- Earnings call transcript Q3 2022

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Operator

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

During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, October 25, 2022. to President call XM. of like Jermeland, to now Vice Senior Investor would turn over the Bruce I Relations at

Bruce Jermeland

you, this release take Financial With website will note some questions. everyone. are and homepage quarter morning, slide the Chief will Executive Roman, your and accompanying make to Patolawala, turn at and Officer. Thank third our Mike Monish our to Monish Relations Chief XM’s earnings we then slide take that of And presentation the Chairman and read two. Please earnings Transformation to today forward-looking call Please formal me Investor on welcome posted Please today’s call. comments our moment statement. Officer; are a and Mike conference good and Xm.com.

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

Mike Roman

everyone, for Good Bruce. you, joining us. and you morning, Thank thank

legal deliver to for continue our manage for XM customers, strategies long-term growth and to position matters. our We execute

$X.X $X.XX the XX.X%, in organic with EPS posted of margins X% the cash free respirator of adjusted of of excluding adjusted decline adjusted sales, billion disposable team flow. impact X%, and more growth or than of along Our

and global Healthcare, opportunities. with outlook and businesses delivered expansion posted our notable customers All Electronics each capitalize on is with Safety and innovate Industrial, for Industrial, XX%, in and growth, and X%. above Transportation and growing the While groups Transportation business Consumer organic economic margins softening, margin Safety and continue Electronics. to X%

At Looking ongoing geographically, QX. with growth China X%, in quarter. in by following the from across unrest in chain EMEA X%, Europe. time, related inflation recovery we Growth was drove were improvements the up growth and operational geopolitical organic we was against the flat, X%, challenges. lockdowns led APAC last supply U.S. with up backlog navigate X% up year’s same The the address the COVID flat, benefiting as second Americas to

serving We relentless maintaining on are delivering pricing, costs while focus backlogs, and a inventory strong reducing managing customers.

shipping a For exports we new one for recently times example, is cycle in South week in consolidation to by two weeks. center Carolina, to average which invested reducing Asia

what take Some near-term will customers. care necessary of margins, we of is actions impacted but continue do to to have our

along are our full ongoing to nine of year to through macroeconomic U.S. results sold and continued goods capital chains data updating and see With leveraging which plants. we respect opportunity and working improve, expectations in of to productivity analytics includes dollar to months, we data strengthening reduce global forward, uncertainty. today guidance, Going reflect as the significant the with drive cost geopolitical our a supply and

$XX.XX X.X%. of to X.X% the growth, the to $XX.XX. prior end we expectation organic We X%, our of EPS to For are the high of $XX.XX range previous $XX.XX, adjusted anticipate to X.X% to range against against lowering of

and continue flow to to previously. To sustainability. the XXX% our productivity adjusted strengthen for free range XX% conversion from for we cash growth, XM updating to to We XX% future, XX% are invest in also

virtual example, near-term softness are for reality. investing strong displays, we Electronic new For in and we in solutions augmented see growth, automotive are including that consumer seeing and electronics, segments while

We our And are app as this a and thermal improve to rolling out sustainable Microsoft in new of digital work people our hybrid for one products. management introduced designs. earlier that vehicle more month, advance we batteries, our solutions execute new collaborate helps electric re-imagine to car posted we Teams environments, element strategy

to the tasks innovating operations, Cordova, Alexandria, and efficient In also savings. our and in Minnesota, safer, Illinois. productivity water annually. in We we Many more labor disruptive are abrasive operation million are all converting U.S., technologies. plant have on are nearly $X projects automation, XM of similar improving now our global process industry-leading and filtration belt saving installed we water by productive. state-of-the-art sites have a eliminating system through We filtration sustainability, three way across largest nine to using technologies At our the high-risk make transform more utilizing our leveraging end-to-end in our XX%, more driving safety new

our month, divestiture $XX unlocks Safety business, share Food we our the value complementing sustainability do the for $X we completed year. our and on managing time, We Following count balance strengthen XM approximately further by billion billion and success same our positioning which our we the to actively are $X organically. by of received outstanding portfolio, sheet. all million. commitment we reduced strengthens last through At made long-term Last enterprise

skin In brands two of month, portfolio. Southeast consumer prioritize of care we parts us addition, our our earlier divested Asia, to this other in enabling

execute healthcare established to also have dedicated a team our seamlessly spin-off. We

to public greater create drive We and in to plan focus with are companies and better able our two confident world-class growth innovation.

trial believe resolving progressing litigation, provide of On claims equitable Technologies permanent to and Chapter resolution and would and more the top and a Aearo is efforts. mediation Arms, an confidential and in Aearo decision in I In Combat Monish, hear in to that best process litigation also mind. the a to XX That court’s XM the goal, participating agreed it a not MDL, Circuit August has active to to focused bankruptcy for is appeal. appealed the those to stay is extend Aearo proceeding on certain the is of the of call is path the equitable, on is year. next prompt parties. our update be comprehensive know February turning which I settlement Before Seventh and the efficient, an supporting scheduled we next continues manner. reaching all is for XM the has like to

carpet We the settlement PFAS related we also to Gadsden, manage a manufacturing. Alabama City month, actively Earlier reached continue litigation. with to this of

commitment, scheduled MDL lead XXXX. their through for summary, significant first to trial as we continue AFFF thank I is deliver an environment. the and and continue The employees XM change for uncertain to June In for in we for our customers of position now future. especially contributions

and focused shareholders. will will operational to improving stay driving now for for value We on Monish greater it more delivering over on and I growth, details the Monish? execution turn quarter. customers

Monish Patolawala

morning. line remained in with four. very demand and all consumer Thank to declined mid-September. some takes, at a demand very team good comments the while I much With and Please quarter slide end as and puts and turn markets as in progressed, sales industrial wish steady. conference you delivered XM that a Overall, my quarter the consumer margins electronics were third you, Mike, operating

with of from were quarter X.X% includes points. increased year. respirator in percentage Safety, negatively This versus or Technologies. approximately an an X.X sales by falloff impacted basis, deconsolidation sales demand, third anticipated organic X% disposable Aearo which last translation On $XXX included $X.X basis sales the million divestiture headwinds or organic foreign result along currency from of year-on-year, million the $XX billion of XX of Third points quarter down Food and million total X.X% which of $XXX

quarter third of for Excluding basis points Adjusted adjusted quarter this decline, billion, the $X.XX income XX.X%, earnings QX operating year. $X.X up $X.XX growth was sales organic versus basis, were with operating were XX On basis points X.X%. last was which and XX sequentially. an year-on-year margins

Turning to and that components earnings performance. year-on-year operating quarter impacted margins the third

February, Day we principles during and transparency recall, operating management, out and included may laid framework Investor that you operating our democratization, our As data past daily accountability. this

continue the to team fluid actions, navigate macro with framework. the in along environment. embracing taking geopolitical uncertain principles, the in quarter this We as and application make to of these consistency By continue self-help we of well executed the and progress

constraints; including headwinds incremental simplification headwind are $X.XX COVID-related implementing We May while continuing share; consumer XX positioned impacted continue and the points and U.S. resulted retail QX care in to end negatively in strong for margins offset with overall earnings in particularly April number selling actions percentage invest along end year-on-year softness actions X.X share. maintaining In consumer including price from margins per framework trends consumer was serving than customers challenges productivity respirator particularly to recovering material additional businesses a million by slowing by ongoing a and electronics, demand and sales our in ensure revenue actions in $X.XX and to a chain which basis to driving more actions growth, oral focus persistent sustainability appropriate geopolitical total, on as targeted impacts, earnings market all inflation, to and actions, of of productivity spending discipline, to net drive sales, and are inflationary self-help quarter, the implementing and supply in and disposable of pressures earnings. raw the points ongoing our $XX to Russia, China global lockdowns, which and operating finally, market to $X.XX address the helped These an benefit spending; operating to to operating and long-term in well we to backlog decline our success. adjust

Moving to raw material and logistics inflation.

with cost Therefore, $XXX percentage increase over pressures noted a negative earnings. we broad-based. inflationary or and margins have are operating of quarters, several to I to headwind X.X QX of experience impact remain a last approximately $X.XX continue and points to As million year-on-year persistent

of and of a $XXX expect we And continue to U.S. inflation negative to materials raw strength foreign was we The as X% pricing affect have million logistics total year actions. unchanged. to said full currency continued as before, offset remains this estimate revenue through translation to $XXX dollar impact. Our the million

however, $X.XX points to headwind As had we incurred benefit of share. a margins, earnings per XX of a a basis result, to

September we $X closed mentioned, outstanding exchange count billion in the in share consideration our XX Mike offer. million resulting approximately Safety portfolio. actively with Food managing As reducing have On received, we been divestiture, via along Xst, an by

of food year-on-year Aearo of deconsolidation the lost earnings per in Food Therefore, Safety month the to sales along share sales one with $X.XX from lost in income we and in from headwind quarter. Technologies However, a and resulted of quarter. the income safety, the

increased year from from mix. along audit a of share benefits primarily settlements The outcomes net favorable other lower quarter tax $X.XX lower-than-expected tax by year-on-year, rate. third driven adjusted equally earnings result count Finally, income per prior the geographic by a share a lower financial items and rate was with

Please previously. we full expect XX.X% year, of XX.X% our turn XX.X% tax slide range adjusted the five. the to XX.X% at versus in Looking now rate to to

Even adjusted quarter sustainability levels, increasing we and are conversion payment improvement $X.X challenging, first CapEx flow with Third we improved the for supply data growth also XX%, continue fluid the realizing and we benefits working performance we free inventory of efforts through an through to investments. working chain capital of from intensity, analytics drive as improvement planning use remains half reduce capital though as billion, leverage inventory navigate cash to was demand terms. a on focused and optimized our as customer remain environment We including data levels environment. while better from

in of XX% of our productivity projects, $X.XX move up investments and current billion. and year-on-year growth, we expenditures million to benefits year in We realize the we Capital sustainability. invest upon quarter were actions supply continue CapEx continue $X.X to the from forward. billion to as expect and pace as in range full now year-to-date $X.XX to billion chains of we $XXX are status the expect Based

to $X.X During returned we basis, $X.X $X $XXX combination dividends billion shareholders, dividends year-to-date $XXX shareholders returned cash repurchases the of and million share On million million. including to share in the of billion quarter, in a billion of repurchases. through $XXX and we

capital allocation divestiture. offer with repurchases we and pillars addition, reduced $XX important Both associated the share Food million via strategy. exchange Safety of an share our In remain dividends outstanding count our by

current M&A because with pursue the performance opportunity down our of as remains business of which and Safety will the activity $XXX while Having resumed priority flexibility group down third legal included the disposable navigating provides up year-on-year debt to in cash have stood value a We share capital at $XX.X Food balance for strategic QX XXXX. the at matters. our us for Please business, in structure year’s year-on-year million shareholders posted see continue or return Net the strong divestiture. result a to attractive XM, headwind end since billion, X% continue of slide seven sheet respirators. following and to approximately the organically Safety it over I a billion repurchase for and a very the of decline and and business, QX. to start invest opportunities stock turn XX% quarter. Industrial compared due This to sales of organically last $X.X for X.X% to demand ongoing to

Excluding growth from over along X%, broad-based the and of disposable by the in posted backlog Safety performance QX China April May respirators, with and COVID-related lockdowns. organic Industrial recovery driven

Our Personal business declined decline the demand. Safety due organically, respirator digits low COVID-related primarily double disposable to in

the spending body X% during Safety granules. Industrial Adjusted Industrial for third thermal digits, growth. The markets up Industrial, platforms and of margins by million, organic exercise $XXX yield digital Operationally, on automotive efficiency, growth single-digit execution for closure and focus actions aftermarket team were year and masking both in and the including QX. delivering and income abrasives drove automotive shops electrification. to versus XX.X%, strong quarter, low-teen adhesives high-single such and versus Safety operating adjusted stack auto while for industrial discipline. as like and X.X increases future, to rest continues platforms grew Business roofing up last operating repair price points inflation the managed barriers strong and mid of sequentially investing team led with as sustainable tapes percentage Group up Turning connected the Safety and in and the drove was systems Electrical delivered and X% and

supply to and the billion Greater in the was which in recovery offset by with by to organically last constraints Transportation or partially year. region, X% was increased compared continued Overall sales electronics backlog which semiconductor benefited Moving posted demand, $X.X of weakness up growth Electronics, the COVID-related along consumer in chain. China

solutions smartphones, electronics, strong XX% automation These XX% factory end an demand electronics-related organically, and particularly our compared markets. OEM consumer and car automotive in builds. with mid-single partially as up business light business in were truck and digits tablets for declined were Our in decreases TVs. declines across increase our continued to by offset sales Organic estimated semiconductor, auto year-on-year,

year’s as build in rate build, may points outperformed nearly you recall, channel QX we from As was benefit last QX unwound which inventory by we XX a percentage year. last

continued single grew and down team Electronics. rest Solutions and Commercial organically digits. digits, Materials the Transportation the while Transportation Electronics digits operating single fluid the to environment, Advanced Transportation grew was high low end Turning of mid-single performance. and market Safety Despite delivered strong

operating challenges X.X for business discipline. operating $XXX of income margins toughest with group growth. market quarter XX.X%, by year-on-year. to points navigated along of Third increased and benefited investing with we to Electronics strong actions some The pressures as up inflationary and the percentage million, the spending price X% in solve Operating the executing margins is were Transportation future

new a we to electrification. example, automotive battery lab in QX, component opportunities in accelerating support opened For testing

of sales of versus billion, X% strong X.X% comparison. which year’s last business, QX with Looking Healthcare delivered at $X.X growth our organic

Purification, Separation Systems Information Solutions, increased organically. and Food all low-single Our Health Safety, businesses digits and Medical

did have year’s organic was and Purification year-on-year, due strong we down U.S. to Biopharma Separation in for While therapeutics. in COVID the last demand growth

pre-COVID recovery. to shortages of low XX% mid-single medical Oral procedure a elective be quarter back were procedure to in we continue to levels as from quarter against projected we pre-COVID volumes ramp XX% quarter. volumes down the double-digit impact the digits levels of through saw July approximately ago. Fourth pace went and are XX% year growth of activity currently up as Third was labor as dip care

is and on income consumer innovation, the $XXX launch over Healthcare’s headwinds. along restorations, business was Healthcare and third creates for percentage XX.X%, tooth by approach X.X impacted operating Matrix, delivering were discipline. which were discretionary costs to year-on-year. the We Year-on-year and simplifying XX% points and productivity XM and down including natural million, manufacturing adjusted inflationary on procedure materials investments enabling the logistics were orthodontic The of care Operating margins to offset oral of raw structure impacts operating XX%. by due dental pressures spending also are with group quarter actions Filtek impacting in These remain. EBITDA down new more increased a innovative partially spending with price procedures. focused ongoing seeing softening margins margins

to capital Purification, the and in Separation addition, the support In and manufacturing team Solutions made expansion investments business. capacity Medical

led was Year-on-year Care, organically, Lastly, our basis posted billion was business growth third Stationery on quarter of X.X% Health by Consumer third was or $X.X and Consumer up year’s mid-single X% quarter the digits sales Office comparison. year-on-year and and organic up Home Safety, single and which last retailers versus an low in however, elevated expected pressures, versus improvement organically comparison, mid-teens levels. season digits. spending back-to-school consumer aggressively grew strong by growth both with than increased low year’s inflationary sequentially. along ongoing addressing was digits be Home The continues impacted down last as which to single softer inventory

upcoming anticipate down we throughout with million, last year slightly impacts ahead, income Looking operating X% continue to these down holiday XX.X%, margins to compared Consumer’s operating $XXX third was quarter season. the of year-on-year.

Please Command in turn to organize across with consumers Consumer These uncertain for trends selling remains environment manufacturing outsourced our macro even and and future discipline The geographies from more executing and help benefits more outlook. were restructuring hang, is raw Consumer manufacturing and markets. business by operating growth, The slide our benefited Our price group XXXX costs platform business mixed discussion end to for and a spending signals productivity actions, logistics headwinds. than expanding creative increase including hardgoods decorate and in nine actions. materials, offset ways. margins on

year-to-date our continued dollar along working While the increasing performance, are with full challenges trend fluid we we reflecting environment. and guidance, year taking through our actions, these are updating U.S.

X% prior the year of range growth $X.XX currency share earnings be to to to prior X.X%; versus foreign of XX% to $XX.XX includes; adjusted XXX%. prior adjusted range the in exchange range $XX.XX, compared a range ago; to just organic the of free in Our flow $XX.XX our cash months in versus additional an outlook which XX% versus updated and range includes of range to from conversion XX% headwind of X.X% to X.X% $XX.XX per of a to three full of XXXX to

the a I wrap let regarding quarter. make up, comments few Before me fourth

First, perspective, of continue X.X%, and respectively. GDP estimates current X.X% moderate market IPI from with an and end to QX

range to at billion. of or of headwind retailers. sales create million the soft. Healthcare in are be geopolitical elective pre-COVID be rates which and exit demand. the the expected billion fourth million. to the monitoring continued inventory remain reduction up end anticipate $XXX impact with This a demand in consumer X% Therefore, to looking currently range which estimated from are levels. continued respirator in a Auto is XX includes year-on-year we energy and to $X.X along total the and in decline will XX% procedure growth includes million and to approximately the year-on-year, headwind approximately Europe quarter, in expected closely $XX volumes we care are the range And to oral market consumer We demand, X%, expect of lastly, disposable organic at X% the to Russia, environment on inflation build of on of while of X% actions inflationary impacts $X.X points to $XXX or be basis the spending, XX% electronics

X%. million items, Food will organic dollar divestiture be approximately year-on-year deconsolidation from QX Technologies impact strength of roughly of Aearo sales is estimated of to to the Excluding approximately $XXX QX of Increasing of Safety to is result a of anticipated or nearly X.X%. be and X% U.S. a headwind growth two sales The headwind million. $XXX X% these in to

the is expected range costs, million and mid-XXX anticipate materials in that be I anticipated the to account to raw count the count expect year-on-year And million, our able share of approximately $XX to outstanding finally, million currently $XXX and $XXX headwind reduction the QX logistics a to XX%. taking XX% be mentioned share are earlier. of price which in offset into navigate margins range, to actions. million be we Turning share we to Operating to

XXXX, our ease. working next continue we some early to in into while year, are of some see ahead while stages challenges year Looking this that may the plan, will we us items through impacting

Europe. while We expect to market continue and uncertainties energy end particularly macroeconomic moderate, persist, to the costs geopolitical environment demand, in impacting

with We along the the elective impact also dollar, and COVID-related government respirator including response, impacts, monitoring policy of procedure healthcare disposable demand. U.S. strong on are volumes evolving

areas. of Looking as accelerate, growth, at we electronics, Each secular end digitization for continue to sustainability. tremendous of particularly to markets some of in markets, pace we these show are innovate and these and to global opportunities starting trends safety, signs to some automotive, have long-term and in the see expect industry chain moderation, Raw material, inflation are invest we and logistics labor supply of starting stabilization. evidence

to Mike reduce and As in operating opportunity we our and are operations manufacturing believe improvement greatest costs chain supply to drive productivity mentioned, increase performance. margin

While expected operating and operating is serving focused our customers to significant we executing uncertainty are framework principles. remain, on and

self-help actions We leading and warranted, take also stakeholders. necessary are will we prepared well long-term on create companies. value to for as execute on two our finally, all Healthcare working we are spin ensuring our world-class deliver and to And adjust

I the take delivering that, remarks and questions. as now suppliers hard we To for is to your my and partnerships and customers do. That the and for As concludes With third our their thank continue want can work we always, XM our do for customers. there they for wrap their will more will quarter. up, dedication employees

Operator

Our [Operator Scott Davis Research. Instructions] from question first comes Melius with

may your question. You with proceed

Scott Davis

Mike morning, Thanks questions. for my Good Hi. Bruce. and and taking Monish

Mike Roman

morning. Good

Monish Patolawala

Hi, Scott.

Bruce Jermeland

Good morning.

Scott Davis

on guys where expectations. you outlook pretty worse in little or or just the China where Can give I the a or in end bit onus you just of are things of just by stop than kind the are of comments stuff. and noted there and some You things getting and you But guess is little question have coming walk some worse market some take guys step And been a guys better let that were bit I we the better than clear so color? backwards will around have that and region world, a far there. about Europe cautious the expected results better seen

Mike Roman

Sure. we Scott, opening you than in are my color I around regions little growing to kind maybe highlighted comments each a walk the will of give more where region.

Personal and the we and Just for you strongest in us electrical look solutions. highlighted our the saw as Purification the like coming Orthodontics off and Safety. it, growth Monish softer in Separation electronics the at chairside in the demand highlighted to and vaccines and We start both comparison Americas, declines COVID materials the consumer automotive and oral therapeutics. And and areas with care, we then in markets saw markets dentistry. spending

QX. Looking it in quarter. slightly up slightly was It at this negative saw EMEA, we

So strongest slightly in too. there up this automotive, quarter, growth

So Safety the you some saw in We We strong portfolios the globally. in care, seeing Personal some business in strong in Safety APAC Industrial was something a -- ex-Personal oral strong led of automotive. and the electronics growth, the in off We we Industrial and the care. COVID organic in saw Personal for growth quarter broadly, APAC. saw APAC. in trend, the Personal Safety for was again, that growth. strength strong in dynamics Safety declines and saw by quarter in more decline had Safety are coming automotive oral similar

that. in and QX declines declines the China, the also impact story the And then as then the were from you declines Safety. We lockdowns in was broader in Safety. -- Transportation big impacting automotive. like of also we and the recovery areas some did some electronics in strength Personal in broader We see saw saw from in saw consumer the Industrial. We materials in display strength saw in strength We electronics

dynamics, in the And similar automotive, with I procedures. some business across are pre-COVID but quarter in a of to the back So, world. some little played then areas, our finished that electronics. strength say, we strength. elective same We of -- a trends is continued saw story. the would those not we across different of kind similar starting levels And the in growth story showing electric procedures trend improving, the consumer but seeing softening terms Those out Industrial

we seeing So, the are again, different that regions. trends across

Scott Davis

just where that’s now, longer just Okay. And cost is a fairly a then issue? Mike, it are be clear, no of be we That’s at or balanced to right major super price helpful. want and to you level kind

Mike Roman

Yeah. Scott, year of we us came said We that I through the gone and would at help case. have confident beginning we that offset -- as price about inflation we were through we talked that’s the the as the year year. the been

So our one value know, of, marketplace. pricing, you our component it’s as in the

inflation other against all price managing the globally. we positioned are that end The the I been, we inflation and we have been of think, that have go And year into managing is well seeing we the well as year.

Scott Davis

you, Best of Super Okay. helpful. guys. luck. Thank

Mike Roman

Scott. Thanks, Yeah.

Monish Patolawala

Thanks, Scott.

Operator

with Obin of Our from Andrew next question comes America. Bank

question. You may proceed with your

Andrew Obin

Hi, guys. Good morning.

Mike Roman

Good morning.

Monish Patolawala

Hi, Andrew.

Andrew Obin

Hey.

guys at but into guys what’s next how inflationary seeing the about is sticky going thinking mechanism you Just to are to into XXXX? are we pretty inflation term are what get year? you you a pricing to pricing, disclose or less from question just And understand thinking you XM? sort you are you longer think inflation are specifically, of happening adapting how and no And a do into longer question How for guys. about you trying environment

Monish Patolawala

Andrew, a great it’s question.

As are in persistent. I and moderation mentioned in opening inflation, a What but seeing still my consistent at little we remarks, we been are not it’s early looking in is XXXX.

are pretty inflation in inflation. pace In are slowdown much seeing seeing the seen broad-based. we is that We of some is has logistics areas still

high still goods, and specialty at materials. intermediate raw pretty look so you they if are However, finished

would million to $XXX fourth $XXX the we had say $XXX at million. look you So what I million. quarter, are In we in seeing if inflation it somewhere was just the quarter, third between

little a there’s So moderation.

see good whether lower I think what and we that are I be prices think for time is would sustained will all. to XXXX, able tell

his and approach products To in question, prior our in one. on answer spec are much pricing very thoughtful remarks mine that’s pretty products. question mentioned as So Nearly -- and take a the of our even we Mike is your pricing. pricing, to XX%

look We look it thoughtful by So product. to at we have We thoughtful will by a We approach. very say very approach. follow. And take would at follow I a region. it region we product

very the We past. thoughtful seen inflation a will follow in of recent this also, historic one level because XXXX no approach in has

So depending But customers. play on our part not is value pricing as end cost, just by in mentioned, for we where of that at driven we the the goes, market. out drive Mike the that that it’s our will the day, of also self

Andrew Obin

And just question. a follow-up

Sorry.

Mike Roman

No. Go ahead.

Monish Patolawala

Okay.

Andrew Obin

North U.S., investment substrate, a Oh! been stimulus to the lot America. front like and chipset, particularly if need out moving a the has about things and question, semiconductors, at that like on look just upstream for maybe Thanks. of moves guys redo follow-up given you Do talk in regulatory happening capacity semiconductor, a chain, of voluntary you on a global lot Just supply passed lot in there chain recent investment of in supply stimulus your electronics globally? front what’s sort to closer of

Mike Roman

of we Yeah. our the to The Act. other Andrew And other the incentives providing the we Act, U.S. in and manufacturers U.S. They -- assessing Inflation closely. customers. and for parts watching Reduction world. are versus on the in others it of the say, the I impacts would investments world, are The make Chips are parts

customers serve each customers see And be around to for as us and the mean, are as in moved we will supply we also resources that but been our customers the ability chain around impact build be model our with serve in close I Asia, semiconductor to gives some in make our sufficient helps a You the we changes. a to world. in in expect position that’s adapt to region will do It’s electronics us -- and capabilities near-term, regional a these world model, know it’s the and they and true incentives, as We particular. in electronics changes. global and don’t adjust business there we significant moves it

Andrew Obin

But at this nothing point definitive sort of yet.

are You waiting... still

Mike Roman

We U.S. net we we out the of made and in as look announcements, make are particular, stay to It’s as U.S. of in just you exporter early close export will are out at and billion process. we will go. $X the And reminder, investments U.S. being we are there the those a There the adjustments a if

that where got gets it a and have capacity manufacturing in to position So a place here. a us as position strong adjust puts invested is we

Andrew Obin

you. Thank

Operator

question Joe next Goldman Ritchie Sachs. from with Our comes

proceed question. may your You with

Joe Ritchie

Thanks. morning, everyone. Good

Mike Roman

Hi, Joe.

Monish Patolawala

morning, Good Joe.

Joe Ritchie

year. start then So manufacturing in I the am starting if of just all see bit color how costs inflation are of to and to curious, business? kept like, that’s intact saw little us energy from Europe you maybe you can any your perspective costs at on start impacting like are what seeing for numbers and we your a your you and a that subside give I to

Monish Patolawala

Yeah.

QX. we at So, not changed. I in was we to for some has saw million million QX, total you, million to are tell $XXX in are seeing as The inflation accounting Joe, $XXX million would $XXX moderation, $XXX we $XXX

would broad-based. I inflation, -- still say, seeing are We generally is

are We intermediate specialty materials, as seeing higher well as goods. inflation in finished

We are logistics. moderation seeing bit in a of little

Joe. some we So we inflation. are signs And of stabilization, also would chain, say, that’s then on supply where seeing are on I

decent flowing flown material in see deliver and prior QX. raw has seeing can also in to the are a was you productivity the that’s little why it quarters team better able We than

material have Mike once supply to where we into flow moderation best see or raw and whether, of going and to in said, the the that’s chains and raw go. secondly, determine as of opportunity. see moderation We one, QX we the sustained watch and materials, that the is will stabilization we has is of is And materials believe sustained, too, pricing

that and our factories other in to than have expansion. volume We driving margin productivity keep through

Joe Ritchie

it. of helpful, now we question lot would are I market my That’s the follow-on obviously, right XXXX. guess then heading into uncertainty as a Got Monish. be, in And

around playbook, Just be preparing what recession yourself year, for uncertain us a you would bit are any just helpful? your could little a pretty how maybe talk color that through be

Mike Roman

in we the those And them Joe. we many Sure, And our do us helps I in uncertainty concern and focused has stay cycles it and cash that’s that and and driving operating would we markets in our focused do efficiency well facing been And strong it’s cycles. COVID, supply well right keeps will factories performance what -- on our so the delivering resiliency customers, in clear our we productivity, flow our serving chains the to us our actions. in the too, even for markets, outlook throughout end been end and our and where model of on position we talked and look dynamics macro. the have focused markets, we as at as will say, and strong softening -- each react some shown the to about, current different there’s that are economic continue on model global

will prepared navigate model and uncertainty ahead. our take and serve well are to it actions. And adjust we as us so the That’s we

Joe Ritchie

both. Okay. you, Thank

Operator

UBS. from next Chris comes question with Our Snyder

You may proceed your question. with

Chris Snyder

you. Thank

QX slightly the So puts or to largely and puts the color which the QX? line some on levels we at incremental Could as a -- at the the at I ask into wanted just headwind. respirator level larger in QX the provide look for guide, growth with at organic you despite exactly takes midpoint first midpoint segment

Monish Patolawala

Sure, Chris. Yeah.

start recapping with I -- QX. As just again will

easiest easiest so We basis will headwind then basis Number pressure. year’s last that comparison. guide exit which million, fourth saying, start $XX gives XX be respirators is and you the to just are quarter going by a of creates XXX points and points, nearly is our of or is, another right, disposable of down Russia was another two

of organic basis. all a would if So exclude year-over-year in that, you X% X% on to get growth to you increase a

year-over-year the holiday something consumer I is spending. will up IHS impacting on to we electronics have retailers remains think, through year-over-year up the be I have at quarter, we consumer, look be adjusted as levels in you that that the how the out for the fourth say is a inventory X.X% itself trends that inflation a XX% see going depending believe, watch. sequentially called those you you were nearly where a on consumer move or July a If IPI going have up on lower moved in macro that down is is October, basis, talk up continues range where plays approximately would forecast, spending growth is Elective see auto I moderation to there, where in to will itself little we bit on GDP improvement procedures, But to continues continues as and that again, basis. August to be to X%-ish and to sequential strong. about little to electronics, which be are basis. seen on in little Consumer will the X% X% Even out season, September, be a will as by uplift. at as XX%, well we well weak. then between bit XX% consumer to as so and semiconductor a of month

talked in we We the side our business. the are continuing to from of of rest already an Industrial business remains see perspective, in electronics strong about but other end that on disposable respirator market the have pretty the And SIBG. then

Chris Snyder

should I even might expectation that margin Thank that. continue kind QX, some then second little topline. impacts fair cost quarter? QX if a during the it Really of cost, from price bit relief look price to margins the up was were lower road? does that, cost is on on if portfolio if And it the from the from one that for improving just helpful. And here assume improving improve versus you we the margins, mean, or be to reflects down slightly changes Is the reflect there

Monish Patolawala

Yeah.

I would say all. it’s Chris, So,

-- to price As said, been we great see driving job cost doing expansion. we has and margin team in you a you the And look at QX, at it continue as the equation. have seen

through managed We our have offset actions. inflation pricing or

the had better and also have saw supply yield chains. as we to some second of stabilization quarter efficiency compared We

self-help called et proactively have spending also We where I we had discipline. We team of adjusted measures. of lot saw took market out, end as we a the Third, lot strong a cetera. change,

When think know $X.X expansion. we $X.X billion did us XX the did we QX about leverage. million basis in is you all together, QX, we QX, million, see put in gives saying which that volume So points that the $X.X if you are to of best basically margin

environment, remarks, government which happens will prepared on, opportunity than drive continue to QX, that’s drive moderate -- a COVID-related in and we chain efficiency, cost a whether and I on there watch volume, a the a own get trends it’s FX, and Mike are that lot the see moderate, whether that all that decline said see too, is it Similarly, we that more we QX that’s same or happens for starting we margin. demand, whether go stabilize value our what why Also, disposable answer what long-term, historically, as procedures too. supply at opportunities headwinds. of yield XM demand. a or quarter policy, Europe biggest there are secular whether come impact it’s customers, environment to say, because energy are is lot in just to name digitization, to it headwinds lot electrification, is see, and tailwinds continue sustainability, a add elective do remarks, you So to have that’s his other geopolitical have lower starting with especially of of you your that’s in But in we what I macroeconomic my areas said volume it of if XM. to look to -- is to whether To the respirator materials And also will prepared to would to when margin it shows Chris, stabilize question in is auto We we as down. always our a raw should see the few. one up

your So hopefully that answers question, Chris.

Chris Snyder

you. does. you. It Thank Thank

Operator

Our Andrew Kaplowitz next with question comes from Citigroup.

may with proceed You question. your

Andrew Kaplowitz

morning, Good everyone. Hey.

Monish Patolawala

Good morning, Andrew.

Mike Roman

Good morning, Andrew.

Andrew Kaplowitz

you been bit. elective bit in oral care maybe the about being It I you talked seems hospitals. given Healthcare, there sensitive Mike a economy? like over does but more China in the care growth seeing QX, oral the sales or be color about little are how are a about lower have a and talked QX, down What more staffing little little them Monish, to little procedures you you stuck a turned in to in a issue have just improving just into sort little concerned of it know shortage and tend

Monish Patolawala

are quarter and of it procedures, in or Andy, to medical been on question. that around maybe and Yeah. surgical XX% beginning of think, the for look reflection XXX%, procedures QX. said of we obviously of was There’s different of we you rest some have It’s your than elective -- That’s procedures the hospitalizations the care of it then general, to COVID that’s oral you now. a versus by kind than And there year with right. that -- are the been back staffing now. part what current it’s levels slightly would had below year. the the end right I impact in think the going the at I outlook bigger dynamics track When what get year, a at XX% on

So the that’s year. in procedures maybe there elective year-over-year. and that we procedures would be keeping at being that’s recovery less discretionary in quite strong year The at oral comp in XXXX thought impact are part appears the when consumer to spend holding saw in level from of spending. that back we it care, started are it those I it think Oral looking we to be some electing of care. the this They we

So as QX. softening trends we of came impact that’s out continue a and we those see had

of maybe saw QX the we generally, go beginning year, as are for in improvements we where looking we So it’s, but at those little the bit a -- into I electric medical than different procedures.

Mike Roman

had last just which just the Biopharma, a last strong year-on-year and was we into driven on I would add a by that piece year, COVID are therapeutics we sold lower that year. seeing also the other quarter very demand,

Andrew Kaplowitz

on today, Very have helpful the you and the guys. can And and opportunity. especially then, about in data year past out you having I update like your in cost Monish, about talking you here helping half you you It think analytics seems XXXX. work really on of second maybe are digitization the us in talked

was business up margin You noticed Safety and sequentially. nicely Industrial your

So coming that from sort digitization of impact how is is much that just execution? of this an general or

Monish Patolawala

I XM. the digital following, just as say it said February at time. in Andy, would a for is, So Investor our take Day, multiplier And can be I will

We One pillars. have customer. digital four is

The product. other is digital one

is And one the digital then enterprise is operations. just digital digital. or third last one The enterprise

lot the data where the to perspective. us the data ERP done think is Digital one factory last of helps team a and analytics The work is factories. that business. yield efficiency operation from you improve simplify is place I using our in and about talking has a are

Similarly, body software auto of is of put For of pandemic, shops. to This for an continuing for in and us so allows bought for normalizing. August able start data and in being lot area can product area them, sign is assets are is currently drive Andy. if inefficiency chains root to production and actually saw inventory. continuing dig it more allows continues supply faster then a them done to see be as teams There’s we shops, create the despite actually and the Safety to looking Industrial It to software have the data. parts exists you digital called decline do that into that’s planning. business, of in cause Safety us data so the and that especially lines. both in through which to In to a digital other analytics we at all solutions. used of the do for important and were e-commerce sequential -- nice so a and a customer, too, we us to where team where the company a for the an inventory And inventory twin yield their be allows that the management into better efficiency should supply to another job our able helps chain, teams in growth. are inventory go And those LeanTec our we body lot automation improve and respirator during to visually and September digitization use demand example, parts area and models a digital production this auto in

team his posted we done have nice there. And a starting mentioned job Roman So in remarks, hold we digital where in that’s with announced the Microsoft. collaboration take Mike collaboration his note with opening Mike Microsoft, and and to the Wale have

the places. there’s future would say more play seeing opportunity are in in us itself So digital area. you lot out a in this for I multiple

Andrew Kaplowitz

guys. it Appreciate

Monish Patolawala

Thanks.

Operator

comes JPMorgan Stephen question next with Tusa Our Securities. from

with proceed your may You question.

Stephen Tusa

morning. Good guys. Hey,

Monish Patolawala

Good Steve. morning,

Mike Roman

morning, Good Steve.

Stephen Tusa

Can whether give negative on how you of the spread were, don’t you do you details quarter on with degree neutral, you… just to have some like, color but and just this positive, give price, like the

Monish Patolawala

Positive…

Stephen Tusa

was … in quarter, positive that expect this quarter? fourth it

Monish Patolawala

That’s right. And…

Stephen Tusa

accelerate accelerate did -- last that that from Did and quarter?

Monish Patolawala

areas saw with price. To the extent more able where to were more we we more we that offset saw where in inflation,

we digits were, is where So, on pricing. overall, I Steve, would say, mid-single

Stephen Tusa

down that been Okay. kind these bit. how you number last of little automation of CapEx -- and great kind I years. several color. we you of that projects, has number? the then do kind prior number XXXX, heading the a into growing know tweaked about And Got over that CapEx now it. your you major guys question, on Are the with but mentioned, and in cresting digitization think That’s

Monish Patolawala

Yeah.

said, guide as still are length of the planning we So, I where down, supply was are XXXX. this just early chains. case, But Steve, the in because of we with

are the We depending supply XX to that weeks have time XX weeks backlog of up anywhere we buying. chain or seen from cycle on CapEx equipment go these the

was help and projects And are $XXX I it projects. the all done take chain didn’t have are would next to good thought just wish $XXX them us. so falling got projects are where But prudent to quarter, this the to they it that just we on unfortunately, into year, great the get in million. will supply continue down we to year million we because just completed based

Stephen Tusa

Yeah.

color. Appreciate lot. Okay. Great. Thanks the a

Monish Patolawala

Thanks.

Mike Roman

Yeah.

Operator

from Our Mitchell with comes next Barclays. question Julian

You question. may your proceed with

Julian Mitchell

first Good the inventories maybe the morning. And Thanks. question outlook. around just

with conversion cash you discussed. just for you the flow your took CapEx reduction down the guide So year, even

Monish, also, is in think month-on-month inventory down I you of had sort mentioned September.

think itself? customers Is you as of how do kind customer we for or next destocking and XM whole, to and How and inventories ahead of right distributor conversion think you that for could help lies see it of understand should back late your quickly you kind much sort us sit So inventories already? normal get a there flow year cash year now versus where XXX%? next be

Mike Roman

look in how walk Industrial customers the business channel just segments. and on the aligned around see weakens. that. they maybe and as quick are the pretty with so our demand like shape. it’s Consumer are Julian, inventory they just channel will in well different good strong saw, inventories maybe broad-based electronics, as some inventories, growth I Yeah. a through we touch and We OEMs the with you saw working

automotive think still relatively low I be that seeing. demand inventories are with they the to continue

in overall, reacting the the and Our demand. line softening, Healthcare, saw We some channels there. with in care oral obviously,

their seeing elevated companies, are inventory the consumer we spending working some So the pulled and have big probably from levels what inventory story and kind in navigating the on. impact shift many of The and inventory is retailers you heard the there. other through

seeing are QX. come of we that as out We

So internally. view. how of external Monish map we that’s of kind can talk Maybe the it about kind

Monish Patolawala

Yeah. Sure.

get the data, we coordination plans our in better better are teams demand the the look environment take And supply stable think analytics, what between At it XX%. The to think stabilize on. felt the time, of down that I And will at and we the made have team working XXX% So, did that look through also supply And global don’t to doing no those you we need to level our see data that a remain to sustainably. there’s long liked you inventory can’t and the inventory down that’s that’s where at same continues the that’s planning. to free is the inventory and when work why are driving in what’s end the data September, be inventory it continuing using look to to I and and when data the demand is, continue we down we start. two to plans Julian, have XX% the run, chain that August flow raw at opportunity in the why coming at we at to flow analytics. drive back cash we comments would down conversion, say chain supply continue reason even it’s a we we to generate and see using prudent levels run. environment we long get material would QX, we same and One, fluid dynamic. level, though I we cash a that’s

Julian Mitchell

kind Thank margins. then of around, operating digitization some you would you mentioned tracking, of And follow-up be just terms very data measures, self-help and overall earlier much. just better in my wondered

couple XXXX. for since think been sort or the of been big a restructuring as range December a XM years years years that I It’s announcement of XX%, four in five at whole kind has XX% of last now.

the wondering the macro about kind Just maybe of another little what cost confident round for big out, softer fixed appetite are that as a or next of bit you feeling operating year? was is pretty leverage particularly

Mike Roman

we businesses Yeah. the earlier, in the whether the Julian, macro talked about and are and the are we meet to respond as it’s future. to confident in I changes to always adjusting our ability our or near-term markets in

to to continue to of and leveraging we us, to supply a able And some and as to actions so model stay plan capabilities will markets be that to expect drive recover, macro of self-help a chains we but more talked focus on markets adjust big productivity. are as needed. the improve our we big Monish the part continue go. That’s don’t and going have about to for And to -- announce close we drive we the to self-help. is today, as to take end We the is

Julian Mitchell

you. Thank Great.

Operator

Research. with next comes Our Nigel Coe question Wolfe from

with question. proceed may You your

Nigel Coe

thanks and morning Good Thanks. again…

Mike Roman

morning, Good Nigel.

Nigel Coe

Yeah. Hi, guys.

I back mistaken. to going am you Monish, if not think, I exports, billion, just mentioned, So the $X

terms thoughts the And effect one, maybe impact? to you well, any I then are a there over effects, to -- transactional terms America able do certain to? the offset you China are I exports the as indexed translation FX talk think region? that, Latin in the to important through in currency but wondering, from markets concentrations of might you of kind Just of think, of U.S. of be the

Monish Patolawala

capacity where it’s exports really capabilities based to invested just we It’s are and Yeah. regionally of wouldn’t China, in on the portfolio businesses markets, we the some produce don’t over-indexed each are we a around world. a of that in the it break strategy anywhere. U.S. we little world, the there is to and have Asia, the Europe, all while that net I serve have need a our a the Latin order of will capable the there America, And it’s down the -- have to produce. balance we out so so that region majority U.S. in what we of sell we around in for are of our region, world, demand region, does -- and And for bit, every export and those really say everywhere parts we of Nigel, we exporting, are we portfolio

and some world. in over the of manufacturing of the indexing You balanced But will Asia electronics the course. more see China, broadly, across regions to it’s

Nigel Coe

pricing, to you able effect? And the currency offset are the

Monish Patolawala

Yeah.

go Nigel, intermediate the way into work production So, locally they of that’s into product. most of manufacturing these another the is the factory

what into when can they that we factor pricing, material, they So that FX to then the they account that they you in will and their raw in see factor cost do increase. takes offset The as EPS a get in on team to of revenue all it. have we of area X.X% dollar to XXXX continue for earnings, currently, effects on the $X.XX total, strong the In it’s year. headwind nearly negative about, and on have see talked

out the our will in do At can’t of and best it. strong a day, to XXXX. how we it such plays So the end to we dollar we see try manage eliminate

Nigel Coe

leave there. Thank you very All will I right. much. it

Monish Patolawala

Thanks.

Mike Roman

Nigel. Thanks,

Operator

comes question Dray Deane next Markets. RBC Our Capital with from

with proceed may You your question.

Deane Dray

everyone. Good morning, you. Thank

Mike Roman

Good Deane. morning,

Monish Patolawala

Hi, Deane.

Deane Dray

you you comment on what your consumer hoping said setting for I’d have side, I holiday. the comments you up you softer point in changes seen Mike. mix like the in was Hey, price could any on down? share expand you might hearing, in purchasing see softer on also lower be focused back-to-school in in more this especially October, interested if products the mix, lose or and consumer

Mike Roman

I We as was elevated exited a market seeing. in touched we The from trend lines. That There’s about maybe we we saw QX, call was impacting. dynamic. -- back-to-school, a Deane, through separate been shift we on, saw softer others Monish as as what a talked are a which retailers consumer what are the Yeah. spending working saw inventories. hard

into are markets areas example. other for where that are in products our food, So that they retail like and in, in the categories

And and as that year. the so would saw come we see you say be the are trend of seeing some of out coming shifting in to consumer the we QX spending. some those the That’s inflation of driving part through trends. into of we quarter the rest And I continues

watching that’s at what that’s high closely. are a we So level, really

trends We are we retail evolve. partners close and of our as the categories consumer each spending watching and see with those

Deane Dray

Any share change?

Mike Roman

we really the is that the part our have areas growth invested to in that share improvement -- share some quarter, are We continue the We maintaining end of think positions like the consumer No. in some in -- see have where in about We you gaining about organic we and I the our the in saw dynamics consumer coming third consumer U.S. spending seeing share the of improvement, some see we strong the home share. we It’s market. not and in see and well -- that change. places are positioned demands markets. in in our pandemic softening of to we out home it’s even though

Deane Dray

you. Thank

Operator

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

Mike Roman

to challenging sustainability, investments continue portfolio and through we for strategies our growth, in up, environment, active management. XM productivity while the a wrap with in execute To future positioning along

will of growth focused taking customers, stay We our joining driving for and on performance. care operational Thank you us. improving our

Operator

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

3M (MMM) 25 Oct 222022 Q3 Earnings call transcript