U.S. industrial giant 3M Co forecast 2020 profit below expectations after narrowly missing quarterly revenue estimates on Tuesday as weak demand from China dents overall growth.
Shares of the company, which draws a third of its revenue from Asia, fell 4.2% and were the biggest drag on the Dow Jones Industrial Average in morning trading.
Sales in Asia-Pacific region, its largest market outside the United States, fell for the fifth straight quarter, weighed by softness in China’s automotive and electronics sectors, a reason that had forced 3M to cut jobs and production last year.
The company said it would cut 1,500 jobs as it continues to restructure its businesses and reduce costs.
China, the world’s second largest economy, grew at its slowest pace in almost three decades in 2019 amid a trade war that hit factory production, while auto sales slumped for the 18th straight month.
“We were looking at a sluggish start to China in first quarter...based on automotive, and the build rate’s expected to be down mid-single digits and maybe even high single digits,” chief executive officer Michael Roman said in an post earnings call.
Executives, however, said the company was ramping up production of its respiratory protection products to match global demand arising from coronavirus outbreak in China.
Asia-Pacific sales were down 1.7%, while Europe, Middle East and Africa reported a decline of 2%. Sales in the United States rose 7.4%.
“We expect investors to generally be disappointed with the print, guidance and the new PFAS-related charges, while rapidly advancing Coronavirus concerns ultimately could pull the rug out from under the Asia recovery story,” Gordon Haskett analyst John Inch said.
3M recorded a $214 million writedown for litigation related to PFAS chemicals.
Sales at its healthcare unit, which accounted for 25% to total revenue, rose about 25.4% on strength in international markets.
3M said it expects 2020 earnings per share to be between $9.30 and $9.75, the midpoint of which was below analysts’ average estimate of $9.61 per share.
Net income attributable to 3M fell 28% to $969 million, largely due to restructuring and litigation charges.
On an adjusted basis, it earned $2.15 per share, beating expectations of $2.10, according to IBES data from Refinitiv.
Net sales fell 2.1% to $8.11 billion and missed expectations of $8.12 billion.