What happened
The stocks of stodgy industrial conglomerates don't often jump, but investors pushed shares of 3M (NYSE: MMM) almost 9% higher early Tuesday morning after the company provided a financial and business update that had several moving parts. 3M shares have since pared those gains somewhat, but they were still up by 7% as of 10:55 a.m. ET.
So what
3M reported strong second-quarter earnings Tuesday morning, but investors are also reacting to two additional announcements from the company. Most significant was the decision by the company to hive off its healthcare business into a separately traded public company. 3M says the new company will focus on wound and oral care, healthcare IT, and biopharma filtration.
This follows the announcement late in 2021 that 3M would be spinning off its food safety business and merging it with Neogen to create a larger, pure-play food security company. That transaction is expected to be finalized later this year.
Now what
The news about the healthcare business somewhat overshadowed 3M's quarterly financial results, though investors seemed to cheer both. Adjusted earnings per share and total revenue exceeded analysts' expectations. Organic sales grew 1% year over year, overcoming headwinds that included COVID-19 lockdowns in China and declining global demand for its disposable face masks.
3M did lower its full-year outlooks for several metrics, including earnings per share and organic sales growth, due to currency fluctuations and the "current uncertain macroeconomic environment." The company also said it was setting aside $1 billion to fund a trust related to litigation surrounding its earplugs used by military service members. Management feels that will help to expedite the resolution of claims and give investors a quantifiable guideline for their expected cost to the company.
The most significant announcement for investors was the news about the healthcare unit. The company said it will be a tax-free transaction that should be completed by the end of 2023. The market's positive reaction helped 3M shares break out of a month-long slump Tuesday morning.
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Howard Smith has no position in any of the stocks mentioned. The Motley Fool recommends 3M. The Motley Fool has a disclosure policy.
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