NEW YORK: Industrial giant 3M reported rising quarterly profits on Tuesday (Apr 28) as it ramps up production of N95 masks while combatting price-gouging and fraud during the coronavirus outbreak.
The company manufactures a wide range of products used in myriad industries, but has become prominent during the COVID-19 outbreak as one of the only producers of N95 "respirator" masks which can protect against the virus.
The masks have been an essential item to hospitals on the front line of the outbreak and have emerged as the object of illicit practices, price gouging and fraud, with new cases announced by federal officials in the last day.
3M experienced a 21 per cent surge in sales in its health care business during the first quarter, a key driver of a 45 per cent jump in first-quarter profits to US$1.3 billion. Revenues climbed 2.7 per cent to US$8.1 billion.
"Even with 3M's accelerated production, the stark reality is that global demand for respirators far outpaces the ability of the entire industry to deliver," chief executive Mike Roman said on a conference call.
"That is why as we urgently expand capacity, we are also prioritising and triaging our supplies to the most critical needs."
Executives described the overall impact of COVID-19 as "mixed" for 3M, with sales in several product lines declining due to shutdowns, including oral care, automotive, aerospace and general industrial.
The company announced it would cut spending by US$350 million to US$400 million in the second quarter and withdrew its full-year profit forecast due to uncertainty over the macroeconomic outlook.
Roman said 3M invested in "surge" capacity of N95 masks after the SARS outbreak in the early 2000s, but that had largely not been tapped until now.
The company doubled global output of N95 masks to 1.1 billion per year and was in the process of working with the Defense Department to again double annual production to 2 billion per year by the end of this year, he said.
In early April, President Donald Trump slammed 3M for exporting the N95 masks rather than saving them for the US market. The company, which strongly contested Trump's accusations, later reached an agreement with the White House to import 166 million respirators, mostly from a China.
Roman said the company was working with law enforcement officials to combat predatory practices surrounding the masks.
3M has created a toll-free hotline for consumers with questions about whether products are authentic or to report fraud claims
The company has also published its prices to combat price-gouging. Company officials say N95 respirators should typically cost about US$1, but that some outfits are trying to sell them for US$10 or more.
Most of the parties involved in the illicit trade have no relationship with 3M, but the company has "in a few instances terminated distributors in our industrial channel for acting unethically or in violation of their agreements," Roman said.
There has been a surge of cases where authorities are cracking down on firms trying to exploit the crisis.
A US judge in New York on Friday issued a temporary restraining order against Performance Supply LLC, a New Jersey company that 3M sued.
3M said Performance Supply, which is not a company-authorised seller, offered to sell millions of masks to New York city at "a grossly inflated" price of about US$45 million.
The Securities and Exchange Commission announced fraud charges on Tuesday against Praxsyn Corp., a Florida company that purported to be a major mask distributor, but never had possession of any masks.
And US prosecutors in New York on Monday brought criminal fraud charges against Donald Allen and Manuel Revolorio of California, who allegedly sought more than US$4 million for personal protective equipment, including N95 masks.
Shares of 3M rose 2.6 per cent to finish the day at US$157.61.