Shares of 3M Co. (MMM) dropped 1.5% in morning trading on Wednesday, making it one of the top decliners in the Dow Jones Industrial Average (DJIA). This comes after S&P Global Ratings downgraded the credit of the consumer, industrial, and health care-products company. The downgrade follows 3M’s agreement to pay up to $6 billion to settle litigation over its Combat Arms earplugs.
Credit Downgrade to BBB+ Rating
S&P has cut 3M’s credit rating to BBB+. This leaves the company just three notches above speculative grade, also known as “junk” territory. The rating outlook remains negative. While S&P acknowledges that the settlement is “very reasonable” and provides some clarity, it also increases adjusted debt by approximately $4 billion.
Moody’s Maintains A2 Rating with Negative Outlook
Moody’s Investors Service considers the Combat Arms settlement as “credit negative.” However, they find the terms to be “less onerous” than expected, reducing uncertainty. Consequently, Moody’s has decided to maintain 3M’s credit rating at A2. This rating is currently five notches above junk status. Nevertheless, Moody’s outlook remains negative.
Stock Performance and Future Outlook
On Tuesday, following the announcement of the Combat Arms settlement, 3M’s stock had gained 1.4%. This came after a 5.2% surge on Monday when reports of an impending settlement emerged. Year to date, however, the stock has experienced a decline of 13.3%, contrasting with a 5.2% gain in the Dow.
