The stock market is dealing with two countervailing factors right now. On one hand, beaten-down stock indexes have fallen enough to look like good values for many investors. On the other hand, fears about a possible recession and its impact on earnings have some market participants nervous about what 2023 could bring. The Dow Jones Industrial Average (^DJI) actually held up far better than most stock market benchmarks in 2022, and it’s also managed to put up modest gains so far this year.
On Tuesday, though, a couple of key Dow Jones components gave their latest financial reports, and shareholders generally weren’t happy with what they saw. As a result, both 3M (MMM 1.63%) and Verizon Communications (VZ -0.93%) lost ground in premarket trading Tuesday morning, and that pushed Dow futures lower as well, hinting at a weaker open. Below, you’ll see more detail on what about 3M’s and Verizon’s reports have investors a bit spooked to start the day.
3M sees a tough 2023 ahead
Shares of 3M traded 5% lower in the premarket session Tuesday morning. The industrial conglomerate’s fourth-quarter financial results weren’t as good as most investors had hoped, and 3M also gave a downbeat assessment for how 2023 is likely to go.
3M’s financials weren’t pretty. Sales for the quarter fell 6% year over year to $8.08 billion, and even on an organic basis, 3M’s revenue was weaker than expected, rising just 0.4%. 3M took a hit on the bottom line as well, as net income fell nearly 60% to $541 million. Excluding one-time items, adjusted earnings of $2.28 per share were still down 7% from year-ago levels.
Investors were especially uncomfortable with 3M’s explanations for its shortfall. CEO Mike Roman pointed to “rapid declines” in consumer markets and said that those declines got even worse during December. In addition, 3M’s markets in China saw considerable pressure from the COVID-19 problems that the world’s second-largest economy currently faces. Moreover, 3M expects those challenges to persist in 2023, and it chose to cut 2,500 jobs in an effort to manage costs.
3M now expects adjusted sales to fall 2% to 6% in 2023, with earnings falling to between $8.50 and $9 per share on an adjusted basis. That’s not what shareholders wanted to hear, and it signals that plenty of companies could be in the same position that 3M is in right now.
Verizon paints a mixed picture
Shares of Verizon Communications dropped about 2% in premarket trading Tuesday morning. The wireless carrier’s fourth-quarter financial results were mixed in most investors’ eyes, but its outlook raised concerns for many.
Verizon’s numbers showed modest growth. Total revenue in the fourth quarter rose 3.5% year over year to $35.3 billion, with wireless service sales gaining almost 6%. Net income of $6.7 billion jumped 41% from year-ago levels, but adjusted pre-tax operating earnings declined a fraction of a percent over the same period. Verizon saw 217,000 net new postpaid phone subscriptions during the quarter, including retail additions of 1.43 million. Broadband additions of 416,000 were Verizon’s best result in more than 10 years. However, adjusted earnings fell both for the quarter and in 2022 as a whole.
Unfortunately, Verizon seems to see difficult times ahead. It projected 2023 wireless service revenue growth of just 2.5% to 4.5%, and adjusted earnings of between $4.55 and $4.85 per share would represent a further decline from 2022 levels. Moreover, Verizon sees the need to keep its capital spending levels high, anticipating $18.25 billion to $19.25 billion over the coming year.
Investors have hoped that earnings from companies in the Dow Jones Industrials would be able to show unambiguous strength. Yet that seems not to be the case thus far, and that’s keeping many market participants somewhat nervous despite the healthy start to 2023 for the index.
Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends 3m and Verizon Communications. The Motley Fool has a disclosure policy.