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Brooke Sutherland

N95 Masks Aren't the Only Thing in Demand

3M results give reason for hope about a broader economic recovery, even as Raytheon shows commercial aerospace remains mired in despair. 

Protective gear is a big driver of growth for 3M but importantly, not the only one.

Protective gear is a big driver of growth for 3M but importantly, not the only one.

Photographer: Justin Chin/Bloomberg

Dissecting earnings reports is always more of an art than a science. That’s particularly true in a pandemic, when the state of play changes at an ever-faster clip. With a surge in coronavirus cases in the U.S. Sun Belt and burgeoning concerns about a second wave in Europe and parts of Asia, any glimmers of insight from companies who operate on the ground floor of the economy carry extra weight. Nearly five months into this pandemic, CEOs in the manufacturing sector appear to at least have a handle on what’s happening with their businesses, for better or for worse. Tuesday brought results from three companies that sit at key fault lines in the industrial economy: 3M Co., Rockwell Automation Inc. and Raytheon Technologies Corp. Here are my top takeaways: 

3M Co. : The maker of N95 masks has been on the front line of the pandemic, but even in normal recessions, it’s usually one of the first companies to see the early signs of a recovery, given the fast turnaround time for many of its products. So it’s particularly encouraging that 3M says it’s actually seeing July sales trending up by a low-single digit percentage compared to a year earlier. That compares with a 13.1% decline on an organic basis in the second quarter that was slightly worse that what analysts had been anticipating, one possible reason for the stock’s slide on the news. The forward trajectory is all that really matters at this point, though. Sales of N95 masks and other protective gear have undoubtedly been one big driver of the growth in July, with 3M on track to make two billion of the respirators this year. But other companies including Fastenal Co. and Cintas Corp. have predicted a moderation of the surge-style spikes seen in the earlier days of the pandemic in April and May as the market is now comparably better-supplied. More importantly, for those seeking signs of economic revival, 3M cited “broad-based sales improvements across businesses and geographies.” While this doesn’t necessarily augur a V-shaped recovery for the manufacturing sector, it does suggest things are moving in the right direction. The cloud over any rebound for 3M is its potential liabilities related to per- and polyfluoroalkyl substances, or PFAS, which have been linked to cancer and other ailments. 3M reached an agreement last week with Alabama that will see it assess contamination from the so-called forever chemicals; invest in treatment and remediation; and research the substances impact on health and the environment — at an unspecified cost to the company. Some analysts had been expecting 3M to take another significant charge on PFAS in the second quarter and the missed opportunity to “kitchen-sink” what were going to be ugly numbers anyway may also be a factor in the stock reaction.