MMM - Earnings call 3 2023

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to the 3M Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded Tuesday, October 24, 2023.

I would now like to turn the call over to Bruce Jermeland, Senior Vice President of Investor Relations at 3M.

Bruce Jermeland

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

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

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

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

turn to I'll that, to now With Mike? off call Slide Mike. please the hand And X.

Michael Roman

growth positioning close Good Bruce. we us. quarter, for you, third the to free through our morning, businesses sequentially year-on-year earnings built joining across quarter cash an our and thank consecutive basis, all flow. solid you momentum In for achieved customers, operational delivered a ahead XXXX. we execution everyone, again strong as for in and us On Thank expectations, we double-digit delivered of four adjusted of expanded margins our third

range up up cash range improved share previous of to to and XXX% our flow year per full previously. and XX% a guidance to free As to increasing to adjusted $X.XX, we $X.XX, adjusted to make financial XXX%, XXX% conversion results, $X.XX deliver are from we our progress $X.XX earnings from

continue to priorities. against deliver our We

throughout XM execution, spending and discipline. performance restructuring We operational strong actions with driving are

I risk business, completed of and during how And we Health expect the spin reducing progressing additional which the Combat are XXXX. these some significant context to Arms now reaching advancing Care are settlements We half PFAS provide first the around priorities. address we will litigation. uncertainty are of by to be we and

Next slide, please.

expansion of XXX operating performance expansion, points the adjusted is income We points excluding demonstrates basis margin our of driving throughout year-over-year delivered XX margin XM. charges. Our clearly restructuring-related basis team

are We our business ways. strengthening in important several

structural progressing We get restructuring us actions are with to streamline costs customers. closer reduce to organization, our our and

We have go-to-market organization our center the leaned out global chain simplified of optimized our models. supply our company, global and

margins productivity conversion. are use we data by advancing leverage chain expand yield, time, gross increase analytics. same and and service, the are and These supply cash toolkit continuous improvement drive initiatives At to data results our that performance improve and supported being

XX example, plants. our than we have this processes events For more Kaizen existing largest benefited in improve to year from

leadership spin of the progressing the in building also of We Health the as are Care half first we completing our team work toward business, spin the XXXX.

leaders, Chair. During as Bryan stand-alone business; the the two of Cox as CEO the we Carrie and added quarter, Care the Hanson experienced Health Board naming

have and begun. parties announced with settling process the been courts to by Arms established has And funded. continue notifying it. effectively working trial Combat uncertainty for are we risk litigation. We administration and Finally, and settlement and the bellwether manage implement settlement. proactively The settled. has all and with The we managing to And process verdicts the been claimants

with toward has supplier set approval. last and state settlement from we preliminary the for With early the objections next quarter successfully working received We approval announced attorneys are respect February hearing final public to year. water PFAS, general court resolved

future. our want few I a closing, to share In about thoughts

strengths. ourselves XM where to define differentiate have capabilities through attractive win and opportunity accelerates the we Our as and go prioritize at the to right we to next we markets our momentum our unique ability where

million OEM A Auto to to the year of XX% electrification a is where on is organic market this year-to-date. $XXX growth has growth good this track continue quarter. be our business, with example automotive business double-digit outperform and we delivered

led to expertise build new us science business. a material has Our

similar home improvement safety, other And in consumer core platforms opportunities such see we as electronics. and

prioritizing also with and are capabilities. emerging trends that We growth global match that attractive up have needs customer well rates XM

are We and industrial areas in new electronics. building technology, platforms like next-generation automation climate

executing. us it am our into additional closing up pleased over saw I Before with insight we teams I third hand close the results thoughts. a solid the our momentum that quarter for in a XXXX. second to build quarter, to are few setting for They performance, delivered way on Monish the

reducing priorities, greater Health cost, and cash growth progressing our advancing is generation prioritizing XM uncertainty. are tomorrow, driving risk our teams. delivering performance, empowering for innovating building better with and our and margins and We and lower Care impact spin platforms, today

on I will turn and to Monish? for quarter over third the now Monish more year. for it the rest details of the outlook our

Monish Patolawala

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

we mentioned, strengthen Mike actions we seeing taking to are from As business. traction significant are the the

focus share on guidance initiatives, our were proactive XXX and inventory, from high discipline increase benefits billion; $X.X managing XXX%. of effective ongoing Through spending production, we $X earnings billion, to X%; of and at and the to end deliver including: of billion, up year-on-year of able margins on XXX basis range cash with sequentially; a of quarter $X.XX, of points adjusted $X of efficiency billion year-on-year of the of flow productivity operating third year-on-year an XX% sales solid per adjustment customers, of and our conversion results, relentless points XX.X%, focus increase free basis $X.X

Organic included in demand approximately our last points lower to of or million This related an declined $XXX sales and year. disposable versus X.X headwind adjusted year-on-year exit year's respirator percentage Russia. X.X% of on expected last basis an operations

down Excluding this, QX organic X.X%. were sales adjusted

Consumer continue electronics end be soft. and markets to

remains our in automotive in continued Regionally, business in soft, and slightly to organic mid-teens was in strength year-on-year lapping despite OEM continued was This year. adjusted the prior mid-single partially high strong down recovery digits due organically year-on-year backlog offset market China Europe and in sales declined single Consumer. electronics business. the end U.S. with along Our softness, by sales challenges our up retail. was softness digits

EPS supply Our in X/X of results. $X.XX timing. restructuring restructuring on strong track. favorable we seeing adjusted and margin driven and execution our Roughly was this impact actions we chain earlier our our in to are by driven $X.XX. operational the year And of $X.XX are by proactive of expectations exceeded balance beat largely spending the discipline The announced

pretax with We to year million restructuring continue benefits charges. full $XXX offsetting to $XXX expect million of

Russia performance. actions, strong spending exit margin year's of and and business mentioned that and restructuring the per from the the Turning operating by Manufacturing margins disposable resulted earnings respirator productivity to for and basis improvement selling to year-on-year X Slide an earnings headwinds volumes, components XXX operating partially $X.XX sales points share. discipline offset and drove in prices, investments previously last our of of and lower to

and created XX range $XXX related restructuring points Pretax higher earnings. factors impact to This a $XX to are being basis to basis $X.XX pushed approximately and charges carryover of million to of a or raw impact in million margins that to a inflation or QX than $XX actions earnings. margins into were energy operating and year-on-year quarter of million $XXX of of points charge impacted $X.XX negative to cost timing anticipated our that due million material, impact headwind in lower the was The negative logistics and the QX. XX

net safety year's X.X% translation earnings food tailwind no margins currency year-on-year impact sales. per Foreign adjusted Technologies a Last basis a to and positive $X.XX tailwind resulted XX earnings. share. reconsolidation total Aearo the points impact This divestiture to was to of in in of a resulted to and

net share Finally, financial other $X.XX decreased by items earnings year-on-year. per a

productivity, in continues focus to driving summary, and results. on executing team's sequential yield actions spending operating and actions drove adjusted our improvement meaningful restructuring In These year-on-year controlling margins.

X. Slide to turn Please

XX% from $XXX management power Inventory free data conversion adjusted our data as over cash with improvement a billion, basis speed million capital points the QX. $X.X management, inventory. daily and year's was of working driven especially analytics sequentially year-on-year quarter focus flow and on was terms. inventory down This we was million up up up ongoing benefit by XXX $XXX year-on-year to XXX%, versus of last Third year-on-year and

is do benefits can Adjusted in will from growth, quarter, as the and actions continue forward. to in do productivity $XXX to we As realize as continue always, we we invest move our more to capital million there expenditures sustainability. and were

$XXX reduction of the million end $XX.X returned shareholders year-on-year. During at we quarter, of a debt billion, Net stood dividends. QX the XX% to at via

segments continue their generation. robust Our long of business cash flow history

shareholders retained In at stake, anticipated from additional leverage with Health X.Xx along EBITDA return flexibility. legal financial needs provides markets, proven structure us in will capital spin our and cash to meet Xx to and with to of flow the addition, business, matters. provide access the combined capital one-time existing to invest ongoing XX.X% to the continue Care of dividend This our strong with ability capital the related to the

result turn approximately $X.X X.X please down of last respirator group billion posted organically. our for or business, Safety and points business to year-on-year percentage X decline to Now a operations year's COVID-related Starting with of in due which sales or performance. disposable our headwind included Slide and Industrial of X.X% $XXX our exit This Russia. million

adjusted organic QX this, were X.X%. down Excluding sales

digits disposable safety due year's down Personal to high single last COVID-related comp. was respirator

and masking was organic electrical safety And single roofing was be organically. granules continued disposable finally, and aftermarket by softness impacted and Abrasives, up by industrial last strong versus our packaging personal markets automotive business digits year's activity shipping tapes and respirators, and in end Excluding single digits. electronics. in high market up growth declined high adhesives lower comparisons. to Closure

or sales price. was productivity were sequentially. operating offsetting mainly from XXX and last margins basis margins restructuring was XXX versus year-on-year up actions, Partially in were Adjusted these improvement up restructuring points benefits by Adjusted year-on-year costs. volume basis headwinds year. points X% and income up benefits, spending driven and discipline The lower ongoing strong million XX.X%, operating $XXX

Slide expected year-on-year, on to weakness in $X.X electronics. and billion. which Electronics sales largely X.X% to declined due Moving growth of organic posted QX XX, Adjusted Transportation adjusted

Our remain end as a soft. adjusted data electronics continues decline organic business and center demand in experienced to market sales year-on-year mid-single-digit semiconductor

starting are to see electronics of end We consumer market. in signs stabilization

closely head we upcoming season. demand monitoring we are However, trends into holiday as the

on as automotive a penetration a car versus approximately single-digit Our strong and continued auto business to XX% year-on-year quarter, increasing had build low platforms. OEM light gain truck we global

and China low Turning and Transportation rest mid-single digits grew Electronics. while both driven $XXX single year-on-year, delivered income, solutions by weakness million declined adjusted XX% advanced transportation and operating mainly Commercial Electronics year-on-year. Transportation the up of safety to materials digits. in in

restructuring and operating was discipline spending strong driven and and up headwinds sales sequentially. The were up XXX XX.X%, costs. these in points were improvement Partially restructuring by price. margins year-on-year from points benefits lower benefits, basis actions, volumes XXX Adjusted basis margins year-on-year productivity offsetting

Slide single organic our on at were solutions growth $X.X single X.X% versus post-COVID-related tighter digits digits oral in up were declined high Health and information lower low demand. biopharma budgets. last Looking due digits billion single medical Care grew sales business low with QX XX. year-on-year up impact Health care continued from systems Organic hospital including organically, to sales year.

volumes hospital we this confident continue the stabilize, of procedure budgets business. and outlook are to As long-term improve in

year-on-year. by The Health X% benefits margins partially year-on-year productivity year-on-year benefits spending up margins up These in third XXX income basis operating basis Care's and was by and points XX offset restructuring XX.X%, strong quarter price. driven restructuring costs. discipline points. were sequentially were was up million or actions, $XXX Operating improvement

Slide on Finally, XX.

declined sales of related categories X.X% rates on spending. and housing market quarter and posted billion. The was $X.X the impact Our sales back-to-school year-on-year soft as season subdued. third trends hardline continued discretionary interest Organic rising to Consumer remained spending business

costs. XX% XXX points to Consumer's third partially decline operating by $XXX operating million, were actions, XX strong down basis basis margins points price. were The headwinds lower year, by productivity with from however, offset year-on-year of spending down restructuring from volumes in benefits margins and quarter and discipline up was compared restructuring sales sequentially. last XX.X%, income was and driven headwinds These year-on-year,

quarter. third Slide an to our XX concludes the Please our for on full year's remarks update on expectations. That turn

significant an the and yield in in of efficiency environment. manage year results better the productivity, we costs deliver place and chain, drive have simplification, shows put customers our to generate performance supply actions quarter third macro uncertain strong from for Our this our

of share conversion We are our adjusted full in cash earnings earnings free $X.XX. expect a result, range to year $X.XX now per As of $X.XX adjusted $X.XX range year we the raising flow our full to guidance. versus prior XXXX and

adjusted cash updating be XXX% are We conversion to range flow XX% of a to also our in full free XXX% forecasted XXX% year previously. versus to

disposable estimate versus full adjusted down prior at $XX organic $XXX our demand. year approximately expect our million full incremental the expectation $XXX flat continued for year to on million sales now X%. million of X% end from growth updated performance, minus Based disposable headwind versus to We year-to-date of This lower respirator approximately be decline guidance we to includes be softness respirators an in previously. a of

Looking ahead to the implied fourth quarter.

consistent end be billion into sales expect quarter adjusted fourth with be seasonality range market to of with billion, QX. in we trends taking We to fewer normal $X.X days sales holidays. Hence, $X.X the due to anticipate to consideration

pretax quarter earlier, to Fourth the the $XX with to of charges $XXX million mentioned of restructuring $XXX million, benefits timing be range pretax $XXX are to expected million in million. impact incorporating I

to share quarter we adjusted per earnings $X.XX. range in fourth Taken together, be of expect will $X.XX the

and through strong Care actions execution, spending successfully up, and reducing we focused wrap by on Health managing off are restructuring litigation by on exposures. risk discipline, performance To our spinning improved our operational progressing priorities driving very

we most innovation At opportunities. as time, capitalize the the to future invest attractive emerging prioritize for on are the and XM support markets, positioning we same continued

future. We to organic expect into our flow and long-term and growth, the performance cash our in drive actions margins will improvement build momentum continue

more will XXXX, be and remain leaner in our confident And exit we I we XM. future. stronger, focused As a a

the third focus for they them to want for XM I result dedication solid shareholders. thank their is quarter in and customers suppliers of Our a direct as work partnership hard of to our with and deliver employees. continue

remarks. concludes my That

We questions. will your now take

Operator

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

Scott Davis

big remaining? complete so are remaining a overall, up to progress want some but little get the to able been But back complete? What there. a solid, guys, haven't this Any I a pretty quarter hurdles Care in while I Health to bit. say still steps spin

Michael Roman

would team the continues I very Scott, Yes, good to make say progress.

do the hurdles of to a for And spin. us. get ready work see lot ahead don't so we of There's any to

getting And ready step so each do, process. that for we've got work to of

CEO leadership As about and that we're we built to remarks, in adding talked my getting out. the named and we the team

So foundation. really important an that's

We have on to the work the continue Board. Board Chair and named out filling

important are steps. those So

early getting the don't on about And I to progress. confidence going that successfully. track see talked for the in that XXXX us we team -- we're we're to and timing ourselves great there continue has given see

about of ready for -- as Importantly, Health Care. the a being us, completed. is getting Care It's it Health talked about stand with company it's is, the to as about, of we XM much for also spin spin ready getting up stand-alone

we're there our what we focus And there. even spin important execution about quarter, driving good the So is part we're progress for we noted. an about, execution talked putting in as talking as the are for really of And that ready XM in operational the the well. making priorities getting you

Monish Patolawala

that's that Health up to comments, and add And the through Mike's to do. changes, entities is as what everyone well as side. legal the from process-wise are standing filings, teams all regulatory Scott, Just the working Care on need system focused to we

Scott Davis

helpful. That's

comments of a potentially of you at your XM percent CapEx, the point a sales? new further, lower run of it where of R&D on that kind envision a knock a levels XM, you just levels do little new a drive always of So can to as taking And costs money XM lot growth. even Mike, lower was at the of

say, is in did efficient of that certainly CapEx you at well. kind And and there that I more not work of But out XM, But run levels incrementals, sometimes worked with down vision new well. of cycles, R&D? that out can a productive, should

Michael Roman

to your to dimensions couple Scott, Yes, there's the question. of a answer

really our restructuring and we've businesses that in first as supply QX. face a we greater globally. been of where margins. our in performance, that execution, some in that really the we at our with the was was behind it of was had going about. back what were we operated learned We from coming The we chains challenges supply we could expectation improvement in improved chains productivity, looked And what talking And stronger drive with starts an announced

really that And foundation was the restructuring. of so that

performance the think can the answer that's accelerate lean demonstrate build XM. supply company. to foundation And that financial streamline the our the center are, simplify to improved your the for those you go-to-market models. company, that the took we of a future for out is is starting can to can momentum, as to see, our the how Those we starting are future. And view we decisions talked -- expect we the future we of part I so I question performance for with chain, of those that drive foundation even -- some be well. to about this And

innovation about going R&D and our allocation, to investing And are growth and first be can will our in organic CapEx and in it thinking talking market where capital and innovation in places growth, then productivity where aligned to continue market we trends. is and emerging and investing high-growth spaces, be you priority And differentiate targeting ourselves capabilities, sustainability. be really with of can we to

how be to investment think where to aligned ability that a I going we see that with prioritize that is difference. So we make

important are future. for both So foundations the

Operator

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

Andrew Obin

Just on at? said been what this take are that you business the question looking see when expectations. do to headwind was think does you But -- does it tunnel? while. end KPIs -- of and When a for broadly you electronics, What a at you with the line a in it light do think I for When the bottom bottom?

Michael Roman

in say see, there's it's that's electronics as ahead, We're markets look it's part electronics. customers our big third came we have of to -- said, semiconductor, we And some electronics, quarter, When for focus starting through Yes, our uncertainty. stabilize. into what saw, soft a still Monish said, as I consumer into end we as would we Andrew, a electronics. in we

continuing forward. don't it go to are things that that down, about starting see think getting stabilize. some There's we -- companies as go really I better it's to talking they reflects

I closely. watching would it say we're

to like a I would QX say lot electronics included. our We QX look in expect markets, and end

we're in we're data performance lead centers. And we see So always going, When improve, and consumer large watching lead those the from demand see the with our customers to the customers, where going. the our we from taking market -- we electronics electronics semiconductor them. associated where be going market take see watch, where we are what we'll that's

Monish Patolawala

you, for negative electronics second way Just Andrew. Vs that another of the amount was we end said of would At the we the better. point quarter-on-quarter data had predicted quarter, get

So we was first amount are as and if of that's to in I make But signs you quarter, my starting another is less versus season compare us to are point the the third the how holiday trying are we'll to It not that's I down, half down were prepared doesn't mean to we out. plays year-on-year that stabilization. some we Mike but think have the down. remarks, where watch just we see said

Andrew Obin

And Got accounting, a done the past. of you. a these appreciate are have lot question I in Care. of et follow-up just et sort separations doing But you that cetera. on you cetera, Health guys

I maybe future Health company? know as sort information the being sort the of inside Bryan as past, sort are came Any separated. the onboard, thoughts guess, portfolio particularly Bryan of -- about know I there a reposition And stand-alone system businesses health portfolio joined repositioning question headlines I thought for the the other of about Care. been in has have, I any as company there's

Michael Roman

way it create stand-alone portfolio businesses, stand really the be time future? the one best to positioned was technology answer a to we that a us leading was a we as work And did XM over as going with attractive even we that the Health was about how -- care that questions do health Care it part the and company. back And done stand-alone successful the value great up for company. to portfolio as Health yes. And Yes, company Care, see had a of the to out strategy important shareholders to to spin of think of Andrew,

And an of play there. businesses role the each important

And company. We'll for they going about about Now really for an how and will creating the of new thinking that driving value, be the growth they they portfolio have to CEO manage how is forward. develop go independent to a a it that as strategies greatest businesses Board. business, think

leadership being to as really the So a forward we see as in standalone. take and leader will it that company stand as a ready confident the are

Operator

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

Joseph Ritchie

expenses? start we the on the you're Can little Just just the benefits schedule on of benefits. and pushout like the seems a running ahead the restructuring, bit it of

So reasons into what in also then about better to I'd coming love XQ are see what from -- the XQ, were on get where pushed color out cost why than on is just of the this any to the just some expected. pushout XQ? you the And costs getting for

Monish Patolawala

Yes.

million $XXX to again So of $XXX a we Joe, we to $XXX and with million million the $XXX for I'll had said for total program equal the ranges million just year, benefits this benefits $XXX program into coming benefits in the charges. start, over period million the million. to of as of would $XXX XXXX, reminder, is approximately offsetting And see of the costs

which for $XXX million will cost when look benefits, largely we $XXX in would year. get are, believe of I of year-to-date, track on million. to million $XXX by $XXX we'll offset be the So to still the We you say, million

of the execute. were nice teams multiple done this There continuing job was program. simplification. have really corporate to One to So pieces a

are third closer second we our to group The all was customers units. making these in track. are sure that well chain. on of running streamlining business And three And supply our programs was our

sure we QX, big. you those As to say wanted regulations I to and all QX to from regards follow rules We countries. would And countries, nothing multiple timing operate in in we know. make as just

just the QX, some make do had other based that dropped small to in major. all of to QX in we They're had investments we doing, better QX. from QX. it we so felt so are items nothing And on couple And a the work to just teams

million $XXX benefits track, of and million to program. for million $XXX on $XXX for largely $XXX to the much million the year pretty still So

Joseph Ritchie

it. Got

provide And early think about you equation Monish. if Okay, helpful, guess, I seems materials on price/cost think great. ultimately, about headwind guys. I how the what But you think becoming a it's know out, price less That's from probably maybe you and for mat like any it for of Can like both here you type are to less framework you're XXXX. through then and too and of a from XXXX kind raw raw perspective? just of seeing

Monish Patolawala

start So I'll XXXX little is a by ways away. Joe, just first,

our focus focus So is the teams I to think first just getting QX done, priorities. continuing our getting on

You've seen have our done. teams what

to So we continue on our execute priorities.

QX. delivered You've we have seen a solid

We have year. out. to closed taken for getting the And doing guidance to whole momentum. team focus continue up that, XXXX we on gaining the We're want

get So QX on XXXX. give when you we'll update earnings definitely call, we XXXX XXXX and an into

you then places labor look material, seeing and is inflationary still a and which than disinflation And saying, still which called downstream on is the deflation. When million first I'll think about still of market and quarter, question -- more deflation in headwinds at overall $XX inflationary, inflation very are still your materials price, are is or approximately start with headwinds QX. that are by say we we carryover answer an sticky we to when out, all, start where more is energy To the seen I'll deflation. have from similar little you perspective. I the would

sure say think They saying, just importantly, and taken overall and the are teams focused that's they is on don't work that. Gibbons year of logistics, the done efficiency, it results we yield dual have in Where is in "How whether evident more team And factories?" are would teams the is it the Whether it you're upstream, is driving I on is chemicals clearly advantage I Peter cost the we focused some seen material materials, through have more is have whether we that seeing. cost. drive that alternate and do sourcing, making But what and down working. this the have benefits

job. has nice a very team that done So

much price you've price, what tell And when I pricing. as track know, -- followed we single then -- of XM same comes would on into than are right we you, the we to into longer came is And we That's are said as digits the quarter it low formula-based not with the range. year, now, I this you have, pretty a Joe, increase.

that a very value thoughtful and -- at that price is that we we get. are representation product-by-product, charging customers We it. about our are We our of customers the make that look market-by-market, we sure the it

And I would say don't aside the term, innovation long our customers. that that that that, have, leave that always if with equation equation focus price/cost we value a has we moment, of XXXX the we XM I because that changing. And a see bring, the remains. good to add for I very had you that And customer with believe

Operator

Our next with question comes from the line of Chris Snyder UBS.

Christopher Snyder

and the out XX% we is on margin operating versus than couple QX. and the One margin see in thing quarter of like an that last ex we restructuring this of savings, business has the the less of If really underlying stood XX% business. roughly mid-XXs out over improvement QX a to us underlying quarters spend in

driving you strong So about underlying the restructuring, talk the so ramp that? seeing what's is business Outside why just much Can a momentum? of very here. margin

Monish Patolawala

a say, it's litigation, mentioned, performance a good is To or rate to results. shown I And all huge -- up in thanks Mike costs driven, if would and XM, risk three the restructuring to say, XMers our has focused managing spinning by The by the on driving I reducing all been pretty two So the Chris, you their would Care, who out Health across benefits, starting ramp. first, priorities, that's have of priorities. as is your point, margin show exclude even things.

with chain execution chain have we the supply supply agile. some the made, in that continued the definitely and is One of more is restructuring

data are data using lot and a We also analytics. of

our chain. also operate through on have supply learned pandemic to to We continue the how

benefit number So the to one, of see starting improved efficiency. the yield and you're

You're runs, take gets too, better. able longer to material as

volumes, Secondly, extent To they the had saw they proactive cost we they have cost. there the team has been lower could management. places extent to very thoughtful where the invest, were have. control managed To in where we

a a inventory. that Third And have cash on seeing you're is had focus we with capital conversion from basis. working relentless

just you're would I So say performance strong that good, it's starting operating to see. continued,

rate you you the will have the long-term restructuring you're approximately as as better that get get then complete better you benefits. from program well from the cost goes can the see from add benefits benefits said to operating to X which take away, going years on performance out, we overall, And margin once restructuring this the and that as

to confident got continue keep teams At going is the to doing very an to fourth do. execution in But and macro. there. the you've we'll to more we're that I'm same the there's we time, as keep mind are go. quarter. And watch can in are trying that But -- more always It's we execution more this that what the uncertain with we drive

Christopher Snyder

lot of chain it Because seems down I are cost, restructuring whether appreciate it taking the just a and XX%, revenue to kind know that down, quarter. margin about operating maybe talk of but what's you that to this underlying of that. kind guiding guide, math by us maybe margins And QX our almost something that bridging decremental. seems from feels like very you're the ex XX% it's like supply to sharp it or improvements, price a suggest is sustainable. the step-down? I Can causing to

Monish Patolawala

of for we said going margin margin or XX%. the QX, had going margin between into end the the margin the XX.X% are we based the rates for where Yes. XX%. rates on our year. are When At of year rate total. are math. And the will in rates our be XX% with to to around midpoint start just we came depends said guide, be with on the year, started Chris, year we now again I'll approximately we

you is higher to you're decrementals. course, year-over-year QX restructuring year-over-year it's if basis million -- of is a is, doing midpoint higher higher when you on see somewhere to the XX.X% is you keep back have. It's into fourth for this that quarter the in the One QX million So the in the mind, of quarter. And it, decremental. of plus to just than in that reason XX% fourth versus restructuring $XX $XXX XX.X% the

is, drops QX The to QX. in second keep revenue from to piece in general, in mind XM

in It's macro trends less billion, goes billing guide, lower the days to which or underlying between why billion or days the days, business billing is same. just which going saying $X.X $X.X and That's lower an QX. billion, revenue down less $X is from puts days which are basically business have You our it impact. also

of answered look If less to QX you you to margin QX come days in history mainly rate. into Hopefully, QX. XM, volume your always because that from business a QX and pretty look question. at by at Chris, see And you driven the of just sharp decline the that's QX, that will lower the

Operator

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

Andrew Kaplowitz

I your guidance $X -- $X.X So a report billion ago, think bit think lowered $X a at of and Monish, conference had you a revenue you month I to then billion. had you sort billion

at you you the maybe So quarter. the revenues how any of thinking are September October? higher of your businesses and time? rates impact up just about conservative can on Did your of businesses? about being talk you for Are the then here And pick in the cadence

Monish Patolawala

much remain in trends, were what have pretty in the we taking stayed say our was So consumer end billion to $X what through of billion. that is of China. get uncertainty customers, it on we to I able much retail. to which would was thought of care high and be. saw pretty so we would moment going to focus I weak in Andy, Electronics the felt where continued did and was billion. all say the saying $X range was I'll same the at China we thanks quarter. we time, There to to told electronics, you $X.X consumer the that start by all, teams

and are have mentioned we prepared I electronics in so Mike my As seeing remarks, stabilizing.

$X.X would are We watching the Back-to-school for of days. the China, pretty driven And trends the was quarter, having much which the again then fourth billion, you'll we to are retail. expected is by see softer bring less consumer we than have billion you $X.X holiday what is in expected. we China. fact fourth for say business for trends quarter the it's will -- revenue just Overall, again I us

teams margin very done, other at the the at you you the have perspective. to operating good continued side, if what execution look an have look teams on be and On

control. proactive drive continued have cost to We

beat that ago. a to continue $X.XX able months have QX. conference We And then to to guide result, do $X.XX. done I a were we to in that we And in $X.XX We'll $X.XX our QX. as $X.XX the few had that to in said totally raised have $X.XX from to

job cash conversion. XXX% guide the our other Andy, third to XX% adjusted flow cash to from XXX% managing cash quarter, has done conversion And inventory, -- cash allowed year XXX% a raise to which flow free marvelous from point, free the free in spot to teams conversion total that's The then us of -- bright have is flow the XXX%. another

team execution. the focused overall, operating on So is

Andrew Kaplowitz

could talked if you're at know seems talk Monish, company. follow impact. on digitization about on the that, your conversion improving It having about digitization target you in, the efforts. cash you an raise, I maybe focused I like of up inventories came

can going of sort maybe improvements these cash and duration 'XX generating as in you So you talk about confidence of conversion higher beyond. in go the forward, forward

Monish Patolawala

here, From is did took was capital levels make had day said opportunity coming priority pandemic, inventory most our the care I've through And of care to for we customers. and just Yes. unfortunately, our great working to always sure companies customers. And of to the we Andy, of take XM. a first our build

we inventory. So enough had sure we made

inventory being data, the more by at data using execution visualize to importantly, analytics and what mean but supply just are chains the I looking and using to better. see where but doing one, data not and -- As teams able they number -- going stabilizing, analytics two are is the as able and that by are that is things, not

better allows more where we and which able get chain got them of the we demand restructured with get done agile, better streamlined then the supply is are They restructuring, piece a them to have manufacturing to which the And signal a third work a the all all signal, allows to have suppliers. There's tell that that their space. great through keep remarks, can are supply better continue signal, get it's going to inventory we so more is because we prepared more this my the can that you, to cash for continue in very are in strong said here. we I we driving And that it playing in to out where a driving go as seeing. generate place I to that this there's itself is would XM.

Operator

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

Deane Dray

XQ? auto What for impact and for the assuming are you planning strike

Michael Roman

we Yes, you very are with -- stayed We're very closely. Deane, it's the automotive OEMs, -- we're as watching so customers close know, key something our there.

on We're But are our business. And We to global seen that automotive we to part our important and part of it's business connected week-to-week as watch of it a haven't closely. -- date. demand. our what on significant impact happens staying we something impacting continue --

quarter, had outgrowing Automotive, the as performance. the had we good And talked We about in very growth XX% the our business. quarter, of build broader core rates. that's automotive in

business auto electrification Our faster. is growing even

as an it's move part. ahead. impact we point. to small impact we're important some Again, So closely It's relatively had this it watching but

Deane Dray

up weak, prepared year-over-year? the holiday then Can mentioned remarks you you how With sales? that then that maybe what's this And for Consumer the just earlier set being higher assumption well? does in there sales rates, And were weak. it. Got as back-to-school quantify

Michael Roman

you point about there. there back spend, of a data would student. year-over-year probably some back-to-school I down number at There's Deane, out per Yes, being of out the metrics

shifting in category is to us, exposed discretionary For Consumer broadly our spend.

to of be part Consumer continues that So story. the

only. We cycles replenishment back-to-school would a a wasn't stronger that have it in back-to-school. the was didn't story seen see muted. we Back-to-school strong So

we think out I that's the confirm there. data So

looking as what the And say would we're ahead, -- look around season just as we well. for uncertainty the happens we're I holiday at

for spending and, there's products experienced That kinds like And areas discretionary into retail story so of has be food I monitoring spending. that. around say, continued. of us, we'll from consumer And would again, trend broader a the shift

those how So we of and QX. quarter are it that the saw some performance into in about in underlying thinking the Consumer both we're

Operator

Our next of JPMorgan. line Tusa with question comes the Stephen from

C. Stephen Tusa

the inflation million, like you mentioned I kind of that had an $XXX unchanged it you just changed? carryover to for in total think the on Is was know said just that it you relative maybe Could before? I quarter. year? the now give second what update expected

Monish Patolawala

No change, Steve.

C. Stephen Tusa

on And then for pricing. guess, Okay. low I the single digits year

that's sequential expecting just how And kind are fourth decline you do think a demand? function seem last one sales electronics a of of much negative you one trend kind destocking is like guys very seasonality? for for X% versus feels decline. then already revenue-wise. volume So the that line That that on stable of like of from recessionary. quarter, Things you How mid-single-digit of much

Michael Roman

Yes.

that want. the some dynamic that's you seeing we look And about in channel, I quarter, thinking the when channels. say think we about if -- where take just I industrial maybe is Steve, the So channel we're talked -- too. really first, would across last destocking

seeing chain supply As has their performance we're industrial replenishment up cycles. improved stabilized, shorten and channels the

And hit some chain so supply normal they're more when we disruption. levels managing their inventory of got with to the prior maybe back to

one So effect. the destocking that's

the There of there's have Consumer demand last out, out heavily played inventory. That in soft some to that that's seems of with year. played is that out. although the destocking that taking The Retailers part over continuing. some out biggest on played focused pretty

in stable adjustments I pretty And continue I some channel, it's looking look otherwise, would China say, we for across the we markets of same where it. it's, to So as macro those globally, some when as the the maybe the macro of forward. rest see goes go in --

pointed talked we a businesses. And move that electronics in it markets. saw we comp. -- decline saw we really as end year-over-year part is our last electronics, about Looking the fourth the year, Remember ahead, quarter, It's we of third in stabilizing. Monish out, and

more gets as earlier from little of -- bit year-over-year that as So that's the little part some changes comp of the first lap we a stabilizes declines those a view QX half.

be That's to what important that season watching So go quarter. say holiday I we'll into we would an as and happens. closely staying that season we're electronics. And for close the

Monish Patolawala

XXX to down I is on of more. basis. Steve, a add -- respirators add just wanted $XXX That's Disposable points basis I'll million year-over-year growth. approximately just one

C. Stephen Tusa

Right.

And so sorry, normal in seasonal of Yes, assuming electronics? you are kind you decline sequential are?

Michael Roman

business, broader the we have seasonality. in Well, Yes.

end it's days cycles. as billing well. is that of also Some normal But market

season. holiday have the We

trend. QX to we from see sequentially QX, that -- see we So normal

C. Stephen Tusa

had, course? Right, which you've always of

Michael Roman

right. Yes,

Operator

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

Nigel Coe

So many have too you can't questions. electronics

my through XQ sharp. XQ attention from been electronics to got in the So what's growth sequential has quite is

lot be -- business. I or must know that give about to be of the was that XXX some XQ nice XQ into a about half I et tailwind that confidence think I XXXX seasonality, I But go the mean, its we in first should we so. the you cetera. think of it was as XXX, a least should at year, of

that? on thoughts any So

Michael Roman

that get about would Nigel, Well, markets say I it's the it. those we've electronics and stabilization for we're And XXXX on depend maybe that's to we seen that of -- the talking end as part trend going really seeing electronics you're against performance to will in that key in the first next depend stabilizing or that will see. half is in is quarterly we quarter decide half. demand the the second year-over-year outlook of first year the comparable on What

our on But call of be looking we'll -- some And the of the QX next update back how and at through half season. that we're we'll holiday come year. earnings first come will at

Nigel Coe

relative are, ask very U.S. Okay, seeing based China? macro on Are flash the like in to U.S. necessarily. XX improvement more October. I don't to channel-centric. ISM The sequential questions cycle, your at stabilization was And But great. for the you then Europe you maybe or and PMI that's in some

Michael Roman

that, U.S. I also U.S. and say, that was mixed the performance of caution in businesses the up slightly strength our think performance reflecting the in broader economy. industrial I around areas would Monish some, called but out in Yes, I would say, uncertainty and some

better, the up So I little think U.S. we're performing a seeing slightly.

in I that's been the we've that's about consumer -- challenges that And in would of retail. talking spite say

posted, Industrial in U.S. the quarter. So in mid-single-digit I the growth think, Safety and

that reflection managers. purchasing PMI That maybe PMI we're expectation represents on is from And kind middle that. the kind to a broadly. more what So good a of aligned that's seeing of

Monish Patolawala

add inventory lower have stable, is so I pockets, managing pockets. lead seeing comments supply they're definitely And will in Mike's so Just it are thing, to Nigel, customers far that chains managing times, in more customers other certain of we is are channel. just only part

Operator

with Mitchell Our last of line the question Julian comes Barclays. from

Julian Mitchell

of in as some soft just Headline sort of the do through I volumes just question, industry. outlook in areas you quick price your have on been is nature wanted for One to circle have the it. theory you like traditionally, time. pressure And easing. electronics see Because pricing inflation back

to of QX wondered at been last the push of just least in couple firm-wide whether of early next kind XM experience I you into sort level So at price, of as was sort and you go years. market how look what and year to flat that can comfort the of just you inflation price change hold any given there's the

Monish Patolawala

our just way but at Julian, is been look Yes, And I in we competitive said able look The look the before. with just term, question another would We that And at our we XM customers. with based -- market-by-market, that's on we at I pricing look we come up how in long reflected go position pricing with. the would say has that market-by-market, say same always the I thing it that add value charges. to just that add. formula, to this at value not it a its

add that value are changing. will delivering long goes, the you fourth topic. demand, teams that. quite overall, been a And manage I this the the In And we'll to doing based quarter. on It be see function the of innovation if our on see needed, able inflation. of customers, continue we say But where now, I we'll a that function right term, then And to short term inflation has focused long and company through would the as seen, don't the have run, price.

at I way the that's it. So look

Julian Mitchell

you And growth of had focus QX. pressure them. But couple And Industrial rhetoric And the less that's I had strong to been electrical that, just the also least sort and on of markets guess, markets fairly of at of a Safety pretty bit automotive Understood. around then in is little most within aftermarket. strong. and organically, or a

it kind around accelerated auto for distributors Any orders reason? color wondered, those just on please? any all aftermarket some holding just in of electrical, is of destocking, terms off on just and So color at

Michael Roman

little a of say little distribution in areas with that Julian, saw bit That Monish aftermarket supply saw Yes, wouldn't with managing a bit line of the chains we talked supply markets. And of highlighted I that adjustments, more electrical -- are our so inventories, that their the in stable was probably given improving their automotive channel would stocks, we industrial one saw I in about what and impacting. safety we destocking and chain.

Those year. market have part it. performance of been the seeing gone So I through as both think we've that's good

year. trends demand. I little and it's go the end on reflects the of as closely the end -- -- I of into bit a the think market also But destocking really, we again the think we're watching

Operator

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

Michael Roman

can we execute delivering most while future, To strategies, environment high-growth the results markets and XM impact. positioning prioritizing innovation joining challenging up, wrap geographies XM you a our deliver in for to the continue where Thank for us.

Operator

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

3M (MMM) 24 Oct 232023 Q3 Earnings call transcript