3M’s Earplug Business Files for Chapter 11

3M Co.

placed its subsidiary that houses its military-grade earplug business into bankruptcy proceedings as it booked a $1.2 billion charge to resolve litigation over alleged defects that are the subject of lawsuits from thousands of military veterans.

The move Tuesday came as the maker of Scotch tape, Post-It notes and more reported a drop in second-quarter revenue and profit. It cut its full-year sales and earnings outlook as it grapples with a stronger dollar and an uncertain economic environment that impacts consumer spending patterns. The company also disclosed plans to spin out its healthcare business into a separate, publicly traded company.

Shares rose 4% in premarket trading.

3M, based in St. Paul, Minn., said that its Aero Technologies unit and related businesses have started Chapter 11 proceedings. It has committed $1 billion to fund a trust to pay out claimants during the proceedings and $240 million to fund expected expenses related to the case. 3M said it would provide more funding if required.

More than 100,000 US military veterans have filed lawsuits against 3M over hearing damage linked to what they claim are defects in the company’s military-grade earplugs.

The charges tied to the earplug litigation weighed on 3M’s quarterly results. Earnings for the period ended June 30 plunged to $78 million, or 14 cents a share, from $1.52 billion, or $2.59 a share, a year earlier.

3M also booked various charges in the quarter tied to its allegedly defective military ear plugs as well as suits related to the production of “forever chemicals.” The company said it is taking a per-share charge of 51 cents to remediate contaminations from chemicals at and around a plant in Belgium as well as a 17-cent charge on other significant litigation.

Stripping out one-time items, 3M said adjusted earnings were $2.48 a share. Analysts surveyed by FactSet expected adjusted earnings of $2.41 a share.

Overall for the second quarter, 3M’s sales fell 3% to $8.7 billion. Stripping out the effects of currency translations, organic sales rose 1%. 3M said sales faced a 4-percentage-point headwind from the combined impact of Covid-19 related restrictions in China as well as a decline in disposable respirator demand. Analysts surveyed by FactSet were looking for $8.57 billion.

3M trimmed its outlook for the year and now expects 2022 sales to fall by between 2.5% and 0.5%. 3M previously forecast 2022 sales growth of 1% to 4%.

The company lowered its per-share earnings outlook to between $10.30 and $10.80 for the year, down from $10.75 to $11.25.

Separately, 3M said it plans to spin out its healthcare business into a stand-alone, publicly traded company. 3M expects to retain a 19.9% ​​stake in the new company. 3M said the stake will be monetized over time. The deal is expected to close by the end of next year.

Write to Will Feuer at will.feuer@wsj.com

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