3M stock was dealt a blow by a U.S. bankruptcy judge on Friday.
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3M stock posted its biggest one-day decline since April 2019 after a legal ruling went against the company.
On Friday afternoon, The Wall Street Journal reported that Judge Jeffrey Graham of the U.S. Bankruptcy Court in Indianapolis denied 3M ’s attempt to move legal liabilities associated with faulty earplugs sold to the military by a 3M (ticker: MMM) subsidiary into bankruptcy court.
“We are disappointed in the court’s ruling today and will be filing an appeal,” said a 3M spokesman. “Despite today’s ruling, 3M continues to hope that all parties and their attorneys will come together to negotiate a prompt resolution to this matter so that those veterans with eligible claims can be compensated sooner.”
Shares of 3M tumbled 9.5% to close at $129.14 on Friday, marking the stock’s largest percent decrease since April 25, 2019, when it fell 12.95%, according to Dow Jones Market Data.
The bankruptcy was part of a strategy to limit and quantify 3M’s liability. The company said on its second-quarter earnings conference call in late July that it planned to put the subsidiary, Aearo Technologies, in bankruptcy protection while funding a trust with $1 billion to deal with roughly 230,000 pending earplug injury lawsuits.
3M stock had jumped almost 5% after the company reported second-quarter numbers last month, and the legal strategy was a big reason for the move. The company actually cut full-year earnings guidance on the call. Cutting guidance usually sends stock lower.
Legal liabilities related to earplugs—as well as chemicals that 3M produced long ago that have been found in groundwater—have been an overhang for the stock for many months. 3M has taken charges for clean up costs regarding the chemicals, though the Environmental Protection Agency has not yet declared them hazardous substances.
3M stock is down about 27% year to date, while industrial stocks in the S&P 500 are off about 10% on average. 3M shares peaked in March 2018 at almost $260.
Wall Street has worried about the liabilities, for a while too. Only one analyst, about 5% of the total, covering the stock rates shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 58%.
Write to Al Root at [email protected]
