3M’s Plans for 2024: Healthcare Spin-off and Lawsuit Settlements
Looking forward to 2024, 3M had initially raised its adjusted earnings per share (EPS) guidance for 2023 during the third quarter, aiming for up to $9.15 per share. Ultimately, the company reported an adjusted EPS of $9.24 per share for 2023, surpassing its own guidance. Thanks to a successful year of restructuring, 3M witnessed a significant increase in its operating margin, from 7.8% to 15.5% in the fourth quarter, measured under generally accepted accounting principles (GAAP).
However, for the entire fiscal year, 3M recorded a negative GAAP operating margin of 27.9% due to pre-tax charges amounting to $4.3 billion and $10.5 billion related to public water supplier (PWS) and combat arms lawsuits. 3M has faced numerous lawsuits pertaining to various products, including masks, earplugs, and PFAS chemicals. 3M recently reached agreements with PWS and combat arms, pending court approval, leading to the pre-tax charges.
As 2024 approaches, the year takes on added significance for 3M, as it aims to finalize the lawsuit settlements. Additionally, the company plans to spin off its healthcare business later in the year.
A Risk to Consider for Potential 3M Investors
During 3M’s fourth-quarter earnings conference call, management made it clear that without the proceeds from the proposed spin-off of its healthcare division, the company has yet to determine how it will finance the legal settlements. Furthermore, the settlements face opposition, and there is no guarantee that the agreed-upon amounts will be approved by the courts. Complicating matters further, 3M is still contending with PFAS and other lawsuits from various countries, potentially exposing the company to billions of dollars in liability in the years ahead.
Looking ahead to 2024, 3M projects adjusted sales growth of up to 2.25% at the higher end and adjusted EPS ranging from $9.35 to $9.75 per share. However, it’s important to note that these projections do not incorporate the potential impact of the healthcare spin-off and the legal settlements, making the future outlook for 3M in 2024 uncertain.