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 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 Tuesday, October 26, 2021. I would now like to turn the call over to Bruce Germelan, Senior Vice President of Investor Relations at 3M.

Thank you and good morning, everyone, and welcome to our third quarter earnings conference call. With me today are Mike Roman, 3M's Chairman and Chief Executive Officer, and Monish Patolawalla, our Chief Financial and Transformation Officer. Mike and Monish will make some formal comments, and then we'll take your questions. Please note that today's earnings release and slide presentation accompanying this call are posted on our Best Relations website at 3M.com under the heading Quarterly Earnings. Please turn to slide two. As we have done throughout the year, I'd like to remind you to mark your calendars for our next earnings conference call, which will take place on Tuesday, January 25th, 2022. Please take a moment to read the forward-looking statement on slide three. During today's conference call, we'll 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. Good morning, everyone, and thank you for joining us. In a dynamic environment, our performance throughout 2021 has shown the skill of our people around the world, the resiliency of our business model, and the relevance of our technologies. In the third quarter and year to date, we have delivered broad-based organic growth across all business groups and geographic areas, along with good margins and strong cash flow. Q3 organic growth was over 6% as we drove innovation across our market-leading businesses, with margins of 20% and earnings of $2.45 per share. Geographically, growth in the quarter was led by the Americas, up 7%. with the United States up 6 percent. Growth in APAC was 6 percent, with China up 3 percent and Japan up 6 percent, while EMEA grew 4 percent. With respect to the macro environment, overall end market demand remains strong, though the semiconductor shortage continues to impact many markets, most visibly in electronics and automotive. As we navigate near-term uncertainty, we continue to invest in growth productivity, and sustainability, which I will discuss shortly. We are also actively managing disruptions in the global supply chain with a relentless focus on customer service. Looking at our performance through nine months, we have executed well and delivered 11% organic growth with all business groups above 10%, along with margins of 22% and earnings of $7.81 per share. Today, we are updating full-year expectations for organic growth to a range of 8% to 9% and EPS to a range of $9.70 to $9.90, reflecting our results to date and ongoing supply chain challenges. I would like to make a few comments on how 3M is actively managing those challenges. As you know, many companies are facing supply chain disruptions. The result of a convergence of issues including the Delta variant, strong demand, energy and labor shortages, and extreme weather events. For example, ocean freight costs have more than doubled over the last year, and the number of containers on the water is up 70% because of port congestion. Suppliers are challenged to provide consistent and predictable supply. On any given day, we are working with more than 300 suppliers with critical constraints. With manufacturing sites in 35 countries around the world, and as a $5 billion annual exporter out of the United States, we are working tirelessly to serve our customers. The cornerstone of 3M's response is our expertise and deep relationships across the supply chain, along with our local for local manufacturing and supply chain strategy, which helps us move with agility and keep our factories running. We have daily meetings with suppliers to strengthen our planning, and in some instances, are strategically prioritizing geographies and markets and portfolios, hard but necessary decisions to ensure we meet the most critical needs of our customers. We are moving product in different ways, such as expanding our use of rail, shipping out of more flexible ports, and increasing our use of charter flights by over 40%, while deploying new capabilities to better track our flow of goods in real time. Maintaining talent is also key, and we are using several tactics to attract new workers while protecting the health and safety of all of our employees. Some of our actions have impacted our productivity and gross margins, which Monish will touch on, but we will do what is necessary to take care of customers. The combination of strong demand, along with supply chain challenges, is also contributing to broad-based inflation. We are taking multiple actions to help offset inflationary pressures, including price increases, dual sourcing, and improving factory yields, with more work to do. Ultimately, the duration of these supply chain challenges is difficult to predict. We remain focused on serving customers, managing backlogs, and making good on our commitments. delivering the unique high quality products that are the hallmark of 3M. Please turn to slide five. While we execute day to day, we are investing to drive long term growth and capitalize on trends in large attractive markets. In home improvement, for example, we have multiple half a billion dollar plus franchises that keep families healthier and more productive, including our fast growing command damage free hanging solutions and Filtrete home filtration products. These brands leverage 3M's deep expertise in adhesives and nonwoven materials, the same technologies helping drive success in our automotive business, which consistently outgrows build rates. Auto electrification sales are up 40% year to date on the strength of new innovations, including advanced display technologies as automobiles become the next consumer electronic device. In healthcare, the biopharma market is growing more than 10% annually, with our business up more than 30% year-to-date, as 3M science has supported the unprecedented pace of advancement over the past 18 months to develop therapeutics and vaccines and scale manufacturing to help address the pandemic. The fundamental strengths of 3M are unique technology platforms, advanced manufacturing, global capabilities, and leading brands, position us to win, and we will continue to invest in these areas. In a similar way, we are driving productivity by advancing digital capabilities across our operations, allowing us to expand our use of data and data analytics. In sustainability, we have achieved 50% renewable electricity use in our operations, four years ahead of our timeline, on our way to 100%. We are advancing the environmental goals we announced earlier in the year, making the investments to accelerate our ability to achieve carbon neutrality, reduce water use, and improve the quality of water returned to the environment from our industrial processes. In addition, we are proactively managing PFAS, making our factories and communities stronger and more sustainable. In Cottage Grove, Minnesota, we recently announced that we are closing our incinerator. and partnering with a leading disposal company to more efficiently manage our waste streams. We just broke ground to add new filtration technology in Cordova, Illinois. In Zwijndrecht, Belgium, we are working with government officials to resolve issues related to PFAS and will invest up to 125 million euros over the next three years to improve water quality around our factory. These proactive initiatives and others are accelerating 3M's ability to go beyond current regulatory standards and deliver on our commitments. With respect to the PFAS strategic roadmap announced last week, 3M remains committed to working with the Biden administration, EPA, and others in taking a science-based approach to managing PFAS. Let me also touch on a few litigation updates. Last week, we announced a collaborative agreement to resolve litigation related to PFAS near a facility in Decatur, Alabama. The impact is included in our previously disclosed reserves. On combat arms, there have been four bellwether trials so far, with six additional trials here in the fourth quarter. We are early in this litigation and will continue to actively defend ourselves, including through the appeal process. As always, we encourage you to read our 10Q for updates on all litigation matters. To wrap up, we are driving strong results in a challenging environment, investing in attractive end markets and positioning 3M for continued growth. I am proud of our 3M team, which is united by a common purpose, unlocking the power of people, ideas, and science to reimagine what's possible and create what's next. Now we will turn it over to Monish, who will cover the details of the quarter. Monish.