MMM 3M Company

By Austen Hufford 

3M Co. said it would cut 2,000 jobs and restructure its sprawling business after demand for its tapes and adhesives fell in China and other important markets.

Shares in the manufacturer of Post-its and industrial products fell 10% Thursday, knocking about 150 points off the Dow Jones Industrial Average, after 3M said its net sales fell 5% to $7.86 billion in the first quarter, a worse-than-expected result.

The St. Paul, Minn., company said demand for its products was particularly weak in China and among car makers. Revenue in the quarter declined 4.3% in China in local-currency terms, excluding acquisitions and spinoffs, after two years of growth. Sales in 3M's car business were down 9% year-over-year.

"The first quarter was a disappointing start to the year," Chief Executive Mike Roman told analysts in a call. The company's shares were on track for their largest one-day decline in more than 30 years.

3M said it didn't cut expenses fast enough to reflect lower demand from customers. While production fell more than 4% in the quarter, factory spending fell just 1%.

"We didn't respond aggressively enough to what we were seeing," Mr. Roman said.

Other manufacturers have said recently that business in China is improving. Caterpillar Inc. and PPG Industries Inc., both of which saw weakening demand for their products in China in recent quarters, said this month that demand there had improved.

Some of the equipment and chemicals those companies make take longer to make and last a customer longer than 3M's tapes and medical wrappings. That can make 3M a more-immediate barometer of economic conditions, analysts say.

David Berge, a senior vice president for Moody's, called 3M's results "unusual weakness at this point in the industrial cycle compared to other larger manufacturers."

3M said sales volumes declined in all its regions, for a drop of about 2% overall. The company also raised prices by about 0.9% on average.

3M said it would cut capital expenditures this year and accelerate other cost reductions.

Trimming about 2% of its 93,500 jobs would result in between $225 million and $250 million of pretax savings, 3M said. The company plans to eliminate positions in its corporate operations and underperforming business lines -- including those making products for the energy, electronics and automotive and aerospace industries -- which helped lower the company's revenue.

3M said it would continue to invest in research and development. The company has added to its stable of 60,000 products and increased its research budget, even as other sprawling corporations have broken up.

3M has said its presence in many countries and industries exposes it to a wider range of customers and encourages its researchers to think more ambitiously about new technologies. But Thursday's results call that strategy into question.

3M lowered its adjusted profit outlook for 2019 to between $9.25 a share and $9.75 a share. The company had expected earnings between $10.45 a share and $10.90 a share.

3M said it would record a pretax charge of about $150 million this year in connection with the restructuring. The company will spend $1.6 billion to $1.7 billion on capital investments in its business, like manufacturing equipment, down from its expectations of $1.7 billion to $1.9 billion previously.

Excluding one-time items, 3M's profit was $2.23 a share, down from $2.50 a share. Analysts had been expecting $2.49 a share.

Write to Austen Hufford at austen.hufford@wsj.com

(END) Dow Jones Newswires

April 25, 2019 11:49 ET (15:49 GMT)

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