What happened
Shares of industrial conglomerate 3M (MMM 0.18%) were trading down by 2.6% as of 2:03 p.m. ET Friday. That slide occurred as the market digested the news that one of the company's largest shareholders, German mutual fund manager Flossbach von Storch, isn't happy with 3M's leadership.
According to the Financial Times, Bert Flossbach, the asset manager's co-founder, wrote to 3M's management to express his increasing concern about how the company is being run. As quoted in the FT article, Flossbach noted that it was "increasingly hard to take confidence in your still positive statements regarding the underlying health of 3M."
So what
Flossbach has a point. As I wrote earlier this week, 2022 was not the first year during which 3M's growth failed to match management's expectations, and management's outlook for organic sales in 2023 to be flat at best and to fall by as much as 3% at the bottom of its guidance range doesn't inspire confidence.
Key Data Points
It's not as if management hasn't taken action in recent years, but nothing seems to have worked in terms of either improving top-line growth or margin performance. The company has made multibillion-dollar acquisitions, divested itself of non-core businesses (notably in its underperforming healthcare business), significantly restructured, and has streamlined itself at the cost of thousands of jobs.
Still, its operational underperformance continues.
Now what
The pressure is building on CEO Mike Roman and CFO Monish Patolawala, but the good news is whoever leads the company in the future will be in a fortunate position. Managing 3M means managing an industrial powerhouse that's set to generate between $5.8 billion and $6.3 billion in operating cash flow in 2023. That kind of financial firepower will buy management time to take a long hard look at what's going wrong and start to improve the conglomerate's underlying performance. Flossbach's letter may prove to be another incremental push toward getting 3M moving in the right direction.
