3M Co. (MMM) shares plunged 5.06% in Friday's trading session, despite the industrial conglomerate reporting better-than-expected second-quarter earnings and raising its full-year profit forecast. The sharp decline reflects investor concerns about the company's outlook for the second half of 2025, particularly regarding tariff impacts and weakening consumer demand.

3M reported adjusted earnings per share of $2.16 for Q2, surpassing the FactSet consensus estimate of $2.01. Revenue grew 2.3% to $6.2 billion, slightly above analysts' expectations of $6.12 billion. On the back of these results, the company raised its full-year adjusted EPS guidance to $7.75-$8.00 from the previous range of $7.60-$7.90.

However, several factors appear to have overshadowed the positive earnings news: 1. Tariff concerns: 3M executives warned that the impact of tariffs on profits would be largely felt in the second half of 2025, with an expected margin hit of more than 120 basis points. 2. Weak consumer outlook: The company noted that demand in its consumer segment is likely to remain slow due to the subdued U.S. retail environment. Management expects consumer discretionary end-markets to remain "soft" for the remainder of the year. 3. Legal liabilities: Investors are increasingly worried about 3M's potential legal liabilities related to PFAS contamination. The company recently received a subpoena from Kentucky's Energy and Environment Cabinet regarding PFAS releases at its Cynthiana facility.

Edward Jones analyst Faisal Hersi highlighted these concerns, stating, "3M faces significant potential legal liabilities, and is generating less cash, both of which increase its risk." Hersi maintains a sell rating on the stock, warning that "if 3M receives a negative ruling from its ongoing litigation, there could be significant downside for the stock."

Despite the raised guidance and Q2 earnings beat, the market's negative reaction suggests investors are more focused on the challenges ahead for 3M. The company's ability to navigate tariff impacts, stimulate consumer demand, and manage its legal risks will likely be key factors in determining its stock performance in the coming months.