3M healthcare sales growth curbed in Q3 by hospital staffing shortages ahead of unit spinoff

By the numbers

3M Q3 Earnings per share: (Adjusted for entire company): $2.69

4% decrease year-over-year

Q3 Healthcare sales: $2.1 billion (Organic basis)

1.7% increase year-over-year

Q3 Healthcare Income: $603 million (Adjusted EBITDA)

10% decrease year-over-year

Hospital staffing shortages curbed sales growth at 3M’s healthcare unit ahead of a planned 2023 spinoff of its healthcare technology business, which generated revenue of $8.6 billion last year.

Since the July announcement of the planned divestment, the healthcare unit has struggled to gain momentum, with labor shortages and a drop in activity in July pushing the volume of elective medical procedures to fall 10% below pre-COVID levels in the third quarter.

3M’s healthcare unit services endmarkets that include wound care, oral care, healthcare IT and biopharma filtration. With the rest of the 3M focused on other industries, the company decided to spin off healthcare to create a new standalone company.

3M provided an update on the plan as it presented its third-quarter results.

“We have established a dedicated team to seamlessly execute our healthcare spinoff. We are confident in our plan to create two world-class public companies with greater focus and better able to drive growth and innovation,” 3M CEO Mike Roman told investors on a conference call.

Healthcare sales in the third quarter reached $2.1 billion, an increase of 1.7% versus the prior year on an organic basis. The gain was supported by low-single-digit growth at the medical solutions, food safety, separation and purification, and health information systems businesses.

Elective procedure volumes slowed growth in the third quarter after having posted increases at 90% to 95% of pre-COVID levels in the second quarter. Volumes dipped in July and, while they recovered throughout the quarter, ended up at about 90% of pre-COVID levels. Since then, volumes have since risen and are projected to be 90% to 95% of pre-pandemic levels in the last three months of the year.

“Labor shortages continue to impact the pace of recovery,” 3M CFO Monish Patolawala said. “It’s been a bigger impact than obviously COVID hospitalizations have been in the current quarter and then outlook for the rest of the year. So, I think that’s holding it back, maybe keeping it from being quite at the level that we thought it would be when we started the year.”