3M Names New CFO to Help Navigate Effects of Coronavirus Pandemic -- Update
June 03 2020 - 4:27PM
Dow Jones News
By Nina Trentmann and Austen Hufford
Industrial conglomerate 3M Co. hired an external candidate for
its top finance job as the manufacturer looks to offset the
business impact of the coronavirus pandemic.
St. Paul, Minn.-based 3M -- which makes N95 face masks, Post-it
Notes and other products -- named Monish Patolawala to become its
next chief financial officer, effective July 1.
Mr. Patolawala is currently CFO of General Electric Co.'s
health-care unit. He will succeed Nicholas Gangestad, who plans to
retire after six years as 3M's finance chief and 35 years with the
company, 3M said.
In the wake of the spread of the novel coronavirus, 3M has seen
strong demand for products such as masks but suffered declines in
other areas, as lockdowns have resulted in lower industrial orders
and a drop in health-care spending. With many offices across the
U.S. still closed, there is less corporate purchasing of 3M's
office supplies. The company has also seen big declines in products
that are sold to dentists and car manufacturers.
Mr. Patolawala will have to manage the financial impact of these
trends on the company's balance sheet as well as other underlying
challenges, analysts said. The company said its April sales
declined 11% year-over-year.
3M has been under financial pressure since the beginning of 2019
amid slowing global growth and declining demand in core industries.
The company missed or lowered its financial targets several times
over the past two years and withdrew its annual guidance at the end
of April.
"The company has undertaken two sizable restructurings over the
past year while taking actions to aggressively lower costs
temporarily in response to [Covid-19] that has negatively pressured
a host of 3M businesses," John Inch, a senior analyst at research
firm Gordon Haskett Research Advisors, said in a note to
clients.
3M is expected to recoup some of the lost revenue in later
quarters as lockdown orders and other restrictions are being phased
out and consumers return to offices, shopping malls and health-care
providers, said Nigel Coe, a managing director at Wolfe Research
LLC, a research company.
But a weaker outlook for the U.S. economy also clouds the
outlook for 3M, Mr. Coe said. "They cannot decouple themselves from
the market," he said.
The company in April said it plans to reduce expenses by up to
$400 million in the second quarter, following earlier cost
reductions. 3M said it was cutting its capital investments this
year to about $1.3 billion, down from as much as $1.8 billion
planned previously.
It also faces challenges arising from tariff disputes between
the U.S. and other major trading partners, including China, where
3M generates a portion of its revenue. The company came under fire
from President Trump earlier this year for not bringing enough face
masks into the U.S. The Trump administration and 3M agreed to
import masks from the company's China operations, using the Defense
Production Act. The company also is boosting its mask production in
the U.S. and globally to meet more orders from health-care
workers.
Mr. Patolawala is expected to take additional steps to adjust
3M's cost base and improve its working capital position, analysts
said. He could also play a role in the integration of Acelity Inc.,
a wound-care company that 3M bought in 2019.
At GE, Mr. Patolawala was credited with turning around the
company's struggling health-care business since he took over the
finance department in 2015, said Joshua Aguilar, an equity analyst
at investment research firm Morningstar Research Services LLC.
As vice president of operational transformation -- a role Mr.
Patolawala held alongside his most recent CFO-position -- he played
an important role in the restructuring of GE under Chief Executive
Larry Culp, 3M said in its release. Mr. Patolawala, who joined GE
in 1994 and qualified as a chartered accountant, declined to
comment. 3M declined to make him available for an interview.
Mr. Patolawala also is set to inherit a longstanding legal issue
arising from the company's former production of chemicals known as
perfluoroalkyl and polyfluoroalkyl substances, or PFAS. Those
chemicals were once used in Teflon cookware and other products and
have been linked to cancer and other health problems.
Even though it is unclear how much 3M will have to spend to
resolve the matter, PFAS could be a huge financial liability for
the company, said Deane Dray, a managing director at RBC Capital
Markets, an investment bank. "A new CFO needs to be prepared for
that," he said.
--Colin Kellaher contributed to this article.
Write to Nina Trentmann at Nina.Trentmann@wsj.com and Austen
Hufford at austen.hufford@wsj.com
(END) Dow Jones Newswires
June 03, 2020 16:12 ET (20:12 GMT)
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