181 annotations
So thank you for the question. China for us is about 10% of our revenue. We had a good first half. We're up about 13% in the first half. Part of that is electronics. When you look at the piece that's sort of local for local, if you will, it's about 1%, so flattish and pretty similar to what other multinational, maybe even with better than a lot of other multinational are seeing in China.
So Again, it's about 10% of our business, an important market, and we've seen good growth in the front half of the year simply because of the consumer electronics and auto builds.
china colour
Transcript
2024 Q2
29 Jul 24
So as we reinvigorate the NPI engine, which I expect to do, hopefully, that does drive price improvement, margin improvement over time as well.
npi
Transcript
2024 Q2
29 Jul 24
n terms of entitlement growth, certainly, we should be growing better than we have. I mean, we're guiding [ 0% ] to [ 2% ], midpoint of 1%. We know there's 1% headwind because of exiting certain geographies and parts of our portfolio. But still, on an adjusted basis, [ 1% ] to [ 3% ] organic, it probably should be a bit more than that. GDP is in 2.5% range IPI. We think this year is around [ 1.7%, 1.8% ] or thereabouts. We should be growing at least at the level of the economy, if not perhaps slightly better. But more comments as we get towards the back end of the year and into '25 and give you some longer-term outlook for where the company might go.
what should 3M be growing at?
Transcript
2024 Q2
29 Jul 24
Fair enough. And I guess when I look at your long -- your list of priorities, operational excellence, all these things are kind of basic. I don't want to minimize, but this is -- it almost feels like you're walking into a situation where a lot of things weren't done right. And I don't want to point fingers, but just point being is -- what was the fail? Was it just compensation and kind of where people's priorities were placed and you need to change your compensation plan? Was it just that a lot of these things like lean manufacturing were just not ceded or ceded early enough?
I'm just trying to get my arms around followed 3M for a long time, and we've had a number of different CEOs who have come in and had kind of a similar tick list that we want to fix this, this and this, but have struggled to kind of get there. And I'm trying to just get my arms around what. What do you think was the main fail that kind of led us to where we are today? And is there kind of one main thing that you can kind of pick the box first and work coming through the list I know that's a little bit of a tough question, but -- and again, not trying to point fingers just saying that it's a pretty heavy lift.
I think some of these things a lot of people tried pretty hard to fix.
William Brown
No. Look, I'll just say it's not about fail or success or right or wrong. It's -- I come in with a different set of experiences, different background, fresh look at the way we do business from the things that I've done in the past.
I think the team here has done a marvelous job in managing through a lot of complex situations. I was a CEO of a company through COVID. And what we dealt with is well short of the challenges that, that 3M has faced. And you bring on top of that, a lot of the liabilities that Mike and the team have managed through the structural changes, there's been an enormous transformation effort. And as I said, they launched the restructuring program, we're 75% complete. It's gone very, very well. And you can see that in the margins. That's gone very well.
I come in and I just look at it the way it is today with sort of looking at the cold hard facts. And it's back to basics, focus on the fundamentals approach does sound basic, but at the end of the day, I do think that there's a lot of value that can be created from the raw materials that we have here, just focusing on just how do you turn the business to top line growth through the things that I've talked about commercial excellence, driving growth from R&D and driving a real culture of operational excellence through the company and move at these things with speed and with urgency. I've been in a situation like this before. It's easy to fall into a trap of this is the way things have been done. And as I said in my remarks, I'm encouraging people to challenge the way we've done things in the past every single day. That's what continuous improvement is really all about and that's so encouraging people to d
what went erong with 3M... political answer
Transcript
2024 Q2
29 Jul 24
Bill, it's been a while and Monish, good luck.
So I think you might well have answered my question, but I do want to just kind of ask about the plants and the distribution set of footprint.
I think you mentioned 105 plants and 95 DC, 110 plants, 95 DCs.
So are we talking here about over time a significant shrinkage in that footprint? Or was there more a reconfiguration to reduce the complexity of the product velocity around that network? And then thinking about the opportunities around sort of investing to drive growth versus efficiency. How should we think about margins beyond '24? But you can't tell we can still grow margins beyond '24, even though it sounds like you're going to be investing.
William Brown
Okay.
So a couple of good questions. And I'll try to hit on pretty quickly.
You're right, 110 factories, 95 distribution centers. The fact is, if you go back in time, the team here has actually been reducing the number of factories, the number of DCs in our network. And there's some in-flight that in the restructuring program we have today.
Looking forward, I don't -- we don't think we necessarily need 110. I can't decide what exactly is when that cadence might happen, but we're taking a hard look at it.
But it's not just factories, it's also cells within factories. When you look at what we have in assets and cells within these factors, we have 250 coating assets that are spread almost through half of our factories. And you have to sit back and ask as we drive operating equipment efficiency, do we really need all those assets in all those factories? Or do we have an opportunity to increase effective capacity.
So these are things that we're working on. Peter Gibbons and the team are doing a great job at this. This is going to happen over time. I can't really size, how many factors of the restructuring that's required to get there. Relative to margins, the team has done an outstanding job.
You can see in the first half of this year, up almost 500 basis points.
So the margins have come up quite substantially. We've got more we can do here in terms of just basic blocking and tackling productivity. Volume clearly, as it comes back, volume clearly is going to be a high leverage ratio for us.
So where they can go from here. I can't size it today. Certainly, as we get to the balance of the year into '25, we'll give you some more outlook on that. But there's lots of levers here, including driving organic volume.
colour on rationalization
Transcript
2024 Q2
29 Jul 24
We've got a sales force today. It's just over 5,000 people. We know over the last 4 or 5 years, it's down about 25%. That's partly because of the export model we've moved to. But we have an opportunity to take a look at our coverage our incentives, our training around our sales force.
I think there are some opportunities there. we distribute to almost 30,000 distributors.
I think we have opportunities there. It's probably some opportunities in pricing.
At a high level, we've done a very good job at covering inflation, and we'll see some incrementally positive pricing this year. But when you get down to a granular level, there's some disconnect between pricing and discounts and margins to the volume or size of the customer, we have an opportunity to take a hard look at that. We're looking very hard at advertising and merchandising. It's a lever that's important in our consumer business. We were down quite substantially from where we were before relative to consumer packaged goods type companies were down.
S & M opportunities
Transcript
2024 Q2
29 Jul 24
nd so part of it is we've got to sort of bottom out on how much we're spending on new product development and start to turn the ship -- the first half of this year, we launched about 75, 76 new product introductions. This year, we'll do probably less than 150. And as I reflect back over the last 8 or 9, 10 years, at one point in time, we did over 1,000.
need new npi
Transcript
2024 Q2
28 Jul 24
, we're raising the bottom end of our full year adjusted earnings guidance by $0.20 to a range of $7 to $7.30 versus $6.80 to $7.30 previously, now up 16% to 21% year-on-year. Full year adjusted operating margins are now expected to be up 225 to 275 basis points. Full year adjusted organic growth remains unchanged at flat to up 2% and with expectations for second half organic growth in line with first half performance at the midpoint.
While significant macro uncertainty remains, our business segment and market trends are largely playing out as expected.
Year-to-date, Safety and Industrial organic growth is approximately flat versus a full year expectation of flat to up low single digits.
We expect that industrial end markets will remain mixed as channel partners and end customers continue to remain cautious on overall demand trends. On an adjusted basis, transportation and electronics is up nearly 5% organically in the first half. versus a full year expectation of up low single digits. Strength in the first half was due in large part to consumer electronics, along with automotive.
We continue to monitor auto build rates along with consumer electronics demand trends for the back-to-school and holiday season. And finally, consumer is down nearly 3% organically through the first half of the year versus a full year expectation of down low single digits.
We continue to expect that consumer retail discretionary spending on hardline goods to remain muted in the balance of the year.
segment guide T& E better, S & I a bit worse, Cons in line
Transcript
2024 Q2
28 Jul 24
Organic sales declined 1.4% year-on-year with continued softness in consumer discretionary spending. This included a 2.7 percentage point impact from portfolio and geographic prioritization.
org sales not bad considering 2.7% from portfolio priorotization
Transcript
2024 Q2
28 Jul 24
Consumer
consumer
Transcript
2024 Q2
28 Jul 24
Our electronics business outperformed the market, up low double digits organically as we continue to gain spec-in wins on consumer electronic devices and in semiconductor manufacturing.
Our auto OEM business increased nearly 5% in Q2 versus a 0.5 point decrease in global car and light truck builds.
Looking at the first half of the year, our auto OEM business was up 9% organically versus a flat global build rate of cars and light trucks as we continue to gain penetration on new platforms.
CE+Semo v good, auto OEM outperforming end market
Transcript
2024 Q2
28 Jul 24
Transportation and Electronics
T & E
Transcript
2024 Q2
28 Jul 24
industrial end market demand continued to be mixed in the quarter as end user and channel remain cautious.
mixed industrial end demand
Transcript
2024 Q2
28 Jul 24
Industrial adhesives and tapes posted mid-single-digit organic growth driven by strength in bonding solutions for consumer electronic devices. Personal safety and automotive aftermarket grew low single digits.
cons electronics growing msd, auyo aftermarket up lsd
Transcript
2024 Q2
28 Jul 24
Safety and Industrial b
S & I
Transcript
2024 Q2
28 Jul 24
Please note that in the month of July, we will make total combined payments of $3.7 billion related to the public water supplies and combat Arm settlements.
3.7bn in legal settlement payments in July
Transcript
2024 Q2
28 Jul 24
uring the quarter, we returned a total of $800 million to shareholders, split equally between dividends and share repurchases. And finally, net debt at the end of Q2 stood at approximately $3 billion.
The strong results build on our track record of robust cash generation.
For the first half of the year, we have generated $2 billion of adjusted free cash flow.
net debt 3bn, 2bn in h1 fcf
Transcript
2024 Q2
28 Jul 24
These results reflect the trends that we have previously discussed, including strong growth in electronics mixed industrial end markets and continued softness in consumer retail discretionary spending.
market dynamics
Transcript
2024 Q2
28 Jul 24
'll be taking a fresh dispassionate look at our portfolio to determine if any assets have greater value owned by others. And along the same line, what assets might be a good fit for 3M. I don't have anything further to say on that today, but you can expect to hear more from me regarding portfolio prioritization as I deepen my understanding of our businesses and end markets.
portfolio prioritization
Transcript
2024 Q2
28 Jul 24
We have more than 25,000 direct and indirect suppliers, including nearly 4,000 contract and component manufacturers. Yet more than 80% of our raw materials are sole sourced.
We haven't been holding our suppliers accountable to the same quality and delivery standards as our customers hold us to and we're only beginning to leverage our scale to reduce cost. Relative to yield loss, our raw material waste is running close to 5% of cost of goods sold, due in part to how we design and manufacture our products but also due to inefficient production scheduling and changeovers. And finally, we have too much inventory at about $4 billion in [ 102 ] days at the end of Q2. And yet our service levels are only in the mid-80s.
Our bottoms-up analysis indicates we should be closer to 75 days of inventory or lower, which would imply about $1 billion cash opportunity over time while we drive on-time in full above 90%.
improve WC by lowering inventory
Transcript
2024 Q2
28 Jul 24