The 3M Company (MMM) is no longer the stalwart it once was. In the most recent quarter, 3M reported EPS of $2.48/share, barely beating expectations. Over the past few years, sales growth has been okay, but earnings have been flat. YOY sales and earnings are both down. 3M is currently facing a strong dollar, recession, litigation, and supply chain issues. These issues have pushed the stock lower and lower. The dividend yield is now 4% and the company is considered (by some) to be a value play. I’m long on 3M but haven’t added shares in years. And yes, I’m concerned about the issues mentioned above. But I have a unique perspective. I work with them on day-to-day basis. And my experience working with them has made me question my investment.
3M is in the process of spinning off its healthcare business. This will create an entirely new public company. In addition, 3M is facing 290,000 lawsuits related to its earplugs. This led to 3M filing chapter 11 bankruptcy for its Aearo Technologies unit. They then created a $1 billion trust to resolve claims. The high inflation, strong dollar, and recession are all temporary. However, the litigation related to earplugs and PFAS could do damage in the billions. Filing bankruptcy and splitting up the company could provide some protection. But needless to say, this isn’t good news! I’d argue this is only part of the story. I believe 3M is missing out on some significant growth due to their bureaucratic corporate structure.
I work for a distributor. My job is to sell the products that companies like Honeywell, Stanley Black & Decker, and 3M make. I’ve probably worked with hundreds of suppliers and have 1000s in my system. Unfortunately, 3M is by far the worst! For example, their call centers are overseas. So, the language barrier makes it difficult to resolve issues. 3M also sells in package quantity only, and ships at their “convenience”. Orders are rarely on time. I’ve also ordered a product, only for it to come in wrong. And for a while, we could only place orders via “COD”, or via purchasing. This meant I had to forward all 3M orders to my team in Winona, MN and hope to God they did their jobs. I couldn’t follow up on orders myself or provide customers with accurate lead times.
For these reasons mentioned above, many of my colleagues, competitors, and customers try to avoid 3M altogether. In my case, the story gets worse! In 2018 I landed an opportunity to supply 3M’s doubled sided tape to an automotive supplier. That one part represented $5,000/month in sales. My 3M rep didn’t have time to visit the customer. So, I worked with the customer to get a part number and the dimensions needed. After sending an order to 3M they proceeded to ship the wrong product twice! It then took me over a month to get in contact with my rep to issue returns. This whole catastrophe lasted 3 months from my initial sales call to the product return.
More recently, I was asked to supply 3M adhesives for RVs. The customer was buying the product through another distributor. I was to contact 3M and move a purchase agreement from my competitor. The customer also contacted 3M, requesting the change. 3M avoided my calls, ignored my emails, and repeatedly visited my customer, championing my competitor. They fought so hard for the other distributor, despite their shortfalls. When my customer protested, 3M put up more red tape saying they needed a written request with a company letterhead. Verbal wasn’t enough. Even after submitting the letter and months of calls, 3M gave us inferior pricing. They were selling to my competitor at a lower price and undermining me with the customer. My customer eventually had enough and told 3M, either you sell through Mike or we’re done! In the end 3M forfeited $12,000+/month in sales.
This is what concerns me most. Not returning phone calls, ignoring emails, providing poor customer service, endless red tape, no support, and straight up turning down business. Most of my district and competitors avoid 3M. It’s much easier to sell a less effective private label or perhaps cross a part over to Honeywell. Now is this just my district or is this a global issue? Perhaps they don’t like certain distributors or their sales reps are stretched thin. Or maybe their supply chain is just so bad it doesn’t make sense to sell certain product lines. Whatever the reason, this behavior is concerning. I’m holding my shares for the rich dividend, strong balance sheet, low valuation, and excellent product line. 3M seems to be making course corrections, but the company could also be a value trap.
I am long on MMM, HON, FAST, and SWK. I am not a licensed investment adviser or tax professional. I am not liable for any losses incurred by any parties. This blog should be viewed for entertainment and/or educational purposes only. Any transactions published are not recommendations to buy or sell any securities. Please consult with an investment professional before making investment decisions.