3M annual profit forecast squeezed by sluggish electronics, China demand

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© Reuters. FILE PHOTO: The 3M logo is pictured on products at an Orchard Supply Hardware store in Pasadena, California U.S., January 24, 2017. REUTERS/Mario Anzuoni/File Photo

By Kannaki Deka

(Reuters) -Industrial conglomerate 3M forecast full-year earnings below Wall Street estimates on Tuesday, saying the macro environment “remains muted” and sending its shares plunging about 12%.

The company’s electronics business, which makes displays for smartphones and tablets, has grappled with the effects of customers cutting back on discretionary purchases due to higher interest rates and sticky inflation.

“China and consumer retail end markets continue to be soft,” Chief Financial Officer Monish Patolawala said on a call with analysts.

The Post-it maker expects 2024 profit between $9.35 and $9.75 per share, compared with analysts’ estimates of $9.81, according to LSEG data.

Businesses were also pressured by a reduction in inventory, particularly in the Greater China and the Europe, the Middle East, and Africa region, as distribution partners were cautious about demand entering into 2024, the company said.

The diversified manufacturer has rolled out a major restructuring that includes cutting thousands of jobs and the spinoff of its healthcare business into a listed company.

3M expects $700 million to $900 million in savings from the restructuring when completed.

“2024 outlook disappoints on margins – including both the expected restructuring savings and the underlying operating margins of the business,” UBS analyst Chris Snyder said.

The forecast comes as 3M deals with the fallout from lawsuits related to its Combat Arms earplugs and water pollution claims tied to “forever chemicals”.

The company said on Tuesday the forecast does not reflect the potential impact from funding some of the settlements.

3M last year reached a $10.3 billion settlement with a host of U.S. public water systems to resolve pollution claims tied to “forever chemicals”.

On an adjusted basis, 3M earned $2.42 per share in the fourth quarter, beating estimates of $2.31.

The company reported adjusted revenue of $7.69 billion, compared with estimates of $7.70 billion.

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