday Friday. The gains came after the Maplewood-based maker of Post-it notes and industrial and consumer products said adjusted earnings this year would be between $7 to $7.30 per share as it reported second-quarter results. That boosted the midpoint of 3M’s forecast to $7.15, up a dime from its previous outlook.
The results are the first under CEO Bill Brown, who succeeded Mike Roman on May 1. Brown inherited a much smaller company following the spinoff of 3M’s huge health care products division unit amid massive legal liabilities.
Brown kicked off his first earnings call by stressing the need to accelerate 3M’s sales growth. To get there, he wants to increase the pace of new product development.
Revenue from new products has steadily declined over the past decade as 3M shifted spending and focus to other needs, such as exiting its “forever chemicals” business and revamping its complex supply chain, Brown said. And although 3M has identified sectors such as electric cars and semiconductors as key sources of growth, “these efforts aren’t material enough today to offset erosion in our core,” he said.
“The simple fact is our products are aging” in 3M’s core businesses, he said.
He also plans to reduce the organization’s complexity. For example, a Command strip passes through five factories and two distribution centers before it gets to the customer, he said.
“We’ll take a fresh look at what cost is embedded in that complexity,” Brown said in an interview. The aerospace veteran was named to the top job in March.
Adding to the company’s challenges is that it’s also looking for a new chief financial officer after announcing earlier this month that Monish Patolawala would depart for Archer-Daniels-Midland Co.
Adjusted earnings were $1.93 a share for the second quarter. Analysts on average expected $1.68 a share, but it wasn’t immediately clear if their estimates are comparable to the company’s number. Net sales were $6.26 billion, outpacing Wall Street’s expectations.
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