Earnings call transcript Q4 2022

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Operator

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

During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, January 24, 2023.

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

Bruce Jermeland

you, Chief With everyone, Quarter are morning, Chief Executive Roman, and to Monish and Transformation Thank Fourth Patolawala, Officer. and that presentation will our our we'll XM's and Chairman page Earnings Investor and take Please today call note me then accompanying home welcome some slide your and Call. comments, Officer; are today's Financial Mike on formal make Conference release of good and Mike Relations Monish Xm.com. earnings the website posted this questions. our at

a turn to forward-looking read slide the Please Please to take moment statement. X.

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

to slide be references Reconciliations note release. press certain throughout X. today's making found measures. measures presentation, of attachments non-GAAP we'll financial can non-GAAP today's to Please to the be turn the Please in

and XXXX. of reporting QX change financial Before I making hand take here the call over in to highlight to a we Mike, I would moment like starting are

manufacturing press our the in announced December XXXX. we'll exiting we on by As XXth, be end of release PFAS

of adjustments to the provide PFAS disclosure exit expanding measurement of decided scope our to have we the non-GAAP manufacturing. result, additional a As include by

special in adjusted at items. results for cost QX as the For XXXX, arriving treated we PFAS item special a manufacturing have exit

outlook XXXX, and adjustment. of our adjustment we expand PFAS However, XXXX sales and also to special for reflects adjust beginning manufacturing. income associated Therefore, estimate for for of this the existing activity items the in will

on performance our outlook XXXX basis, presentation basis. and information our along provide non-GAAP information comparative Today's with XXXX XXXX press slide attachments release new release, some existing press regarding QX the on

providing reflect additional effects segment X-K strong changes be are the remain questions. measures And will in of first our and a performance. during in in financial We transparency always Form providing to to reporting of committed change non-GAAP our reporting. address course, this quarter here we We to your

call turn please Mike. that, Mike? four With slide I'll off the and hand now to to

Mike Roman

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

continue of We customers X% share. inflation with We economic focus adjusted $X.XX margins X.X% in XX% growth environment and along and growth, to a with earnings our of posted our slowing organic expectation versus disruptions. of per adjusted for chain supply on challenging X%, of delivering shareholders and to

consumer-facing and slower-than-expected in spending consumers that in was as due such a as The inventory to December, growth markets, retail, accelerated and adjusted retailers dynamic declines electronics discretionary cut sharply levels. consumer rapid

also We along COVID-related to due saw China disruptions, markets. a across demand with in industrial significant slowing moderating

and a weakened, demand enabled we manufacturing adjust deliver which to inventory us to took improvement. control output $XXX As costs, million actions

restructuring announced the the I XXXX. to half of that we discuss the trends last first operations, expect taken more through will December second extend in later this demand addition of we saw today, our in In half in to actions manufacturing in the year, as we call.

significant With flow. capital. opportunities working on chain cash are improve and focused These supply we driving and stabilizing, operations manufacturing margins improving are to most our

outlook and by Monish Monish? to we productivity continue growth, external environment, recap takes navigate you in for the sustainability. I XXXX future for our will we position through after XXXX the the quarter. As and XM investing

Monish Patolawala

turn to very a slide five. I you, and Mike, good Thank wish Please all you morning.

we our in late businesses November. retail highlighted recall, trends consumer As electronics-related in you will negative and

those fourth the progressed, accelerated. trends As quarter

organic in as pre-pandemic levels, COVID-related China XX% to while and challenged the decline mostly We and recovery remain X% under quarter. its in Health industrial budgets pressure, given down experienced significant shortages be continued December also steady. in Care resulted end markets a to sales labor slowing in impacts for hospital in being

$X.X translation or total quarter better headwinds X% included than were year-on-year, down X% expected. X.X% is sales minus $XXX foreign from of the which had which we billion Fourth million, minus or currency

also of million, food the divestitures, the from Aearo experienced divestiture We $XXX Technologies. with from quarter of a nearly deconsolidation along X.X% or decline safety, largely third

last an items, basis, of disposable points. combined, included exit On anticipated sales or in by Russia. an These sales year. operations impacted organic approximately This organic two and million negatively the falloff $XXX growth versus increased quarter fourth percentage respirator our X.X% demand result in X.X

Excluding this growth QX was organic sales X%. decline,

operating On an for with margins adjusted earnings $X.XX of were last $X.XX quarter billion, the $X.X income XX.X%. Adjusted operating quarter year. was basis, versus fourth

actions prices output, and that manufacturing share. by quarter to Russia Turning margins including fourth slowing of XXX $X.XX spending number organization This and discipline actions to pressures, to earnings inflationary helped the actions earnings. and year-on-year to the headwinds impacted an and demand. fluid decline the to restructuring sales components margins a than basis and and earnings took from more These benefit disposable respirators maintaining per XX selling exit, points performance. $X.XX end delivered taking underlying impacted streamline basis operating slowing adjust operating reducing macroeconomic points address environment, to market the We which additional strong in managing offset and to navigate by of operating negatively margins

X.X negative $X.XX pressures impact to In These to approximately impact earnings. points Inflation to logistics raw increased remain costs. QX, and material, and persistent of margins or material cost broad-based. are and energy percentage raw continues operating in a

the in in share quarter. XX Food in negative total Technologies, however, the Safety, of Aearo share, impact margins. foreign earnings a of headwind earnings translation to of deconsolidation Divestitures, $X.XX with to X% per to a a $X.XX sales. year-over-year was of to primarily along a mentioned, resulted points This was benefit As currency headwind resulted basis per

share by financial Finally, per offset rate. net tax items count, a higher $X.XX by a by earnings other year-over-year increased partially share lower driven

Slide percentage year's XX of points to $X.X Fourth year-on-year, adjusted was last free turn cash X% with Please XXX%, quarter versus up up flow X. billion, conversion QX.

the quarter, production inventory $XXX manufacturing by trends, end drove which in market a million. we levels adjusted During levels sequential aggressively reduction to

the adjusted full quarter conversion billion $X.XX free as continue up free cash adjusted For was expenditures billion and the flow and to $X.X sustainability. the XX%. flow or $XXX year, year, growth, we in invest with Capital productivity of X% year-on-year cash were million in for

in to our Looking which includes exit of we in related stewardship to of range of billion expenditures billion, the capital $XXX million $X.X expect XXXX, water to investment manufacturing. PFAS $X.X approximately

returned through dividends cash of of repurchases and million shareholders combination the we quarter, the $XXX to million. billion of $XXX During $X.X share

For in to the shareholders, including billion $X.X year, share repurchases. we $X.X billion returned in and $X.X billion dividends

share our $XX end count balance flexibility sheet with and capital shares of reduced X.X remains XX with by we at an year-on-year down divestiture. X% offer it because Net times. for addition, QX via priority of associated a million billion, exchange the the Food structure provides. In stood at a strong at outstanding net XM, Having the Safety debt debt-to-EBITDA

result $XXX which and of with slide billion I to up demand Safety $X.X X the will for due million start our turn for Please headwind business organically. group approximately sales or included in posted of ongoing This business, X.X% our Industrial disposable performance. year-on-year respirators. decline a to

QX sales grew Industrial by and Safety respirators, organic X.X%. disposable Excluding

respirator organically, due Safety primarily Our the demand. to in mid-single declined decline digits business Personal disposable

and of rest low markets, Industrial. Industrial declined the low automotive and to closure growth both was increases Turning aftermarket systems double-digit abrasives. Organic digits. single tapes in by and masking Safety led and electrical adhesives and

X% strong actions, versus discipline, drove operating during was stream Industrial execution up and Adjusted and team percentage and strong Safety were points also year. the price last as the efficiency Operationally, yield Adjusted exercise income operating fourth or quarter. with drove million, the margins inflation investing business. up XX.X%, in spending while the managed X.X $XXX

X.X% Moving billion, sales to which $X.X and up posted of organically. Transportation Electronics, or

a auto car X% OEM mid-teens versus in business global Our truck builds. increase light and increased

gain continue benefiting to favorable from year's due on QX platforms, channel We also comparison new drawdown. to a inventory last penetration automotive while

particularly by TVs. smartphones, end Our it to for XX% electronics impacted and tablets declined as business be significant market organically the weakness continued

solutions to adjusted year-on-year. Electronics delivered income, the operating Transportation in digits. Advanced Transportation low single of while rest low digits, Turning grew transportation X% increased both Electronics. million $XXX and and materials organically down commercial and double safety

QX headwinds and productivity margins spending up discipline while from basis The operating XX.X%, were manufacturing business. more benefits pricing, strong the in pressures ongoing XX versus year. team last with was points Adjusted inflationary offset able and actions, than investing with along restructuring to

continue budgets X.X% $X XX% with impact low as Healthcare billion, sales of our growth in of pace last organically. recovery. shortages organic strained business health and Looking nurse were care levels declined medical at procedure year. labor elective the versus Fourth volumes quarter solutions single Sales of were hospital digits business, approximately pre-COVID our QX to

sales consumer low while single was on high And separation spending discretionary purification was decreased care items. Oral organic Systems single finally, Health increased digits. Information up mid-single up digits despite digits and

fourth Care's quarter year-on-year. adjusted points, margins EBITDA of down down $XXX were margins Operating XX%. income million, nearly with operating Health XX% was X.X percentage XX.X%,

the Year-on-year increased pricing manufacturing along and operating margins offset These strong were raw investments costs, with along by materials partially with headwinds, business. discipline. in by impacted actions were productivity headwinds logistics spending the

businesses of aggressively US, back year-on-year Lastly, discretionary X.X% our declined down US. pull actions took high to Organic which particular fourth and the on in consumer retailers consumers $X.X as business inventories, was weakness sales their billion. the All in digits. quarter posted declined particularly spending with sales organically reduce single

least continue those we half trends to ahead, first at the Looking through anticipate XXXX. of

raw percentage This operating business. headwinds, operating year-on-year operating last outsourced materials by driven quarter spending along by fourth income productivity XX% selling and was X.X actions and compared investments strong goods hard with million, manufacturing decline down in with were headwinds year, price manufacturing market higher year-on-year. down end increased was the weakness, logistics $XXX points discipline. in to margins offset costs, XX.X%, These margins partially and of Consumers

Please Mike I'll it back our turn XXXX a year to over performance. full of turn recap for slide to nine. now

Mike Roman

Thank same through a cost and took our the selling customers. you, year was on as to demand Monish. managed we price proactively actions actions and time, throughout our the maintained future year. are Throughout addressed foundational our XM. for focus that pivotal decisive the inflation We year, XXXX softened at

lockdowns in Russia was and cycle reduce We new navigated operations restart times, chain To serve China. and to agreement We in what Coast. our we government business. customers with East COVID-related to the Zwijndrecht opening including the did on distribution reached center address Flemish exited necessary disruptions, a supply

across always, science solve work we our to XM needs to businesses. market-leading As customer put

new years. than In an in and to more system for led area multiple innovation our in we Industrial, Safety robotic continue we prestigious XXX drive received honors, as repair automotive paint manufacturing,

leadership our launched Company world-changing which to recognized advanced was of surpass ideas. first we which negative cushion becoming in kind plastic wrap, wound Health X,XXX includes care, Fast solution therapies, Consumer, to sustainable wound peer-reviewed its by pressure its alternative our one Scotch Care, studies. In the In lock, a as we of

thermal and platform, to batteries, of billion car organic Electronics, new XXXX. performance automotive improve delivered XX% films electric Transportation In of our introduced barrier in electrification one $X.X growth we element which

$X.X invest XX%. of Company-wide, of with to of returned growth and X% disposable dividends us for reduced net organic rate by X%, respirators shareholders of conversion to through sheet our flow impact and year, enabled along business a our Russia we X.X. billion, billion ratio an This adjusted the the net strengthened debt-to-EBITDA exit. EPS of with posted $XX.XX, and delivered or ending We of $X.X XXXX share and balance repurchases. cash in the $X.X adjusted billion adjusted total excluding with debt free We

million. time, our same reducing and We took position divested the outstanding business, share Food us for actions XX $X receiving long-term. count to the Safety we by billion At our

care value progress positioned which two health We in growth spin-off, creation. will world-class companies drive continue to and public our better create to

continues to Technologies With Aearo the litigation, Chapter this mediation process. confidential in week's XM co-mediators to indicated, ongoing report last respect as arms from XX support combat

We as litigation or by to PFAS resolutions continue ourselves address negotiating in court appropriate. defending

will we announced the PFAS all XXXX. of also exit end We manufacturing by

organization consideration We through regulatory and streamlined advanced customers. on sustainability changing on trends followed strategies expectations. of commitments. our landscape, and based digital supply We external better serve including simplified chain to and our our decision stakeholder Our careful the is

We are technologies state-of-the-art filtration factories ahead around installing the and of schedule world.

safety initiatives. and XXXX, executing advanced took with our of as three all diversity, steps the now water The are and we now at inclusion, equity and We well groups well-being, employee sites each we in we and the we position to toward new using us future. health, steps [ph]. and and business centric supported our arrangements in in work investments look take flexible continuing We the have including XXXX and largest capabilities in factory up running US of

Slide to XX. turn Please

Based organic XXX%. to and flow We along XXXX. this XX% expect of flat, conversion market and adjusted we $X.XX with X% macroeconomic of of outlook, to adjusted cash to in minus EPS $X, growth expect on free challenges persist to

expectations demand as seeing start Our in slowing chains reflect are are we we improving. XXXX. the Supply

at However, we inflation, headwinds albeit still level. a see availability lower and from material

progress We are performance. our or not satisfied with

We on structure actions of and are the the taking additional reduce actions, half XXXX cost to in taken building inventory. second

We spending. Today, reduce production and have hiring with will necessary manufacturing approximately we to discretionary that of implemented align X,XXX decision control a strict global adjusted further announced roles, volumes. we

spend. are taking macroeconomic we at respond environment, we do taking to In Health everything for the addition to a as we the deeper to actions we the prepare Care are look

drive we customers. customers win the times. bring simplification to through As invest year, the in innovation the even actions in because chain we most time, difficult we closer we stay to our will close market improve continue to and additional performance, same the to even us in At and take move supply

to will our in continue in that trends advantage growth We businesses, invest our to innovation. opportunities of take best aligned global

industrial investing of examples innovation where we fast-growing few can large, and where a automation, and are are difference. biopharma XM make electrification, home Automotive just a improvement processing markets

spin-off continue time, the future for will of creation value Health same We preparing success. for a the to tremendous XM business, while opportunity Care which at presents prepare our

advanced in of the work of a our following capabilities industry-leading iconic focused XXXX. XM. as stronger, XXXX, more through the our confident exit will in litigation am We we and XM, future I resolve we we work innovation, our global all our our brands. face manufacturing, initiated will will be to people, our on strengths our we and leaner Underpinning actions be

the now cover Monish our of outlook. will details Monish?

Monish Patolawala

Please remains you, macroeconomic The uncertain. Thank Mike. very to fluid turn slide and environment XX.

IPI around to of with will For reality. and be we currently to estimated it prudent levels. X.X% moderate both backdrop, about expectations feel our that this or GDP reflect to XXXX, Therefore, this we anticipate to half XXXX continue against set

As our currently to be Mike to minus also the are low expected pre-pandemic range prices range mid-single respirator ongoing headwind from exit sales demand, includes adjusted impact down be our organic two selling to organic Russia. single digits. estimated disposable X% mentioned, the includes Therefore, the year percentage be in we digits estimate This full year. This an our low to along respirator in growth to flat. up volumes of decline We point disposable from levels. expect with to the demand of down for

of from a $X.XX are $X.XX of nearly headwind into to X% As point. estimate impact the percentage strength of a translation the were items. be This US be the share dollar to And currency earnings of minus combined earnings sales to will we to XXXX Adjusted headwind per following $X in range three expected X%. to one range a includes in $X.XX share. XXXX, that year-on-year to per completed of sales carries minus foreign divestitures the

of decline be respirators minus of Russia $X.XX $X.XX. impact an to sales expected will disposable of minus the First, and exit

be of $X.XX; third, minus $X.XX. to headwind and will would a minus impacts divestiture be currency foreign a $X.XX Second,

energy logistics combined addition, higher to impact In a million $XXX carryover $X.XX headwind EPS. creates $XXX XXXX raw the and inflation, of or of costs, roughly material to to approximately $X.XX year-on-year million with

outstanding year-on-year A a non-operating XX% year-on-year expense per tax the range finally, to in an full and flat earnings $XXX minus be impact of lower count. of to are increase includes range $X.XX. This And adjusted pension to share of non-operating share items rate a to estimated XX% million. in year

year raw are there availability, material sales ultimately, supply earnings reduce chain driven in by to and costs ability our performance in in and a and be sustained drive improvements and organic global number to manufacturing full will chains progress our headwinds XXXX, volumes, While of operations. our supply

capital exit and of $XXX expenditures inventory which our the stewardship reductions adjusted Finally, $X.X million manufacturing. $X.X working healing range conversion particularly of water global to to flow full PFAS year in includes XX% improvements free related forecasted XXX%. the investment in chain, is continued in This year cash approximately billion of includes capital of range supply performance, to full be billion, of expected to

Please turn slide to XX.

Looking $XXX negative expected to be in business performance sales or We XXXX. the across Industrial at million as This decline is see in of points to percentage moderating returns sales four a pre-pandemic single disposable of and respirator $XXX organic impact million as digits levels. remain Demand end business. customers Safety markets approximately to by our cautious. industrial low includes an growth down estimated

will team the be monitoring the as recovery activity Industrial of and China Safety start Our industrial also production year. we in

is mid-single the Transportation of growth for Electronics, manufacturing forecasted flat of excluding exit the down organically. to and to Adjusted organic PFAS sales be digits impact

end across to unit currently year-on-year. be up production volume automotive markets, is X% forecasted Looking nearly

to and for innovative solutions electrification as We customers. expect develop leverage technologies our also remain automotive automotive trends OEM our new strong we

however, Electronics, TVs, for along to tablets expected down weak the ongoing be LCD. technology shifting to to from OLED demand of is and due display with impact significantly smartphones, end market

up growth to versus low Healthcare's is organic be mid-single digits to sales anticipated XXXX.

elective in impact gradual budgets labor expect continue systems. global healthcare We healthcare improvement shortages hospital volume strain and as to procedure nurse

In be team differentiated care. its value oral care, discretionary serve. end markets the and to attractive we and we including patient will orthodontic on deliver Healthcare spending visits, create for The margins strong impact continues consumer monitoring

single And challenges, inventory sales excess the reduce XXXX. in leveraging flat products are finally, US remains digits on continue consumer near-term to organic new team iconic focused and estimated retailers consumer remain Despite accelerating the our in brands aggressively be to consumers low levels. as to down these and cautious

slide to XX. turn Please

Before want are we to quarter. walk how we to the seeing Q&A, through I go first

start that slowing to weakening the start in the continued is organic same finish XXXX. by market year. January, three trends impacted First, into as seeing sales we slow driven end weeks This are the we volume

with in first semiconductor destocking continue discretionary along quarter, are and retailer of down while be mid-single markets and devices first electronic sequentially. XX% consumer soft down end spending, into to quarter. expect sequentially digits We between forecasted Sales are the the XX% builds automotive to

same $X.X the and into we billion to in elective total to to in all Health the the sales situation these we of continue manufacturing to anticipate markets in geopolitical ongoing and Therefore, or adjusted China to QX. COVID-related have we are XX% challenges billion taking And mixed. expected as for XX% And be year-on-year. as EMEA adjusted volumes QX down billion industrial oral at care care procedure versus levels end noted, the items estimate PFAS of the range persist. $X.X consideration, exit of $X.X are

This anticipated headwinds Russia divestitures. decline points percentage digits. to digits points exit, and from from be account, X Taking of QX X includes percentage respirator mid-single percentage point sales X factors from expect to sales declines year-on-year these low translation, X organic down foreign to we currency disposable and impact to into X single

adjusted From per earnings the be XX%, million an of continued we to estimate charge $X.XX will pre-tax to items. a impacted of with share $X.XX. $XXX range a This volumes, to EPS or per QX quarter rate restructuring $X.XX share, of approximately first sales slowing $X.XX perspective, is million in normal of along that the $XX range organic by tax

As you quarter year. the start a the tough first presents to can see,

and exit the out. most how of declining related challenging biggest Russia. quarter have year-on-year in factor the will will will determining We to turn the volume be our trends our respirator Ultimately, organic disposable comps demand

spin as improving care, work and including is XXXX and actions the our important supply our we to off the manufacturing streamline progressing organization. preparing chain on for operations, health year taking further an strategies,

providing solutions the challenging creating path the focused most innovative are We their problems. to to on and customer shortest

ensure take and market enterprise. invest as success nimble to to to will changing in productivity our long-term remain we appropriate respond dynamics. the And will of sustainability growth, actions We and we continue

be on provide wrap serve our large continue for future and trends. exciting To to up, opportunities end The the XM. I bullish attractive long-term we markets of

our this performance We expected start satisfied are with not year. the and

in aggressively this challenging are environment. We operating to our performance working address

through volumes retail expect consumer year-on-year comps our as improve will as organic China its sales markets works electronic challenges and We consumer and ease. COVID-related stabilize.

Therefore, and raw as margins, cash we to also operating to through headwinds logistic anticipate in We flow materials chains growth, supply cost progress continue improvements organic heal and to we and earnings expect the abate. year.

As we there and improve will heard do do we before, performance. always more me our can is say you've to

they their remarks. I want our work our and concludes their and employees hard That for my dedication to for delivering continue the customers. suppliers customers for partnerships thank and as XM

take will your We questions. now

Operator

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

You with your may question. proceed

Scott Davis

Hi, good everybody. morning

Mike Roman

Good morning Scott.

Monish Patolawala

Scott. Good morning,

Scott Davis

that just I how sell was It's with perhaps extract some value, hoping you close walk integrated Can Can opportunistically, and or how your manufacturing your you or line, have exit you through, could product systems. -- facilities? facility up to or so is you some And does PFAS. your you away? with us the lock do it logistically? walk logistically -- just work

Mike Roman

Yeah, Scott.

I'll take XXXX. of the manufacturing So we'll said by you all We announcement exit PFAS of back exit. maybe the the to end

XXXX. We work think we products, would manufacturing both products won't down our said also, of we're in our get sell are plan And company. the I the -- that And closely we our said and meet we that customers, we that contractual talked we to That's our is have and will to of make through not that But question PFAS the ultimately, we will manufacturing we across to we manage in work in as also that. transition. with of about end commitments them of part transition on businesses shut we planning to products. as that the broadly our but I as this working to really the them your discontinue use and of also end

Monish Patolawala

range that the $X.X we included that's fourth just a billion. reminder, billion range a of $XXX billion took would as also And of in will cost exit we the we $X.X to be charge quarter disclosed, this $X.X said billion. $X.X of to take Scott, we in -- million,

Scott Davis

scope about plan? cost mentioned the and or are in about out think helpful. doing That's talked that you meaningful scale, X,XXX us are further people. -- you this understand see you talking But or least And rooftops restructuring, then Okay. I some the you perhaps at help

Mike Roman

Yeah, Scott.

responding announcement And manufacturing, we tailwinds to continue advantage volume So the of supply our that X,XXX for of streamline supply the some see volume. or see, -- as an We focus a Monish talked to actions we the ParentCo was to and outlook to we're well about. And there. chain. we is made what chain on deeper how jobs we chain. position supply today take in really the company ourselves we're simplify, We that's the take can as at in opportunity heel, well. hope to our putting actions ourselves, additional looking do the we prepare We're healthcare to at taking XM and And as looking for work looking we're spend, been streamline put we've customers. as the closer

it's actions outlook for taking looking And we proactively the deeper taking against think markets. really and broader. I have So actions, our

Scott Davis

you. pass I’ll it. on All guys. right. it Thank Appreciate

Mike Roman

Yeah. See Scott. you,

Operator

with next question Our comes from Andrew Citi. Kaplowitz

You may proceed with your question.

Andrew Kaplowitz

Hey, morning, everyone. good

Mike Roman

Hey, Andy.

Monish Patolawala

Andy. morning, Good

Andrew Kaplowitz

cautious. Mike customers are mentioned moderating, markets industrial you end and are that Monish,

change conversations down industrial And instance, for QX. cases the you've think you is in with in moderation? that out demand XXXX? customers, how had from function and more do seeing think a and weakness that base industrial adhesives just you you're then COVID end of is related? material this just a gradual And or mentioned versus Has I interruption that been consumer regional China in there pans previously

Mike Roman

as that about moderation and strengths as specific some the back came and end quarter were seeing areas the aftermarket. related tapes Andy, like and segments. seeing electronics of markets we're closure in adhesives to automotive and industrial is electrical through kind slowdown. some We masking is comment of see market And comments, we in we mixed We said, markets. in Yeah. the the Monish's performance industrial to

also impacted So that's impact. China. part that It's of by

of really couple has part got slowdown. the things a that are China So of

of is to we GDP. One in reflecting our of And dynamics and also start QX that Year. see of we in that industrial there saw those New It's into the production in market interruption that the the COVID business continuing continuing them markets in into electronics importance the the China. and

said, the moderation of we We year. start some saw slow specific areas vehicle of off start those industrial. the see we've more saw I to of construction market in across end some that. a the industrial. destocking – a But strong specialty coming some for couple quarter. nothing We start broad-based industrial. to had where in markets. slower segments end January segments other of moderating a than as is off We performance to some and, saw those of We're through to moderation end There's we're really related seen markets starting like We

Andrew Kaplowitz

helpful. a price you that's Mike, could XXXX. And for give then regarding more cost versus color us little maybe

you're You low improvement price seeing. mentioned single-digit the

go healing. also generally hold does some portfolio? mentioned You cost across headwinds, of and weakness this throughout you are energy you versus supply material the that year? chains Are price pricing for seeing as up related the getting you then demand despite And versus raw increasing– increasingly green

Monish Patolawala

Yeah.

Andy. two in think I there, different So points

million. have pointed carryover approximately materials selling in time, $XXX pieces approximately correctly $XXX the impact the we same impact million the on to out, guide the on -- price. is right carryover X% is assumed inflation of at raw said what the you two As energy now and both We

you positive. do equation now, right it's just when together, So that

going time but the bit start higher progresses. our we inventory, you're year see what will fast showing through how can we think goods chains it get see to we go cost to some out. how is we'll I as heal sell a same do But little and the up as will that of supply as time, take our at through of it cost the moderate,

been for And cost have know, we drives have the of we customers. innovation our not add discussion And but that's have price of as to that economy, just think our that are Andy, us across price XM historically, well value able to over found is, thinking the companies. ultimately to through have as and in all elasticity good going for so that come value that's we across for question add customers. we up deflation through because key The is what we we up what that the starts a time, you our equation, the company the showing

what that very So, we'll because will on are just long our the we add out supply in to the what of and continues depend run, seeing green in we the customers. see price/cost equation confident chains XXXX value plays be to

Andrew Kaplowitz

Monish. color, the Appreciate

Operator

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

You your with may question. proceed

Andrew Obin

Yes. morning. Good

Mike Roman

Andrew. Hi,

Andrew Obin

recession? just if explicitly you missed recession I of your are questions. but said of but and sort few sort are modeling know assumptions? Just modeling are you things explicit apologize, What you forecast? your a slow, I I in are macroeconomic it, guys an are you What --

Mike Roman

for Andrew, of underlying we're quarter into the we're of the about through seeing specific New into it. that coming through quarter talking Yes, part our is fourth the macro view -- coming and Year. And the is projection the -- then the markets year dynamics

at X.X% into kind see for see So see than outlook is IPI IPI when to middle softer year, turn can that, the GDP GDP, even you the in the you of the projected range US get the global you you as negative look macro below we the X%, of year.

in I spending our quarter -- continue first into and and half to that quarter, also -- impact and a in XX% So on talked markets about decline projected. that consumer decline kind looking electronics the we I saw first we these to say, the couple and in discretionary would is that segments, at. build QX, was expect is in We're consumer of this year we're as that and of as you the closely those the macro are market Fourth of continue. the expected the to dynamics looking get end XX%

we of looks market part there think we it, look we're And for slowing. and of looking and are is the total it areas the year like these key and up then the additional as So closely macro of And macro indicators rest says segments there. at really kind the QX outlook. the some of I QX our at shape

Andrew Obin

you. Got the then about And pricing. question

that changes given appreciate of but you're you're tailwind know report historically, Thank about changed I anything more way that the it any pricing. your into seeing terms there trying pricing reported just pricing I think of Just -- have a it is, market drive for and XM been I is have to we structure not in the XXXX. internally. are pricing and thought you. necessarily would that. structural in what how But has the But is to ability address? would you completely

Mike Roman

the is our parts Andy, in near pricing two term. really actions to there

is marketplace. our value of at Monish really in we always looking closely are the talked One them price what about,

innovation of Our the our value take really and our are We that market in that broader sure value manage through to customers. advantage -- we pricing our delivers getting pricing. value that make

in The inflation last been that's has the of driver. couple and brought really dynamic, the years

taking are to actions the input for We cost. pricing adjust

dynamic. as got mix so a our inflation the And as you've of innovation well

see we additional we managing and would elasticity into look we'll we we're on innovation you ourselves based in see market managing and strong around -- as along do the to position you're how so price inflation else, out. what those to itself our the confident our say are with XXXX, everyone inflation inflation adjusting continue will And that be those if as progressing, with value plays going do in prices, I -- we the

Operator

next comes JPMorgan Securities. Stephen Our question Tusa from with

your question. with proceed may You

Stephen Tusa

Hi, good morning.

Mike Roman

Hey, Steve.

Monish Patolawala

Good morning, Steve.

Stephen Tusa

seeing talked but maybe about just you are bit customer businesses? you a more of guys behavior? side, industrial the inventory What -- auto, on the of side I industrial general the your think on inventory

Mike Roman

I was Consumer. reduce working of inventory, we was exception say Steve, the that. as would a good of Everyone to we the inventory efforts of in and I in to touched looked little began pretty a shape. consumer. destocking be And Yes. lot bit with saw overall QX, on notable that

as Asia packaging, Year. even to construction that. some said, specialty inventory start like destocking China, some and of some we're we some consumer as say, we're seeing where few other and a reduction are in I would seeing electronics markets As starting in we driving the And I earlier, like areas see of New mentioned I industrial. weaknesses

chain When at for remains their some disruptions. you look it. but the electronics low. OEM from Automotive OEMs our demand, are transportation as reacting remains electronics they're business, of and inventory to that outlook It's inventories. recovering With the supply low they're it improving, still reducing consumer

in inventory. move still where overall, stable. saw really We looks aggressively second reducing spending comes consumer we to the back, slowing oral then care it the in our consumer care the some is retailers half. that biggest the see pretty and in of Health oral are channel care, And reacting there discretionary

markets. dynamics reflecting of end demand some So changes the the in some in

Stephen Tusa

bit of January is starting just you low the that range? mean, mentioned you context? for roughly, started then kind of an the can And organic little end Is Just Okay. I -- annual was kind January slow. like of us a you on guys? give below color slow of some how January

Monish Patolawala

Steve. Yes,

that that's have And January, So XQ. partly, the than is overall lower driven also going back toughest it yes, to comps going by to we're range. into the

X.X% to around to billion down billion will have in I $X.X year's revenue which revenue $X.X And would As PFAS foreign to adjusted. range. X% X.X% billion. from of currency XX% last is -- that is headwinds. you exit X% mentioned, But $X.X and embedded versus be adjusted manufacturing, to the be the for XX% It take to

So it's carryover a impact. QX

you've Safety X% of the which And from we the XQ. on transactions large from headwind the is divestitures, and Russia. DR You've of got based Food some other did then closure got and in a very

had XQ a the you of until not at mid-March. recall exit the time, we last very year, Plus we had variant. announced If strong Omicron that Russia with

Hopefully you'll your as that think year-over-year So the that's these question? organic a easier got you've LSD a is another on, of And find growth comps MSD answers sales to that basis getting to XQ. now And what points what showing start start therefore, it's pressure goes the right is on basis. and because overall, growth comp. is year we will XXX for XXX

Stephen Tusa

Yes.

Double-digit? Are You weren't down you? double-digit in January.

Monish Patolawala

are As that now, we of I somewhere range where right told in you. of

Stephen Tusa

Really Thanks Great. Okay. it. appreciate color. the for

Operator

Joe from Goldman question next Sachs. Ritchie comes with Our

with You question. your may proceed

Joe Ritchie

morning everybody. Thanks good and

Mike Roman

Morning Joe.

Monish Patolawala

Joe. Morning

Joe Ritchie

business just along. that China is a think I guidance talked I'm Is embedding seems much understanding as we've want guess about reopening? an goes year consumer getting that when the curious, organic the better? get know to just lot How specifically. just of year. of growth function a of like that improvement inventories for the specifically, the about I you you're it I

Monish Patolawala

Yes.

fourth so slow in start trend said, destocking, are customers Mike expecting comps as December. we right, -- an I'll you're seeing acceleration get And as will the of we better down in you saw that hard. was Joe, quarter start Consumer stabilize the things on their extremely The So, year. as with the summary, and which a is

that's and the But We continue our in first builds stabilize, we'll quarter consumer to better. pretty why see get the that as soft. starts hope things that destocking year, consumer is seeing into to as starting the January, business gets start better, as confidence

Joe Ritchie

on business. follow-up helpful, term electronics my maybe bit Got Monish. it. the a of little That's is a longer question question And

XXXX. specifically, into comments, in shift know think as I in making about So, Apple mentioned I announcement you displays your your there that starting the OLED. custom an was own

that will Just your trying potentially in And beyond this how is understand impact to to then it expected business business year? your impact like XXXX? already

Monish Patolawala

as been I would look LCD-OLED looking is that continued at I'll Mike time. transition has team few for it has of period ask with -- answer at this, there a of goes And the are happening company that things. on. and has the to in. a way a then Joe, to -- join and couple transition What I The has years for been deal The always

LCD into does we mix. that seeing OLED the have saw, trends are us of what in as XXXX. definitely through an for what team is trends XXXX. the a are And impact have ratio devices are seeing we as is -- from mean we to did to then What coming we on, It predicted new now, working right

keeps one they the there across. segment the offset and as of time display gone. itself thing that that that helps is of these always But innovation especially headwinds has out a with is some business that about have come Electronics That said, reinventing lot teams the

looking VR is that's and products embedded XXXX market business at offset is the future, shift time example, the as at growth in and innovation to used working is and very team have our we right and then goes. these what now, into his good For think in that these hopefully technology, Ashish LCD-OLED a But we that headwinds, trends, finding AR have -- launched are trend guide. that what in which also

Mike Roman

ahead, transition XM whether our OLED that displays. consumer to with innovating working been continue and doing we're said, innovate that electronics. trend And that, is last the -- applications, talked electronics and we've years, Joe, It's really some historically, part and I we're with customers generations innovate our it's in sides and has electronics, about for with displays managing business them to consumer add it's Yes. for that Monish customers, over And OLED working growth And value there, or overweight our drive would been to both few we've too, innovation we're electronics. that higher opportunity and other as our in strategy of our other segments on time. as the the multiple of

some same one about the of drivers time, talked higher the as segments. now of VR At we growth growth other opportunities. And recognize emerging these big are AR, Monish those

of like kinds into into and other course, is even of There's those electrification, largest factory semiconductor Automotive areas electronic, right automation, manufacturing now. the of processes.

ahead looking and are same and and innovating at spaces technologies through display time, consumer next mobile electronics. the and those the we device technologies So in managing next the

Joe Ritchie

you. Thank

Operator

with from comes Mitchell Barclays. Our question Julian next

proceed may with You your question.

Julian Mitchell

Hi. Good morning.

Mike Roman

Julian. morning, Good

Julian Mitchell

wanted start Maybe just margins. to operating on morning. the Good

for the sort margin assuming sort then, embeds talked we heavy So, of, operating of the what restructuring decremental sort sequentially, And in mid-teens margins about, are right on the even XX% of you've and QX? backing guide into QX aspect, that in that without charge. year very

to Just sort light. going on why inventory, Is there understand XM of QX production a lot under out margin that trying example? of to is for at clear so

like excluding decremental something think, a I it's restructuring. or XX% the

Monish Patolawala

Yes.

what first And always is, into gives you So in Julian, have leverage. seen us as said, the best volume QX. QX continues I've

making manufacturing sure took we QX, in actions said aggressive on some have facilities inventory. we our we control to help rightsized As

is manage the production at cash same continue as manage plan we way a manage will to a as way aggressively production Our to -- time. to

So we're inventory. unnecessary not building

one. number So that's

is, there's on mentioned, two X% to currency between on continued a number think foreign as pressure I I basis X%. year-over-year

to you quarter what at it's it versus much, fourth exit would exit say, I quarter If rate look pretty was. rate, fourth flat

quarter. every And in from then that the is factors as take, we have move margins through will two to better. item, the continue start us the to to also that's volume you drive get the healing but other But that XQ we and or chain normal accelerate which year, supply other is you have And restructuring, XQ we an why are the basis slower. items accounting mentioned the these normal that

all a And we the which us we're heavily. basis, impact comps last it had it's by looking year-over-year driven at on year, if that

So going is its lower driver to on determinant volume big volume think the big in be. be QX, we will QX that's what and a

Julian Mitchell

XX-ish the that And, of Monish, roughly QX for in that is and year sort margin guide? operating mid-teens right on your

Monish Patolawala

it's Yes, Julian. actually Yes. close enough, close It's there.

Julian Mitchell

a announced program today. lot. that on you've restructuring then Mike. Thanks follow-up Mike, one a quick And Okay. for

first you of the program prior fourth discrete formal I think transformation to since of had And the business XXXX. savings quarter it's one kind that.

those back think of of, Just being when track on annually run to wondered, stayed enough restructuring you plan, kind this how you. do margins get when current should as you programs, sort what do you savings you And that? assess the scope margins about had of rate expect to we get Thank have but the of under restructuring scope the pressure? prior

Mike Roman

see as Yeah, certainly and this as we've streamline changes and thinking announced. these the our point. chain spin from all face supply we opportunities of market in to the we a in operations. we do. Julian, on said, learning actions the like dynamics for adding I healthcare. on we go to markets made a look, our taking part the I and we're deeper then in is as what and We're the look we've focused And said, it. what off facing, about everything already what getting the end dynamics do of we taking that those we're company performance year, to this we're ready thinking what through are And that at the of at that's way And we as we're There's

on So we'll continue to work that.

of additional come as with there. back we'll the In giving something impact and go a view of terms those as through make announce that's decisions that, those actions we actions, of you we

Julian Mitchell

Thank you.

Operator

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

Deane Dray

morning, Good the XXXX for and details. all you. planning assumption everyone you Thank thank

Mike Roman

Morning, Deane.

Monish Patolawala

Hi, Deane.

Deane Dray

given practice typical appreciate quarter first not providing a parts, for also know guidance, that's we And that. all but I the moving

spin. how all healthcare that impacting about Where the challenges stranded -- the that would be or address XXXX, in does my times costs? the it's us quickly costs, on the potential this relates is question able was that you're come excluded courts. much you expecting? up a timing on noise of to is stand? Can So There some couple separation remind you you. And those? and How Thank the

Mike Roman

about the Yeah, separation the spin. talk little just about bit talk I'll Deane, maybe Monish, a model. can cost

We expectation have execution a early we that about very dedicated teams end team our talked working would of plans. for the to by spin as We the the making and focus and they XXXX, progress. good building that's be We're the XXXX completing execute work the this.

that around a we the And that. actually, was You and commented healthcare there be was spin that -- had complete able something suit in dismissed. of been the some to would was marketplace there on

And impacting the making teams execute to at progress. in said, ahead we're moving so us. good nothing as pace. that and that's very I about working there's spin. We're that they're right dynamic the really It's moving And our from direction confident

Monish Patolawala

we disclosed had a be counting so be regards -- to will we as do when that spin the guide, healthcare, not we as operations. announced are item, excluded off So special from the we of currently ongoing as Deane, it thinking our

you $X mixture we work OpEx. up through show transaction, how The spin-off go had to a to announced four unable CapEx that somewhere haven't when teams this we for five right will the been last of our that that in are will given of to which continuing billion at they now to as months. $X.X in We've and the is are billion, range now. we predict transaction guide. framework We much our a But that put so the in cost of be of XXXX,

as we will definitely around keep So get you that, posted. we better estimates

as we look Mike as spin. for mentioned, quarter, actively through we'll as And on do can, teams getting as working. it. us and that we figure out. teams it the in are also track. doing much the And amazing is as staffed program our goal we reduce they're the The mentioned working and But for let costs then go you had And stranded know all definitely cost, we to last this keep everything as opportunity stranded ready as we'll keeping an are the are and we at this it job we regards is to an

Deane Dray

Thank you.

Operator

Wolfe Nigel Our next question comes Coe from Research. with

You your question. may proceed with

Nigel Coe

XXXX, ever Julian's to to Thanks. of lot Good don't margin of XQ morning, perhaps to I here. covered I seen We which that go everyone. is mid-teens. want a low. Monish. similar we've XX% calculate kind a But ground think margin, We've a back

I margin. we saw XX% GFC, change the and think

a supply So low. so margins but here, going will XX%? be factor on? just why why And wondering What's is I understand chain

of the part as low plan question, of range full really low. sort at the And of the year of the even still is this of coverage the end really, kind

it's loaded think XX% to back-end making about XX% year. I So coverage, big very a

So give volume the I know investors said you capture gives what and of half gets you better, back the in but confidence what can confidence year? enough

Monish Patolawala

Yes.

think both and great ones. different So questions two I

a Volume the us gives to I'll told you try that going So adjust look you versus the helped it we And and which guide us be at just sequentially what one, had best leverage. flat. Julian. are answer given for I FX, when first even volumes to similar to

and the on fixed pressure in of low tremendous number puts cost, very that started one. have month We January, our

an XX%. normal basis that then number accounting take. of have our And charge. we course, items XQ have we two, And three, then, rate restructuring a Number is tax we another from

basis. when together, to is say, on XX% to it I XX% a put Volume down comes that volume. So you down would Nigel, all year-over-year

And so one. number that's

toughest Russia, you on When in which and DR of This disclosed past. puts is have them margin, the exit company XX%, basis. at that you pressure the apply comp at which of both year-over-year have a is also and the we

go start we announced XQ comps of difficult, of exit will our took actions all also volumes I thinking actions are as as happens start, the margins, year. the we the start toughest, remaining chain XQ getting question, quarter you remaining you through what the that in some about year and that efficiencies, the When comps correctly on these asked of being and start supply the in some we up showing will in XQ the better. have The will

Again, materials these our the higher from cost cost take including system. time we of I of mentioned, through out a items, work inventory some through as raw little bit of as

margins If at better future, better we what volumes why you globally. in should none we It that's gets and external up gets second China, in revenue that able says us it what can we can And gets second that's also go because another our better. data back the see reason data, go are are look half own hopeful we and come up. look predict external own to in the at our half, as the of

said, that control the with control -- of the the what But our is end own but control we at don't definitely we we markets, day, actions.

in We're of hiring. to improving continue everything. of efficiency, We're the going not health care And can. Using we execute out. are lot supply is satisfied where from for We're with at an discretionary XXXX and very we operations. to important end where we being And make as are volume building continue so and we we words, be our on just agile to and drive we It's this. and continuing including careful a looking now. few being year our over strategies nimble are. as to the continuing last plan chain a supply right our spin as to to to your And with going I want at are chain nimble year to is sure our that agile to plays look that are keep itself goal year. the Mike's we years, question,

Bruce Jermeland

Hey, just one correct Nigel, to Monish thing said. want I

to QX XX%, down going Our XX% are be to total sales not volume. for

Monish Patolawala

Yeah. sorry. I'm

Bruce Jermeland

is growth be to sales Organic mid-single forecast digits. to down single digits low

Nigel Coe

Bruce. I for going questions to Mike. one And Okay. but do few for asked I I know, Thanks follow-up a was there, that. on have clarification. I've that

ago, centralization could bit You pretty reorganization six through new sort of hindsight, of that said, and business rigid? about terms organization In the unwind XM Was things the that of and everything years of on left ways chain stabilization? in right support doing supply has too things, a And your the move? that went or functions. you a big five table

Mike Roman

chain thinking structure did would say of the there's you're ago. looking to factories, that change about. a Nigel – years our some supply at that, maybe of the that footprint the on we different number I of Yeah, we take One a was really changes that, is that couple actions of made factories and

– model led to model, we change in globally. our And chain then flexibility, went some continue steps moved more group to greater drive made common we when last end-to-end to we supply to additional our And the year, we a announced supply streamlined that chain. really business performance in in to

to changes it as streamline, see we really on So, delivering and costs, an more customers. reducing productivity, our more made more simplification, the have we drive directly to opportunity build

of to on those continuing it's changes. So build some

continue we I think go to And flexible will chains as supply an that to actually ahead. us more there's have those positioned expectation be heal.

improve learned supply we've year. the go really in execute biggest we what the we we what as those as advantage to our control, take to able those be to, to the that At time, we cash and is to on based our same performance through tailwinds to of have year. changes So margin we that and opportunity additional we we making see of It's the go control flow want hope chain. through

Nigel Coe

Mike. Thanks, Okay.

Operator

Alexander And Laurence our with last question Jefferies. from comes

proceed with You your may question.

Dan Rizzo

Thanks you I year. I Hi. Dan maintain of, know, to will that? This out guess, things Can I in Is flow get mentioned is fitting cash this but the for is me long-term kind you that missed volatile XX% conversion years? I in. as if or XXX% don't this free for Laurence. goal? mean, Thanks. less Rizzo that on not,

Monish Patolawala

be that to for guide. XX% was it's to Yeah, clear, just XXX% the XXXX,

Dan Rizzo

Right.

Monish Patolawala

last XX%. year, at For we ended

chains your As times, from the capital it is working and supply you the nearly clearly how ability generated for analytics inventory and we and quarter, depend the multiple working us, And an for for EP. And is help to just got look behave XM's capital to us down, as if on to comes inventories an use this and start supply it will the job and $XXX we're teams of fourth on In exists. clearly chains to keep going at But down heal, by sustainable, drive take ultimately question, that amazing to from inventory I've driving million. that. did said data it depends management a cash answer course, capital. the income opportunity the opportunity data to

Dan Rizzo

you very Thank right. All much.

Monish Patolawala

Thanks.

Operator

We questions no further phone time. at have this

Mike Roman

To and for wrap value up, in a we are focused on creating shareholders challenging customers environment.

We while the simplification will improve take building you to for costs control performance, and future. our drive for to us. joining continue actions XM Thank

Operator

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

3M (MMM) 24 Jan 232022 Q4 Earnings call transcript