3M Company

Welcome to the 3M Fourth 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, January 24th, 2023. I would now like to turn the call over to Bruce Dermelin, Senior Vice President of Investor Relations at 3M.

Thank you and good morning, everyone, and welcome to our fourth quarter earnings conference call. With me today are Mike Roman, 3M's chairman and chief executive officer, and Monish Patalawalla, our chief financial and transformation officer. Mike and Monish will make some formal comments, 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, we'll be making certain predictive statements that reflect our current views about THRM'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 turn to slide 3. 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. Before I hand the call over to Mike, I would like to take a moment and highlight a financial reporting change we are making starting here in Q1 2023. As we announced in our press release on December 20th, we'll be exiting PFAS manufacturing by the end of 2025. As a result, we have decided to provide additional disclosure by expanding the scope of our non-GAAP measurement adjustments to include the exit of PFAS manufacturing. For 2022, we have treated the Q4 PFAS manufacturing exit cost as a special item in arriving at results adjusted for special items. However, beginning in 2023, we will expand the existing adjustment for special items to also adjust for the sales and estimate of income and associated activity of PFAS manufacturing. Therefore, our outlook for 2023 reflects this adjustment. Today's press release, press release attachments, and slide presentation provide information regarding our 2022 performance on our existing Q4 2022 non-GAAP bases along with some comparative information on the new 2023 outlook basis. We will be providing a Form 8K during the first quarter to reflect additional effects of this change in our non-GAAP measures and changes in segment reporting. We remain committed to providing strong transparency in reporting our financial performance, and of course, we are always here to address your questions. With that, please turn to slide four, 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 focus on delivering for our customers and shareholders in a challenging economic environment with slowing growth, inflation, and supply chain disruptions. We posted organic growth of 0.4% versus our expectation of 1% to 3%, along with adjusted margins of 19%, and adjusted earnings of $2.28 per share. The slower-than-expected growth was due to rapid declines in consumer-facing markets such as consumer electronics and retail, a dynamic that accelerated in December as consumers sharply cut discretionary spending and retailers adjusted inventory levels. We also saw a significant slowing in China due to COVID-related disruptions, along with moderating demand across industrial markets. As demand weakened, we took actions to adjust manufacturing output and control costs, which enabled us to deliver a $250 million inventory improvement. In addition to actions taken in the second half of last year, today we announced restructuring in our manufacturing operations, as we expect the demand trends that we saw in December to extend through the first half of 2023. I will discuss this more later in the call. With supply chains stabilizing, we are focused on improving manufacturing operations and driving working capital. These are our most significant opportunities to improve margins and cash flow. As we navigate the external environment, we continue to position 3M for the future by investing in growth, productivity, and sustainability. I will recap 2022 and our outlook for 2023 after Monish takes you through the quarter. Monish.