MMM - Earnings call transcript Q2 2019

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Operator

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

During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, July 25, 2019.

to of call Investor like Jermeland, to now President Vice Relations would turn over the Bruce I at XM.

Bruce Jermeland

good review. formal then questions. are Officer. Mike and quarter comments, and Nick and and you, morning, Nick Chief to Officer; Welcome Thank Financial our our Chief XXXX Executive business your Roman, will With we’ll Mike today and take Gangestad, me XM’s Chairman everyone. second make some

Investor Relations earnings are our Today’s and posted heading, the accompanying slide at call this website Quarterly release presentation under Xm.com on Earnings.

group results Please the starting are reporting note quarter. we under our our second new business structures with

performance group May business of X-K this found along details Additional in XXth, the Relations appendix can be Investor and our with our presentation website.

your call XXth. quarter our mark Lastly, calendars for which take October Thursday, let earnings me on place third you will remind and

Please Slide moment on the X. forward-looking take statement to a read

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

Venezuelan presentation in our that appendix of measures of which the presentation, please release. references impact and can Reconciliations we measures, the be today’s press non-GAAP non-GAAP throughout measures deconsolidation financial particular, in Finally, to exclude note will of today’s be certain found making of the the subsidiary.

Mike. X, off Slide and it to to Please Mike? hand turn I’ll

Mike Roman

encouraged I difficult performance progress second and coming in our to thank Thank a you you, and company’s morning, Bruce. for by start year. off joining quarter, the the us. to Good am everyone,

our on next which slow reducing in slide. will conditions discuss managing while strong. execution our was face end the We I continued and inventory we key levels, markets, restructuring to implemented effectively While growth costs

result are portfolio, Our team year. on the four creation, people focused long-term our innovation we today guidance we into as transformation, is time, the At as for and remain full control we we second building half for affirming priorities momentum going our on value and focused a culture. same what and the

acquisition second quarter, health excellent we Acelity, this an the the In to included fourth care our quarter. to close of and our complement in expect which portfolio

Please Slide turn X. to

actions. on made quarter, our call, laid strengthen second As recall out and the with performance. our you specific significant last we earnings aggressive actions In of those progress we each to

$XXX enterprise, pre-tax has resulted finalized the First, a the restructuring charge in which across been of million.

We continue year. to expect this of in $XXX remainder the million million annual $XXX million $XXX of savings to with

restructuring, the cash Beyond are other several increased flow through we driving actions.

manufacturing our the output adjusted we million levels over and by $XXX quarter. in reduced example, For inventory

than by $XX indirect more curtailed also year-over-year. costs We million

our strides While on we focused improving is there remain operations, will do still productivity. in positive managing and are more we to making and costs

As to this, we and to our in growth, we CapEx research will our development and innovate organic customers. for promise to invest deliver continue the on do

our of grew at which in versus a companywide softness a was which quarter. Slide was continued in other X% second our China, minus businesses. our Please turn improvement growth in by our with electronics, and growth business Growth market We Care automotive summary X% to led X QX two Health good for end tempered consumer saw was line Organic expectations. X%. and

cover from $X.XX which adjusted a earnings and Transportation EPS, will of we pending Nick Safety in Industrial remarks. $X.XX per Electronics respect while down includes and X%, Growth and a With divestiture, $X.XX a which for his posted share, declined charge X%. was restructuring to in by benefit

basis restructuring. were XXX from impact of excludes margins points Underlying XX.X% the which

QX margins, making are progress we to our good XX.X%. relative So up

reducing while production Importantly, of we even delivered XM which model. and margin reflects the the strength inventory, this value improved performance

thank plans do, and left I and take people rising to opportunity remains strong. is the executing for more XM’s for focus foundation occasion work to urgency. with to our And wanted this our to while there

advanced We and global competitive leading [indiscernible] have capabilities manufacturing, brands. advantages deep

market businesses and relationships leading customers. our have We strong with

ahead, Moving That enable come our Nick all the on through back quarter. the to discuss maximize up continuing details I our future will opening our focused wraps takes guidance after are serve better Nick? you we improvements to operational value which of investing for deliver and and will for comments. my of the us to customers stakeholders.

Nick Gangestad

and Mike, you, everyone. Thank morning good to X. Slide turn Please

Volumes basis our points. points XXX declined were sales selling expectations. Second X.X% line organic basis prices in while down quarter were XX with up

net of points. basis divestitures sales increased and acquisitions impact The by XX

basis headwind foreign in point year. quarter XXX sales. translation sales currency last was second in, X.X% All U.S. versus to dollars a declined While

Health Looking up Care Consumer with year’s was the quarter digits. grew declined. Transportation while digits by second comparison. at single growth Industrial and was flat U.S. geographically, go-live. boosted ERP organically mid low versus U.S. Electronics customer and flat year’s last Last demand ahead our X% was single of Safety increased

QX delivering than by basis declines organic Electronics, in [indiscernible] XX positive in and Transportation which Industrial was China points growth points single Safety with offset and digit Care each declined in Consumer. with was while XX down growth and Pacific Care and Health Health growth mid in more Asia basis organic

to organic expectation expect China be growth single mid year, a flat. to now of low down we versus the digits For prior in

conditions, industries. in electronics we continue challenging particularly experience and end the market automotive As to

digits. last low X.X% America/Canada on in nearly each year’s Canada, Latin points comparison declined XX second EMEA grew quarter. basis X% up Brazil, Mexico with a single and

the second to of impact XX.X% XXX point $X.X turn actions. were for income included a which second sales operating other restructuring our Slide basis with billion. quarter quarter Operating $X.X quarter second billion Companywide, were margins from and Please P&L highlights. X

inventories resulted margins XXX QX along point the year’s production versus decline operating reduce year a penalties volume cost in to reduction business was margins These organic anticipated, all to second groups work As factors biggest volumes last absorption quarter. year from impact basis the the in to with quarter. on lower as in

selling and by continued to prices down basis quarter XX combined offset Acquisitions more material M*Modal. second points margins. divestitures than to contributing of to primarily basis brought due inflation Higher the margins XX points raw acquisition

year, selling expect continue net finally foreign than hedging increased to raw And prices basis the costs. currency more margins to of we impacts offset material For XX points. by

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

the anticipated, were related sales due than Second $X.XX which earnings quarter to for along primarily status cover adjusted a held better I pending share. a improved bit was per That to with shortly. productivity divestiture, we will

to related held production by of penalties the per quarter divestitures we $X.XX last announced quarter per share share status of a business second reconciling inventory gas to and me Negative along from organic the sales reduced versus per $X.XX by and divestitures the in This levels combined $X.XX earnings cover lower tax Let increased result pending earnings. includes growth [indiscernible] earnings items with now absorption that flame June. year. the benefit detection second

Restructuring share by and per actions lowered other $X.XX. QX earnings

year quarter by per Our year, second higher share. earnings decreased rate tax $X.XX which on underlying was

last And we to finally, earnings. share reduced by which QX outstanding shares per X% year, average $X.XX added diluted versus

X our Please for to cash performance. Slide at flow look a turn

point rate flow $X.X billion of cash Venezuelan deconsolidation of was benefit percentage subsidiary. our quarter with a from conversion cash XX Second XXX% flow the free which includes free a

capital $XX quarter Second were expenditures year-on-year. $XXX million, million up

of billion $X.X to in the we to year, full range CapEx the investments anticipate billion. continue $X.X For

dividends in paid returned through and the repurchases. shareholders $XXX During million million growth we shareholders to quarter, cash to share $XXX

expect continued be repurchases We to to $X to full billion range of year the in billion. $X.X

the I for Slide will the business the based continued QX. to will start Similar performance quarter. quarter, business group broad summarize where X% most first portfolio. channel XX, Safety inventory across in and we softness Industrial declined and to I turn reductions with our Please saw of which

And automotive safety particularly year masking was the comparison closure and systems growing low a abrasives digit low aftermarket, digits this impacted up digits quarter, Personal our in roofing granules and double positive QX single factors turn organically. These single ago. against businesses.

Safety growth, an inventory restructuring operating organic the underlying Safety approximately quarter well Pacific, X% impacted a with was each EMEA quarter geographically, second XXX Asia output and Industrial’s organic reductions basis in by of by and U.S. in points. second actions. Looking Margins negative along margins and America/Canada, were manufacturing Industrial’s decline and growth were declined. XX.X% with our Latin increase led

Transportation to and Moving Electronics.

Second display materials in points electronics-related organically The basis were year. to with declines XXX offset more organically down businesses sales last than growth compared digits systems by were down materials quarter low solutions. electronics single in

X% year strong digits continued business OEM in automotive safety to was quarter high was Transportation car and single by up growth up comp. Our deliver materials digits X% last down in mid strong second quarter. and on organic single year impacted the advanced global year a decline

Safety second Electronics reductions impacted and Latin Pacific XXX was inventory Similar XX.X%, Transportation basis growth Industrial, along Asia and organic point and a restructuring. were quarter manufacturing declined. in flat Geographically, basis and margins America/Canada, and operating were the points. to impact with U.S. from down EMEA XX well margins both by

Turning quarter growth to business, a QX. systems. first Care information growth was in Organic of improved anticipated, versus team our organic across X.X% led Care, broad as delivered as high Health health our in this business increase Health by single most digit

business single digits becoming Acelity business Care later of mid digits. up continue part year, up and was to largest single in Health low to Medical look this solutions, forward our this we

up our from included expectations. and basis, single led the line which XX.X% geographic restructuring. was point Finally, way a basis with each XXX Health were and mid U.S. Pacific acquisition quarter second mid combined the single M*Modal Care digits. operating delivery drug the down digits in On Asia a margins impact

grew digits home in growth for Sales Care, Lastly, quarter office organic Consumer second single and business nearly Consumer low improvement. was X%. Health our and stationery

care home declined. While

geographically, and restructuring. and Consumer by were which Latin a XX U.S. XX.X% was the second while quarter X% a America/Canada, the basis Asia Consumers from point declined. impact in increase at led Pacific Looking organic included margins in EMEA operating growth

XXXX of results. hand back slide wraps review Mike to guidance. XX and to second our That it discuss Please I’ll up over to turn Mike? quarter

Mike Roman

Thank you, Nick. we our affirming Today, for guidance full year. the are

to note or growth per include earnings the the $X.XX organic to not minus flame of our pending divestiture $X.XX of business. that guidance detection and this Please expect one Acelity gas along plus with does X% adjusted acquisition We pending of share.

expect And flow rate conversion to We XX% cash XX% of a of XX%. also continue to invested free XXX%. to return on capital a

will we see guidance, we the momentum we While there macroeconomic in continued from maintaining uncertainty half. actions is the implemented the our in first environment, global as are

a specifically, are and the face. [Indiscernible] PFAS, we PFOS, subject which PFOA of litigation

issue are people this to few I things want know there CEO, As about and our company. that

and phased to of so. the people first our XM XXXXs knowledge water. First, and PFOS in improve out give expertise the to early the committed of was company then, confidence of PFAS, voluntarily PFOA we and resources their support using have been in to Since the do production and remediation

water testing in million sources. XM $XXX has invested

another invested million have as more be XM has decade. removed, effectively substances filtration systems doing We can which a $XX been for for these than

manufactured into have states voluntary agreements We entered where with these communities we compounds. and

contributed peer-reviewed by the with thoughtful time, EPA of also with conducted have hundreds regulations PFAS. and of studies on effects based to support to we are other journals, the backed by local science continuing potential facts. We and solutions researchers work to and the same governments along state on At and XM

regulators continue We with environmentally review The to leadership evidence we partner Pays PFAS also to program climate environmental caused We our not ago and show responsible believe levels. that challenges. started being to an than scientific evolve. address continues or XX available years people current speaking, Pollution More our Prevention an to is to up does independent harm at all step [indiscernible] past core scientific that more groundbreaking and should XM. body exposure broadly company to

and of XM in law customers, our court in people, global year, personally. alone, point to value and entire vigor our XM with deeply to is the to helped matters and committed move to million this our our we emissions. we year will a operations energy. court of Earlier of our last tons is the a It renewable of customers And avoid company’s defend solutions reputation me Sustainability pride opinion. XX for that public to

concludes now remarks your we’ll and That take our prepared questions.

Operator

Andrew question comes Please first your Kaplowitz question. line our from [Operator proceed with the Instructions] And of of Citi.

Andrew Kaplowitz

guys. morning good Hey,

Mike Roman

Andy. Good morning,

Nick Gangestad

Andy. Good morning,

Andrew Kaplowitz

bit Mike or similar like bit stockings your look last you like it underlying basis quarter these growth your from Safety OEM did of you about the industrial Industrial, it Nick, Transportation can in at was a the cadence companies something late and Some of of market. said you all XXX QX customers about stabilization auto and see a the a that QX, Electronics, have as and you better as in went on? a points than talk in cost business quarter talked revenue impact performed does

So have you or closer seen to any signs auto destocking this industrial of ending?

Nick Gangestad

pretty progress the it our the I months. we as each were points of channel saw Andy. progressed. positive say discerned can’t to the destocking. or sales quarter, really in channel our Yes, shift terms reducing quarter inventory If last three any through quarter we regards momentum I about see negative XXX of basis as said Throughout internally, I we trends stable in what trend the did we impacted about of

our more us We much we the were to relation SIBG destocking we by event going relation the first again China most and as in destocking the in same very the and quarter. destocking channel the auto We destocking industrial business, in noticeably automotive, impacted quarter of on that were quarter in was was channel particular just second builds as in penetration a safety that saw to think pretty not impacting second group. seeing It and what similar less was in in normal business impact to a in auto. and far

Andrew Kaplowitz

Okay. mentioned in outside the half $XXX then Nick, million decent have And step-up of benefit second save to that’s in the to of midpoint a even the EPS guide. make will helpful. year the that your half It help the in $X.XX. you second the presentation in you’ll

to So that Can business on more how some help second I control? terms initiatives in in the continuing step-up of you in think are in second us programs how in your you savings of half? half XXXX. the ramp give of color transformation much be optimization your and stocking there'll and can much is

Nick Gangestad

Andy, on. a Yes. things are going few

been half into of inventory out We continue have operations. taking year. we all, our of some the of the of and progressively First that’s more more own think going second that

So facing to the that a half will that in we the year. continue be second are of headwind

would I’ll benefits say right a restructuring about disciplined the $X.XX overall getting just management of we be call we will as in slowing that light economy as cost talked We of well what now.

our of impacting discipline that some So will be execution the half. in second in own us

that FX, in margin, the things year, half other a which of will On headwind there neutral second be that the impact likely in a – been some will the the if are rates to first us. has be we quarter. first they that in second us execution improved But are, going in coming over be particularly the they positive where stay will mainly year. of half what to the in saw it’s just the to FX

Andrew Kaplowitz

Nick. Thanks

Nick Gangestad

Andy. Thanks

Operator

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

Joe Ritchie

Thanks. Good everyone. morning,

Mike Roman

Good morning, Joe.

Nick Gangestad

Good morning, Joe.

Joe Ritchie

the Hey about of Nick. expect, some Maybe the for on you just are ahead be you for kind margins and manufacturing staying rest you a the also quarter with this year – think of indirect And how inventory have moving like what reductions. this estimates big reduction. clearly, guys the like and to the given obviously, year, headwind productivity to cost was

should each this to you about trying know, to it through them I'm understand don't is other? as a through. going as things offset I are Or to progress about tailwind? to how year So just the be think we think the that these way thinking right

Nick Gangestad

view it means view with of we about end when My for have Joe, if how progress collectively start for think is seeing to out analysts in I the year. of own full in where collectively about view all at are year, it by you the the collectively our dialed will lines where right. let you full I’m What me I amongst sell-side closely look very going it are saying their the all looks of total just year. like things up internal

growth seeing we absent throughout been and was on a progress expecting we QX, actions, single somewhere low the we’ve happen as quarter a between Joe, margins, in restructuring what If And happen we margins to into improvement sequential we year QX, growth. what digit QX, as the to second expect in focus as far to continue in now right at I flat look to organic to organic be particular as are in execution. the QX

that QX improvement into going is to We sequential going think continue.

higher expect margins quarter. to our XX% we So third in be or the

building margin we is what our there are momentum story. so some on seeing And

Joe, about the you I'd those half so the and second year. the And say, of headlines think how thinking are to about are

Joe Ritchie

Nick. how Mike, just Got commentary I to all PFAS. maybe, And curious shakes to out, on it. – get a hard very, I guess an as That’s this super be obviously, your we be continues views get I’d it's very guess we’ll earlier think helpful, start resolution, as helpful, assess but obviously shares? the of of bit it some on overhang on like could timing sort on about to when when to

Mike Roman

of can timing, look about to not talk to Joe, things we about of And let kind but wouldn't a respect a it’ll it's Yes. I you me lot, give In think today. couple timing. say at. what

kind in first The that fuzzy there These fixed. the of related They're us. the trial, trial, would there be late But multi-district Wolverine time on come we lines. is to until cases actions at MDL, AFFF, trial of quarter. trials is any would litigation, end a expectation related of the to expect XXXX. if the a if that's that first the when Michigan that not the kind first are wouldn't

learn we a So all those of of the as we we're my more, understanding And And comments, and – litigation time. are timing. I gaining kind learn you and as as in said more the we’ll go. as frame update we

Joe Ritchie

you. Thank Okay.

Operator

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

Andrew Obin

you morning. me? hear Good Can

Mike Roman

Yes good morning, Andrew.

Andrew Obin

Yes.

Thank year? through the about restructuring through first that question. you how think questions. side on and versus first follow-up couple equation That’s of ex the core a us should you. the quarter the Just progression we just walk Could sequentially of gross margins

Nick Gangestad

what underlying but little Okay, a said I be our this margins… to bit will of Joe, Andrew. repeat from A core

Andrew Obin

yes. margin, Gross

Nick Gangestad

clarifying margin. Andrew. that you for Gross Thank

quarter the margin the think we're related in second pull we out XXX restructuring estimate down out margins first In I went basis second if by a litigation inventory we first XXX the the aggressive points that core that points XX%. activity impacted, and production. our our So in in out quarter XX.X%, the basis the and we by to pull to our taking gross gross quarter, pulling had some we the actions was being that's costs to underlying quarter If down. in

impacted margins we those be to we're And seeing margins the on underlying operations, improving gross we're our we But So actions execution what inventory. slightly there. quarter. on our to us also do see working gross third continue taking good expect into by

Andrew Obin

So pull you're if of out, to recovering inventory, XX%, take slowly out, statement just XX%. that if you pull sort that that we more of historical of clarify, XX% into fair we That's a from range out if sort

Mike Roman

a that's fair Andrew statement.

Andrew Obin

I on then I upon for assume forecast the, inventory, it's that's think, right? XX Slide flow free XX, working And cash that capital, all Slide improved

Mike Roman

I keeping a you're we’re projection flow free our flow think deeper for XXXX. free thing going Well Yes, working slide. dollars conversion. cash is the capital and cash actually Improved of biggest our into conversion impacting

Andrew Obin

quantify XX capital to were much have And months? opportunities next to XX if for the working you you reduction how do incremental

Mike Roman

a million be get to be isolate it the I'll next just second down took get been targeting $XXX where of in likely in out think end to second there's I’ll as outstanding. days $XXX that to inventory then or early the XXXX, we now, this we guidance the we're but year. later million to answering of this question, going or little XX to out down And year. that early that in that XXXX, half inventory, of we If bring in year we're giving targeting we've another further of say, to to far it's XXXX. That's can that taken right as Andrew, quarter, XXX

Andrew Obin

you much. Thank very

Operator

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

Julian Mitchell

Thank morning. Good you. Hi.

Nick Gangestad

Hey Julian.

Mike Roman

Hey Julian.

Julian Mitchell

you that, Hi. One your flat couple for pretty assume QX? how what help that focusing think Electronics Not but Maybe further that. on under be, slight Maybe efforts, growth you what are just good be a of would of wide. was QX, talked with firm organic does and QX? to I destock. so assuming the channel then in destocking about after aspects severe sales and Transport channel that a that And would own within business production just

Mike Roman

stabilization last step as you the move – And now we've about, this to sequentially to to what the slowing we’re we’re we've seeing been I It's forward of to a would economies it came third global we recognize trends that we degrade would on probably that seeing, the is go second seeing. have Nick if was that as markets year. at been good say to but it just would that And deliver a below since through I quarter and back. look quarter, have facing trend talking really the even further. economies late is

talked we about it And out what if inventory plays at at relative are when taking you quarter first total adjustments the look in saw the channel you we as think to channel the a place Nick the the quarter, half. second look in of in the first year majority

be it some even though there’ll lesser will impact second half. the So in a impact be

as So add comp that trend. if get it our deployment would a at QX all easier with you last into that ERP plus look that to up year you

but down. electronics. But see that a still we a for build view and we second second be we the sequentially that from second conservative and hoping with where don’t we down in are are to in the – in half stabilizing are with soft And think people automotive market go year in as down early talking may had stronger – they be just more talking rates about them your into a the half quarter. been they on in where I versus question in of we’ve see second the line from would recovery TBG been continuing in they outlook where But bit quarter, about, now

see sequentially TBG. in we So down

Julian Mitchell

you. Thank

Nick Gangestad

somewhere year expect digits bit And what with third and particularly, just for as for full We’ve to I quarter. far end now, year. the Transportation little to guidance X%. for we think we’re we're towards said the that’s right that that full we’re and Electronics low estimate the that for to that of had much and expecting Electronics. low down range in – leaning to what be to as Transportation guided Transportation say add flat line Julian a year Mike between down full in we for the I'd there mid-single quarter Electronics for in if the Hey more third the And

Julian Mitchell

helpful. extremely That's

following-up Just that your you China towards that's the on you a said, down end. think as Also Nick, from took standpoint trending regional I lower assumption for the year.

help of regions us segments the brighter growth understand reaffirmed today maybe for or end XM in April? organic of So in which for context the than maybe guide the that in a sales looking overall coming little XXXX bit back or at the higher are

Nick Gangestad

range, so that going as guidance, a where seeing gives come year that given ability little forward. range as we quarter likely as of the and half far when laid also to a the the more And may as full be one affirming we also that for that's some maintain range; likely to on of the see in in year, things the of could in a in Yes, weaker that two that the middle guided we've that, out. sense in that this the guidance and low the the that to it, had bottom Transportation range. right high we're end; full the happen Consumer. end more the places and there put SIBG And healthcare see I'd we've Electronics us but and it towards there was for continue plus we're and negative last we the we be

Julian Mitchell

you. Thank Perfect.

Operator

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

Nigel Coe

Thanks. morning. Good

Nick Gangestad

Hi, Nigel.

Mike Roman

Nigel. Hi,

Nigel Coe

Hi.

keep to kind Just really. that one want follow-on of

what about think to of the all means minus two. plus one kind Just that

sort midpoint seems today, what on slightly for up at that it you be slightly based below maybe towards like sort you So, of fair, looking in to flat full see biased of year? Nick, the would the

Nick Gangestad

XXX I landing up that's so mean a very spot most of the think flat to is Nigel, where up to points, fair XX range that midpoint is. like basis basis our points, for likely zone XX Yes I of

Nigel Coe

remarks. helpful. excluding this headwinds? missed that of you the quarter? that's So some of sure down headwind I'm inventory quantify Okay, that was you through the inventory Did not the what XX I saw, bips, sell prepared impacts

Nick Gangestad

about there's the said was to also on second point quarter Nigel, there's, a clarified channel contraction, we XXX revenue. was have points Mike talked two think first for Now we the we inventory something last channel is And we impact some of think contractions us in that inventory to different we We us. similar well that. quarter basis about quarter that majority ahead behind still think it

second our within inventories that have of that terms to said our the In we think I've that a said company XXX our margin production, – in as we've points. been reducing ourselves, quarter impacted by reducing we points basis basis XXX

Nigel Coe

the this of quarter. on Thanks time implications my was question really some the or location of else in the and was tax that $X.XX follow-on gain, And for somewhere There land of is clear. that the That's line very tax detail. Okay. did one Nick?

the restructuring or is right of restructuring. sort charge. payback it the way it about X.XX non-operating of the because just does think come non-operating that then non-operating. of $X.XX that And on restructuring based Is is was payback nature operating, down to of and The maybe some the touch secondly, X.X on

Nick Gangestad

what the our we $X.XX parse Detection expense benefit million tax to held that Nigel line ran it that versus of you're in fact of Okay, the million out some tax business, operating income to were of year I’ll expecting. and $XX on $XXX statement. $XXX million sale line, the We $XXX The we Gas annualized impacting our going the $XXX status an with have relation asking line two doesn't income approximately for this and of our at The all $XXX we in were estimating for exactly about, operating through million. impact hitting benefits yet that's And million projected the incurred pieces non-op. million. balance basis, the forward just the non-op approximately is

fairly well XX% unallocated around I our that of as dispersed and far that about business As million in that $XXX far was expenses say that as and of of would restructuring, was corporate happened about section, happened, that XX% it around operating where in as XM. businesses. And our restructuring in the geographically was of

our each half. benefit, to will through the fairly benefit, second far in will be of as of our felt businesses million it the the that second proportionate year you’ll as half the of see by size be benefits the the Now $XXX that businesses and of that

Nigel Coe

Thanks Great. Nick.

Operator

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

Josh Pokrzywinski

guys. morning Good Hi.

Nick Gangestad

Good morning Josh.

Josh Pokrzywinski

of de-stock point clarification that externally your the you on customers. a saw just Nick, inventory by

You in quarter of said China the that But better. specifically the basis in first second auto got think, XXX kind similar quarter. I auto, look points

within worse? that see worse. have Where we that So gotten did something must get

Nick Gangestad

as worse quarter nothing anything out strong. got comes Josh, sequentially first particularly that far versus the As

China on I we see think aggregate in continue in basis. China more to destocking a broad

and automotive of we in see seeing didn't total basis that any was terms across it we So What points significance. both impact of of business were Josh business similar Safety a quarters. that in Industrial destocking we XXX our the our saw view very

Josh Pokrzywinski

as, turn both soon historically destock should equation demand or that cycles rational with in end case headwinds? turns And historical into exuberance think but kind to presumably the we be about think guess expect things Or will maybe helpful. to I get a it's we back selling go, point starting as destocking I then on destocking of context That's been know thinking for restock. as sides a the market we how lose that of of XXXX this? of some just XXXX and about it. we the kind re-stocking Got just to little hey, of that should Has China bit there's as to of early

Nick Gangestad

Josh, things. couple a Yes, maybe

If chains, value say customer in first I channel reacting would value half, react you you the and the the chains, saw build look dynamics the markets were the at and end quickly they the electronics. quickly. rates automotive destocking they the to to pretty What in

but second because in that of half. the see stabilize. saw that second some to destocking quarter, expect we We slowing additional of We'll in the it'll stabilize some

on the But if end you pretty the late even If and in what turnaround stable about And up, would more it market So really happens as strong goes see in in to to they then demand depend it dynamics. into a year, would it start projections recover their the then think balanced as we the XXXX second and then half, go in economically on what depends will restocking. or we second into XXXX. be and half. outlooks demand stabilizes get the happens it are in

Josh Pokrzywinski

and Got there's to just you some with transformation that. the associated the it. business savings lot of How And on destocking. now of in follow-up with and demand on Obviously some Is of harder or and of pieces internal benefits benchmarking the helpful. organization? moving track. other right something organization to on business transformation are the restructuring, That's savings a kind dynamics that's the then that related where happen wayside the throughout the and of by those an non-savings how Just execute that would on? of kind kind go update

Mike Roman

it competitive And is ends value. the a more we've helped more with it create have. agile, also Yes that creates of we customer. customers those of focus around value, realign always that the us that starts us But four the as all more company a really businesses, models making about that and efficient and go-to-market and transformation talked

to us ERP than It's it's better enabling it's our move that lot even our entire around And we enterprise. ecosystem a digitizing So ahead. connect and it's as customers deployment. an more the

adding All of that's efficiency.

of And become it time. help we in end the create we premium to XXXX. our are move realization margins It's But committed how up productivity. we continue an would us about savings the us at margins help efficient starts about value And does ahead. that for we It the beginning, us so the have over enabler does talked to show drive it’s that to as talked that we more to broadly. by

So but it going that be is that efficiency that of us savings talked driver will about, carry to forward. we've of a also the

Josh Pokrzywinski

Thanks right. guys. All

Nick Gangestad

Yes thanks Josh.

Operator

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

Steve Tusa

morning. good Hi,

Mike Roman

Steve. Good morning

Nick Gangestad

Good morning.

Steve Tusa

and here, run tax quarter sustain benefits that my line. of was does line a of The of or in there item? of in that higher And onetime itself? then I discreet the that rate also relatively a Was rate kind $X.XX tax kind is a of just than per mean expected is now a kind kind a effective benefit, tax $X.XX

Nick Gangestad

is plan the below than is is asset plant's tax the with the hold price. book at basis selling we and me that we're little the that position we – describe own a a it greater holding sell that let selling detail. detection just what all, gas Steve But also first business in it's price. of a value The that plan it's of asset in where it of to bit we

it, So operating when take we will gain that. income on an capital we sell

it from But loss. be will perspective a a tax

describing it's this Now to in bit the concentrates. actually benefit nuances deal rules the skis you held tax loss if before even for place I'm my a you tax a in accounting once here take the accounting but are, immediately you, position, status a sales over asset

So us that that $X.XX a putting of is status. result it in

not be repeating will an thing ongoing So that seen. that's

see no full rate the nips that. XX% in be any underlying to little the XX%. big forth of As far there's and as rate. to offsetting tax we the thing And one for going in year underlying There's operations, not the is tax range still back always think the

Steve Tusa

gain Okay. $X.XX comes that's and divestiture, come guidance. that in not and to the And said, then still when to you still it the

Nick Gangestad

the in guidance. It's still not

Steve Tusa

mature? Pre

Nick Gangestad

Yes, in that's guidance. still not the

Steve Tusa

are seasonality one planning then mind normal And there's of the for just of your second of lot guys the kind planning, half a you around, last on in things Okay. second year? for the this is half moving kind you are one, for of but you

Nick Gangestad

at… seasonality Normal if look I

Steve Tusa

Normal.

Nick Gangestad

pull thing second only is year quarter. abnormal last that's a bit with for into ahead sales of some But the was our abnormal us

progressing an sequential seeing year we're a this from abnormal not on basis So path.

normal. I it'll fairly think be

Steve Tusa

it's in Okay. $X.XX in one quick this correct the And that line, the then models tax just $X.XX? last one,

Nick Gangestad

correct, is That Steve.

Steve Tusa

Okay.

guys. Thanks great. Okay, lot a

Operator

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

Deane Dray

everyone. Good you. Thank morning

Mike Roman

Hey Deane.

Nick Gangestad

Deane. Hey

Deane Dray

three in that pressuring for past been year XM China. than areas like have electronics auto more problem the Hey,

soft stand it not quarter geographic you did a to basis is called China negative. be notionally continued on but the out So has out as particular a

in comment see what So trade color your of you can China, across kind that tariff related the you to and in on particular kind frictions? and businesses of

Mike Roman

lot to a at electronics you all see Dean, maybe just our together, talk but of and back about for single healthcare get if and we step business auto strength high China up digits. them China look kind do continue XM we in Yes,

And so a was driving strong that growth for us.

particular. low in We business by was, countered OEM, Transportation there growth Electronics Materials digits. but electronics single quarter. decline low Advanced business. also saw saw digits business Safety in We offset our in saw in strong Solutions strength significant We Transportation that up Automotive single our up was in and the Medical our and

out. to there helped So was that some balance strength areas trying

see Transportation I earlier, and second softer in sequentially As we half. little the a Electronics said

as impacting rates quarter, we're our taking outlook against good conservative half. second second of China. a we comp strengths in And electronics the strong so and view part some performance And build built But around year-over-year. a view that's a of

Deane Dray

exposure supply softer. film the Maybe why well, And there's That's would and and some chain. just then product the electronics you strong see there. to wants made color and was Maybe would But there electronics share that the be geographies. actually within material same about solutions brush, were as nuances on display up with the helpful. but those paint it comment us different helpful semiconductor electronics, you everyone all dynamics was that both relatively with lines earlier

Mike Roman

Yes your to think last I place that start. point is the

areas piece. electrification fabrication, has little different to has biggest but in it's automotive part we got continue electronics, electronics we're the a also there and higher like materials, growth moving exposure. market solutions helpful semiconductor, business centers, Our a exposure data to consumer growth see is the revenue of certainly consumer The electronics, be into growing. there. which Display a materials and continues broader electronic But including

results. of in displayed saw quarter, see expected I even stronger say would an consumer started second good electronics, a little bit we than And maybe uptick in we into to quarter. some we as continue demand We little the

for that is half you of of start the a to of in Some buying season anticipation bit second see electronics. little consumer

little in materials. impact much saw a that of we hits in so quarter. in that second display bigger And And bit more a than electronic materials that so starting

Deane Dray

your all The number I really than spend, helpful. to you want chemical of last be one is XM is regarding body level is being the just to effective. big a is where to comments chemical. misinformation And and a forever and ways are proven of timeframe. chemical. Referenced the the a That's remediate question a on very the transparency here. much how I'm effective the it there stands much reality And of by struck about appreciate They're comment more is the and how to water. question is Internet that providing PFAS, the how just water of that from

it's and So an remediation this this. all appreciated taking on are looks approach the like doable you to

have that. So just wanted to

Mike Roman

We but Yes be and also you we understand thank and the can we'll concerns water. we continue people we're we seriously, And the you transparent have go issue remediation make in Deane. a about ahead. update as difference their to take seeing that

Deane Dray

you. Thank

Operator

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

John Inch

Good everyone. Thanks morning.

Mike Roman

Good morning John.

Nick Gangestad

Good John. morning

John Inch

clarify. just Nick to

the pending $X.XX of correct? gas say and Is the the to flame. when the be $X.XX not it's sale you $X.XX clear, the $X.XX, from would gain guide, in not So just include that of

Mike Roman

gas the year. our not the It and come that that of later if pending include any in correct. will sale Acelity nor that's and does expect be John business, impact when it this closes we when include that from from if does which will gain detection and

John Inch

running doesn't does you help run kind number $XX – nonop And it’s the the income is minus through is the Right. $XX And delta, the maybe like And restructuring then that but million versus of me in getting the with you of Nick a that. number, $XX million in the assuming for million line of million there. $XXX other can adjusted ago, expense charge Venezuela P&L I'm to look of bridge year million? $XXX just

Nick Gangestad

the of two in that that took other, those include restructuring actions were that from include Venezuela, things also the part we not the operating biggest will will were expense, Yes, there. million $XX

John Inch

correct? else nothing as runs is There's in through cost, And adjusted through, million there as run does number, $XX that consequences. a the

Nick Gangestad

That is is correct. correct. That

John Inch

I businesses, safety, any any we're for other may flame, that guess was you're gas Was and Mike there just on at part other this candidates Okay. Nick are there right? divestiture? Are that there businesses potential any, or be of looking while

Mike Roman

ongoing you updated. for And value management managing the We've and when our the this fit process as and of we priorities we're we'll of we'll us. with portfolio know their right action. been don't ongoing it's have something But that's keep our John, model. is top that one take process shown actively you aspect portfolio fit,

John Inch

working guess genesis on I you've it? about? did – a for of come is, it question my Or the been were what would or just this while, was little

Mike Roman

acquisition of this particular was business, the time the acquisition. we Safety, of strategy the Scott of our detection part at case, gas This made when

it. talked acquisitions complementing gas on and leverage one that we've our how now this high was portfolio strategy that value space. on those, us identified our was So of we about that moves And think organic Scott about priorities into acting detection fundamental Safety early wasn't we're our with we strengths. part a of

John Inch

then Got cleanups. a couple And just It. more

your X% us by Nick maybe – you I for the think And think just the you said pressures raised in the you update half? of share dividend you at a then to few your I lot Are committed moment. dividend increase – cash call second still got expectation can in a on an repurchase the out? kind you on looking got you've philosophically of annual Mike, Maybe first quarter.

Nick Gangestad

Yes that. John, take let me

over years far as our in to expected our has earnings line been grow with dividend the that position as grow, for several to we many time. dividend First,

fairly the Now increased increase time this But we say particular that's year of as is our will say I year-over-year, and with us growth, outstripping approach growth. the I'd would share per that to to it philosophy continuing expecting increase a earnings closely as that's but a parallel over earnings expect. dividend continue X% concept dividends our far our earnings

first then of the remind part me the question. And John of

John Inch

Sorry share repurchases.

Mike Roman

Share repurchase, yes.

Nick Gangestad

at hundred second the in million guided I've a year. just the $X.X year. to would most imply for few of billion the $X half billion That full

John Inch

I'm actually and just up? are for the or And, to of are Obviously wait I'm going dividend, if catch to number hold last your trying implication? the kind I'm the down, this philosophy to earnings a earnings, trying Is the are you not earnings the then going just that you hold sorry dividends for down, understand but you philosophy. to going grow point. is with the

Nick Gangestad

would No, think to a go one if earnings we've that was I would there where in still earnings time. decrease we back decline, other our be year an have small the even flat had dividend. unlikely we over I or our dividend of decrease in full decline. would If times philosophy an history increases some

John Inch

you much. Got appreciate very Thank it. it. I

Operator

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

John Walsh

morning. good Hi,

Mike Roman

Good morning John.

Nick Gangestad

John. morning Good

John Walsh

about remarks So able higher the you of year. talked prepared kind pricing for in the to being full offset inflation

price pull apart want just on year for a we've piece that to right Just deceleration and the an basis. seen full absolute

Nick Gangestad

Yes, I'll go even further John.

year the estimate of range. right we'll that So the My we've full be year. of for averaged points in about price best in half growth first the XX basis is

as it wouldn't a deceleration. characterize So I

I first about XX think basis points half.

points think will is and our best outpace on that XX now. than in seeing remain from impact. that material more a confident can have that the view what it raw quite basis tariff I inflation range And something of we're

John Walsh

the you June, up just July, flat Got XXXX, the saw growth just the implies color still seeing digits to as low quarter, can you easier of thinking maybe talk some you on comp kind third then would QX growth have the currently. you. quarter single an trajectory exiting that that about organic And growth to decelerate in because of that the anything

Nick Gangestad

as I'll my say and biggest we statement down in comp that to that be low is as to flat Transportation third far the trajectory that Electronics mid-single earlier that the versus a colors expect the low-single up to change quarter digit. digits John's

through, the I I valid easier level think, the of quite pretty you I sequentially analysis you think our your rest that versus it's an that colors When thing would not why comp analysis. a be across the growth is businesses expect. just will went same look of

John Walsh

you. Great, appreciate Thank it.

Mike Roman

Yes thanks John.

Operator

of Jefferies. the Our next question of Laurence from Alexander proceed. comes Please line

Laurence Alexander

in Can seeing than quick two detail a bit little more on just you're I bit what we've companies. what weaker give heard trends ones. morning. have a other from you Good seemed aerospace, it

whether or standards than U.S. us area, can tougher PFAS on sort secondly, or the Europe? in And just And that characterize of get help because But you noise on European PFOA, maybe really are that get PFOS easier people of ahead that's that where in another front, the side sort shouldn't you. litigation affecting of base food be there? are, is sort think think I contactor I focused of cloud like the and of

Mike Roman

look about when aerospace the as we maybe and you Lawrence we revenue talked one at talked about and business share the Yes, its from Automotive business starting that when together. we divisions and together that the Aerospace we report with

good come has half we actually Our as aerospace year. the business growth some through first of shown the

it's business business, for well. an doing our than in important smaller it's but automotive So us

in different, So I don't respect. we're anything that think saying

– other say about U.S. think regulations, evolving broadly would versus regulators PFOS now. really evolving international both federal and I don't regulations I the right to U.S. PFOA, I we're with What Europe think clear clearly very or Europe I PFAS are and thinking regulations it’s don't local. and about, it's can compare working versus

Laurence Alexander

Okay. Thank you.

Operator

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

Jeff Sprague

fellows. morning Good you. Thank

Nick Gangestad

Hi, Jeff.

Mike Roman

Jeff. Hi,

Jeff Sprague

to of little that things covered. it better. be lot thought or might bit obviously bit to Hey the a a interesting just a script I okay little flip look ground

the kind middle better. be being and So may healthcare in consumer guy, maybe level particular your confidence of of

that? would of Where drug you we Just kind there drive a what see on are couple finer in delivery, et what the going on comps, cetera? at points

Mike Roman

healthcare, at strong talked I growth. if would we that quarter. good so you is about behind a market at say a Yes, And look

and we where saw had our – strength U.S. performing got single in We I well. Medical mid about digits, place was our the it. in a this Solutions China So not businesses strength as business, are up talk good we’re we a biggest saw market dynamics we our business,

was digits, mid-single safety food our was Systems Health business Information single business high digits. up Our up

expected as went quarter. decline a did mid-sing We as So broad-based pretty it's in through performance we the in see QX. digits we drug delivery in

business. that We’re we the in second we half how see see some through talking we that we as about into as go do and improvements go stabilizing sequentially XXXX

overall will the Health the of So performance that Care help actually business.

we half dynamic. have year-over-year also comparables same second So the

the a second half. easier comparable in little have We

dynamics, market a of broadly think, and I performing half. second So strong portfolio a well, against in performance the strong comps

growing we X% good Consumer our sell in for And in we in Nick's the in the And our we're good with out the of care look second quarter out. retail of against comments middle setting sell look, business. as see dynamic all balance macro. kind half range total of a at at sell that as home the exception middle year. said, up If of of were some look range between the businesses we growth the got the in our we spending You and of kind performance and second

Jeff Sprague

that or comp as there to going it Is relates on actually business? conclude What there? was that anything care issue any home

Mike Roman

than U.S. our that deployment the would of the businesses. global a same bit think About we I say our And I of comp of maybe the little we some go-live year-over-year U.S. is of a saw some U.S. in had the other ERP consumer half in larger revenue impacting business. is of

footprint. a So it's bigger

it ahead, of when pull impact those So all higher XXXX. a has did have impact that slightly you businesses in it and

Jeff Sprague

you thank guys. Alright,

Nick Gangestad

Jeff. thanks Yes

Mike Roman

Jeff. Thanks

Operator

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

Mike Roman

To wrap up, I second our the am encouraged quarter. in by progress Company's

Our growth strong continued the slow markets. and in end of was execution key face conditions

costs managed improved cash and effectively flow. our we As

we Moving customers for joining focused us. drive and you future the delivering remain improvements, Thank shareholders. on to ahead continuing investing for and operational our for and

Operator

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

3M (MMM) 25 Jul 192019 Q2 Earnings call transcript