3M Company

And gentlemen, thank you for standing by. Your conference will be starting in just a few minutes. It is recommended that you use a landline phone if you're going to register for a question. We thank you for your patience and ask that you please remain on the line. Thank you. Thank you. Thank you. Thank you. Thank you. ladies and gentlemen thank you for standing by your conference will be starting in just a few minutes it is recommended that you use a landline phone if you're going to register for a question we thank you for your patience and ask that you please remain on the line Thank you. Thank you. ¶¶ Thank you. . . . . . . Thank you. Ladies and gentlemen, thank you for standing by. Welcome to the 3M Second Quarter Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone keypad. It is recommended that you use a landline phone if you're going to register for a question. As a reminder, this conference is being recorded Thursday, July 25th, 2019. I would now like to turn the call over to Bruce Germeland, Vice President of Investor Relations at 3M.

Thank you and good morning, everyone. Welcome to our second quarter 2019 business review. With me today are Mike Roman, 3M's Chairman and Chief Executive Officer, and Nick Gangstead, our Chief Financial Officer. Mike and Nick will make some formal comments and then we'll take your questions. Today's earnings release and slide presentation accompanying this call are posted on our investor relations website at 3M.com under the heading quarterly earnings. Please note we are reporting our results under our new business group structure starting with the second quarter. Additional business group performance details can be found in the appendix of this presentation along with our May 30th 8K and our investor relations website. Lastly, let me remind you to mark your calendars for our third quarter earnings call, which will take place on Thursday, October 24th. Please take a moment to read the forward-looking statement on slide two. During today's conference call, we will make certain predictive statements that reflect our current views about 3M's future performance and financial results. These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Item 1A of our most recent Form 10-K lists some of the most important risk factors that could cause actual results to differ from our predictions. Finally, please note that throughout today's presentation, we'll be making references to certain non-GAAP financial measures. In particular, measures which exclude the impact of the deconsolidation of our Venezuelan subsidiary. Reconciliations of the non-GAAP measures can be found in the appendix of today's presentation and press release. Please turn to slide three, and I'll hand it off to Mike. Mike? Thank you, Bruce.

Good morning, everyone, and thank you for joining us. I am encouraged by our company's progress and performance in the second quarter, coming off a difficult start to the year. While we continued to face slow growth conditions in key end markets, our execution was strong. We implemented our restructuring while effectively managing costs and reducing inventory levels, which I will discuss on the next slide. Our team is building momentum going into the second half as we focus on what we control, and as a result, today we are affirming our guidance for the full year. At the same time, we remain focused on our four priorities for long-term value creation, portfolio, transformation, innovation, and people and culture. In the second quarter, this included our acquisition of Acelity, an excellent complement to our healthcare portfolio, and which we expect to close in the fourth quarter. Please turn to slide four. As you recall, on our last earnings call, we laid out specific and aggressive actions to strengthen our performance. In the second quarter, we made significant progress with each of those actions. First, the restructuring has been finalized across the enterprise, which resulted in a pre-tax charge of $148 million. We continue to expect annual savings of $225 to $250 million, with $110 million in the remainder of this year. Beyond the restructuring, we are driving increased cash flow through several other actions. For example, we adjusted our manufacturing output and reduced inventory levels by over $250 million in the quarter. We also curtailed indirect costs by more than $80 million year over year. While we are making positive strides in our operations, there is still more to do, and we will remain focused on managing costs and improving productivity. As we do this, we will continue to invest in organic growth through research and development and CapEx to deliver on our promise to innovate for our customers. Please turn to slide five for a summary of our second quarter. Organic growth company-wide was minus 1%, in line with our expectations. Growth was led by our healthcare business at 4%, which was a good improvement versus Q1, and consumer grew 1%. We saw continued end market softness in China, automotive, and electronics, which tempered growth in our other two businesses. Growth in safety and industrial declined by 5%, while transportation and electronics was down 1%. With respect to EPS, we posted adjusted earnings of $2.20 per share, which includes a $0.21 charge for restructuring and a $0.07 benefit from a pending divestiture, which Nick will cover in his remarks. Underlying margins were 22.2%, which excludes 140 basis points of impact from the restructuring, so we are making good progress relative to our Q1 margins of 21.4%. Importantly, we delivered this improved margin performance even while reducing production and inventory, which reflects the strength of the 3M value model. I want to take this opportunity to thank our people for rising to the occasion and for executing our plans with focus and urgency. And while there is more work left to do, 3M's foundation remains strong. We have deep competitive advantage, advanced manufacturing, global capabilities, and leading brands. We have market-leading businesses and strong relationships with our customers. Moving ahead, we are focused on investing for the future and continuing to deliver operational improvements, which will enable us to better serve our customers and maximize value for all of our stakeholders. That wraps up my opening comments. I will come back to discuss our guidance after Nick takes you through the details of the quarter. Nick.