(Bloomberg) -- 3M Co. suffered its worst loss since Black Monday in 1987 after revealing that its business is far weaker than investors realized.
The 13 percent drop came after the maker of Post-it notes and touchscreen displays slashed its annual profit forecast as it reported that operating income dropped in all five business units and posted first-quarter profit that fell short of Wall Street’s expectations. 3M said it would cut 2,000 jobs while grappling with weak automotive and electronics markets as well as headwinds in China.
“The first quarter was a disappointing start to the year,” Chief Executive Officer Mike Roman said Thursday on a conference call with analysts. “Our operational execution fell short of the expectations we have for ourselves.”
The feeble results and diminished outlook deepen the pain for 3M, a diversified manufacturer that has already struggled with high raw-materials prices, challenges in the health-care business and unfavorable foreign-exchange rates. Roman, who took the helm last year, is looking to return the company to the steady performance it was known for under his predecessor, Inge Thulin.
“3M’s first-quarter results, along with lower revenue growth and earnings guidance for 2019, shows unusual weakness at this point in the industrial cycle compared to other larger manufacturers,” said David Berge, an analyst at Moody’s Investors Service. “In the context of restructuring initiatives, this indicates operating deficiencies at 3M that management will need to address to restore performance normally associated with the company.”
The shares dropped 13 percent to $190.72 in New York, the worst rout since Oct. 19, 1987, the day of one of the sharpest market crashes in U.S. history. That all but wiped out 3M’s gain this year.
“3M sharply disappointed investors with a sizable operating miss and full-year guidance cut, significantly worse than the cut we had anticipated,” Deane Dray, an analyst at RBC Capital Markets, said in a note. “Four out of the five segments posted operating misses versus our estimates, underscoring the broad-based weakness.”
First-quarter adjusted earnings fell to $2.23 a share, trailing the $2.48 average of analyst estimates compiled by Bloomberg. Sales dropped 5 percent to $7.86 billion, the company said in a statement. Analysts had expected $8.02 billion.
What Bloomberg Intelligence Says
“3M’s credit ratings may be at risk due to lower-than-expected earnings and continued use of the balance sheet. 3M may end the year with adjusted leverage in the low-2x range, above S&P’s target, though within the scope of Moody’s prior comments.”
--Joel Levington, credit analystClick here to view the research
Revenue fell 12 percent in the electronics and energy unit, hurt by weak demand for display materials and systems, 3M said. The industrial division’s sales fell 6.6 percent.
Roman cited weak productivity in the markets for original equipment and aftermarket products for automobiles, particularly in China. 3M makes a variety of products for the vehicle industry, including adhesives, tapes and filtration materials.
3M announced a restructuring effort in response to a “slower-than-expected 2019” that includes 2,000 job cuts across all business groups and regions. That represents about 2 percent of the company’s workforce. The move, which will result in a pretax charge of 20 cents a share this year, will save $100 million pretax in 2019 and $225 million to $250 million annually, the company said.
Adjusted earnings will be no more than $9.75 a share in 2019, down from a previous forecast of at least $10.45 to $10.90, 3M said. Analysts had been expecting $10.53.
Excluding the impact of currency exchange and portfolio changes, sales are at risk of falling as much as 1 percent, 3M said. The St. Paul, Minnesota-based company previously predicted a gain of 1 percent to 4 percent.
Forecast cuts have become routine for 3M, which reduced its 2019 outlook in January and trimmed the 2018 guidance multiple times last year.
--With assistance from Karen Lin and Brandon Kochkodin.
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