MMM - Earnings call transcript Q3 2018

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Operator

Ladies and gentlemen, thank you for standing-by. Welcome to the 3M Third 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, Tuesday, October 23, 2018. to Investor call Relations like Jermeland, to now of Director at would turn over the Bruce I XM.

Bruce Jermeland

Mike With Thank Welcome you website our make today accompanying Please at Chief review. our Nick Mike Nick to everyone. Chief are me will earnings release today's our third formal and Financial Officer; and quarter XXXX comments, that Gangestad, good and on Roman, XM's heading morning, and Executive the then Officer. some under posted slide Xm.com we'll this presentations Quarterly note Investor are take Relations your questions. call and Earnings. business

begin, let we Slide dates found of the on for our X. Before remind investor events me upcoming you

St. reception for in program, presentations with a our preview XM priority be Paul, weeks Along with First, along we the XXth in with XXXX few the Minnesota Science Day will we of the hosting in XX, our growth. a welcome November be of how will our Investor our presentation markets where outlook. Wednesday, evening formal will five-year highlighting Thursday plan November headquarters at our advancing new is discuss your on

to away. yet have event the please RSVP responded, right plan and you If attend not

Second, January read take place a X. Earnings the Slide call moment forward-looking on our QX XX, will take to Conference Tuesday, XXXX. Please statement on

of out of These important recent and expectations of today's X results. making differ Please cause predictive uncertainties. that that XX-K certain the and risk XA turn Slide actual appendices non-GAAP predictions. our our During and events be subject we'll financial to in about are hand presentation certain can Reconciliations make most future some non-GAAP Mike. call, Form the results statements risks that are reflect today's performance press will of references most Mike? be and factors to presentation, our found and financial future lists we note conference from I'll measures. current today's views based release. certain that Item the of measures could XM's to to Please assumptions to statements on throughout

Mike Roman

you, and share you, morning, third increase slower and Thank Good joining earnings cash double-digit quarter and us. with the flow delivered growth. XM for strong margins a per everyone In along despite Bruce. thank

We business also execute continue to to our and on cash invest or transformation our to capital deploying return in shareholders. future

third at top is organic team our delivered which posted $X.X sales in X% growth growth numbers, Looking total of of on billion the quarter. quarter. of last year's X% the in We

on the QX into the estimate out coming QX our As second Today, July call, in was basis earnings the majority half with revenue XXX approximately rollout our the year. from you vast the discussion points in a QX. pull we between ERP recall US of of resulted and shifting forward

share, earnings to EPS posted $X.XX, of we on an Moving of increase per XX% year-over-year.

to we on return business continues margins. along strong of above invested capital company deliver Our all with generated premium margins groups XX% XX%. with Companywide

strength of flow Our This day. the productivity model, on and driving a a rate portfolio XX% conversion with increased free of testament XXX%. focus cash team also business is our by and to year-over-year every

Slide $X.X share We repurchases. our through Industrial and and posted look both the also to the In turn for shareholders. cash And and in group Organic while growth weakness Safety shareholders performance also areas year-to-date. expected. quarter was groups X% of capital we Healthcare's and returning quarter, dividends and growth remains quarter comments, continue to both support to delivery sellout organic our products growth of Energy, due groups, five than invest growth returned was in business to and R&D three Please In retail third major of quarter, billion to impacted XM group. declined of Nick for X%. though his to our Graphics business Electronics the the in had our Healthcare third X organic at the of continued each business. Consumer Consumer channel business between our X%. third strength, primarily with This that detail strong. business by performance our on softer each areas customers, but and quarters will were down adjustments of by drug provide in more

and of growth of look both Industrial Graphics by Given to due updated X% posted guidance through followed and to the growth more at Companywide, also growth delivered takes we months. after than Electronics X% to between Consumer posted I sales have growth quarter. X%. is come Nick? quarters and details year-to-date. helpful us the nine the Nick of our it X% at business X% performance transformation, organic from will shift back Healthcare Safety with our share Energy. through

Nick Gangestad

growth contributed Thank Mike Slide the quarter. in turn with X.X% XXX in sales organically X.X% price all net and morning XX third impact up the you, Sales grew and divestures acquisition sales across to The in to growth everyone. prices positive growth year-to-date. areas. Increases in the Please good points basis points to X. are of selling quarter quarter, contributed and geographic basis

in versus translation US currency US, organic our X.X% X%. X.X growth Graphics. last and Energy, growth was the Safety sales Electronics with organic is the in year. in percentage points, organic during quarter up by decreased QX Year-to-date growth all third deployment of was in and ERP system dollars were sales XX basis by growth In the US down new Foreign US impacted in quarter. and Industrial positive points the the

in organically. growth X% Safety with excluding our Japan up was X% up in X%. year-to-date EMEA X.X% EMEA Pacific is and is down up delivered Organic was by Year-to-date electronic XX. while West Asia related standpoint From businesses. Healthcare Asia-Pacific X.X% basis down or XX organic growth Kong, points and XX% Europe a China, Hong declined led QX Graphics.

flat. Canada in growth Healthcare Mexico Brazil America, growth was X% a Latin organic Finally, On was At $X.X income in operating up X%; organic was turn led basis, third level, quarter was of by organically. P&L is up X $X Canada X% Consumer. QX highlights. X.X% while Canada billion. the to and with country America, sales third quarter billion Please Companywide for a Latin year-to-date Slide were

operating up year. quarter versus Third margins slightly last income were XX.X%,

Let's the quarter. closer the a third to margins. to of price added more at a portfolio in Organic basis productivity raw benefit margin. quarter actions XX offset look performance third inflation basis lower points and year-over-year the material volume, XX points take margin components our net footprint which added and Selling than

per XXXX, of headwinds inclusive year versus a material of minus impacts expect For negative range now full of we per share. $X.XX share prior raw tariff $X.XX-$X.XX

price point expect margin to more headwinds. material quarter markets point basis business. continue from during the currency. was the from XX than acquisitions XX Nearly these raw headwind from offsetting and communications A offset to point impact the basis of basis selling headwind We from QX XX foreign benefits benefits divestiture a

look turn a for earnings closer Slide to share. Let's X now at per

earnings were the portfolio quarter share. a transition GAAP combined share headwind communications wherein organic footprint to incoming per with markets of Third and lower actions divested earnings $X.XX growth, per of The a added and up added $X.XX share, XX% earnings a and $X.XX from quarter. year-on-year the versus productivity cost divestiture year. last Acquisitions benefits $X.XX in per

$X.XX earnings quarter. the reduced hedging US against per currencies throughout strengthened dollar as many by share of net Foreign-currency the

$X.XX per expect estimated expense share. of by Higher per minus expense of $X.XX a of versus earnings interest share share versus previous expectations. decreased net foreign-currency we headwind now For the an year-on-year retirement $X.XX prior benefit a benefit year, $X.XX reduction or per full and earnings from

Tax earnings which $X.XX XX.X% QX by primarily tax Reform. was benefit earnings increased the rate US was by Our share. This per driven

a reduction outstanding at Lastly, flow $X.XX added shares X Please to cash performance. Slide a look turn per share in earnings. to for our

allowing to and strong consistently return invest continue Mike cash to operating to As cash in business us noted, flow shareholders. we generate the

$X.X free quarter XX% up rate cash conversion of Third a flow was year-on-year with billion, XXX%.

and expenditures investments were $XXX expect these million up for billion $XX capital Third million, year-on-year, $X.X approximately be the year. to quarter we

addition businesses, in shareholders our million QX dividends. $XXX to In significant investing to cash including we in return in

We to share billion also $X.X shareholders returned repurchases. to gross

$X in expect billion. to the full range continue of We repurchases share to year $X gross be billion to

Let's now areas. with growth quarter geographic delivered up Slide X.X% billion, performance review group on $X our third with of business starting across all Industrial organically business group XX. The Industrial sales

due OEM the in aftermarket were the X% to across acoustics as and such applications tapes, to weighting adhesives, to was in structural low compared business down market. continues business automotive light and single-digit car penetration up automotive builds our quarter X%. drive softness and which increased business declined organically The repair electronics collision Our truck global solutions. Overall, light nearly

and single up both were the business in adhesives Industrial Our quarter. and digits filtration tapes low

in sales quarter basis, was Asia quarter. turn industrials up million with Finally, XX. by up organically top to $X.X of safety while a is XX% organically low-single Safety track The business led and way led of X%. operating QX. organic Solutions a our the followed X% Scott personal in exceed integration Commercial $XXX by delivered Transportation margin and of increase Materials digits. XX.X%. a grew mid-single third double Growth the last Slide business On by were Advanced expectations. income led on growth continues increase Safety to of was digits Industrial our organic geographic Graphic X.X% billion, up US, growth in Pacific on the with up operating X% the safety was year. Please the business

Geographically, teens were as organic slowed quarter Please operating production was shingle $XXX includes XX. led turn growth granules Asia-Pacific. while by million the roofing from mid headwind point Safety Finally, was in growth in XXX XX.X%, the our which Operating acquisition. to a in Slide quarter. basis Scott business X% manufacturers the third income declined margins

generated XX% healthcare in our organic sales organically negatively and in last a which in back which organic and Our comp pharmaceutical continued softness both is by has XXX regulatory year versus growth the decline Holding been billion basis growth full business, on Healthcare quarter growth, budgets. drug timelines saw third third $X.X organic business X.X% a impacted overall customer year-over-year down This healthcare X% points. year. of depended delivery business R&D QX quarter

experiencing expect continuously XXXX. with delivery continued in grew X% Oral near-term challenges, drug strength markets. organically in strengthen the care to we business US business growth the our and pipeline in improved stabilize to While the is and developing

Our start of cases expect ramps new XM number to good as off Clarity forward. and a quickly Aligners continued going momentum the Clear Tray is we launch

from advanced organic X% solutions. this a operating months and care a the mid-single Health to strong slightly Medical of XX%. with a XX% due to vascular primarily Food while digits were access against was year's deliver comp $XXX operating year Our strong quarter, On quarter with business strong high-single declined Information business safety the nine Through geographic in margins in digits. while particular Healthcare's digits last ago. continues Latin basis strengths up the growth was Solutions wound X% slightly and declined Asia-Pacific Canada EMEA America, income up third was mid-single led million grew X%. way Systems nearly down up US up comp.

and cover in side on This the single let's materials Sales billion. in Slide digit growth Next, by the The demand Energy semiconductor business business the increase and grew led X.X% continues Electronics to mid Energy was sales particularly in were X% organic XX. electronic experience $X.X and third Electronics market. a quarter. solutions. of electronics strong datacenter

see content to apply grow continue science globally this mobile we our XM addition, of as advancement we to device market. per the In

low energy businesses a related Asia X% single up Latin up basis, Pacific and geographic with and organically America, renewable was strong in up both energy were On US pipe digits. solutions. over coating the while Canada growth Our were X%

Electronics and income quarter margins Please $XXX Slide XX.X%. with of XX. Third for to was operating Energy turn million operating

in Third X% billion sales year-on-year. growth organic and declined Consumer $X.X quarter were

digits Our declined Home Improvement each businesses the three single business the while organically, in grew quarter. low other

Latin rollout. led impacted in Looking The increase at by QX consumer a growth was US our down geographically, America, ERP was organic X% slightly Canada. by

EMEA strong digit single single continue with product digit portfolio. managing as we've our growth. to our declined We been sale to demand actively see products for consumer point mid mid

consumer Asia Pacific for Lastly, channel respiratory X% lower seen declined solutions. we've demand as our

it Mike quarter of turn XX Third to back %. XXXX results. third hand over with and updated million our review wraps Please Mike? operating income That guidance. up quarter XX.X Slide to our operating margin of to was $XXX review I'll

Mike Roman

With adjusted X% for us, full $X.XX the behind in year. previous Nick. of earnings, $XX.XX we you, range of a $XX.XX. X%. our Thank of approximately three to we prior are respect of the to We quarters expect now range X% updating anticipate EPS the against versus guidance growth With $XX range to to organic

largely is guidance with guidance mentioned updated EPS in our change expectations raw Our materials factors; currency to along for updated three our that due and earlier. growth Nick

our can we lot Looking know deliver XXXX at customers beyond, do the for remainder to more of and shareholders. we and there's and will a

to Going opportunities. transform our productivity. and our to forward, deliver putting to means to work growth portfolio we are focused will being XM relentless to continue on resources This we first greater and our attractive driving continuing prioritizing customers most optimize

and customers. in create our unique us model development, enables We solutions to improve and research will enhance strengthen for innovation our advance, continue that invest and to outcomes which

will platforms product we advanced centers. continue addition, such to In in as wound care data electrification, high-value automotive invest high-growth, and

the and new significant system. US. I our thank Europe efforts We the most success With on United our our the leverage have to will deployment revenue ERP up with This business on of in our global fully undertaking am also and their the we've team transformation. rollouts in efforts. tireless step the a our XX% States I now pleased successfully deployed of was made for recent we progress

service leveraging the value realization, of Investor we forward to With Day we customers, our our to attention and month, and next thank business improve improve take at ahead, sharing questions. able productivity our on about to now to power Moving will your be your you transformation and more even details accelerate for more levels plans. focus look we'll that,

Operator

comes proceed with And Research; of from your question. of first question [Operator Scott our line Davis Instructions] please the Melius

Scott Davis

a Good Healthcare you the right little or volatility delivery of long guys. this what don't that Thanks. in stock give us kind you of causing recall granularity had volatility I now? mentioned morning, - is the the recall causes I a don't bit business, your was just is covered type XX% down behind can you time-- drug

Mike Roman

where growth, delivery strong did food we about systems, continue the we on growth solid as XXXX. our Broader double by here, And information business opening of Scott also came comp QX we safety as strong drug in organic strong through expected. was Yes. oral pipeline talked we down see a impacted digits. the to have right care, growth year-over-year health we

business rest the that for we growth say be the must of drug the So line continues with year. in of is what challenge total against the for delivery portfolio would I expectations. to the saw

Scott Davis

that end drugs-- about the what an least to I assuming I'm consumer on I customer, customer what's level? the So, de-stock just part of am companies going asking? there yes, answers that, not the sure these still at at trying am I'm that's question. my the the so inventory Is pharmaceutical think at consuming

Mike Roman

we as business our also as dependent it past. business we've it's-- It it's we have companies the with so partnership - well. based Yes, work businesses delivery about those partnership drug R&D based talked a well on is-- in are pharmaceutical in really project project cycle really as their and significant regulatory

So see ahead. strong pipeline we

and working growth. challenging into see are We get a performance as in stabilization through We XXXX strong XXXX. we

half pipeline So impacting through not we have year. we good but positively view second the our as go of this of

Scott Davis

do less one new view where is you And this just answer. about retailers normal or a adjustment here this talked good of Consumer, channel this inventory going a where time That's a new inventory, you are some forward? kind is anticipate seems kind de-stock holding additional normal of the something as like Okay. then you de-stock, the it --is it

Mike Roman

them. the with the been the channel it's and office channel where you a a half and two see new for something restructuring year the Yes, of that years last office normal as around the seen destocking almost you we've channel restructures see traditional a over now

of is second channel least it more digit are we up see And now. move something at we of restructuring see that that this of we as we see the the channels year been base single half to think disrupted well individual This ahead. portfolio, I a strong significantly as the as additional come broadly we point that's space both ahead, some is some sales as to across the mid in. it's we a half is expect we us it's second expect and really that's continue but move to that retail in broader impacting

Operator

Sachs. Goldman Joe of the next question. comes Ritchie from your with Our line proceed question of Please

Joe Ritchie

XX think Thanks, impacted mentioned this a you growth? out basis Can parse Mike the bit and recognize just how earlier. you saw But ERP maybe from US like growth probably on points so been good what how So I'm to strong just that an much I the year. start is has of-- related morning, little quarter basis I US quarter most just perspective you're seeing XXX ERP guys. of transition much we like of the this growth versus for give points across industrial end-market the of that

Mike Roman

Yes.

we most mentioned in I vast quarter And of talked that's XXX So basis impact saw a points that we QX. are the US. XXX on given back in the view so if of as points you the really at basis majority about, of worldwide that, look

So drug growth by year-to-date especially US steady. strong line Graphics ERP area, a seeing. comp US delivery in anyone in that I macro say we more our Safety one through being Healthcare the impacted when talking strong our we're growth is and in of year-on-year Energy the I in business back about that was, we organic and and the Electronics with then as organic portfolio. would businesses consumer and that It and the up say-- impacted the look would Industrial, positive strong really as what in we're broadly in X% positive US our growth see you And see US by was any in and more

points. share their So, those XXX full they basis of had

Joe Ritchie

just of into subsides Mike And kind or into the well? your that that as going is assumption carries XQ something XQ that it is ERP overhang

Mike Roman

so come impact go saw in big into we not Q-- Yes, QX. we as I the QX think that's the into majority vast out that's the we go view as

Joe Ritchie

the you're year you if side, the seeing of signs I'm trends slowing you through obviously China Chinese the through up very consumer? first on things the just what particularly just curious any the follow-up of have held the can one quarter we're Consumer give my down color specifically around with on things saw that three seeing then good; And Okay. quarters and

Mike Roman

we rates Yes, We are broader softness see we go down protection the space other slowing respiratory mentioned build consumer you on significantly. that automotive in industrial the of has so some into signs slowing in QX. the impacts. see And knock effect as and one in of that a China, as

that's X% for we are thing more we same China the the seeing tracking to see range ourselves year. So to XX% why for

Operator

Citi. the line from from next Please comes Our of Andrew Kaplowitz question proceed.

Andrew Kaplowitz

good Hey, We in give are know a quarter? ERP. US color us this given can Mike in you the morning expecting guys. more happened Europe what you slowdown the

about talked off just You last versus for quarter. China EMEA significantly to fall but seemed you

I think down Western X X quarter. Europe last and this was up quarters

the decline more So little as worrisome is acquire there European Western there? is lumpiness something or a Europe, just more

Mike Roman

Yes, to for we tracking the of that so end the the range the-- year of Europe is and to broader our had X%. X% low the

softened we softening bit the so a slightly and and As quarter across of into for slightly the the auto we the came the and up full at West end rates organic the growth year declined year-to-date think and range. build Europe bottom Industrial in up and saw we quarter

move but of the year. tracking being West also the the of our low performance actions portfolio as by for range talked overall the to through impacted we've the that of about it's the some profitability of the we our bottom taking think plan I we improve year at of part as are the ahead, portfolio as that gone single-digits at Europe and we

Andrew Kaplowitz

low sort into it a though very that Mike, you? have region has forward lumpy single-digit this growth you do go you as of for visibility been because

Mike Roman

Yes.

I an the have the across we portfolio the there. I the in say rates good and visibility and impact softening have and think automotive would markets that the build

range across portfolio towards because been talking the of We really end outlook low taking. have of also our being in been of some year the the and actions have we those markets about all the we've this

range again, we So about we it's full be. for a to where year but, consistent than it I softer little in expected think think in expected QX, it's the the

Andrew Kaplowitz

up talk tariff adjusting point chain raws Nick especially one And about And environment, price maintain then plus material you ramp? Can sourcing good see if supply continue price we more are moving three, under versus your to adjust to results how if tariffs even there. pricing raw with obviously raw to you you could the positive material point inflationary forward?

Nick Gangestad

see our we Andy, expectation raw offsetting increases price continue. than material and so pricing our continuing Yes, has are been will and that Andy to that more it's

doing forward raw cost. layering that. on We prices are are XXXX, price continued into to we this from we're will total our approximately also source around more tariffs. talk material a fast tariffs offset things XXXX. our think XXth material but we in impact There that of And be strength on $XXX our our I'll in expect raw increase little is pricing than than but million supply-chain negative number about we anticipating a price a having will November more in and that that changes. changes, changes more offset increases to that on headwind tariffs and And continue sourcing If pricing view I have to

Operator

proceed Our question Barclays. of Please your Julian with the Mitchell line from comes of question. next

Julian Mitchell

good Hi, morning.

of question X% the back a parts risk sort what's a I the expenses SG&A is offset the P&L, R&D gross in the the a and around your to view guess R&D up sort number share XX the sales Is months? down R&D share bps of sale, falling there SG&A of have to I and next change to particularly right that XX any XX over of to that snap down moving sales of guess margin. was bps Just

Mike Roman

let part Julian, take first. Yes. the R&D me

our On XM, the our of and as on sustaining center invested the for us it's of you stock, key the heard development research capital. and of return performance, it's margins, innovation it's our premium growth, heartbeat

a us for priority me top for So as and it's still CEO. priority a top

invest it, part R&D work was divestiture the and majority market. of and delivery to look about a couple in if to communication that-- contract sales at it, quarter of X% that target continue of was We drug year-over-year to the going of to approximately also talked course the factors; quarter business continue in the of you that the FX the in the due are really to decline I

of So, up experiments and there some make as that-- focus a and it's really and we quarterly number projects still the it's downs very and much are so investments in there.

look that. the spending well on completely one SG&A, move another smooth, making transformation I forward we're business is That's we We that productivity. at onto take you think of we're things getting XX% not revenue one as as If --our but of now that's as improvements we our transformation. business

leverage opportunities engage have models some improvements there. in service and We to our

So, was at we've least saw I you in strategic know, and been some as there, of quarter actions impacting a investments little bit of productivity think what that the the see well. been-- to we starting that making we've

Julian Mitchell

out-- two would issues. growth then end ago; be is run or follow-up aspiration to delivery slightly and my you laid the X% had the of or X% consistently the drug even and Thanks half below range top-line laid had at out around that Healthcare, the prior to team years management question Healthcare bottom

there gap a growth think do growing in up market the and/or of that's to to M&A XM is you addressable the step think market? close you light with So the need coming do or R&D itself

Mike Roman

I I Julian, the portfolio. Yes, talked say would about that - broader

and it's reset delivery X% drug as that The you we where now a the to - - We that are as as the those with X% line our and impact. still portfolio delivery We drug are oral beyond kind that of oral what versus year, we the we if have comps the expected, of better through slower but are said impacts the impacts. X% care it largely you that's two came X% look care. total year-over-year but, if we biggest or X% quarter, the the the back to when performance you X% if in the step year; X% the move now year even the of And X% part look you X% quarter in in at are and and of saw kind at range we in those our rest against we expectations. through as much to of to look

rates to performing We some our in broader expect comps be delivery return lap impact. those we portfolios to have and of as QX to so we growth drug a the historical get a bigger healthcare

Operator

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

Steven Winoker

demand Mike, ERP what growth as really take impact, disrupted Good or channel out I seeing just retail to of if you distributor slowing are you you going and what China perspective, to some the Hey issues you want there; globally destocking, out already would getting normalizing? then slowing a and related out describe you've Thanks. morning. have Europe-- I of kind drug guess XM take kind the through specific and of delivery challenge, any seeing you from you you kind characterize if short-cycle be European you're these take all more the a out you're from perspective to do think are and that

Mike Roman

think relative their rates markets. areas we've to to number about already, to continue and some we and them automotive year We on end quarter we've bill business, we another I as see highlighted but bill really in negative OEMs growth it's mineral are our our part in But it maybe slowing well. have well, of The was the down be of industrial of range as was the focus part businesses noted that again we some a those at the the of of markets that's in end one where Nick one. and move for graphics softness our in that a see businesses our would as their we're we and top highlighted our of teens and but guided the been mid expect markets, the year grades, that the kind specific markets. characterized in China you've the Yes, I impact at actually that markets and talked of but challenges it's well. in say we performed definitely well negative there performed to there have construction the in automotive and well safety Europe and of in of by has those impacted the

portfolio broader that broader of and steady we see macro businesses positive the our well a and our So, macro. do broader against majority to continue

Steven Winoker

doesn't and Okay, course of on and of I sort change it X.Xx your IPI that, then thinking? normal

Mike Roman

and the Well, ahead portfolio it, focus, we yes, a that take are we model that and that's that's did - it's yes. the in our but It's of that the business second on and here expectations, capability is our will that's that's they those as them some individual through absolutely as from couple go broader term, the at impacting we of quarter the demonstrated. half, look way we absolutely move that's near our performance, those away capacity our maybe

Steven Winoker

don't your to optimization before, is something for But comment by miss something that read remarks. prepared end that? this that mean - had certainly I sometime so different here been you of with portfolio in the with And and Inge need your do emphasizing you what want XM do towards you

Mike Roman

example and around that, create value our we we around we businesses energy have the it's business reshape that area that's we that how as us, have realigning always and reshape focused lever take leverage. Well, our we in for that are to the you and it's at at year long-term for other always company our in priorities an actions, lot looking you portfolio reposition management It's of we performing said really portfolio and what those come a of one are success. safety look it; the and actions so and has near electronics divestitures well been portfolios through performance an and I where acquisition and our they of we're that we portfolio think driver through term of and a have been done those graphics key value and

as at manager it's ahead. that of do of said move the guess the and So I we in I last we active are as model take full call is advantage well, XM portfolio we what to this

Steven Winoker

can and think just Okay, sneak one I for in if Nick. specific

receivables. I days suppose inventory the On and

assume all slight something increases is are that Just ERP I there. going going there else or on? out that's related

Nick Gangestad

we is increase fast And satisfying new we US coming the planned do customers were that built our and - but next see of and we bleeding exactly that's our off to we the some in down. fully system. over that of chain couple in wanted their Steve, had order inventory the in seeing as going quite No. you advance we not ensure are had live supply to with quarters there as that inventory ERP

Operator

next line of Our question John Haskett. comes from the proceed. of Inch Please Gordon

John Inch

Thanks, good morning Hi, everyone. guys.

sounds Europe relatively characterizing your and Pac like it a little stable. as Mike maybe Asia bit So,

Brexit company I any at you kind Is in I I you're other kind and any kind think is your of activity different quickly to curious because maybe R&D Europe. very in wanted just kind growth this sequentially initiatives stability, circumvent or to stimulate allocate of causing and a on big it slightly this basis. you're low that's seeing auto, messaging that just issues try those not level what to things your way fronts. am businesses necessarily are you on of your that's that confirm affecting of or decelerated a causing basis, getting more

Mike Roman

I at see steady range Yes, had West at I've and right softer of But Europe the I economic I in view our like it that see delivery there. overall think we characterize for it markets more Europe backdrop, we're end steady a of overall across as said drug significant looked course Europe broadly auto John we characterized well. China. as we broadly we way some other low the not with And the more Europe changes impacting and so at impacting again it now, long sometimes as of looking well, Asia guess kind year but would again as you maybe

to there there Latin of transformation things, go over say And structure so best best the taking question --we there I are some we're business we and higher portfolio transformation and for we the important of up in focus go part really are the put that back where America those would deployed ready opportunities couple we us our We're are that's in to in to prioritize Europe, planned as the growth now area EMEA also place business advantage sharper prioritizing as ahead. be running it's really us so resources look to we ERP models do on and think portfolio. our even at that would the actions enabling invest better XXXX-XX-XX we areas advantage service get that of prioritizing to a shifting the taking for we helping able are us where Those we your live growth say really you management most markets our also if on of of leverage doing that's West and enabling streamline I for growth capability. It's in we and the taking I our resources active as even and our parts wide areas. focus models bring have have that as in place

John Inch

on transformation of target in contributed at least Nick may as I that from us maybe your end range actually all you an XXX low transformation new or haven't this how range looking give high elementary we at just right really XXX you end can a Nick, quarter in through. much read coming of together? the point is BTU give or updated a and that about the have is net sense but ERP So business the Are Ohio this for business know specifically advances us you to

Nick Gangestad

basis $XXX low of the create more to As XXXX between energy --what are track on the little versus million million so and to a now in still remained on putting think we the XXX business savings more of that to on this a resources we XXXX. of into million year realizing allowing less the earlier generate changes and be us $XXX bring value expect and we're we and year, Mike will and far call as lot track income see process call a last end total we realization and us And John, we've even ready on savings this been that savings, we $XXX XXX approximately saying whether $XXX up not to that benefit. for an to on is the continue by operating say behind that million of to likely our annual range that. on shift XXXX by since have and or but on high as value that in more projecting the will this realization deployment that end, that's of we've deployment that we mentioned bit little we ourselves been started

John Inch

right clear be is $XXX a number flowing pretax? to to And about line like goal net the bottom that million

Nick Gangestad

right exactly John. That's

John Inch

the back haven't years that XXX I XXX? you Why there of can't right. some this more the few provided this on ago --you here. you actually nitpick why working haven't Is for results sort to would the mean this other look progress last updated and why forward because save on more thing U.S. there that or updated biggest of reason of being slug the it's been some is realized have or goes one then way is reason And base just nature a based would just some quickly? sort is should updated the obvious or the not stuff is

Nick Gangestad

expect towards we've so lay year as XXXX expected Yes. that. updated that next out updating longer laid John where we'll in and number five November. us if term even lines out on with plan November and to a we we more in to XXXX and out this that it be We see progress when we we can lay that year XXth plans beyond our up partly you continued plan when goes last five from

Operator

the from question Morgan line of next Pokrzywinski comes from Please Josh proceed. Our Stanley.

Josh Pokrzywinski

guys. morning good Hi

drag Do which think seem say Just like quite big want still further more of over of balance a lot your feel of to not there get in of of next can earlier U.S. specifically, swim bigger have upstream kind more someone questions of to the into would auto and to of be expected the submarkets or noted. or of a of quarters is global some business?. some in too of into what lot for been and where you have XM controversial specific I on issues don't there specific there've is you growth as China, we don't but couple like a some controversial the versus a terms it think end off maybe to the markets stuff auto do I questions start like hand ones some consumer the know and XXXX bleed I smooth or XM out potential down the and we have some

Mike Roman

we We'll, happen. are as comps of those and impacting things going you pipeline of drug will move at we're, of XXXX that get look to delivery that. expect mentioned come have based we today mean couple we'll some And improve Yes, in Josh, through growth the as stabilized businesses. some we of lap and out the as And we expect. those to if highlighted businesses half. ahead. come the second that returned as growth into I One to we what in we've QX we we we they're I on the

have do is into that a little in the that the And dependent in future. and dynamic. consistently further continue so rates. with complex But even and and what build more maybe see innovation leverage to we're look rates we're I on see to that we the doing the with build we ability automotive electrification, still and outgrowing our can we're can it. our stepping mean done forward Automotive we

that. build the in as in growth U.S., markets China, And is come key what it rates growth fairly quarter, we where goes but negative those outlook happens move in we are ahead growth so right through Europe, going The now as nominal those impact move third we ahead. slow like as to quarter low

the there. market markets industrial than happens So with been that dictate to quarters. continue continue us I more would demand as we've that future what outgrow will get growth do to able that contributor Other what say to end into in a we mineral will we'll be

continue do in think we growth I it's little I bit up examples rise those market to being that to So see we've markets. think to talked the about, but able dependent, one our ourselves relative

is consumer, go you out thing turn I strong. the at to look would our continued If sale

rise very visibility good especially of we are got got and markets. performing disruption that's brands, work up developed the We've leading well through, brands and move sale category there to that. off very through And channel is we we've out team job I to day. we through our and that as see on in that managing the good that carry going eventually expect working got the through to done Our think shelf, a

for And go ahead so too. look that as we we'll

Josh Pokrzywinski

Got talk you for teaser few November. what it. Clearly with may That's growth about in a here helpful. I lot on in could follow weeks questions about And today. the on maybe here just of

margin of the a business phase aspiration is hear little off years we more think is and been I X quantified? terms component. start that bit few still transformation been centric growth have to more being in or for a in weeks always about coming to Is a phase lot has X something there an that could

Mike Roman

question and Nick's Josh earlier discussion it to goes John's too.

on we Our that supply with models ERP office. as new that we We'll the chain. opportunities the business other do capabilities in transformation transformation. our place in new in in place was we're and focused in do side Day. business on to see the ways also broader the much our efficient system transaction putting supply that on XX well. get XX% as doing talking of can our chain November talk about and be in the revenue to back other commercial than start Investor and And ERP at leverage models we systems, we about And now But that's we'll as where

Operator

Please Our the line proceed with Walsh of your from comes next Suisse. Credit question. John of question

John Walsh

from guidance. just trying or morning. you how finer expect to I that? growth a range, saw would quarter think about XX we squiggle I point as was should new the growth the A organic think guess to on this put imply good curious organic a accelerate we QX about see Hi just does we so

Nick Gangestad

very a XX a that's be? we the what for that minus what QX yes, or saw see that And organic in X growth plus nine first through estimating QX. the maybe an total of little we're of best see will points very on estimate that. growth. And in over basis the year that but in on higher a than range just our when growth months as not wide range we We're John. expectation I included a year don't wide Yes, X% that

John Walsh

and do you you how the obviously around costs, there in you some out as as spending about actual were getting for of your that. then, Thank construct how stranded this about about year think savings we about that business should are restructuring we transformation, we to the that. But spending, And think levels of touched how Great. think the but portion think we XXXX. those that absorbing earnings into on

Nick Gangestad

that. business specifically And on you're about and transformation what John, our we're talking spending

John Walsh

one of kind define kind if turn wanted you want However you take of you program. to want if that to that, a broader and

Nick Gangestad

going cash John, spending billion. that in the of years, And is last this terms a of saying been in our at little look we've to of few the of has over transformation, an business over been spends terms over $X declining. be a years, I as incremental outflow number as look, we

we next hitting view been the spending, right total into and pretty of start my continue years. we're our business in income putting spend statement a total couple of going as for the amortize terms It's year-on-year remarkable now level transformation flat built initiative. is that In what of some And stable to there. our to that's we

Operator

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

Andrew Obin

is as supposed big changed terms but Laguna, a I Can Can of you highlight done that headwinds to the to think on graphics, me here was businesses of drive you've has roofing margin margin a Good at one it guys that organic safety I and when one growth year-over-year repositioning is and highlighted you particularly this talk growth, guys post question the you everything and things, morning. and off? declined hear couple expansion you recall, of was me? a and and granules, you Just X% double-digits, lot of big business. something declining quarter of it happened bit just what to surprise or in this a were one a

Nick Gangestad

construction or the And with we temporary in as what's are depending increases business a they have that the granules roofing going is cyclical as the in enjoying, smallest nature there's and Andrew construction the in that storms. on a Safety has a happening business been it's business Graphics. of U.S. some on well

supply this So it's a shingle business tightly is shingles. production. right And less, integrated very chain. And manufacturers to closely tied less in shingles making very are making now,

amount to been for with going manufacturers couple high So the going they're that down. forward years a we has growth production and path the last the that, third growth come in this of reached And to is shingle happens what doing. business the of be has quarter in tightly correlated point on a growth

Andrew Obin

sort safety your the was margins to growth and better for this I and always tighten; maybe can a of question graphics is portfolio showcase I supposed decline here. Because that realign that this year-over-year this thought, go margin growth. And broader broader the of was X%. achieve better sort of guess and and business maybe you how was

Nick Gangestad

Yes, broader question.

about guided we're of midpoint what And seeing as So right year. now be at the X% business to the roofing of that impact we're absorbing business. estimating granules the the the at midpoint that growth this X% from to we is beginning organic the

our of total there. organic by safety a growth our ability the we our biggest growing business. to and total of business have See the far in a growth a lot XX% our and personal confidence quarter. as in in personal in a comp be safety, business far is mid-single-digit continue safety to leader As its against Andrew, lot grow confidence third that and graphic in XM's growth, in

absorbing we points be no margin year. starting quarter Scott as as that to lap margin, forward look dragged we accretive we'll acquired on potentially basis to and margin As And going see that. from the ourselves I last we'll after that far as Safety fourth of impact and going are XXX the that longer being

Andrew Obin

graphics. sustainable follow-up they was the should and XX%, electronics energy were safety counterpoint a think north is you how or throughout of of just that? to margin Everybody or and expectation this was growths sort the guys good actually about about concerned and really And one-time posted margins items we

Nick Gangestad

our to that XXX look business. margin our Year-to-date and Andrew, communication for basis impact that. points high point the up includes Electronics our business. That for of tends and our be XX.X%; revenue of the exiting at in are margins history markets Energy that's if you QX the

to So, been doing a is is margins the the point. in we we third I this our high as and in are investing accretive this-- yes, management quarter quarter things that but have are and we doing see would more plus call not the business, the being new research, that XX in we as typically level-- portfolio at

Andrew Obin

big just-- business there this one-time But is items, it's Is it's no one just right everything to for describe? quarter. that in fair this

Nick Gangestad

quarter; this everything this in exactly issue. no That's right, one-time right going business

Operator

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

Steve Tusa

morning. Hi good guys,

So, of allowing you going just of is understand kind of which than out correctly, that X% the-- spend transformation that so of getting a comments I you are business are R&D forward? the the to structurally cetera on saying et of lower you kind kind R&D kind productivity the level

Mike Roman

the gaining the our what with drug sales not ebb off of are talked are the said to some we of little more backed we have when an that markets. with are targeting priority to what and and Steve, quarter technology, of while then overspending invest This that platforms, in we plan impacts about those disruptive flow-- from so we is in little of a we've and at of there. had contract us what programs been divesture a expected that's the to about we enable efficiency are one-time R&D we targeting had R&D X.X% It's we've not X% to impact of to and more sales, the quarter drive we talked of we new I just X.X, we There my year, kinds we and move had just through our when as We by the R&D guess would-- on X%. strategy here work down down. communications line the we our I layout went FX delivery bit idea is of of growth our investment. message of investing

certainly us investments drive adjust So, will usually a to not not going this returns no-- on. ahead, they to expect what's BT not-- of as that's enabled-- that-- move that's we we is do-- get and out these near-term to but, continue we expect do

Steve Tusa

new an some very lot few double-digit are-- kind stock couple framework a you That number, at good, think how that Do EPS point? years, some next were buyback had too X% of many you mindset is and despite wonder the is at Okay. still how of that's years as goes heavy kind When you really get range, it's of to update activity, we going Or you pretty are on providing least? a have in makes kind steady we for XX% kind a and sense. not several of to your what kind your you been last for that on relevant the watch about, that? front? in of the a and are EPS Or she have positioned of been the growth a but

Mike Roman

the we be the things that's that cover our in that's we out Investor detail November there. Well, plan, five-year about Day. and laying will five-year will be I talking certainly That's-- of think something for plan one so will framework and the

Operator

of Please comes next Wolfe the Our line proceed. question from Research. Nigel of Coe

Nigel Wolfe

Yes. Thanks. Good morning.

the trends wanted think ENE the you have or maybe and trends expand you leverage the go I -in third to we right portfolio, elsewhere? rest seeing those but open seen everything between strong is the diversion mentioned just second in can to quarter if where such how ENE are ENE back versus you -the this Just of went margin, just

Nick Gangestad

into our-- see I accretive penetration and we being are we seeing-- us devices, to we is are electronic mentioned to datacenters margin. and that where to earlier growth semiconductors, this this places our continued So, putting into what that seeing on we good growth have Nigel, are content is good selling in and helping and we been are call,

markets are seeing addition, of that, we that. dilutive within out margin accretive all the business is that of and which that for our now, divesture purposes, been also communication business some had to from In our practical benefits

was that's So, I many what things right going quarter. that saying this

are a on focused investing we pay and As of and that in are we lot that seeing have we what off. portfolio

Nigel Wolfe

is this we for Okay year, year, base good seasonality key ENE from message future this years. whatever recognizing speaking exit a in that obviously but the is the is XQ,

three November, range I at years, the are on average, you the Okay. of last And three for again, then about or the know that X% question satisfied to share things restrain when look growth is kind my commercialization; loss with typical X.X% is growth going kind years, what five last not we to X% being be core core the growth growth force R&D biggest competition? kind range, in mind of your is the What on the on Is here? of biggest here. some recurring it pipeline, the in

Mike Roman

our innovation I Yes, that's And that, we see. When would forward, think we what been I expect mean we it's deliver drive Nigel, as really and on our a say we innovation That's a is growth - for really above-market deliver, successful focus model growth big us macro and talk that's the to we premium what and our we history. outgrow I that's focused focus margins. hallmark that the that will is a do that, to we-- with so team. where Investor be able and that the that's see we about what to as as expect at Day the the we what ahead, on and that's way team. to will move focus, we That's consistently start our of

Operator

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

Mike Roman

strong our with third including in respects in many quarter cash and increases good double-digit EPS included margins. summary, In performances along flow

we but improve. across that look to to there are areas businesses portfolio, also continue must well, our of I do As work our most

strengths for and our reshape Have priorities you our both allocate customers XM be and Thank continue us are capital St. ahead, joining you Looking in Paul weeks. greater we to moving delivering forward us to to to even keys in forward. will a look morning, day. for few seeing good and value again continue this are we shareholders. and how portfolio of a These to

Operator

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

3M (MMM) 23 Oct 182018 Q3 Earnings call transcript