3M’s healthcare unit posted a drop in profit and revenue in the fourth quarter as healthcare procedure volumes were hurt by nurse shortages and declining hospital budgets in the period.
The parent company, which is preparing to spin off the unit that makes wound care, dental and IT products, faced the same macro trends that have stymied growth across medtech, Monish Patolawala, chief financial and transformation officer at 3M, said on an earnings call on Tuesday.
“Healthcare continued to be challenged in its recovery to pre-pandemic levels, given labor shortages and hospital budgets being under pressure. Fourth-quarter elective healthcare procedure volumes were approximately 90% of pre-COVID levels as nurse labor shortages and strained hospital budgets continue to impact the pace of recovery,” Patolawala said.
3M reported a low-single-digit decline in organic sales of medical solutions that was offset by growth at the oral care, separation and purification and health information system businesses. The growth in oral care came even amid “rapid declines” in 3M’s consumer-facing markets.
Faced with falling demand, 3M plans to eliminate 2,500 manufacturing roles. The company hasn’t said where it will make the cuts, but it identified healthcare as an area in which it has limited spending.
“Year-on-year operating margins were impacted by manufacturing productivity headwinds, increased raw materials and logistics costs, along with investments in the business. These headwinds were partially offset by pricing actions along with the strong spending discipline,” Patolawala said.
Outlook for 2023
3M expects to finish the spinoff of its healthcare unit around the end of the year and shared a forecast for what may be its last few quarters as a combined company.
In the first quarter, 3M estimates healthcare and oral care elective procedure volumes to be unchanged from the final three months of 2022. The company expects the situation to improve as 2023 progresses.
“Healthcare's organic sales growth is anticipated to be up low- to mid-single digits versus 2022. We expect gradual improvement in healthcare elective procedure volume as nurse labor shortages and strained hospital budgets continue to impact global healthcare systems,” Patolawala said.
Shares of 3M fell 6%, or $7.70, to $115 in trading in New York after the results were announced on Tuesday.