3M (MMM 0.46%) beat earnings expectations for 2023's fourth quarter, but management's outlook for 2024 was well below expectations. In response to the report from the manufacturing giant Tuesday morning, the market -- focused on the future -- sent its shares down. As of 10 a.m. ET, the stock was off by 9.5%.
A mixed message from earnings
It has been a difficult few years for 3M investors. The company has been bogged down with operational issues that have caused it to miss earnings expectations, and was also navigating multiple extended lawsuits and massive settlements related to product liability claims. Shares of 3M have underperformed the S&P 500 by more than 60 percentage points over the past three years.
Investors hoping to see signs of a turnaround in the company's most recently completed quarter received mixed messages from the report. 3M reported adjusted fourth-quarter earnings of $2.42 per share, beating the analysts' consensus prediction of $2.31 per share, though revenue fell just short of expectations.
"Throughout 2023, we executed our priorities and delivered on our commitments -- including expanding underlying operating margins and cash flow," CEO Mike Roman said in a statement. "We initiated actions to restructure our organization and simplify our supply chain, while progressing our healthcare spin and addressing legal matters."
But those moves apparently will not pay off as quickly as Wall Street had hoped. 3M forecast 2024 earnings of between $9.35 per share and $9.75 per share -- short of the consensus estimate of $9.81 per share.
That estimate was somewhat muddied by the spinoff of 3M's healthcare business (which is expected to be completed in the first half of the year) and potential legal payouts.
Is 3M a buy heading into 2024?
The bull case for 3M revolves around its impressive collection of industrial assets. Management's current effort to restructure the conglomerate and divest some units should result in a higher-margin mix of operations, which should translate into a higher stock price over time. For value investors seeking a turnaround play, there is a lot to like about 3M.
Alas, the issues that have plagued the company for years now continue to linger. We enter 2024 still with questions about how much it will be impacted by its lawsuit settlements and uncertainty about its earnings power. At best, 3M's fourth-quarter report indicates that patience is required. Investors considering buying the stock on this pullback need to be aware of the recent history, and understand there will likely be no quick turnaround.
