3M Company

Ladies and gentlemen, thank you for standing by. 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 do have a question, please press star one on your telephone keypad. As a reminder, this call is being recorded Tuesday, January 21st, 2025. I would now like to turn the call over to Chinmay Trivedi, Senior Vice President of Investor Relations and Financial Planning and Analysis at 3M.

Thank you. Good morning, everyone, and welcome to the fourth quarter earnings conference call. With me today are Bill Brown, 3M's Chief Executive Officer, and Anurag Maheshwari, our Chief Financial Officer. Bill and Anurag 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 and 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 10Q lists some of these 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 will hand the call off to Bill. Bill?

Thank you, Chinmay, and good morning, everyone. Before I start, I'd like to welcome Chinmay to his first earnings call as the head of investor relations. He's been with 3M for three years, leading the FP&A function, and was with GE before joining 3M. He's replacing Bruce Germelin, who retired on January 1st. Bruce led IR for the last six years and was with 3M for more than two decades, and we wish him well in his retirement. 2024 was a pivotal year for 3M. Earlier in the year, we spun off our healthcare business group as Solventum, and we settled two significant legal matters. We also substantially completed the largest restructuring program in company history, which focused on reducing complexity and improving margins. These changes weren't easy. but the team has done a terrific job executing the programs and the results are showing up in our financial performance. This relentless focus on operational execution drove a strong finish to the year. Fourth quarter adjusted earnings per share was $1.68 on 2.1% organic revenue growth. The company generated free cash flow of $1.3 billion with conversion of 145%. During the quarter, we returned $1.1 billion to shareholders via dividends and share repurchases. These results capped a strong year for the company, where we delivered $7.30 in adjusted earnings per share at the high end of our guidance and up 21% year over year. Organic sales grew 1.2%, and we generated $4.9 billion in free cash flow with a conversion rate of 111%. Turning to slide four, the fourth quarter results reflect our focus on the fundamentals. Each business group drove positive adjusted organic growth, the first time in nine quarters that all business groups grew together, and it was broad-based. Twelve of our 16 divisions posted positive growth compared to only seven in the first quarter. One of the fundamentals is commercial execution, and we're beginning to make progress in this area. For example, in safety and industrial, we launched a campaign to drive cross-selling at our channel partners with some encouraging early results. And this year, we pulled forward the quota-setting process for our sales force to ensure we get out of the gates quickly, and we instituted standard work for our sales managers and area leaders who support our frontline sales reps. Reinvigorating the innovation engine is critical to sustain this top-line momentum. In 2024, we launched 169 new products, up 32% over the prior year. This was above expectations due in part to the rigor and governance we've put in place around new product introductions, but more importantly to the enthusiasm of the team to get back to innovating for our customers. One launch we're particularly excited about is our LCD 2.0 platform program that enables LCD displays for tablets, notebooks, and monitors to achieve the brightness and contrast similar to OLED, combining our multilayer optical film technology with our micro-replication technology. Another one is our expanded beam optics, or EBO connector, which is an optical interconnect designed for data centers that reduces installation time, cleaning, and maintenance while delivering exceptional performance. But we're still in the early days of our R&D turnaround effort. NPI is clearly an important metric, and in 2025, we expect to see a double-digit increase in the number of launches on top of the higher performance in 24, but it's just one of several we're tracking. Over time, we need to work to shorten the development cycle time to increase launch cadence, focus investment dollars on higher-octane programs, and see NPI translate into higher sales and margins. Also critical to driving growth is improving service. And a key metric for us is on time in full or OTIF. OTIF was 88% for the year, up three percentage points versus last year and eight points versus 2022. Our team has made solid progress, but we have more work to do. While consumer and transportation electronics are now consistently delivering to their customers at over 90% on time, our performance and safety in industrial remains well below expectations in the low 80s. It will take a fundamental shift in our approach to raise service levels to where they need to be. And we're doing this by standardizing the demand planning process, using new algorithms to improve forecast accuracy, improving supplier delivery performance, and driving consistency and reliability in logistics. These are key elements of our broader operational excellence program, which continues to mature but is still in the early innings. Our goal remains to deliver 2% net productivity through sourcing efficiency, quality improvement, lean manufacturing, and asset utilization, which I described last time as Operating Equipment Efficiency, or OEE. These efforts are starting to take hold and will support further gross margin expansion toward our goal of high 40s. We also made progress on inventory days, which was down two days versus last year and eight sequentially, ending the year at 94 days. This is just the start as our goal is to get to 75 days, freeing up cash for our capital deployment priorities, which include returning cash to shareholders. Last year, we returned $3.8 billion to shareholders, $2 billion in dividends, and $1.8 billion in share repurchases. Lastly, we continue to assess our portfolio, and we have several small actions underway. We'll update you on progress as deals are signed. Moving to guidance on slide five, our strong finish in the fourth quarter gives us confidence in our ability to deliver in 2025. For the year, we expect organic sales growth in the range of 2% to 3%, adjusted earnings per share in the range of $7.60 to $7.90, and free cash flow conversion of approximately 100%. Our back-to-basics approach and focus on our three top priorities underpins our ability to deliver on these commitments as the macro recovery continues to be uneven. Currently, IPI is forecasted to be 1.9% in 2025, but as you may recall, the forecast for IPI in 2024, 12 months ago, was also about 2%, and we ended the year at about 1%. We'll see how that evolves, but we'll be looking to take advantage of this acceleration as it materializes. Other key data points to watch include auto builds, which are expected to be slightly negative, but down 3% to 4% in Europe and the U.S., where we have better penetration, and flat in China and up across Asia, where our content per vehicle is lower. Consumer electronics is expected to be up low to mid-single digits, and consumer discretionary spend remains soft, especially in the U.S., where retail sales are expected to be relatively flat. As we navigate the ups and downs of the macro environment, we'll focus as always on what we can control, servicing our customers at higher levels, improving commercial excellence at the customer interface, filling up the innovation pipeline to support future growth, and driving productivity and efficiency throughout the organization. We look forward to sharing more details on each of these priorities, as well as our medium-term outlook during our Investor Day in St. Paul on February 26th. You'll hear from our leaders in R&D, supply chain, and the business groups about their execution plans that will turn our priorities into results. I hope to see you there. With that, I'll turn it over to Anurag to walk through the details of the quarter. Anurag?