3M Company

Thank you for standing by. As a reminder, this conference is being recorded Tuesday, July 27th, 2021. I would now like to turn the call over to Bruce Germeland, Senior Vice President of Investor Relations at 3M.

Thank you and good morning, everyone, and welcome to our second quarter earnings conference call. With me today are Mike Roman, 3M's Chairman and Chief Executive Officer, and Monish Patelawalla, our chief financial officer. Mike and Monish will make some formal comments, then we will take your 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. As we have done throughout the year, I would like to remind you to mark your calendars for our next earnings call, which will take place on Tuesday, October 26. Please take a moment to read the forward-looking statement on slide three. 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. Please note, throughout today's presentation, we'll be making references to certain non-GAAP financial measures. Reconciliations of the non-GAAP measures can be found in the attachments to today's press release. Please turn to slide four, and I'll now hand it off to Mike. Mike?

Thank you, Bruce, and good morning, everyone. 3M's performance in the second quarter was strong as we posted organic growth across all business groups and geographic areas. Our team executed well and delivered increased earnings, expanded margins, and robust cash flow. From a macro perspective, the global economy continues to improve, though uncertainty remains due to COVID-19, and heightened concern over the increase in Delta variant cases. We saw ongoing strength in many end markets, including home improvement, oral care, and general industrial, along with a pickup in healthcare elective procedures. We continue to work to mitigate ongoing inflationary pressures and supply chain challenges, as well as end market dynamics, such as the semiconductor shortage impacting automotive build rates and electronics. We're also beginning to see a decline in pandemic-related demand for disposable respirators, which I will discuss on the next slide. Looking forward, we will stay focused on investing in emerging growth opportunities, improving productivity, and advancing sustainability. We are confident in our ability to continue executing well in the face of COVID-19 uncertainties and are raising our full-year guidance for organic growth to 6% to 9%. and earnings per share to $9.70 to $10.10. Please turn to slide five. In the second quarter, we delivered total sales of $8.9 billion. We posted organic growth of 21% versus a 13% decline in last year's second quarter, along with earnings of $2.59 per share. We expanded adjusted EBITDA margins to over 27%. and increased adjusted free cash flow to $1.6 billion with a conversion rate of 103%. Strong cash flow allowed us to further strengthen our balance sheet while returning $1.4 billion to shareholders through dividends and share repurchases. I am proud of our team's execution in a dynamic environment. We are finding new ways to innovate for customers and improve our operational performance. In addition to our strong day-to-day execution, we are investing to capitalize on favorable market trends and serve emerging customer needs. I want to share a few impactful examples. In healthcare, our innovative Pravena Therapy Incision Management System is the first and only medical device indicated by the U.S. FDA to help reduce surgical site infections in high-risk patients. helping lower the costly financial burden of complications, delivering on both improved clinical outcomes and cost savings for the healthcare system. In automotive electrification, we are building on 3M's long history in consumer electronics and now expanding our solutions for the future of transportation, including new display technologies for both electric and internal combustion engines, helping us drive above-market growth in our automotive business. In home improvement, we are building out a suite of innovations to help consumers personalize their homes, including our fast-growing line of Command damage-free hanging solutions, a half-a-billion-dollar franchise that leverages our world-class adhesive platform, with even greater opportunities ahead. We have increased opportunities across our businesses to apply 3M science and drive long-term growth, and we will continue to invest and win in those areas. As you all have seen, the ongoing impact of COVID-19 is highly variable across geographies. Since the onset of the pandemic, we have increased our annual respirator production fourfold to 2.5 billion by activating idle surge capacity and building additional lines. while shifting 90% of distribution into healthcare to protect nurses, doctors, and first responders. One of our strengths is to quickly adapt to changing marketplace needs. Global demand reached its peak in Q1 of this year, which included stockpiling from governments and hospitals. We are now seeing a deceleration in overall healthcare demand and are adjusting production, increasing supply to industrial and consumer channels. while continuing to prioritize healthcare workers in the geography seeing increased COVID-19 cases and elevated hospitalization rates. As we do this, we are reducing overall output to meet end market trends. Like we have in the past, we are prepared to rapidly increase production in response to COVID-19 related needs or future emergencies when needed. As I reflect on the first half, I am pleased with our performance. We delivered strong sales and margin growth along with good cash flow while building for the future and advancing sustainability with significant new carbon, water, and plastic commitments. In the second half, in addition to investing in growth, productivity, and sustainability, we also must navigate ongoing COVID-19 impacts and continue taking actions to address inflationary pressures and supply chain challenges. We will do this by driving an unrelenting focus on operational performance, which includes improving service, quality, operating costs, and cash generation. I would like to thank 3Mers for your commitment and resilience as we bring together people, ideas, and science to help transform businesses, solve customer challenges, and improve lives around the world. That wraps up my opening comments. And I'll turn it over to Monish to cover more details on the quarter and our updated guidance.