Shares of 3M (NYSE: MMM) were heading lower today after the company warned of “a slow growth environment” in 2024 and weakness in its consumer and electronics segments through the rest of 2023. Management made the comments at Morgan Stanley‘s11th Annual Laguna Conference this morning.
As of 2:47 p.m. ET, the stock was down 5.9% on the news.
The comments from CFO Monish Patolawala seemed to rekindle fears that the core 3M business is still struggling even as the company reported good news on a number of fronts recently.
It settled outstanding lawsuits related to its faulty military earplugs and polluted water supply caused by its PFAS chemicals. Additionally, the company recently named a CEO, Bryan Hanson, for its healthcare segment, which it’s planning to spin off at the end of the year.
However, Patolawala said the company’s revenue would be a bit below its third-quarter guidance of $8 billion, forecasting revenue of $7.9 billion to $8 billion for the current quarter. He noted the impact of a Covid-related decline in disposable respirators. He did say the company would maintain its adjusted earnings-per-share guidance of $2.25 to $2.40, which excludes $125 million to $175 million from previously announced layoffs.
3M is a conglomerate and with the spin-off of its healthcare segment, the company will be even more sensitive to cyclical forces, which seems to explain most of the reason for management’s comments on weakness and the modestly lower Q3 revenue guidance.
Patolawala did talk up new opportunities in areas like self-driving cars and semiconductor fabs, but investors instead focused on his downbeat remarks about the business environment.
While it’s understandable that the stock would pull back on such news, a 6% sell-off seems exaggerated. Meanwhile, its 6% dividend yield looks safe as its payout ratio is at about 66% now, meaning it could afford to fund the dividend even if earnings fell substantially.
With a strong dividend yield and a business that should rebound as the global economy strengthens, dividend investors may want to consider buying the dip on 3M after today’s drop.
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