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 are going to register for a question. As a reminder, this conference is being recorded Tuesday, October 25th, 2022. I would now like to turn the call over to Bruce Germelin, 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 Patalawala, 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 the homepage of our investor relations website at 3M.com. Please turn to slide two. Please take a moment to read the forward-looking statement. During today's conference call, will be making 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 risk 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 appendix to these slides and in the attachments to today's press release. With that, please turn to slide three, and I'll now hand the call off to Mike. Mike?

Thank you, Bruce. Good morning, everyone, and thank you for joining us. We continue to execute our strategies to deliver for our customers, position 3M for long-term growth, and manage legal matters. Our team posted organic growth of 2%, or more than 3%, excluding the impact of the decline in disposable respirator sales, along with adjusted margins of 21.5%, adjusted EPS of $2.69, and $1.4 billion of adjusted free cash flow. While the global economic outlook is softening, our businesses continue to innovate for customers and capitalize on opportunities. Transportation and electronics posted 3% organic growth, with safety and industrial, consumer, and healthcare each growing 2%. All business groups delivered margins above 21%, with notable margin expansion in safety and industrial, and transportation and electronics. Looking geographically, organic growth was led by APAC up 3%, with China up 8%, benefiting from backlog recovery following the COVID-related lockdowns in the second quarter. The Americas were up 2%, with the U.S. flat, against 6% growth in last year's Q3. Growth in EMEA was flat as we navigate the ongoing geopolitical unrest across Europe. At the same time, we drove operational improvements to address inflation and supply chain challenges. We are delivering strong pricing, managing costs, and reducing inventory backlogs while maintaining a relentless focus on serving customers. For example, we recently invested in a new shipping consolidation center in South Carolina, which is reducing average cycle times for exports to Asia by one to two weeks. Some of our actions have impacted near-term margins, but we will continue to do what is necessary to take care of customers. Going forward, we see a significant opportunity to reduce cost of goods sold and working capital as global supply chains improve, which includes leveraging data and data analytics to drive productivity in our plants. With respect to guidance, today we are updating full-year expectations to reflect our results through nine months, along with the continued strengthening of the U.S. dollar and ongoing macroeconomic and geopolitical uncertainty. For organic growth, we are lowering the high end of our range to 1.5 to 2 percent, against the prior range of 1.5 to 3.5 percent. We anticipate adjusted EPS of $10.10 to $10.35 against the previous expectation of $10.30 to $10.80. We are also updating our range for adjusted free cash flow conversion to 85% to 95% from 90% to 100% previously. To strengthen 3M for the future, we continue to invest in growth, productivity, and sustainability. For example, while we see near-term softness in consumer electronics, we are investing in electronic segments that are seeing strong growth, including new solutions for automotive displays and virtual and augmented reality. We are rolling out new thermal management solutions to improve electric car batteries, one element of our work to advance more sustainable vehicle designs. And earlier this month, we introduced a new posted app for Microsoft Teams that helps people collaborate in hybrid environments as we execute our digital strategy and reimagine our products. We are also innovating to make our operations safer, more efficient, and more productive. At our plant in Alexandria, Minnesota, we are leveraging 3M disruptive technologies to transform our abrasive belt converting process through end-to-end automation, improving labor productivity by 32%, eliminating nine high-risk tasks, and saving nearly $1 million annually. Many more similar projects are on the way across our global operations, driving safety and savings. In sustainability, we have installed a new state-of-the-art water filtration system in Cordova, Illinois. We now have all three of our largest water-using sites in the U.S. utilizing industry-leading filtration technologies, following through on the $1 billion sustainability commitment we made last year. At the same time, we are positioning 3M for long-term success by actively managing our portfolio, complementing all we do to strengthen our enterprise organically. Last month, we completed the divestiture of our food safety business, which unlocks value and further strengthens our balance sheet. We received approximately $1 billion and reduced our outstanding share count by $16 million. In addition, earlier this month, we divested two of our skincare brands in Southeast Asia, enabling us to prioritize other parts of our consumer portfolio. We have also established a dedicated team to seamlessly execute our healthcare spin-off. We are confident in our plan to create two world-class public companies with greater focus and better able to drive growth and innovation. Before turning the call to Monish, I would like to provide an update on litigation, which I know is top of mind. On combat arms, the Aerotechnologies Chapter 11 proceeding is active and progressing. and we believe it is the best path to resolving claims in an equitable, efficient, prompt, and permanent manner. That continues to be our goal, a resolution that is equitable and more certain for all parties. Arrow is participating in a confidential mediation process focused on reaching a comprehensive settlement, and 3M is supporting those efforts. Arrow has also appealed the bankruptcy court's decision in August not to extend the stay of litigation to 3M. and the Seventh Circuit has agreed to hear the appeal. In the MDL, the next trial is scheduled for February of next year. We also continue to actively manage PFAS litigation. Earlier this month, we reached a settlement with the city of Gadsden, Alabama, related to carpet manufacturing. The first AFFF MDL trial is now scheduled for June of 2023. In summary, we continue to deliver for customers in an uncertain environment. I thank our employees for their contributions and commitment, especially as we continue to lead through significant change and position 3M for the future. We will stay focused on driving growth, improving operational execution, and delivering greater value for customers and shareholders. I will now turn it over to Munish for more details on the quarter. Munish.