(Bloomberg) — 3M Co. shares rose the most in more than 36 years after raising its full-year profit forecast as its new chief executive pledged to revitalize the iconic manufacturer’s innovation engine.
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Shares of the company were up about 16% by 9:36 a.m. in New York, the biggest gain since 1987. The gains came after the industrial adhesive paper maker said its adjusted earnings this year would be between $7.00 and $7.30 a share, after reporting second-quarter results. That raised the midpoint of 3M’s forecast to $7.15, 10 cents above its previous forecast.
The results are the first under Chief Executive Bill Brown, who succeeded Mike Roman on May 1. Brown inherited a much smaller company following the spinoff of 3M’s massive health-care products unit amid massive legal liabilities.
Brown began his first earnings call by emphasizing the need to accelerate 3M’s sales growth. To do that, he wants to increase the pace of new product development.
Revenue from new products has been steadily declining over the past decade as 3M shifted spending and focused on other needs, such as exiting its “permanent chemicals” business and revamping its complex supply chain, Brown said. While 3M has identified sectors such as electric vehicles and semiconductors as key sources of growth, “those efforts are not material enough today to offset the erosion in our core.”
“The simple fact is that our products are becoming obsolete” in 3M’s core business, he added.
He also plans to reduce the complexity of the organization. For example, the drive-thru tape passes through five factories and two distribution centers before reaching the customer, he said.
“We’re going to take a fresh look at the cost of this complexity,” Brown said in an interview. The space veteran was appointed to the top job in March.
Adding to the challenges facing the company is that it is also looking for a new CFO after earlier this month announcing the departure of Monish Batulwala to Archer Daniels Midland.
Adjusted earnings came in at $1.93 a share in the second quarter. Analysts on average had expected $1.68 a share, but it wasn’t immediately clear if their estimates were comparable to the company’s numbers. Net sales came in at $6.26 billion, beating Wall Street expectations.
(Updates with posts, conference call comments from first paragraph.)
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