3M Company

Ladies and gentlemen, thank you for standing by. Welcome to the 3M Third Quarter Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the one followed by the four 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 Tuesday, October 27th, 2020. I would now like to turn the call over to Bruce Dremeland, Vice President of Investor Relations at 3M.

Thank you and good morning, everyone. Welcome to our third quarter 2020 business review. With me today are Mike Roman, 3M's Chairman and Chief Executive Officer, along with Monish Patalawala, our Chief Financial Officer. Mike and Monish will make some formal comments, and then we'll open it up for questions. Please note that 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 turn to slide two. Let me remind you to mark your calendars for our fourth quarter earnings call, which will take place on Tuesday, January 26, 2021. Please take a moment to read the forward looking statement on slide 3. 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 10Q lists some of the most important risk factors that could cause actual results to differ from our predictions. Finally, throughout today's presentation, we'll be making references to certain non-GAAP financial measures. reconciliations of the non gap measures can be found in the attachments in today's press release. Please note, we have provided segment and total company adjusted EBITDA reconciliations for reference in today's press release attachments as part of our non gap measures. Please turn to slide four and I will hand it off to Mike. Mike.

Good morning, everyone. I hope you and your families are staying safe and healthy, and I thank you for joining us. As you have seen in our monthly sales reports, we saw a significant improvement sequentially in trends versus Q2 across businesses and geographies, and we returned to positive year over year organic growth. While we remain in a highly uncertain economic environment, it is a credit to our team that 3M continues to execute well, deliver value to our customers and fight the pandemic from every angle. We continue to prioritize protecting our employees, frontline healthcare workers and the public while supporting the reopening of economies around the world. We have distributed 1.4 billion respirators year to date on track to 2 billion by the end of 2020. And we will exit the year at an annual run rate of 2.4 billion as we continue to add capacity. 3M innovations are also supporting the development of new vaccines and lower cost testing methods that can be mass produced. Our operational performance was strong, and we posted another quarter of robust cash flow, aggressively managed costs, and further strengthened our balance sheet. Though our focus remains on executing in this environment, we are also looking ahead and investing in both growth and productivity. while advancing our core values, including sustainability, diversity, and inclusion. Overall, we are confident in our ability to lead in the economic recovery as we take actions to transform 3M and realize new opportunities from emerging customer needs and global market trends. Please turn to slide five. Companywide, total sales increased 5% year over year and 16% sequentially to $8.4 billion, slightly above our estimates. With respect to organic sales, we delivered growth of 1% year over year, with adjusted earnings of $2.43 per share. In the third quarter, demand remained strong in personal safety, along with areas such as home improvement, data centers, and biopharma filtration. and we see continued momentum in these end markets into October. While we saw improvement in other end markets versus the second quarter, many remain down year over year, including healthcare elective procedures, auto OEM, and general industrial. Geographically, we experienced notable improvement in the Americas, led by the U.S. up 5% organically, with strong growth in personal safety, consumer, and healthcare. EMEA was flat versus down 15% in Q2, while Asia Pacific was down 3% organically. We delivered growth of 8% in China, with all business groups above 6%, offset by Japan, which continues to be challenged. Our execution was strong as we posted adjusted EBITDA margins of 29%, with all business groups at or above 27%. Our adjusted free cash flow increased to $2.2 billion in the quarter, Year to date, we have expanded cash flow by 19% and are on track to deliver another record performance in 2020. Continued strong cash flow has enabled us to reduce net debt by $2.8 billion, while returning $2.5 billion in dividends to shareholders through the first nine months of the year. Looking ahead, this continues to be an uncertain environment, and customers and channel partners remain cautious. We will stay focused on serving our customers, driving operational improvement and investing for the future. Please turn to slide six. Over the past several months, customer and stakeholder trust in 3M has grown because of how we have delivered through the pandemic. COVID-19 is rapidly changing the global economy and the way people live, work and communicate. Years worth of changes are unfolding in a matter of months, creating opportunities to unleash the power of 3M science to drive sustainable long-term growth. For example, with people at home more, there is growing demand for products to both maintain and improve households. This includes indoor air quality solutions where we've increased investments in our field tree portfolio to introduce new innovative products and create additional capacity. As a result, our air quality platform has grown double digits year to date as we keep families healthier and more productive. and we expect this market trend to continue. An increased focus in other areas like personal safety, automotive electrification, and biopharma filtration, to name a few, also open additional opportunities for 3M. At the same time, end markets like office, hospitality, and oil and gas have been highly impacted by COVID-19 and are declining as a result. To strengthen our competitive edge, we will invest where demand is strong, pull back where needed, stay close to our customers, and create new innovations that address global market trends. We execute these strategies in normal times, but in the unprecedented times we are in now, prioritization is especially important. I'm also encouraged with the benefits from the new global operating model we implemented this year. a significant step in our transformation designed to improve growth and efficiency and allow us to adjust faster than ever to the external environment. During COVID-19, the strength of our model has never been clearer. From our ability to deliver a three-fold increase in global respirator production this year to the reconfiguration of our supply chain that enabled us to import more than 200 million respirators into the U.S. from Asia-Pacific. In a matter of weeks, we also fully scaled up two new respirator lines at a plant in Sheboygan Falls, Wisconsin. A process that would normally take several months. Those lines are now operating at rates 30% above similar lines as we've incorporated significant new technologies and analytic platforms, and we continue to further optimize production volumes. While we have made progress, more work remains to build a stronger and more agile enterprise. Moving forward, we will continue to optimize our new model, digitize our operations, and improve the customer experience. All of these actions, combined with relentless focus on operational execution, will enable us to deliver greater value for our customers, shareholders, and all stakeholders as economies recover from the impact of COVID-19. That wraps up my opening comments, and I'll turn it over to Monish to cover the details of the quarter and our perspective on Q4. Monish.