Solventum raised its sales and earnings forecasts after its first four months as an independent company. The newly created medtech firm, which sells devices for wound care, dressings, surgical supplies, dental equipment and filters, spun out of parent company 3M in April.
CEO Bryan Hanson said Thursday that the first months of the separation were pivotal and the team “delivered in pretty much every primary area” during that time.
“The simplest way to say it is a lot could have gone wrong, and it didn't, which is great,” he told investors on Solventum’s first earnings call. “It doesn't mean it's going to be simple from here, but the momentum is positive, and that drives our confidence.”
Hanson outlined where Solventum is now and what’s next for its turnaround. On the positive side: The company has strong brand recognition, significant IP protection, solid levels of investment in R&D and global reach, he said.
But the spinoff also faces several challenges: some of Solventum’s businesses have “consistently underperformed their markets,” mainly due to commercial misalignment and poor R&D productivity, Hanson added. The company also has $8.3 billion in long-term debt that it will pay down over the next two years.
Solventum is currently focused on stabilizing the business, hiring and separating from 3M. The company will share its strategic plan on a fourth-quarter earnings call, Hanson said.
Solventum’s net income decreased 72% year over year, with its expenses rising in part due to stand-up costs for the new company. During a March investor day, CFO Wayde McMillan warned the company would have a “step up in cost to pay to 3M as we separate.”
Despite this, Solventum raised its earnings guidance for the year. The company forecast organic sales growth of from 0% to 1%, an increase from a previous range of from -2% to 0%. It also expects adjusted earnings per share in a range of from $6.30 to $6.50, an increase from its previous forecast of from $6.10 to $6.40.
Separation progress
McMillan shared an update on Solventum’s progress separating from its former parent. The company is shifting manufacturing from 67 plants to 29 Solventum plants, two of which are being built, he said. The company is also moving from 122 to 73 distribution centers.
Work around IT systems “may be the most complex,” as Soventum transitions more than 1,000 systems and stands up more than 70 new platforms.
The company has also identified some lower-growth products it can cut, even though it plans to take a closer look at products later in 2025. McMillan said the team found about 3,500 stock keeping units (SKUs) to be eliminated, about 5% of total SKUs.
He said the changes “will help simplify the supply chain,” save money on rebranding and will not have a material impact to revenue and margin in 2024.
