3M moves to cut its payroll

  • Article by: LIZ FEDOR , Star Tribune
  • Updated: April 9, 2009 - 8:33 PM

Investors sent 3M stock up more than 3 percent in response to an early retirement plan being offered to 3,600 U.S. workers.

Wall Street reacted favorably Thursday as 3M Co. offered early retirement packages to 3,600 employees, or 11 percent of its U.S.-based workforce.

3M's stock rose $1.75 to close at $53.13, up 3.4 percent Thursday, after news spread that the company would be reducing employees through the voluntary program.

"They are trying to take some action so that the Street doesn't punish them for a lack of action on costs," said Ernest Owens, a University of St. Thomas management professor.

In two weeks, the Maplewood-based manufacturer is expected to report a double-digit sales drop for the first quarter.

"Investors are looking for excuses to move their money somewhere else," Owens said. He surmised that 3M management wanted to make a move in advance of the quarterly earnings report to "show they are on top of the situation."

3M, whose sales reached $25.3 billion last year, eliminated 1,200 jobs in the first quarter. Now 3M executives are offering early retirement to thousands of nonunion employees, including those age 55 or older with 30 or more years of service. A second category of eligible workers covers employees 59 and older with five or more years of 3M service.

"It is part of their efforts to control costs during these difficult economic conditions," 3M spokeswoman Jacqueline Berry said Thursday.

People who take part in the voluntary program will get enhanced pension benefits, because they will gain an extra year of pension service as well as an additional year of age in the benefit calculations, Berry said.

She added that the company expects to accept all of the requests from eligible workers who want to retire on May 1 or June 1.

3M had about 79,000 employees worldwide at the end of last year. The 3,600 who are eligible for early retirement are drawn from a pool of about 34,000 U.S.-based workers.

About 10,000 people work at 3M's corporate campus in Maplewood. Berry didn't release an estimate for how many of them would be eligible for the early retirement program.

Early this year, 3M executives projected that 2009 sales would fall by 5 to 9 percent, including a 15 to 18 percent contraction in the first quarter.

John Olson, a St. Thomas professor who studies company operations and supply chains, views 3M's early retirement plan as "a logical way to conserve cash and reduce their labor costs."

Instead of doing layoffs, Olson said, 3M decided to offer early retirement incentives because the company is "trying to preserve the people with the longest working careers ahead of them."

But he acknowledged that hiring processes are costly and time-consuming, so 3M could later face a challenge in bringing enough employees on board quickly when the economy rebounds.

Olson said the 3M retirement incentive is tied to the "global recession" rather than a reaction to the Minnesota business climate. "I don't think this is a tax-saving move," he said, a reference to Minnesota's corporate tax rates.

About two-thirds of 3M's revenue is generated from sales outside the United States. About 44 percent of 3M's current workforce is based in the United States. Owens, the St. Thomas management professor, said the average age of the domestic workforce is probably older than the overseas workforce, so he's not surprised that 3M's retirement incentive targets U.S. workers.

Despite the tough economy, analysts still expect 3M to report a first-quarter profit; the average estimate is 86 cents a share. That would be down from $1.38 per share in the first quarter of 2008.

CEO George Buckley has said repeatedly that he doesn't expect to see much improvement in the economy until the second half of this year.

Liz Fedor • 612-673-7709

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