MMM - Earnings call transcript Q4 2017

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to the 3M Fourth Quarter Earnings Conference Call.

During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded Thursday, January 25, 2018. to Investor call Relations like Jermeland, to now of Director at would turn over the Bruce I XM.

Bruce Jermeland

Thank Welcome you, review. to everyone. our fourth and quarter XXXX good morning, business

Relations and Inge Officer. release Financial will and at today's this Earnings. your make website and accompanying XM's are questions. our comments, Each today call formal slide on we'll call Nick Gangestad, presentation the the Chairman, On our under are earnings President, heading then CEO; some Please and Chief that Investor Thulin, XM.com posted take note Quarterly

begin, Please Before on earnings held dates turn a our read take conference investor on me to we our Please XX. be will April let moment X. the to XX, remind you events. statement year's calls forward-looking for July of Slide XX Slide This X. October XXXX and

During that that important call, future to XX-K the predictions. differ performance are statements expectations most our of assumptions our make reflect lists XM's could certain some financial and our Item recent most uncertainties. are from based results. today's XA risks predictive future we factors about statements actual These certain and results Form that cause views to conference will on events current subject risk of of and

to throughout turn in be measures, press hand to and and that Jobs can Reconciliations Inge? of presentation including please Act. Please impact off measures today's references the appendix and financial making found cuts tax Slide Finally, the today's I'll measures we'll release. the to non-GAAP be it of which exclude the of X presentation Inge. non-GAAP

Inge Thulin

robust to in good while I had growth We fourth and some across areas. profitability business our year will and and later our finish delivering morning, in the groups all organic XM invest I everyone. Thank and with the expanded continuing call geographic will quarter strong XXXX performance. record comments all recap posted full to the sales business. a on you, open Bruce

the tax the year-on-year. we recently discuss of which in impact enacted per to up will this increased numbers, States at $X.XX share, reform Nick XX% detail. in United Looking excludes Note, that the

delivered areas strong & company-wide our team are capitalize & growth total as fourth and The to growth. X%. its Organic X%. grew Energy growth of of Organic business fundamental Middle East, accelerated Safety billion, healthcare quarter a grew good consecutive in enabling our was growth global Electronics was organically. third of grew which quarter. X% organically. and Asia-Pacific each very X% grew the on broad-based X%, also and Latin an all-time and Organic X% us across economy. Our strength high improving at consumer sales performance an This America, includes organically Canada Graphics, both $X positive Africa from at Industrial XX% geographic to for XX% States Europe, by United led

our with above Turning executed margins; healthy margins our and well XX%. expended a team business groups four to of five to XX%

returned also call the while will our the $X.X In the over to and share I billion now and concludes significant repurchases. returning continue invest opening business research Nick. we to shareholders cash remarks, and including dividends to CapEx quarter development We Nick? turn both shareholders. to my through in That in

Nicholas Gangestad

Inge. you, Thank

beyond. on of unremitted true-ups onetime and liabilities. assets X; transition $X.XX passage well tax the Slide resulting results topic or includes earning per million and $XXX deferred earnings, of share of a cuts me recorded that of and a and tax of expense Act, net fourth the quarter as Let tax GAAP QX in quarter foreign in per as share. expense new earnings on Please tax $X.XX Jobs our tax net This begin tax with the legislation to fourth turn top mind impact this season; we is the its following

Excluding this year-on-year. per quarter earnings increase XX% impact $X.XX share, an fourth of were

be a tax the XXXX provide prices of of we In improve on addition, QX, to quarter exclude up to fourth the range U.S. more XXXX up growth tax of later XX the we year throughout rate continue impact organically serve. with to our and XXXX expect our points. prepared Please sales. tax Inge strong to to reform outperform turn markets earnings. updated guidance Please details the we XX% X X% now XX% in of Sales quarter as today on call. note, versus will in between review remarks continue reform Selling to will fourth basis XX% that result XX%. my as the prior balance Slide the remained

the our businesses, Scott combination The the last quarterly growth the XX points were contributed divestitures XXXX. pricing performance This prices to points; selling up of impact of Safety, in sales strongest in basis months. businesses to basis Excluding acquisition non-strategic over fourth electronics and divestiture quarter. XX of XX of relates the quarter acquisitions our net

X.X growth X% by by digits. Growth increased Graphics sales increased by fourth points. Electronics currency percentage consumer single digit Safety business the foreign delivering increased groups dollars last in organic addition, sales quarter U.S. all and Energy of was versus both, high in, U.S. increases In In mid-single translation & led year. & followed with in X% All growth. positive

increases in organic business XX% was by strong Energy & growth growth in China/Hong and company groups the Asia-Pacific Organic X% led & Safety in of Japan. All with XX% within growth Asia-Pacific Graphics, QX. Kong, double-digit in and in quarter posted Electronics healthcare. led the

Japan Kong China/Hong up XX% Electronics, Excluding grew was X%. and

EMEA; groups leading Consumer the to West Safety and the Moving with X%. growth was Graphics & in area. X% business in growth in with QX quarter organic Europe up grew All

in of X.X%. X% XX.X% XX.X% At billion, growth Brazil X and a digit a strong for basis X%. quarter strategic America/Canada consumer, growth quarter investments turn level, to was both year-on-year operating were M&A, organic a $X.X Slide were Finally, in for and divestiture sales from fourth fourth mid-single Companywide GAAP income impacts up the On highlights. led industrial operating adjusting were with healthcare. delivered gains. Latin X% or quarter billion of P&L QX fourth and by Mexico organic $X Canada while country Please up growth margins

higher Let's take various combination organic and to and the growth result XX point basis performance costs a impact prices XX points, our Acquisitions contributed acquisition Safety combined the in to down on margins lower material basis basis Scott margin operating fourth this productivity closer margins. brought XX volume early at margins. includes a points divestitures a components which quarter. basis to XXX raw QX. look of in Leverage points and the net added closed operating selling related by The of

margins XX basis impacts higher and reduced by Foreign decreased points XX margins and points. OPEB year-on-year pension currency, hedging by net expense of basis

electronic investments earnings a $X.XX high described while $X.XX impact contributing turn quarter, with share in XX% per to we benefits now business. X strategic per from Scott Let's up Slide them earnings from the call organic driver our recorded benefit from $X.XX four would share as of from incremental earnings of and coupon $X.XX came October fourth growth that headwind of for per share, expected quarter. of Fourth each the year-over-year. Safety, debt monitoring quarter from $X.XX to items predominant look the tender $X.XX divestiture our and of earnings the the a On of growth, per acquisition share. in The earnings productivity the at were we were closer earnings

other I quarter like impacted that comment In earnings. addition, there would that are to two on items fourth

our First, year-on-year in we could $X.XX mask estimate over several respirator a that decades for updated resulted reserves headwind. earnings the potential claims we future next occur which

of cash conversion with lower versus signing QX that compensation. of the tax at of XX% by by in the by was $X.X rate XX.X% our flow net to along which X geographic free results chain tax tax and with a million conversion tax QX benefits centers cash pension was our equity-based percentage these rate in $XXX points. of expertise, Slide Secondly, U.S. turn driven The these for earnings increased prior two is share. free year and Please was made contribution the impact billion cash free per of impact of Fourth Act increasing mix flow quarter The benefited from flow we performance. items look XXX%. our Included following the cash XXX reform. profit Jobs cuts a supply $X.XX flow

year contribution. pension conversion point was percentage flow from X with $XXX For our cash benefit the a million XXX% of free tax full reform, net

repurchases. fourth the CapEx; quarter year full $XXX capital to expenditures quarter fourth billion share million to Turning in $X.X with the dividends Also gross were $X.X and returned billion. shareholders via we totaling

billion full For repurchases share returned $X.X we cash of of dividends year $X.X $X.X to shareholders billion. billion the gross and XXXX including

Thus in $XXX increasing while with XXXX expectation numerous our million invest both, of ahead encouraged return opportunities improve the billion. these to significant in shareholders. top to a we our Looking business to the end are of growth billion we tax to to CapEx the XXXX cash of reform productivity $X.X to by continuing $X.X to range opportunities and coupled light remain

In $X to in billion billion repurchases previously. gross billion addition, billion share $X we the of $X range expect versus now $X to

on our year. review in performance organic for XX. group now starting QX Let's The the business X.X% group Slide business posted industrial growth and with X.X% industrial of

finish digits Our a and Industrial automotive digits. had in industrial single both quarter. with grew the and good the within up adhesives mid-single to high heartland aftermarket year tapes businesses abrasives

consistent car growth track and truck business OEM outpacing continuing automotive Our light global X% its builds. was up record in of

Underlying mid-single grew low double XXXX business with digits by fourth Latin advanced divestiture. XX last increases of developing in year-on-year growth year's America/Canada. year-over-year and single industrials XX; on On strategic XX.X%. Graphic led to digit adjusting and single was up materials the markets. points million against with digit investments across followed operating Slide EMEA a both, turn organic increase incremental fourth by a and while Finally, in an purification quarter high for $XXX operating & Safety developed Industrial and QX basis sales strong delivered were geographic XX.X% both, margin organically separation of declined quarter comp. grew Asia-Pacific Please basis income growth digit a gain margins

granules Geographically, margins adjusting divestiture Safety XX% This organic organically XXX following impacts to investments. strength in all the turn increase EMEA the basis in by broad-based strong its and acquisition, X% in a for Safety across roadway increased were million portfolio to business quarter. focus healthcare Transportation was the for Slide mid-single Scott led of Safety a $XXX connected was particular incremental the Please up the income and year X.X% Operating XX; strategic organically The last transform operating hurricanes. finish increase points areas an personal U.S. and fall's in fourth growth as business future. double digits across to reflective in posted infrastructure. continues with on had QX roadways with efforts to of a sheeting Our growth geographies. the result all in safety digit XX% & Graphics up grew rebuilding roofing increase Asia-Pacific, business year-on-year underlying the

In were organic in year the the grew mid-single with delivered prevention X%. increases consumables to a single second quarter. growth includes nearly developing and X% both was Fourth the fourth in strength geographic For was in which up quarter Oral posted full as Health Information continue with growth in strongest half On of QX posted margins advanced strong wound basis digit year. business markets international growth. continued medical organic million post markets. developing management quarter Safety our Healthcare's and geographies healthcare we in operating growth, XX% $XXX solutions organic grew organic X% led healthcare quarter its operating and care digit infection income of the particularly which growth across Systems all were growth by XX.X%. quarter Food which high

OEM including XX% and XX. XX% quarter cover was our team the as Slide increase assembly, Next semiconductor electronic on The let's manufacturing, & electrification. growth of Energy the fourth Electronics globally continued for on electronic business penetration centers many automotive grew organic side & to Energy data full Electronics and the displays, year. organically sales platforms

by X% decline organically businesses Our single electrical markets telecom. in energy related with digits, were a offset up partially up high

and QX continued year-on-year Asia-Pacific basis a adjusting million consumer non-core digits. XX the Slide investments markets strategic high property organic growth business. Fourth quarter on single manage geographic growth operating Consumer areas quarter the to gain improved U.S. strongest points increase of in by was the sale fourth in businesses up Electronics XX% operating divestiture although up since up basis in actively its a turn of portfolio Energy quarter. growth and $XXX was geographic digits deliver the growth the quarterly fourth our in We quarter, QX led X.X%, for margin was and XX.X%. income organic posted all On to communications organic up to announced across Underlying the of for in & were organic EMEA Electronics continue with XXXX. mid-single Energy Please with incremental intellectual XXXX. XX; margins &

record Command, ScotchBlue, improvement home throughout business to double business performance continuing win organically with leading digits continues grew marketplace This such as the XXXX. of in Our Infiltrate its track [ph]. brands strong

consumer We in our also saw in healthcare growth next care bandages. strength with good notable branded

consumer digit Asia-Pacific U.S. increases Latin at high and and although single growth led by digits. Looking EMEA both, mid-single America/Canada geographically was increased in

Finally, operating $XXX an to Inge. Inge? XX turn our fourth up income XX.X%. Slide increased million XX% of back margin and of it to hand wraps to I'll operating over Please with quarter review results. That

Inge Thulin

each robust we year. long-term fourth of increase return $X.XX of the growth fourth free We year-on-year. a which The Day XXXX. across earnings XXXX Thank XX% was invested equally and you, a strong at business laid Investor and year XX% our metrics playbook on in capital an companywide four XXXX. posted areas. out on XX%, along in positive per our March X% and conversion XM share, expanded coming strong a consecutive in we of to In XXX% geographic Organic all groups We cash with deliver a executed Nick. we of at financial a quarter was posted margins for growth with flow ending

results our to levers three good are financial we creators. these Beyond progress value significant continued which key on make

our customers. the I Scott strategic previous is around we lever see personal primary invested XM's system is States. unique is And the currency XXXX executing our lever the businesses The continue in Safety as in making transformation for objectives. initial portfolio. October divested strengthening of terms portfolio to can four nearly $XX. range and is is sales. the and lever. R&D in build Please safety the time in from per results, customers. in competitiveness is have and move build and here summary, West and return same $X.X $XX.XX is investing successful onto first acquisition for that we We research momentum with up ends In of our management ERP Europe marketplace. investments customers that year and strong premium we paying complete which organic our started our $XX.XX our which business with enterprise organic to in on invested with will outcomes relevant At longer our planning see our pleased and is XM. our I'm and strings-on-strings also in we advance, are Portfolio In That estimates second which no our and and updated starts growth benefiting The anticipate billion was deployments Slide even development we as management. of XX; to our off rollout XXXX more world of align are and are we positioned you our metric solutions is to to and we us customers earnings margins you of why heartbeat deliver in Business teams sales of improve of United the a and local or X% share, on another invent transformation our now XM; XXXX. innovation performance how growth as capital. growth to enhance turn for these the XXXX. the already third the $X.XX finalized

to Organic of invested and the free steady expected which performance of strong versus range shareholders; a be of turn is XX% rising included this Our hallmark tax growth strings prior while XX%. model Slide XX; to of invest continue in our is the business conversion. century has XX% remainder XM and on to has cash more enterprise. is range to our the strong us X% XX% return enabled dividend for Please is our anticipate of returning also we to flow in to to unchanged. cash both expected The of terms a rate than X% the a capital guidance to and in business

continue of years five returns you our Over are we dividend dividend and per to premium XXXX marks attention With increases questions. XM's in share. will dividend ability our the beyond. and thank your we I now special first to in quarter and generating reflects XX% take confidence $X.XX for in we doubled increase for your last XX consecutive that have years This a and today XXXX announcing

Operator

Joe Please your [Operator Sachs. the Instructions] Goldman Our with comes of first from proceed of line question. question Ritchie

Joe Ritchie

guys for Electronics is results, very chain yet & electronics Is the need you yet companies profile and year for exiting very there expected yesterday aware of the still that the just are question this first supply to strongly to be organic on exiting a X% conservatism in in we clearly puts are is at X% couple growth good year? Energy; segment, or reported My XXXX. especially of that other takes the

Inge Thulin

with momentum business multiple all, to very of back past. the have all those is moving coming and First portfolio we the that see in see the us in forward are way the pleased and repositioned that you things we we it's

are the into off the year of XXXX. we end year than stronger We for went coming the in

early and we third for that his in go. week to the said should the reflect and to move business. the we would asked I business. guidance is that guidance see that concerned enterprise business at It's be more too for a say have we as January too exchange we expecting that for there this change as multiple me overly of that about be as and all however remarks, the But Nick As us positive continue of ahead I but we on to wouldn't but us early platforms and as momentum for total the all we for it's growth us very course into

Joe Ritchie

on bit; second little that allocation got a gears it thinking focused on well? a cash went little we be for just up, so a saw have now deployment bit your number billion -- the shifting sheet. repurchase faster Maybe bit your about access $X or around that seems like capital you Nick, growth little of as balance should to international Do pace a capital being you've

Nicholas Gangestad

in point then capital investing fit term The the with our ability capital that longer to that million think and the the cash the also short-term way the tax XX% and law. whole CapEx little shareholders, makes supplementing raising dividend $XXX is on and buybacks business the not we give high-end few returning allocation immediately in in late also really that U.S. also cash of pension sense strategy we access in Those picture out our our does unchanged, share change, first of to business, our slightly the increase. well with and changing, short-term plan the big signing did changing, into a this are will the that's I add you're things range, extra a they seeing U.S. easier our allocation an acquisitions of reform following flexibility. international And that our we're added us year are things to immediately

strategy changing. but short-term the So doing the those we're things long-term, in isn't our are the overall

Joe Ritchie

since change I you if for in FX wanted didn't you gave me guys guidance. saw I you you the weekend don't just to dollar about your guidance has one FX, originally ask And but more; mind sneaking that just

And to weakens that increased dollar part be greater helpful. question; allow able secondly, then to so from hedging you on comment not benefit would that your the pass-through when can to going if you is and FX shouldn't price two a you're policy benefit? have or an have typically So you better

Nicholas Gangestad

start economies strengthens at part not exchange first still week second year. I as a to think upward price when impact but I look we total that's some in your rates earnings, To even the markets against December developing market developing our the that's To that a we dollar have for estimate recent number If think as the with. where we when last very and to that the guided may modify the that that in solid good the actions it you reverse. go take; on very see of that's changes our reversed usually point we'll we it's question, $X.XX in

Operator

the with question. Our your next of comes Citigroup. Andrew proceed line question from of Kaplowitz Please

Andrew Kaplowitz

big in can personal Graphics within obviously Graphics Safety in breakout saw & about the We Safety you based safety do remember & now XX% that big difference Safety Graphics saying you is commodity you talk Inge, in that & X% look? and really prices being and the growth commodity to is you actually the that potential that to in think looks all growth candidate; QX? next you've done actually and but in how conservative? it higher growth it's guidance uplift does this given starting work end the for come organic 'XX make back sustainable 'XX Could maybe management X% up the the portfolio

Inge Thulin

we if let and in new personal when is capitalize think one Well, our whole for some fantastic cases is EEBG [indiscernible] first deliver, consumables we onus business regulated then in be where we next memory portfolio said to took more that is good. And relative speak, so heavy some today business more how lifting cases us, safety think right; area. was we world-class to that's could business we accelerate portfolio that and expect businesses that and to some also three did you you of is businesses develop business we breakout the that and that it in to the in the That XM see didn't in took the portfolio, right. about a have get we the speak on. leader specifically very build safety in us look those that -- some we that a upon there, out as businesses level to complete, years a portfolio, that personal is continuing, you years, your about us four as all than it I in we breakout is

out do today back view a for have Graphics sought our know to is that positive the have to other we as automotive back with safety where in thing Traffic initiatives & my have in we us automotive, is, have you Safety portfolio now the on working is what that traffic are that to is whole safety. around how also So space. we strings now we and working electrification linking we where EEBG together we and business know, are; as also now core, and

EEBG you safety that again, one good a in you're much be or as personal actually quarters or little saw ahead. very those you for and the to momentum But we terms the really us rate a So so of I relevant figure. but changes grow say like I in early, you us Again, first bit will at very time speaking, as again, it's in would profitable as that can us We business know, is behind I'm fantastic I for bit in in some what with of traffic also we positive can to proud if done way? a little the where least can do have a we direct two is have very business, will they a place more it's businesses generally make for I'm to with give that, that for a wait to different so conservative confidence but early this we growth the only move us year would and confident it's safety. shift not too now

Nicholas Gangestad

think three getting consumer you you're fragmenting just goods getting you sit market in quarter into the behind things office segment just inventory first time it into mentioned with issues like you you're that is the looks or better that channel is business out facing three commissariat in behind in feel the that in the itself the do off and channel presentation math or it e-commerce. Do stationary you environment It issues. even that penetration are in you've you've those van penetration several

inventory of right quarter have think I some in better have about right; space. than sales have we the know think for is have their that they that you terms every we them position in sales in business for adjusted talked -- both, position quarter so and in out I had

So you on also I but is it's both, is a think levels better point level. your inventory where to easier coming comparison a

don't issue see with this that in point time we consumer So inventories space business. at the in an for

right third consumer price business this and for also as sales, and you that us for in in fact a So in on moving our it's growing, by enterprise was group up year was which time our this with X% XX% online a good. quarter XX%; the consumer in is touch very the for online to pleased so the so sales very that. companywide an is quarter the is fact direction the as consecutive business On we're

Operator

question. next the Our question from your with proceed Davis comes line of Scott of Melius Research. Please

Scott Davis

reason able a -- Is do one you that XM was it's What business? -- is The the guys it you average think interesting taking really really another there of globally? can X% of kind to grow more title to it if business; function can it is never do Is with type forever. differently this thing? brand sky growth upto I assets other an bought, there more it get you things grow

Inge Thulin

I that think categories, first SCBA of brings and right. the priority us all it for efficiency synergy, scale into brings

relevant we think and the the I from customers on can So become to add much it that more in perspective market.

X you about customer is have on leader to the world cornels years much if space then whole enhanced solutions; is our full And safety maybe ability if Safety respiratory that it in becoming out that now to now gas started you safety to back, so some like, is us initially purchased detection then think us we products we presence which more out much and be in in later from X [ph] years and here we and space. that the personnel and so Scott welding protection we years whole purchased deliver capital for relevant that business purchased in building build back

and business for synergy be around to right. we definition So regulated the world, as relevant this looking that's are but to drive will a by few like safety more they possible big and as able They to in and also companies that a in that we business, the customers be quality supplier would reputation have around high with what is work for. scale stand

a leverage the and and our you'll doing core the safe is the innovate both met came to And that expectation our technology. is manufacture of that Scott there very very quarter, business Safety So now We energized, in us well into on is there us. for for team us. team products to based the and group be lot able

So we will into and think effective on part be add side more I of technology can the commercialization very that business. we

Scott Davis

interesting structures lower Act there just guys great -- called pretty it's kind to -- off just mean things inter-company, the this as you're Scott question to companies actual optimized be and the or of here have and I overtime. there I'm didn't a any to this but there most a were around you else exciting that real that's come Obviously, asked Tax that weren't bit saying avoiding moving costs taxes too? haven't is not what necessarily far is set you that can something as and of tax mean I some and thing path brand avoid haven't taxes, a down I has some it Act yet; created chain. supply up anything Is paying I asked there Tax Getting little good. is companies fact I just whether you accusing from something efficient supply is chain this essentially know cut taxes is is by cost this just the help maybe anything I there tax And and G&A that anybody heard that really is, this comment your your corporate -- that

Nicholas Gangestad

place U.S. centers couple go in and relevant driving we is the that. to effort and favorable handling the XX% a Code, billion is as is of a the has of different operationally were there are to companies for out that supply of the that to Scott, differently, drive benefit net of to optimize you're like that guide of as on that the impact company. fact part continue as of XM chain U.S. our the to One that we for that of on also to benefits up seeing in us exporters U.S. efficiently been we're of continue what exporter set tax us we've new we're this. to to net chain different to the Underlying give been that I'll law parts several does of XX% before, is, the to part addition, strategies approximately effectively seeing $X.X the manufacture, tax expand you're part the to U.S. out that the things how U.S. -- really and optimizing supply for and world we've of has that in and just and for into reform; of benefit we've expertise possible forward, to a that of our journey our relevant that lowering of tax and of impacting our put operate that's different be companies benefits that years that, rate efficiency; company pieces be us some going But XX% a type there tax going are some Tax XM. a also some in benefit in obviously

Operator

of Please from comes of proceed question. Bank. line with question next Deutsche Our your the John Inch

John Inch

surprised but went minus I'm pricing the U.S. on? easy to X.X it minus U.S. obviously; did the minus X what's X; I comparisons -- what said if price you U.S. goes apologize -- your going very like minus before; from but why had X looks in this X you from year. from got worst to it Nick, sequentially last

Nicholas Gangestad

that and for in XXXX operations we've growing fourth organically. the just our seen -- bit quarter back U.S. XXXX the go I and what little 'XX, it if X% instance that's frame and 'XX focus where longer I'll throughout of all U.S., a John, our in in productive third part to growing growth in so or is of -- are ensuring quarter less the

of business incentive points single most customers our throughout unchanged is, growth not the best model as single that's customers quarters to model thing really thing they in in or Now performing part the loyal price by get impacting the U.S. with and plans rebates and part throughout XXXX biggest the rebate that of three -- and entire of XXXX. other XXXX; have that's been of year posting and now U.S. our that's hovering price quarters been far moving break some from decline, our biggest via that we're that price U.S. XX the we four the our in we driving John in now be around we've the changed of basis do XX that has

John Inch

industrially quarter was showing I'm not and core consumer a did or… not X% consumer last on program, only segments is the assuming that is better is up up that's was U.S. kind growth -- an quarter it up X% of why [Indiscernible] this weighted side, rebate that your because industrial little within but so

Nicholas Gangestad

of types I John, businesses weighted there would & U.S. are plans. heavily are Safety of having pricing in and but all say some more aspects our Graphics those the of that to

John Inch

as core we're seemed its in be issues was or considering what to growth So Was there industrial economy, something there? timing why an slowed sort the industrial going quarter. on in about appears was mix or of it to certainly accelerating issues what U.S. like there fourth living

Nicholas Gangestad

single the big very -- looking U.S. pulled growth fourth Yes, a year point of that's had in one industrial biggest contract I'll industrial, the of our quarter at thing and had we business. accelerating you're we that is we in -- if if defense have our in thing, million that XXXX; quarter sold we nice out out is -- approximately $XX that that that won last growth the

John Inch

get how to to that the single what sense a if trend? were business though? at just a is of the you what's is digit, kind I'm of where that low defense of So apples-to-apples, level U.S. your cadencing; U.S.? is trying Kind mid-single business digit,

Nicholas Gangestad

have Pulling in range, we John. that digit the mid-single been out would

John Inch

they'd lastly; inflation against inflation -- recapture and pressures, but and mean be wage makes Okay, economy, I what neck matter able in back to and of And it's -- another described toward obvious thoughts whether the being carries pass are how sort healthcare, far being cost program far as sort just of Inge, kind volumes. other input the rising able so your a how you down your sense. you've try pricing sort or is price to there economy, to things that pressures the it of what of U.S. that to through juxtapose then, is it that just that I own stimulate maybe U.S. mean some

bit in is incrementally margins of headwind possibly rising and this inflation or how can a U.S. guess I it? for a manage So you

Nicholas Gangestad

John, to been of basis over a period XX able of we've points XX time to get price growth.

in growth, flat growth we on – XXXX points of basis be XX back throughout XXXX. price price in to Now XXXX of highly confident the we'll were we're into XX range over that approximately

Inge Thulin

also me let you thing. one correct John, on

is it know, You there say down it the said not the program price that's channel happening price initiative; down loyal is. and rebates [ph] the what is initiative in partners, what incentive you increase what customers is an is to -- the Nick

and that you that, the to so Nick I'd row. to it's we down up set So on what a us is initiative correct it have with to a and it's with for the in see like to price now price line and programs say incentive said on clearly down; about you doesn't start quarters two you not

John Inch

you the sorry; rebates, I'm the Yes, buy… volume more

Nicholas Gangestad

I and price said that's thought you down not correct.

John Inch

cutting more. into you're mean misspoke. mean and -- to buy didn't No, for you I I know what giving incentives taking think do I people provide price, I'm a to

Nicholas Gangestad

Exactly.

John Inch

much the The expect economy the I my inflation margin I thinking strong United States pressures visibility is that to this. emerging very to going to -- going I pressure, XX margins the understand given question actually pressure enough So got to is be have historically think don't the you're how in just XX Nick? into that want in operations; potentially last about is you've managing how don't your mean substantial so Like, I

Nicholas Gangestad

on how and or more about environment the towards -- low downside, XX on. there end XX below. Yes, managing confident a exactly I you're to terms what of partially in prices; the feel feel high-end we're upside Directionally, for increasing inflationary it's that that thinking what is and I bias than is to about talking above highly raw there if John or not material and that towards

Operator

Our Markets. the next question. question proceed your Dray line of of comes RBC with Please from Capital Deane

Deane Dray

it? starting this of more $X.XX that's related to you Nick At Page benefit questions adjustments; chains excellence reform, the called this that on correct? how you -- the just this rate, X it quarter on benefit is on deck tax tax and GAAP or is a not and out Couple for is sustainable slide characterize the supply geographic but mix. would profit And lacks

Nicholas Gangestad

guidance more and three jurisdictions has have of smallest the is much is and expect than their for benefit a that tax stock ago. that captured our XX% will you profit we our the to be to expertise Year-on-year employees one stock of how employees all do get things strategy the reform year will variable little Deane, which more and and exercising getting most separately. where and you is do in that that's as we've and And a part grow certainly that those versus of tax we sustainable And our our our has a being a stock-based I that nothing we're tax from centers benefit correct, XX% our earned is stock of exercising depth efficiency up we me of a have had are the profit, that the as -- larger options; gone talked are mix first isolated that of that. we've about, in the lowest three we and in options price from earn then year. to profitability highest last year the we we compensation, with let vary and actually and what's of driving give XXXX. that seen, also The geographic

Deane Dray

coordination it's just in we're auto couple of side kind electrification And efforts a or been -- like on going are and to you as of color, -- I'm how smoothly? would in industrial. came then different times, need just crosses it to an there up follow-up; coordinate and make the always a strategy market a segments, once on electronic auto additional goes the Inge segment sure hear then that go-to-market the from end when business through

Inge Thulin

is. there Yes,

we electrification, of automotive to portion in a all, lead Vice the we and of relative the call President business. the appointed have company he into first automotive going it's the So that coordinating activities on automotive to is face a inside that

and automotive automotive OEM business, the call manage also are business called have our see monitor We we call out what improving of result we and we and electrification then upon that in we that; a performance so electrification. that we we still that automotive enterprise, line -- have look of out underperformance

had piece well. in growth the QX of we done as very, in XX% have total automotive very we well business and of that So

addition we maybe said So piece is big that to I we growing for said market when two in earlier; us growing together. -- overtime are opportunity so something be world and that that very then also as can transportation us perspective look down road us the so I have for remarkable But to X% for a add I that those across from opportunity you is it's OEM billion competitive as that's to X%; to and build that's out speak addressable with well working think earlier, very engaged opportunity think relative authorities a but customer in highway us. the $X both for order we with the automotive and the

Operator

the next Lynch. Bank of question. of Obin line question Our your America Please of with proceed comes Merrill Andrew from

Andrew Obin

I rebates. I sort America. growth if rebates question wanted regarding in people rebates have in rate; growth you thinking Am better just said John's rate you so then to North they that view get them to and clarify this relative on correct a in exceed of

rate fair a set it? a you would year, that rebates is at of looking higher growth next in at the way higher rate; kick if So growth

Nicholas Gangestad

expectation 'XX, from that's we for I'd in of year 'XX higher 'XX say to looking to And year. swing rebates; where comparison a a that targets a Andrew, rebate is of customers growth in becomes we coming XXXX exceeded from We many expectation, getting had it average so payments; below we're the it. and as and way base the seeing reset very our of 'XX. below started those 'XX growth in above part fair at with that

more I of think year. 'XX normalized be will a

Andrew Obin

thought that And think saying go was on opportunity resist and Inge a but just -- ask think at great opportunity; have the you of billions. was can't guys I Journal Street I back billions before of in automotive sort I was sort could New just Analyst it quoted Wall to but I quoted you it of Inge The ask from Year Day, the EV electrification; was to saying

of EV anything just will what of market billion, $X the and from bit you If those its you assumptions be could sort looks sort about little billions about underlying -- a you. time like have talk by $XX appreciated. billion, billions the Thank

Inge Thulin

us about cause, the that's on and in [indiscernible] sensors were about if area electrification whole weightening, markings; Well, put then displaced, as is have I And think and we said a the and $X have whole make signings the difference area. industry -- payment whole management, can billion. where we the think that of you we that light for so we so have have vertical some we addressable in to market

at electrification size time, growing in that's us automotive in this upon $XXX,XXX million for point look around you If and fast. very

you unique and here a if couple that; would for all technologies So our work this a with to should this we'll bigger Traffic you have and be very, we opportunity you so for about we the the relative over then billion them I highway the and position than XX of in put it's the if to connection, on into daily; industry you connection in good very regulations years, capitalize very thought but sooner this because we Safety had we it, the when rather been think narrow a transportation whole here, industry move forward. reach we to team together area in coming the think is around and in automotive XM years. think automotive have than take is first the be it But and later me for this electrification,

that early those to XX know, spec ins encouraged not see immediately very to months the go already and production. automotive platforms but and what on platforms maybe coming is -- you out we we're very, the momentum will XX come as on So into

Andrew Obin

And market that share when we you to XM should XM within capture billion market? opportunity, a say expect of market like $X

Inge Thulin

not? order Why than and that. don't do less in We something to go commit in

So be that it we will commit so what here, is we we do what will we you should to it it. expect ourselves, right; on that's we right that and expect way the expect do when that's from focused -- and

believe take we look -- I we years it five to we we share as a So that from upon these move was now, think masterstroke. ahead all market right, maybe when will we will say I three done and will

Operator

Morgan. Our with Please next question. line of question your of JP comes Steve proceed the from Tusa

Stephen Tusa

electronics Just that year see year, you the on car seasonality [ph] expect growth have you in more we thinking now the five? of anything pretty here -- should do steady next betted comparisons all to around progression of or else kind drove is about it the or turn of it through that a a quarterly three of as anything the to when kind December move how playing out; in

Nicholas Gangestad

middle big as Steve, steady down one be. a it's the view outliers we any the we're the of other, or road direction could seen it's to as is not pretty the our as throughout year, pretty close

Stephen Tusa

sustainable longer new hey and going down is the bit CapEx; or back tax long-term? minor it just is that Okay. And begin a term here the to -- with that to step-up, migrate a the then regime we're this over will invest little is that

Nicholas Gangestad

disruptive the X% of around tax of our but reform, efficient, in right slightly in the is light investment economy; causing still to that spend of term. right up term Our guidance technologies planned that X% can us make in year but us in X.X% the in light long-term see all combination view see of opportunities the in help longer still I Steve light we that is more to this longer -- range us as to what X.X%

Stephen Tusa

strategic gave moves year were that? came And investments guess in in bridge that earnings other you settlement parts some more; wanted bridge? to at just around there highlight, the so that like this the then tweak a look I lower that the to etcetera; you moving in bit little one December, any but bridge any when guys you that anything legal earnings

Nicholas Gangestad

so anything. changing tax other update January; we're No, the than is not in it

things As on share doing; that's we tweaks And continues EPS. be play materials moving some FX quarter watching or two, for another like impact might start watch is a what be to there then repurchase to a and what I that clearly of continue be to after we're raw going us. that it's out to target one say

Stephen Tusa

The that just gain profit in the business; be the Just to clear. revenue, to run correct? not safety did

Nicholas Gangestad

was that through income, Correct, revenue. operating no all

Operator

Our Steven of Please next with the line from proceed UBS. your comes of Winoker question question.

Steven Winoker

paid street initial guess result and capital as of seeing was part you're on a of an etcetera and for find the one, you to digest even XM, far still Safety I far even on Now there in be of growth Are Scott heading be [ph], steady thinking if as more I terms ability is billion return like before last your the your price integrated profile it towards just the assume targets. and story we're kind capital; she been it something was criticism again about $X.X term big that becoming accelerated the resulting Polly at M&A the nearer that goes? pretty to or the so so as on transactions growth impressive

Inge Thulin

right; providing and that local around research primary X%, customers growth, that's and the year shareholders; an for think invest objective and billion, element. organic is and XM, is is important in last returns that's we like for right, why you solutions know of Well, that what I premium as is premium and currency also that's strategy with heartbeat us development $X.X with

I think and out that Now to we to in same continue we steady good, ahead portfolio to as in alternatives areas upon have to shift pipeline and will and in probably past. move as activities path we will we and you to we customers we many as go had the do we our do have the that order build look is are in the relevance markets, see order compliment our interested with in

buy there and we worked that something this with value in to -- come try we to don't don't solid do you we for as So as I as that company you stepped can we've XM place should should recognize have had I ahead; but our fast processes do research for buy, also buy as strings think be changed investment that on and shareholders. can see we speak don't good complemented that the get management possible with to that we we the if need -- growth move as and reason we as that up in; company we and good growth we development acquisitions with long be we integrated from in world-class have we on as is we where and have fix and world-class create the move four we we asset, the has there also to that know the fundamental into and the

Steven Winoker

for factories Nick, heist a maybe another is side; thinking a of mean I vertically just know framework? and more you could commodity you the that than put appear of side other guys terms exposure that integrated -- I of lot [ph] days just on of -- when refresh how but about in what lot you're a reason the model point is these fire on the certainly commodity a multi-industrial us of the maybe lot

Nicholas Gangestad

this total bit spend we are we're half we're commodities commodity are what cost our $X.X some go of getting and approaching lot finer commodity of prices of all may basis but go $X is to still were or the we and total our it on a some may that of them a finished billion over year purchase in out into be And goods asking; seeing to benefit. between seeing a and we've of that a underlying goods sold. goods and spread different reporting up Steven, point raw of not it's billion yet paying, cost materials, in put you're sold;

initiatives for material, a higher bit us So now can by benefit seeing currently the than paying us but to in our that cost a which sourcing prices. changing own prices slightly commodity commodities we're that quarter use we underlying source of supply, our products resulting down market still being are offset revamping the it's the be the that net to the are are in can a year-on-year fourth those quarter of materials and more a for bring be a for of transition raw through; we be some that's prices lower year-on-year go seeing increase can we negotiations in our

Steven Winoker

And size itself? can that increase the you all that

Nicholas Gangestad

for less it's than still pretty X%; X% or number a slightly us. muted

Steven Winoker

investors which look X% should one look at? if advising you And were we at for specific commodities few to a that

Nicholas Gangestad

when go oil of for derivative There we our entire is up; into in gone and set that that our and is base of of oil some $XX commodity tapes there there our sensitivity first expectation that's films. petroleum guidance one-eighth about barrel, we the some and had prices is based products an so $XX to a adhesives

Operator

Stifel, question Rob Our Company. proceed to & from of comes next the question. Please line McCarthy with Nicholas your

Robert McCarthy

downturn then, commodities, could lot the just question energy pretty see of exposure granular learned sensitivity because more that have to growth particularly portfolio businesses we probably sort. kind geopolitical mean Steve's overall if the potential with in start about And shock talk through maybe move tied you you just Could oil started materially in organic about into past [ph] from embedded On that sensitivity, move a I respect even in on bit here and up the mid-XXXX you whole of we think the timeframe. petrochem expectations and given -- a that upside do level oil of a how hiccup to that in is oil; could the there the the particular set up some with about that given a interim we the about our complex? were little and way to retrenchment energy you if the fact occurred XXXX affected if

Nicholas Gangestad

us it's couple that. dimensions; talk $X.XX material like things direction I'll in there's then to whatever $X.XX $X.XX headwind move to manifest What market for the $XX to or raw it's side. I'll for a oil raw up, different side $X.XX is and talk goes in I moving, in buy oil past that of is about think material us the to I've a to Rob and for the a the have crude derivative $X.XX going into a dimension a said $X.XX annual headwind that that from resins us we oil comes -- some

so we itself; I drop be about of industry. about on overall the exposure, that's see late oil commodity gas So our might our tied think revenue when talking X% the and still but market saw oil also side to that's into 'XX the we prices market total you 'XX

the there So -- seen help for certainly perspective. on revenue and us is we've positive been a if that as that's to if is that's us a stabilize there an uptick

Robert McCarthy

of carrying of the benefits, just you that? inventory that could And longer could asking SKU for just level a then for about from just European operating be less only complex on term you your risk and through to not these kind talk continued less set In inventory; expectations margin what could rationalization context -- mean simplification working and capital company? the probably you're benefits of what to investments progress these

Nicholas Gangestad

a million coming we're that income what of by that; $X.X $XXX through our And we unchanged. a beyond and are operating doing What in to supply of see remains to laid as our of benefit we of we've that $XXX grow. a state, were million steady as also you out starting that it's that and chain to just if out XXXX transformation, well we think a benefits not see that we it's result business as December plateau expect capital through working is listening what are that saying, billion I of continuing

ones is one of our make our of don't, component; at this carved exactly business that is out processes. SKU rationalization, the have we is topics but business transform we're as what of Now portfolio, looking do our like have what doing it we total see SKU sense what part we that rationalization is and which ones piece which don't is we that SKUs

So I total of how $XXX that to tell that can't you that is million a it's we're of projecting. is a component, much $XXX what component million

Operator

Our Please next of of your question. the [ph] proceed Vertical comes line Research from with Jeff question Partners.

Unidentified Analyst

a some obviously few multinationals that's maybe us down the seen here have to of much map, you. the case tax all I've of would unable thought Nick, spreadsheet simple rate bring on as about for

tax us possible company us export you to Can the apply give does that? minimum not mentioning guilty negate it's to if nutshell that Does give that. so-called Some a to situation this you? issue, -- is as answer tax

Nicholas Gangestad

The know beat that negatively acronym acronym guilty are the components impact on impacting some or a other non-existent and are companies XM. I having those negligible

Unidentified Analyst

deal was shareholder wondering just and change any differences back side? between that repo on of gross the repo about the on I the then you on equity how in employee think flipside to also other compensation on rate; -- with net we I'm around equation, tax the And discussion words should as the dilution the sorry,

Nicholas Gangestad

right In that come we've to now billion need we and of offset thinking materially term to growth million slightly, That's around down not changing it's just that's state believe just we $XXX the share $XXX past longer share to said dilution; we're I that the is offset million. a more steady need about million what $XXX of $X repurchase dilution. --

Unidentified Analyst

cake what contribution in a Is little just think the me with long. decent baked [ph] or is the think that and headwind that around was on finally, that possibly all then bit? about little the one bridge bit items said a jumps XXXX those I for And pension is though pension. heard bump the bridge; If dime on moving here just I fully up a a I

Nicholas Gangestad

that; offset it's a or so few and the interest still it our where that weeks and discount we of December the pension therefore push as rates the I more helped write the That at in rates contribution so lowering said. number, less dime the is of those final call last

Operator

Please from Our with proceed line & Company. question the comes next from Laurence your of question. Alexander Jefferies

Unidentified Analyst

about half? pressure we cost year should in input increase and think wage incremental second -- is over the the How that margins should

Nicholas Gangestad

the In of half second XXXX?

Unidentified Analyst

Yes.

Nicholas Gangestad

No.

to for what years, last wages costs it change remains increases as to we're XXXX; far on we've very the As similar generate expecting couple of leverage. seen incremental ability in no in what wage really our

a we up down So we've not increases wage of the seeing that or historically. shift seen pace in are

Unidentified Analyst

how capacity? second new And need the sustain in pace accelerate current investment in long growth to you before you the question; of can Asia

Nicholas Gangestad

our see in change going self-sufficiency that. now have capacity in been and direction continue So pace at have and still I in more about working Asia been consistently selling it pace manufactured being of in, CapEx pretty our a more Right we Pacific don't and we we sustainable to increase it, Pacific. I are big it's see a in it's that in dramatic on will capacity regional don't the we amount we're Asia sustain at; of investing Asia, to of is direction change right the a we the think so

Operator

our turn of Thulin now portion call. question-and-answer for to conference the concludes That will back the call over closing Inge comments. I some

Inge Thulin

us wrap home successful this quarter us opportunity to for contributions our for every company, thank Thank up, closer moving advancing XM like to XM; our and their at vision would I and to every the take you. for capped of to strong year team XXXX life. here To a improving every fourth a and enhancing

into XXXX deliver we year. another going day. this successful joining for well great you positioned morning are and Thank a us We will have and

Operator

the call. lines. you and We ask please that Ladies participation and conference that your thank your you for does gentlemen, conclude disconnect

3M (MMM) 25 Jan 182017 Q4 Earnings call transcript