MMM - Earnings call transcript Q4 2018

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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. At that time, if you have a question, please press the one followed by the four on your telephone keypad. you for landline a that going if recommended register to question. is use phone a you’re It

As a turn reminder, Relations January to XX, this Jermeland, at conference is I Bruce now being XM. would like of to Director the over XXXX. call Investor recorded Tuesday,

Bruce Jermeland

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

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

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

in Mike? of presentation hand presentation, Please non-GAAP financial measures. Slide off non-GAAP and Finally, release. be measures the we turn be certain the to today’s it X, that to Reconciliations please will appendix note Mike. I’ll press to throughout found making and today’s of references can

Michael Roman

will fourth brief geographic groups and earnings. thank I Thank a you, us. the increase in back line We a along were full-year I our performance well fourth quarter for you business in will with outlook to of with expectations. along results Good the executed our adjusted our organic with quarter in flow call, with XM later and come in with our areas, discuss and all open morning XXXX. and summary for joining Bruce. delivered across everyone cash that both double-digit growth

includes is of model year. in were the premium which business and with benefit a conversion which share, by over numbers, enabling XX%. strength respect Looking our energy, cover year’s more quarter more delivered flow. divestiture organic which XXX%. will quarter groups Margins was is healthy grew organically, The XX% from consistently electronics growth of We rate year the healthcare Growth total in sales to our X% adjusted business at $X.X This fourth growth on with detail. margins XX% billion. quarter. in last us the X%, Nick up a year-over-year flow grew XX% along were our of to Cash in With above net cash of X% led posted $X.XX top generate per $X.XX group, of our with a all than increased EPS, team of by value X%. and earnings which

the over opening fourth the details my in comments. concludes I the through the now Finally, through repurchases. share to take our Nick? That $X.X turn both dividends will returned us of call shareholders Nick, and quarter will we who billion to quarter.

Nicholas Gangestad

America-Canada translation points. XXX X. fourth growth in growth foreign was All the XXX selling sales. broad-based X% and the last groups. divestiture across points XX U.S. grew organically organically quarter Mexico, year. fourth basis and to across broad-based Canada, turn U.S. Latin to Slide in Brazil. quarter good in, declined sales volumes X.X% growth markets by sales up everyone. headwind Geographically, versus communication Mike, basis Organic with was prices reduced with while up points percentage point up X% dollars with you, sales basis was The all morning percentage and X.X Thank business additional Please currency points an X.X

led growth growth X% was in Asia and a in was double-digit healthcare in declined. energy. Pacific and in versus and healthcare Organic year safety and mid-single-digit China-Hong and by Kong QX, electronics up Kong while by consumer increase China-Hong and ago. led energy, organic grew growth organically XX% X% electronics graphics

healthcare flat. were and Finally, was with organic EMEA West growth in billion fourth fourth of Company-wide, with X.X% quarter declined. operating mid-single-digit graphics, P&L and for in Slide up consumer turn Please by of and energy and income while billion $X.X XX.X%. sales quarter $X.X EMEA the electronics highlights. safety Europe growth was and to X led margins both operating

this to you side margin Organic points year-on-year than slide, more portfolio of see quarter. the net gains, in basis and the right-hand lower reduced XX contributing actions performance material productivity, can Lower selling our margins. year-on-year fourth margins. footprint Higher to volume, points. quarter by points raw components the of divestiture On offset added of XXX actions basis margins and XXX to continued fourth inflation, prices basis

of impacts basis by Finally, net margins currency increased hedging points. foreign XX an additional

result X now earnings that closer were $X.XX included included look a at Let’s in Slide were earnings for per share. note per quarter GAAP our Please a that not couple to share. guidance. turn Fourth this items

of associated to a the charge relates recorded the tax net Tax $X.XX XXXX QX the we Jobs quarter with and the deductibility Cuts charge. and legal Act. This during our First, transition tax settlement

share. $X.XX communication divestiture, into net these earnings Taking Secondly, of underlying we piece a final the markets in items, $X.XX fourth quarter the resulting account earnings benefit. completed were per

year-on-year earnings. factors impacted and added a see, year-on-year earnings actions organic versus year. productivity, footprint Lower you and net The gains per-share combined actions fourth $X.XX benefits $X.XX in per last the divestiture to As related by quarter. of fourth quarter portfolio lower of growth, share earnings quarter of number a reduced

QX currency, XXXX year’s last of quarter. more interest higher per offset as retirement earnings quarter share fourth Other an coupon net $X.XX expense was in than earnings and repurchase hedging of was to high $X.XX underlying expense debt. net by Foreign year-on-year headwind contributed additional expense the

X% free we $XXX gross cash totaling to Also flow fourth XX% billion. Our quarter outstanding a to full shares declined Slide $X.X lower to turn to earnings. billion, finally, $X.XX Fourth shareholders up year by a average last rate per-share conversion was with year-on-year $X.XX flow via $X.X capital XXX%. with Please year-on-year, was were dividends X cash diluted of our adding flow the the performance. share billion underlying which look $X.X versus Fourth additional over rate QX during for quarter, returned year, tax QX an and repurchases. at cash expenditures added and earnings; free quarter million

business across Let’s of starting areas delivered year. the industrial performance was adhesives and X.X% geographic and with Slide on by and The automotive tapes, with and growth industrial review group QX our business year, all for for aftermarket. now abrasives, in X.X% X. organic industrial Growth separation up full and the materials, digits double led in growth advanced purification, followed low-single-digit quarter by growth

business OEM X% down quarter builds. automotive fourth light versus year-on-year in global truck and was decline a car X% Our

in while growth track global For U.S. quarter builds both was basis areas the XXX points a year auto increase geographic of industrial’s other a income organic and $XXX a three Fourth year, each our outperformed basis, continuing an our the On Underlying X.X% turn by points, versus and XX.X%. graphic last comparison year’s adjusting basis footprint geographic OEM operating XX% XX. of and the by led outperformance. quarter million X% record actions. Please long sales Slide car grew fourth the truck margin low light delivered full ago. an up operating Industrial to safety organically of and with XX margins were for year-on-year portfolio digits. quarter grew single business

For safety in well single mid-single safety Safety by strong continues and business to do Commercial our declined up with while solutions QX. low double-digit graphics the X% grew safety digits organically. transportation up led full was X.X%. growth was digits. year, Growth Scott personal

continued America-Canada, margins U.S. along business quarter margins Please to each $XXX basis volumes down granules to sales declined some of Latin lower in production in by XX%. roofing shingle teens fourth with Underlying EMEA Slide with followed due the the Operating was growth actions. year-on-year a organic fourth as the and income by roofing turn which in our decline XXX quarter XX. low X% granules operating X%. additional manufacturers were Geographically, million points increase quarter. up the was led in Finally, were with

our Our QX, growth business healthcare growth with organically. access business fourth the and mid-single care generated both international. in organic digit with X.X% medical quarter positive sales In solutions $X.X procurement Oral billion, the U.S. grew of in quarter strength up vascular X% in and solutions. posted particular

health in XX.X%. developing build strength areas a clear $XXX in XM food led operating information Healthcare’s XX% Kong aligners On mid-single income single-digit Our digit launch healthcare grew Fourth a all led growth followed geographic by safety quarter organic momentum. tray across the continues in increase with high in was China-Hong Clarity to by continued with systems. growth quarter. million basis, by margins of fourth markets, was up quarter

our platforms focus population continue investing to We growth in and advanced orthodontics. wound health, priority custom on care, in

quarter energy electronics and delivered solid X% growth similar quarter electronic solutions. and on the Electronics in display of XX. organic X.X%. Slide fourth growth and fourth of let’s finished business cover side organic The with the with of materials Next, energy sales year electronics both

in was On single margins with Growth Latin organic the On organic XX. growth home by turn X% Asia a and while operating and grid led was healthcare $X.X modernization the up million and for quarter declined. strong consumer were were income operating energy business, and sales our quarter with of care in both low side home Slide a was improvement X.X% to while America-Canada, organically basis, energy. and of consumer both up office X% U.S. with growth in Fourth mid-single renewable up stationary by digits Please digits. billion sales was growth mid-single $XXX increase Pacific led of XX.X%. business Fourth up energy digits, and were electronics the geographic year-on-year.

in consumer our to portfolio Looking America-Canada X%. region. Latin led was EMEA increase continue the growth we as X% by in X% up with U.S. geographically, at this adjust declined product organic a

year-on-year declined due our Pacific to improved consumer China-Hong air to Asia in Kong solutions, experience we respiratory continue Lastly, X% lower quality. for as particularly demand

Finally, Mike? up back and Please fourth of quarter I’ll was with hand XX, Mike. turn operating Slide it $XXX XX.X%. fourth quarter operating margins to results. to wraps million review over our income That of

Michael Roman

XM to shareholders. areas. for an XX% continued We with capped All Please and across Thank delivered GAAP than year as billion quarter and our earnings transform In basis. groups XXXX, $X.XX, by delivered of dividend We turn dividends XXth we with business cash important posted XX%. more an on of $X.XX than you, flow growth than shareholders more The and and or share future. XX% was while we also geographic Slide growth year to of of results free consecutive more expanded XX. invested good repurchases, our $XX Nick. $X.X in, a cash for year we returning all significant underlying We organic posted capital to share both the X% fourth sales along conversion through of increases. return returned to on to billion record per last

we’ve Beyond of our investor I’ll day position priorities, financial our we four growth of review several with which business. shareholders. XXXX This our has ongoing solutions. is growth also the priority, and each Last and results, our to last done work laid on AI-powered The business, communication to term value our in critical and sold improved of which in to we markets announced the executing XXXX value portfolio. November. reshaping customers MModal’s long energy In briefly for XM portfolio at for the over This the electronics a in I comment for example, margins. is includes acquisition impact and continued portfolio healthcare provider of technology starting we month, which creation. maximizing led years leading builds out on and

and patients we our our ago retain further systems invest and builds in ability years two health to information commitment will outcomes acquisition recall, you and for providers. business. As to This on both expand that improve decided

which I’ll in is in close updated and quarter shortly. guidance its for expect to cover the transaction XXXX, our impact We this first reflected

which work how compete, and fundamentally our in customers, we transformation now was we XXXX is our year journey. how Turning improving transformation, to serve how an we important

closely in I significant was groups rolling systems our XX% team which out Our and through business for accounts sales. undertaking. our our successfully our with United global customers nearly ERP executed five This States, I working our deployment all people commend this thank a us across for new of change. for the

rollout, we have new on the With our ERP XX% global approximately deployed U.S. system. the of revenue

is our progress We are and our Ultimately, enterprise. realization now fully making more accelerate our efficient more to transformation for company. value up leverage a competitive XM stepping customers agile, efforts this and and more

and Technology leads initiatives which while these long fundamental Innovation This in with capital. differentiated technologies, is our for people. sustainability, in track priorities. create is platforms with In XM Everything - continued organic and is investments differentiates to accelerated both XM global we focused to of our brings culture, deepen and key development allows is Our these our premium delivering our and to solutions inclusion. our It our development for which growth as we customers, XXXX, move and our next healthcare, research shareholders. rapidly launching unique, we record to to in commitment the and around people return returns expanded to invested margins foundational transportation, diversity superior safety XMers to innovation. brand spaces, advancing us starts In on growth of priority our our our XXXX, priority each for our capex, and infrastructure. that capitalize invest - will to manufacturing, market to and reach, opportunities other on me ahead. continue to opportunities is

We named of we for on turn being ethical one priorities in made including number In summary, of our positioned fifth companies straight a external year. and team successful XXXX most the recognitions, world’s progress Please our XX. for XXXX. also earned good of to Slide each are a the

that coming our been automotive the laid for guidance from widening prior expected anticipate includes investor the for previous X%. key November at $XX.XX impact impact. organic and the MModal of against which the X% our we out range markets XXXX. note We recall, $XX.XX. not in EPS China, in to X you to As electronics; are a with day then, we earnings headwind to there did range range acquisition, X $XX.XX, of growth prior against biggest now from end Please therefore, $XX.XX of $X.XX range to Since has our MModal to the include slowing framework a

cash expect on return continue XX% We XXX%. turn along to conversion of to capital to XX. rate flow free Slide a a XX of invested XX to Please with

see growth, Here business groups. our breakdown with for of our starting you expectations organic a

in X be by to X% to by X%. range the led with Organic with followed at of at expect graphics to in We energy expected at growth consumer to organic X%, is of to X X electronics safety X% healthcare X%. and a range growth to and X industrial and zero

by back Asia growth will at area, outlook. X%. provide we organic at the growth United X X% turn America-Canada Looking color expected range I’ll it X% in Nick? who in X%. is the geographic in X to to of XXXX X Latin to of some expect EMEA to with on States Pacific followed Organic to now our by X Nick,

Nicholas Gangestad

to turn Thanks Mike. Please XX. Slide

Here at in are assumptions assumptions discussed of items. the Most key exception our key of we planning what our unchanged our XXXX. investor day, with from November three remain

range Mike growth full-year expanded just that the organic is First discussed.

our benefit pension in our volatility earnings versus expense. December’s regards Second to expectation lowered our is market XXXX in November. global

now are pending estimated Other to sales X% MModal earnings. are and we including to note, full-year but translation to foreign items acquisition. the forecasting earnings headwind neutral Lastly, a currency impact be growth full-year we to the from

productivity XXXX to efforts continue share. from offset headwind of be $X.XX do expected with markets ongoing and our the material expect team’s tariff including than an headwinds. Turning sales to the MModal of we selling to to We year-on-year acquisition impact to our anticipate raw global estimate communication divestiture the we net sourcing raw neutral per pending the impacts; higher costs, prices more along materials, however, earnings

along increase manufacturing portfolio productivity. with SG&A and our accelerate transformation, efforts to from benefits continue and to We optimization, footprint our

to forecast to XX. Lastly, XX%. capital now our Slide rate our tax allocation versus XXXX underlying XXXX our be to rate full-year of XX XX% we I’ll move on plan

Our capital our strong cash operational allocation fuels flow plan.

our and expect to $XX.X All billion another of $XX.X prior billion and calls from plan R&D marketable and securities, with flow billion strong year including $X.X our in global plans. be $XX.X of in, to cash for billion between available our leverage, to We XXXX cash, pension estimated added operations capital. XXXX investments

Our first and with supplemented includes investing to deployment Slide capital priority same capex Please business, time at in the turn our for development and research cash to returning XX. remains while which shareholders. acquisitions,

road XXXX laid can just key I you assumptions map Here out. based see our the earnings on

For of quarter X% year-on-year XXXX, X This we underlying our of a expect an up, XXXX represents $XX.XX including the increase per-share $X.XX to earnings good compared negative the a impact in range range To finish from to acquisition. to wrap $XX.XX, fourth XXXX. EPS was earnings of $X.XX. to MModal

delivering our now on you your we four in executing along financial attention With priorities XXXX. on for focused our take that, will with questions. thank are and We objectives your

Operator

the first Merrill go Andrew ahead. [Operator Our from America of Bank comes line Please instructions] question Lynch. of Obin,

Andrew Obin

morning. Good

Just ex-whatever a a a your clearly XXXX, about but the lot have we on sense tariff seem you have contingency we when you Asia bottoms growth question of guys - have on about pace Asia should of you to better as the on growth handle a Asia other think XXXX? How think do throughout customers in folks, negotiations? than

Michael Roman

Andrew, across see we at those in guidance pretty guidance. ranges for our the outlook, within have of that the and we year you range if balanced it within Asia look

trade XXXX. start the and electronics and - slower, really that year the tariff, view we as we to look the impact for on end cautious as so focused more the we automotive the Now, about caution but is not are much talked markets in focus on

that it. in you balance of the going range, to have think I’d we would in across better way go about where are is I change the end but year think that So, a think as on markets, get we what’s those the I view

Andrew Obin

couple question. asked spend. A us about follow-up people a R&D of Just

was quarter, on year, the for in ’XX the about Any for XXXX? should think in it how X% framework, XXXX and X.X. think term I R&D X.X in R&D longer Your timing we

Michael Roman

that work the still we’re this. the where we to are This the quarter, that so are divestiture R&D in few is--as a markets, this I you little contract the the XM, It’s priority is we we if you communication and impact what from committed innovation said, some in in us drives customers for do at quarter. Andrew, look and saw a those things of a differentiation, our of the and would lower say kept our

and driving R&D with to that goes the it. in that that X% committed are along We model, capex investment

XXXX, in headcount, have maybe If you so did better commitment an look a ongoing to that it’s our actually increase we reflection of at investment.

Andrew Obin

Terrific, thank you.

Operator

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

Joe Ritchie

for more Thanks, low and seeing you good guide guess the electronics, okay down up seems surprising following end really though, those morning given question it that chain. core progress and How did quarter, like question end, guys. growth generally on seeing took markets is, what are the markets you what feel value be end XXXX? and like will quarter. slower things the we’re you across business Andrew’s those a actually China, specifically Maybe point for not on auto during were your at in just the the makes the by I in

Michael Roman

There’s really step a a but a so first the half China in there’s going driven the by of huge are the about QX, at this caution. the and then updated we that revision third of went into the in China, year XXXX, see it’s talked down things about. not I down, It’s the revision the down. we talked one additional of some build for slowing additional some in it quarter call projection you we in the that in projection up rates had the where and Electronics said, - as Joe, quarter saw build was slowing quarter, know, held solid That we automotive you automotive. for and things as for rates say build the the a that well finish for we bit good exited quarter, in view business. slowing it just we in would outlook a rates, we in saw the

we had In were range we went through a the look electronics cautious for outlook what markets, you we expecting at right in the year. and as the we fact, XXXX, if were in

first you see they’re market, it think it’s that the was quarter with impacting for ’XX. necessarily I view, OEMs than and a QX it in of more signalling cautious

Joe Ritchie

Nick, Okay, fair If could on enough, up, price follow I just Mike. cost.

saw little just get a seen as and a talk headwind come little do You’ve in raw think much in ended be about but the commodities the those mat how bit bridge, benefits? XXXX, year, actions you’ll to the bit we already you on the for place are maybe able pricing in price

Nicholas Gangestad

Yes throughout we’ve material of well how we look fairly QX, I would happening. much selling played expected, as offsetting saw we much been that ’XX, headwinds say very as increases, so as year raw has I than with we XXXX, out expected that more exactly Joe, backwards significant on that how our price the

ones in offset. last $X.XX headwind selling into of part that vast announced second already that million built or $X.XX, into this prices that forward and half that’s As tariffs, in been already now, effect and will us, same I we more that year-on-year into already much of at have you expected we of XXXX, it, do headwinds headwinds, tariffs. level with optimistic price and be tariffs. headwind that of what that of enacted, see $X.XX in been late not that’s our all when In I it to either out material than so the about and that actioned. laid XXXX, if from go about majority our expecting Right of year, to million $XXX has bridge, $X.XX we just were XXXX put $XX question, we of early that November, inclusive so from continuing, tariff have we the we’re remain you earnings look and of the raw The saw see not at increases been

Joe Ritchie

guys. thanks Okay,

Operator

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

Andrew Kaplowitz

year’s in of weakness fourth actions you about how would the were forward in last mentioned actions despite than report some lower obviously ’XX in up going margin, roofing of and talk but the was QX margin quarter now quarter? Nick, lapping and graphics significantly XX% Scott Safety, guys. happened the versus in granules morning, in expect quarter you terms be impacting what much fourth you margin can so to You unusual Good margin ’XX? safety and

Nicholas Gangestad

is first at--we just monitoring Yes noticeable you had That’s gain on should once driving within we of we’ve look XXX things decline year in one is also--as that gain we’re a our pull XXX is margin, do in quarter safety Andy, granules, explaining why that then the that down out, the graphics. basis know, business points. you that basis of fourth sale last the roofing The underlying one things electronic and and the two primary business. margin contraction, Scott we’ve acquired Safety point

continue pleased the take actions, and to taking making of to in to with actions integration performance, the growth integrate Scott Safety a continued margin business. pleased is it’s our and very the number We second that We’ve quarter, and Safety’s that. Overall, contributing of the safety with factor high we’re to Scott been extremely contribution contraction. graphics

Andrew Kaplowitz

best in growth that there, X% X maybe XM really recorded some is healthcare. then healthcare, obviously in level is the gears and lumpiness that Okay, in you’ve drug the is to X% your reasonably in for comps to we that growth organic and saw probably mean ’XX the high? ’XX in delivery confidence oral behind healthcare care in Do in easier time growth strong is and shifting China

Nicholas Gangestad

going think we by that’s what Yes it’s be saw in be still to to comps going primarily XXXX, driven Andy, to and in I lumpy XXXX.

on the not negative into of to going anticipating full the that likely will we it what of the drug half positive the growth, second For in half the but we’re impact year. comps being year in we’re seasonality of delivery, of staring total as the in see delivery drug I healthcare’s noticeable first have in a year, look at is and

Michael Roman

Andy, from comps - delivery. drug me clarify let negative

the business half. the not We’re first seeing healthcare in negative

Andrew Kaplowitz

the including impact overall seem but of have rest the into you’ve business, that rest you would say the the good the business? visibility pretty new starting business of oral to product Right, got and solid, you in reasonably does care that intros

Michael Roman

Correct, yes.

Andrew Kaplowitz

thanks right, All guys.

Operator

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

John Walsh

on across terms Hi, Maybe what seeing seeing good you’re quick in you’re a any different channel if we’re normal, or still inventory of levels and morning. one your all businesses. anything if of

Michael Roman

just the watching channel, say it I very ’XX, you be consumer and out pretty but what’s would so electronics, we’re that pretty with in good have specific going to well. exited look business the on caution would we always sell-in, of of the as - at view But on broader that’s true around going - I It’s are end watch it across you a we on looked came good of balanced. markets and sell-out, know, markets and closely we looks making those as automotive channel. sure a industrial that to we a word businesses across not puts be focus that that of slowing QX John, across we’re balanced even watching closely there. and what’s something when a pretty say end balance, and

John Walsh

because once of every confirm consolidation that. kind Obviously to refinish. in get the be to there does kind Maybe one is specifically, of repair those out, all just down called a it business, just while was on Got into - automotive wanted of there you. and some drilling I that behind channel the seems

Michael Roman

we we year. the I said consolidation, ongoing. what out as what across first balanced the as went something the - said, industrial That there, automotive ’XX part about We significant through aftermarket think impact well out broader that for I true is the Yes, that’s pretty of as come we called channel. is a the saw of

so impacts we in watch pretty continue, that’s something as well. see But out can coming aftermarket that balanced as of that’s think on I channel that one those the year, inventory we consolidation. another automotive of

John Walsh

one more here. specific you. businesses Got Maybe the to

that personal larger on? happening just and about you’re of kind talk I acquisitions Can up little With kind carry sub-business think of was exposures. if of think you your by a safety organic done, there X. one to said you is continue can now bit the what’s momentum Obviously you

Michael Roman

If very that the ’XX and have positions about think, leader there and in a marketplace our the happening, I been acquisitions and strong well customers. a and the last and priorities the and growth leading larger personal it’s in growth we its it then we that to growth it’s a to able and in organic it’s us for expect really, as the over for to to ahead, expect--you I both so strong a that’s see develop testament lead where - well. we we to our contributor growth us complemented have continue portfolio company put the you market. two a for safety, the growth, It organically, is very move years we’ve ’XX, I continue think leading to know, that business position portfolio so position also that strong been and

John Walsh

Great, thank you.

Operator

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

Julian Mitchell

good Hi, morning.

Slide sure if the items either there out out XX hedging Just else any wanted like color was on laid is the in follow earnings that starting year. QX year on on extra FX, how to through Slide bridge XX versus things plays not give . out ranges I’m or up you’d sales the how -

EMEA particular, wondering just that revenue the you growth. APAC in QX see On confident and can both how in are positive side the regions

Nicholas Gangestad

guidance we’re out. laid with what far is to much the very a start this year in we’ve so line Julian, that seeing as

put say in in we line as the is how Just things went only through expecting. went XXXX, some weakening were were we quarter we what we saw probably in with as ended color I’d China The much quarter, very terms I’d on. the of

quarter, full quarter second to basis year, tailwind the stay or closer given expect it then things of be range. our I’d of expect a in of there, ranges will margin and for we of much of to to on low pretty the about, think Other laid there, I first year, on things and impact to we’re foreign we rates up that that’s our talk the year quarter XXXX exchange, can terms be lining in currencies rate, XXXX. out. margin XX%. going to as in first right position. to given as where if expansion, we’ve midpoint and I’ll quarter, and headwind that expect the guidance that basis, the guidance, that about see quarters throughout in the view Based XX XXX that closer and EPS our you what point the this range the guiding all an they by a us will end our note, Now particularly expecting hedging far note the growth then high to neutral with the is we and and Then tax by expansion are, that pencils year. half QX, the end areas we’re other were half asking see tax now we it the to out the

don’t progressively think I the by and in better, but guiding be out case of range Asia, think I’d more of I too out just to expect quarter that single those China the of quarter. mid where anything it’s laid the low then we’ve digits, here, first and quarter to we’re much if challenged the

Julian Mitchell

various just the follow-up Nick. be would around the in question Thank of levers you, cost P&L. some My

a SG&A in up SG&A or stated in changes particularly good guessing for sustainable? to sales a business but points productivity sales be about control margins a you how needs the so ask be to the R&D second so R&D very very, coming delta to Is because one-time operating ’XX, particular. margin mix year we it’s half function of headwind, the and is step I up SG&A? that gross of had it You’d may in then that in back versus I’m overall. do on up, should XXX about think XXXX slight basis

Nicholas Gangestad

improvements three revenue expense it the that from improving and I we about, Julian, break going margin productivity. a SG&A percent asking components gross you’re on improvements, of down, so our of our revenue R&D SG&A our efforts, we our years, up footprint do both see transformation over we’ve our some going front. coming see from as The front see expansion that then gross the margin continued in actions margin and expand into it’s of SG&A transformation, our XXXX. We that margin gross the if percent it of going be is to margin has going last leverage we’ll productivity coming some been continuing the is couple actioning been on and through our that be to that from to of

Julian Mitchell

very much. Great, thanks

Operator

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

Scott Davis

A guys. morning, Good couple small questions here.

First to into just ever one, I quarter simple they there type time a as had do distribution it? anywhere curious, for is growth. think get Is I’m you something mean, to Tyco don’t it system, how just Scott as long that your to or close of a Safety more and XX%? grow plugging I tried

Michael Roman

what integrated energized the and really, noticeable with we’ve we Yes, I Safety, a bringing we’re it’s those the it back some solutions that I think had in It’s that’s been goes and to together, business. it’s When a win-win together out having the leading with a combine general. teams complementary the think, us impact talking teams those, was go on as impact. certainly for Scott can safety I business portfolios, and about

had we think in bringing combining Safety a having are so leading part number personal safety was the it we timing matter, I and but of those a QX for marketplace well, certainly seeing saw projects as it, together impacting portfolio that with into from lift - Capital Scott and our come that Safety, we of positive together.

Scott Davis

makes That sense.

get on ERP. before just cord XX% As cost-out cadence cut into the for that in you of how cost-out a spend the curious done, year deploy--when while on you duplicate you follow-up, system. new duplicate cadence the the through ERP some until of change can long XXX% the you obviously a I’m When material comfortable Is with spend? XXXX? a There’s are going on that

Nicholas Gangestad

a what productivity opportunity expected, throughout evolve more Scott, to as chain we see be over call work will benefits, customers’ we SG&A to we’re benefits, not our event; years. continue material through a call is we a functioning to triggering I as significant it wouldn’t continued as and so supply couple the year. we of as meeting our things, every that more requirements, going ’XX, it one but progression quarter, but those in to the I’d ensure cliff. next we as for just continue not It those additional there’s continue realize into ’XX change seeing were we

Michael Roman

on investor value have talked also--you models we about take better map, advantage our Scott, the we we point down I maybe full we’re it’s - we’re get stabilize, as in new that benefit. we that we capabilities to doubling drive and But be take going and we place. think deploy add this we we to to in service advantage in the steady that to leveraging productivity. know, see, get and put place, a really have, the of progression realization gives you what opportunity capabilities we a that, a steady as as benefits you’ll that That’s day, the putting we of from and that’s next

Scott Davis

Fair enough. Good thank you, and fellows. luck

Operator

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

Deane Dray

you, Thank morning, this little for too. guys you A everyone. chilly good morning I see

Michael Roman

A little bit.

Deane Dray

in. it made everyone Glad

walk there, quarter it XXX% through free significantly. - it historical cash yes, puts the quarter, Nick, above lag you’re for us and pretty flow did just like please? takes fourth conversion you your Can looks fourth For but the

Nicholas Gangestad

the the through XXXX, significant flow. we in cash even conversion to our starting guide that see make of throughout built is XXX% ERP XX go-lives of extra in expectation we that of been we as progressed that before, that year, Yes, to one some as the deployments, free significant anticipation as in It’s in XXXX our and our things quarter, that of that we’re transformation we what we’ve cash on fourth flow change of improvements more things expectation our more impacting one shared part I’ve business the that’s inventory inventory and seeing ’XX. for the are going

thing is I’ll biggest one we biggest working for that So there, that cash call in opportunity places flow see our free out conversion. our it’s capital the of

Deane Dray

that office a the I spot in Then address we it expectations growth drill one Got office retail, maybe see for just one on XXXX? soft into and quarter. it. in retail, of was quarter down the Could had this the a swung but areas bit businesses of ecommerce third

Michael Roman

as sell-out about lot talked the Even were this portfolio of We and as sell-in, - that sell-out we’ve that’s in platform transformation, positive. the and started restructuring again strong saw Certainly channel through were that that the Deane, growth came see well been and it positive continue it’s and inventory for do we we we on seeing the evolving that story to kind and as growth so a category balance between ’XX, the a negative through seeing for still saw for channel business, of on being sell-in driver there sell-in, a so another portfolio remaining to little has our some is ecommerce a the We out. going an restructuring closer, story. we come the still growth and sell-out sell-out see sell-in strong. there. we we coming very

that we into as channel, how additional the in what get happen does story shift. will will the changes ’XX, structure So be or

drive that We’re continue the going growth long we’ll driving that to over sell-out, and to think and continue to the driving demand be and focused user that positive on I run. end from

Deane Dray

it. Got

quick by last improvement news some looking bit reports quality - theme, that see you’ll question in me in surprise, you’ve China because to got a XXXX. caught going in a but air Is the I recurring business real tough be on Beijing. especially improvement, little that that comps significant Just your at be now comment throughout a in

Michael Roman

year depend second gets happens the more ahead, some of we it will air had that see it that part improvement ’XX. line in what slowing certainly move but as we the first see we it of to and saw saw continue the as well. ’XX in came an of normalized it a for still of But does as the half on improvement. with what gets we more comp base in play we the year, through half as related some into businesses go to and impacted we in little quality those second it out through as tough in with saw go the quality we Deane, an we ’XX, air in to China comps half When the and ’XX, you

Deane Dray

you. Thank

Operator

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

Steve Tusa

calibrate, from commentary obviously lot help it’s saw like then going quarter, guys of and toward but end the mean, into towards end the with you the it’s quarter? of end more I a be morning. grow could quarter the you - kind Hi we what couple of slowing said some guys, a and towards to sounding a and happen a--will fall-off first, at different here low good had not the Can just really in of and the electronics numbers, of of quarter the that perhaps of what it’s end macro guys range, year-over-year. first the that about everybody thing, low we you into from of a saying? the I things first who quarter are basically about you’re talking you mean, the first in organically is the hear I too range

Nicholas Gangestad

is half of of based up partially range. I the in if way. we we’re in don’t of I that growth range, lined territory the on surprised half of be of the the we’re range Much in us the Steve, any what in comps, negative quarter. the in not year, half second and would first half see upper lower the in have the

we felt this comp quarter, be so in that ahead there year into The into of second facing that revenue only from third second second of quarter reason say I is second pull that, quarter we’ll was year. the last Steve, we some noted quarter, quarter

Steve Tusa

That makes a lot of sense.

Should Your organic enough make a think by double to bit as normal XQ XQ. first bit the lower low performance? up organic offset a quarter is kind is about a lower seasonal of tax, or seasonality of to from that digit we less little

Nicholas Gangestad

typically you tax bit if I expense. lowest expense see quarter tax quarter. quarter by more normalized is it a first typically--our look of do taxes think I our

in an see quarter at the of and Steve, to tax be hedging quarter, don’t other a think but particular FX will throughout to low in hedging look will a that noticeably piece, expense half, the it happening flipping, the bit of and be - quarter ’XX our I mentioned, XXXX, had first if the flipping it gains end. in headwind I be in will are, first range, XXXX. driven and by currencies year, you they’ll abnormal was in to it pattern they that primarily range. be first below will Then the that and If I losses stay then as closer the hedging us We the in XXXX, be seeing. we’re in where offsetting that’s the first in

Steve Tusa

And for how big are those gains ’XX?

Nicholas Gangestad

stayed We in a million now. XXXX, gains of where million, $XX million, had over approximately $XX they’d hedging million and of $XX they currencies if right little losses the be are, $XX in

Steve Tusa

a around to we over One is continue of I a we the benefits term think ultimately ready How that one you’ve of or dilution you of term, as know year, one headwind, temporary, year it portfolio you’re does of--should the it’s it is catch flipping year guided on of last in annual but a kind through--you a a quick context on because but negative. to long all of work end about this obviously an portfolio positive like for for bit. know, up that should that towards the on bit basis, you seems guys management? long guide portfolio through $X.XX a know positive, work kind the as some kind bit portfolio bit of the little is you management. the I It be This this headwind. of

Nicholas Gangestad

aggressively buy that’s fully it that the to not value part we our of of as in this so time it of transaction we a what equate amortization. year guided to that one to be some MModal well realizing beginning costs will we EBITDA costs headwind be of some $XXX we XM. expect, that model year think create year at three. our XX see the into having times--that as owning million-plus as one as the by by of some ongoing three an want example, $X.XX this to the a say of about integration whatever I driven it, This would first that will XX times that’s uncommon EBITDA, often be integrate we If of generating by it time, by one, use particular year company I’d our we can

Steve Tusa

Okay, thanks a lot.

Operator

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

Josh Pokrzywinski

tweaked to more then are MModal, seems of you’ve what about bit than if good guys. out, Maybe add like offsetting factors guess some organic start the I can I growth, the Hi, a guidance? what you range by. talk lower it the in pension, Nick, morning up and

there as a bridge we in mentioned that lower. little an of the being aware the was offsetting that You tariff item? be else should Is headwind anything

Nicholas Gangestad

three all terms just out, down. Josh, back we in what things were In you called those anticipating those tweaks of November, be would

headwinds, had down As material I called we’re tweaks higher since expecting tweaks back number what that’s less up raw out there, negative a have environment would single far and prices, laid one that specifically material in a seeing for raw quoting partially out. we November, that were as offsetting November if been of changed. I these I’ve some That’s the biggest that’s for

Josh Pokrzywinski

other quarter just in helpful. exporter, you the when tariffs? that’s cycle you do kind We’ve it, some January that a any guys, for work of short as all. of still date an did curious of fourth see was impacted Then if customers seen in some any target that Got at pre-buy your

Michael Roman

We the happening, It’s we changes, progressed are look and at close just macro we and a quarter see channel the partners, you way the certainly we closely that any Josh, in impacting when it’s with from quarter, have know, they any we’re see of part the these said, we expected. we distance we not watching indication didn’t - through at came the significant pre-buy. not that those didn’t of Nick as what watch as and - that level.

Josh Pokrzywinski

Got it, appreciate it. Thanks Mike.

Operator

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

John Inch

everybody. morning Good

that? Europe markets know a market, but to Is quantify a XXXX So versus lines there’s self-inflicted from well? product does actual how it, Europe, to way of spill as and by much flat, withdraw and there actions the that if the was outlook into way quantify Western that your certain don’t own I to how

Nicholas Gangestad

there’s of us saw into exit of in portfolio, we built significant of that but taking not to lines choosing level as on that XXXX. what ’XX, adjusting of be that points we’re basis estimate product I’d carry-forward that XXX a specific John, into about our There are that. as actions will some

John Inch

Is to Europe? how or you you is I in still to what exactly are forget get tracking? in said timeline your track ahead Nick, that track? XX% on what but of that was, the on schedule, just margins November,

Nicholas Gangestad

’XX that, be track on will a John. seeing improvement XXXX track will get us XX% do for noticeable XXXX. of we’ve to noticeable to that of year things set to done we’re Yes, by ’XX on be number to year us where up in and that. margin a ’XX a

John Inch

range productivity, actually XXXX versus things. must you of lowered calibrate you better? by this there would tariffs a a this lower, guide. saying; Then some other the other only the be $X.XX, obviously a moving understand the I lot didn’t still while being oil on lower - midpoint but of the hand, other which you percent and November, that’s like actually fully minus-$X.XX declined, materials, argue midpoint the so material of if you parts makes because headwind, the end because sense. have but could where say of Twenty why, there’s materials slightly is only to If for is really you curious okay. raw raw the MModal to - declines half why are, $X.XX offset, even be guess though guide here trying things is by that this Nick, that point, things the took to that I and just down any adjust a minus-$X.XX, I get I’m offset you’re lower, on impact what raw specifically point,

Nicholas Gangestad

material shown had expecting on in I said we have out on we’ve materials would seen what tariffs we with turned some oil could what I quite were that say, even and more haven’t things been that there prices, November if as we and higher headwind we bad that of with Yes, in this, Back with were I more like our look remain, a see the showing we expected confident whatever tariffs confident raw were it raw I’d front. and selling as offset than we as we estimating. November,

John Inch

are a did you billion better; consumer Then that semicon--was semicon Nick, know X. about why Asia did Remind of lot is electronics it think of Did did the case? XM I in these you if dollars? particularly weakness lastly, the that how that’s do companies just do is a actually, piece specifically? seeing us, the you do or and calling out, better around

Michael Roman

maybe I’ll John, take that.

there. We’ve into to the that, some we’ve through our business, piece got in of piece business the went certainly consumer at we If materials solutions, semiconductor electronics, semicon. look We largest a assembly look see into electronic the of has goes materials at it. When as slowing we got other it but you the quarter. It’s of big have portion expected businesses you not got that.

in quarter. growth in that they the line, X% line about, overall saw talked Nick As that with the business were was in we

I but that as on are so going guide caution of of caution more of and there’s semiconductor ’XX. it impact less part manufacturers an in we marketplace was into forward, that, more the the of would QX Going part say

John Inch

Thanks it. Understood, got guys, appreciate it.

Operator

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

Laurence Alexander

of impact more characterize XM two a about in Latin emerging XXXX disputes? pockets around - strength bit tariff speak may detail, the to you are, see you’re work the realigning customers on market little supply what a ones. from and quick seeing their Could current America Hi, you in little more broadly like you kind of bit in where XXXX chains can what

Michael Roman

in are we look To something about broad-based broader of was first, we outlook as your portfolio Latin pretty our both as QX. Latin seeing we for. pretty It balanced countries America growth certainly saw the question we it’s across and Brazil Mexico, have to chain came portfolio, there, that about there, in talking through supply and growth, Laurence, performing the we same well XXXX. watch and and changes largest and based we America kind

tariffs expect play. over We time the into react supply chain to as come

and hasn’t with that this We products, customer way. haven’t visibility significant shown haven’t of that strongly at design closely we’re We We to on supply on it up point. it the just seen that specification just with that react good seen a and and them connected point watch pretty impact our the this the - to chain. includes it

Laurence Alexander

Thank you.

Operator

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

Nigel Coe

Can you going long and morning, hear me thanks okay? good here. Thanks, for

Michael Roman

Yes.

Nigel Coe

a the with problems phone. here, so some cell phones having I’m I’m Good. on

electronics to the want to dig obviously businesses, into difference for cadence. Just to two you’ve energy, we back in the in sub-segments appreciable provided business, you the outlook go zero seeing [indiscernible] and If electronics quarterly for some terms are any ’XX? X, of

Michael Roman

the you’re about or of talking electronics? versus you’re talking sub-segments Nigel, about energy, energy

Nigel Coe

X% break that two Energy out and that versus how the midpoint, sub-segments. at would electronics, between looking

Michael Roman

the the that more QX, Yes, we pretty would we the electronics, kind the that’s based and about. of cautious coloring would the year, The so outlook of so energy outlook is into that go little the of the we’ve highlighted Energy as we markets, the with one in all contributing, for that continue morning say, have end into caution good performance we from more that in say on an a evenly year, across markets been but say them as in markets looks on XXXX, go I to I stable both I would end same. we’re that play.

Nigel Coe

energy there margin electronics higher clarify the assumed but any that? appreciable you Is and between profile was always could in margins, difference I’ve Okay. electronics?

Nicholas Gangestad

and there, energy. electronics Nigel, difference in between Yes Nigel. discernible different a margins the between there’s similar, our the not really very They’re our components

Nigel Coe

safety quickly for Nick, XQ. on margins made comments Then the could and you clarify just Okay. graphics you if

wouldn’t just we’re then Scott so XQXX, Scott I’m seen Safety a headwinds, we out Safety but XQXX. accounting in the purchase integration some benefit headwinds in from against You wondering called comping have why of

Nicholas Gangestad

basis When discounting piece. out as I’m bringing the for last contraction, gain on that Scott, year, it’s say with our point electronic underlying already of the business. backing monitoring XXX and well as that’s go I were there them one-time had sale margin costs in, When that we

one out ongoing business, in our continuing Scott and we’re take of of and that Now the other safety that’s we on. to behind largest things it’s that that but That’s taking part actions the and taken graphics are actions Scott’s of we’ve parts our one business, that.

clearly The you, seeing that roofing in Nigel, year-on-year decline sales other that we’re granules, maybe the safety in enough is that’s piece impacting that highlight I for didn’t a creating that is total. contraction margin and graphics

Nigel Coe

thanks Understood, Nick.

Operator

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

Michael Roman

posted quarter XM you. good company Thank summary, the capped the long another accomplishments In significant term. our year of fourth results as while for for strengthening we

four our joining executing Moving and again this ahead, delivering for priorities customers shareholders for and we a day. Thank in have focused our and good are us morning, you on XXXX.

Operator

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

3M (MMM) 29 Jan 192018 Q4 Earnings call transcript