3M Company

Ladies and gentlemen, thank you for standing by. Welcome to the 3M Second 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, July 25th, 2023. 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, Monish Patalawala, our Chief Financial and Transformation Officer, and Kevin Rhodes, our Chief Legal Officer. Mike, Kevin, 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 the homepage of our Investor Relations website at 3M.com. Please turn to slide two. Please take a moment to read the forward-looking statements. During today's conference call, we'll 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 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. 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. In the second quarter, we made significant progress on the important actions we have been taking to improve our performance and shape the future of 3M. We posted adjusted organic growth of negative 2.5%, which includes a negative 1.7% headwind from the expected decline in disposable respirator sales. Revenue for the quarter was at the high end of our guidance range. Our adjusted operating margin was 19.3%. impacted by restructuring charges of $212 million, or a headwind to adjusted operating margin of 2.7 percentage points. Excluding these charges, we increased operating margin year over year. We delivered adjusted earnings per share of $2.17 and adjusted free cash flow of $1.5 billion, driven by continued improvements in inventory management. Today we are updating our full year earnings per share guidance to $8.60 to $9.10, up from a previous range of $8.50 to $9.00. We remain confident in our ability to deliver on our commitments, realize additional benefits from our restructuring actions, and position 3M for the future. In the quarter, we maintained a strong focus on serving customers, driving operational execution, and maintaining spending discipline. All business segments delivered sequential improvement and adjusted operating margins. Our restructuring actions and strong focus on cost management drove these margin improvements. Looking at our markets, trends played out as expected. We saw strength in automotive, both OEM and aftermarket, as well as highway infrastructure and personal safety, excluding disposable respirators. Healthcare, which was up slightly, continues to be impacted by lower post-COVID-related demand, notably in our biopharma, health information, and medical solutions businesses. We also saw continued weakness in electronics, consumer retail, and China. Please turn to slide four. As we focus on improving our performance and managing a dynamic external environment, our teams are driving three strategic priorities, improving operational execution, successfully spinning off our healthcare business, and addressing litigation. We are on track with our restructuring actions and have made significant progress in leaning out the center of the company, simplifying our management structure, and streamlining our supply chain. The changes to our enterprise supply chain organization are enabling improvements in service, cost, and inventory, which help drive our second quarter results. We are also taking advantage of the continued healing in supply chains to reduce logistics costs and improve production yield. We've also made progress in advancing our go-to-market models to bring our innovation closer to customers. In support of these changes, to date, we have initiated the transition to a new export model in 24 countries. I am pleased with how these changes are helping drive performance. We've made good progress on our planned spin of our healthcare business, including regulatory filings and system updates in preparation for soft spin. We are also in the final steps of naming a CEO. We continue to work towards closing the transaction by year-end 2023 or early 2024, subject to the required conditions and additional factors we have disclosed in our SEC filings. Last month, we announced an agreement subject to court approval to resolve public water systems claims nationwide in the AFFF multi-district litigation. This agreement will benefit us based public water systems that provide drinking water to a vast majority of Americans. The settlement covers all forms of PFAS. As we announced, we have taken a Q2 related charge of $10.3 billion payable over 13 years. Also related to litigation, we continue to participate in the confidential mediation process as part of the combat arms MDL. and we'll provide updates as appropriate. To provide additional details on our PFAS settlement agreement, I will now turn the call over to Kevin. Please turn to slide five.