What happened
Shares of 3M (MMM 2.74%) fell by 12.2% in May, according to data provided by S&P Global Market Intelligence. The move came in a weak month for the industrial sector overall amid market concerns over the economic growth outlook, not least from weaker manufacturing data out of China.
According to the National Bureau of Statistics of China, manufacturing activity contracted for the second straight month with May, and was worse than April. That's a concern in an interconnected global economy and a big issue for an industrial company like 3M.
"Our full-year guidance, as I have talked about, assumes overall recovery in all economies in the second half, including China," CFO Monish Patolawala said on the last earnings call
Key Data Points
In addition, 3M had some negative stock-specific news in the quarter that deserves attention. As previously discussed, 3M's management announced a major restructuring plan on its last earnings call toward the end of April. The plan involves reducing headcount, streamlining the company, simplifying its supply chain structure, and adjusting its marketing model in peripheral geographies. Unfortunately, just a few weeks after the plan was announced, 3M dismissed Michael Vale, one of the key people set to implement it.
The 30-year 3M veteran had been promoted into a role directly reporting to CEO Mike Roman and oversaw the three presidents of the business groups remaining after the upcoming healthcare spinoff. This change will likely hurt the plan, and 3M is now looking for a replacement.
So what
The two events weaken the case for the stock. Still, another game-changing issue is at stake for 3M, namely its exposure to potential liabilities for manufacturing PFAS chemicals. While it still hangs over the stock and threatens to be a drain on cash in the future, there was some positive news in June: Chemours, DuPont de Nemours, and Corteva announced they had "an agreement in principle to comprehensively resolve all PFAS-related drinking water claims of a defined class of public water systems that serve the vast majority of the United States population."
Now what
According to Bloomberg, 3M is close to a $10 billion settlement over PFAS, which would go some way to clearing its problems. That would be a step in the right direction, as would be some better operational execution.
