Maplewood-based 3M Monday reported its first-quarter earnings dropped slightly, but they still surpassed Wall Street's estimates. Analysts say deep cost-cutting and a new management program implemented by CEO James McNerney have made the company a leaner, more efficient company. A little more than a year ago, McNerney became the first outsider ever to run the company. Now he's leading a transformation that's prompting cheers from investors, but jitters from employees.
3M earned $452 million in the first quarter, down $1 million from a year ago. Earnings were essentially unchanged, despite a nearly 7 percent decline in sales.
Company officials say profits held up in large part because of cost-cutting, and McNerney's focus on a management program called Six Sigma. Six Sigma is designed to make doing business less expensive and more efficient.
Chief Financial Officer Pat Campbell says Six Sigma is transforming the company - just a year after McNerney's arrival.
"Six Sigma is quickly defining the way in which problems are solved and decisions are made everywhere within 3M," says Campbell.
It was former General Electric executive James McNerney who started implementing Six Sigma across the company last January, when he became the first non-3M employee ever chosen to lead the company.
Six Sigma was just one part of McNerney's larger pledge to transform the manufacturing giant into a fast-growing, nimble corporation.
Within weeks of his appointment, McNerney announced plans to cut 5,000 jobs by eliminating slower growing manufacturing businesses - like some sandpaper products - in favor of faster growing ones, like health care. As 3M employees will tell you, change has not come easily.
Four 3Mers met one day after work in a Perkins near the company headquarters. Gina Detviler has worked at 3M for 10 years, most recently in exports. She says rank-and-file 3Mers used to feel secure in their jobs.
"This was like a big family. The CEOs were from Minnesota, and we felt we had a job forever," says Detviler. "People felt they were going to be taken care of - as long as they did their job and came to work every day and performed - that they would never have to worry about losing their job."
Detviler says 3Mers used to call their employer Mother Mining - they knew it as a maternal corporation that took care of its flock. But that attitude has changed a great deal.
Employees agree that the changes began before McNerney arrived, but they say he has accelerated the shift in corporate culture.
Last year, 3M cut a total of 6,000 jobs and closed seven plants. This year, the company has already announced plans to cut another 2,500 jobs and close five more plants.
While rank-and-file workers see the shakeup as unsettling, though maybe necessary, many investors think it's the best thing 3M has done in a while.
"It was a necessary change to bring 3M into the competitive global economy," says Cori Johnson, who manages the First American Equity Income mutual fund for US Bancorp. The fund holds 53,000 shares of 3M.
Johnson says investors think the shakeup will help 3M make more money.
"Some of those things aren't comfortable, and they're not always fun," says Johnson. "But for the long-term health of the company, and for us as shareholders and shareholder returns, it was a necessary step."
Investors like Johnson have widely approved of McNerney's plans for change. 3M's market value jumped $4.5 billion the day McNerney was named CEO in December of 2000. Since then, 3M's stock price is up about 19 percent through last Friday, while the S&P 500, a key index of stocks, has fallen by 15 percent.
3M's dramatic rise has come even as sales and profits have fallen. So to some extent, Johnson says investors are betting that McNerney will transform 3M.
"Investors are somewhat giving him the benefit of the doubt. But on the other hand, it's important that the results are starting to come through," she says. "The faith element only carries us so far, and then we have to start to see delivered results. I think we're at that point now. We have high expectations for that, but I don't think they're unrealistic expectations."
Clay Hoes, a stock analyst at American Express Financial Advisors in Minneapolis, says McNerney's just begun to change the company.
"He's not afraid to do the hard things - cutting factories, reallocating resources from here to there," says Hoes. "Those are decisions that have to be made...on an economic basis. And I think he's able to do that and will continue to do so."
McNerney's focus on change even extends to the company's name. The company recently announced it was changing its name from Minnesota Mining and Manufacturing to simply 3M Company.
The name change precedes the company's celebration of its 100th year this June.More from MPR