The operator introduces the 3M Third Quarter Earnings Conference Call and hands it over to Bruce Jermeland, Senior Vice President of Investor Relations. Jermeland reminds listeners to read the forward-looking statement and announces that Mike Roman, 3M's Chairman and CEO, and Monish Patolawala, President and CFO, will be making formal comments. Jermeland also mentions that the earnings release and slide presentation are available on the Investor Relations website. Roman thanks everyone for joining and highlights the company's strong operational execution in the third quarter, positioning them for a successful end to 2023.

In the second quarter, the company exceeded expectations with increased margins and double-digit growth in free cash flow. As a result, the adjusted earnings per share guidance and free cash flow conversion range have been raised. The company is focused on driving performance through operational execution, restructuring, and spending discipline. Progress is being made on the spin of the healthcare business and significant settlements have been reached to address litigation. The company has also seen margin expansion through restructuring, supply chain improvements, and continuous improvement initiatives.

In the third paragraph, the article discusses various initiatives and progress made by 3M, including Kaizen events to improve processes, the spin of their healthcare business, leadership changes, and managing risk and uncertainty through effective litigation management. The company's momentum allows them to focus on attractive markets and emerging global trends that align with their unique capabilities and strengths. Examples of successful business areas include automotive OEM, auto electrification, and material science expertise. The company also sees potential in other core platforms such as safety, home improvement, and consumer electronics.

3M is focusing on building new platforms in various industries and is pleased with the execution of their teams. The third quarter results were strong and set them up for a solid end to the year. The company is prioritizing growth, innovation, and empowering their teams. Monish Patolawala, the speaker, discusses the company's actions and their impact on the third quarter results, including solid sales, operating margins, earnings per share, and free cash flow. Organic sales declined 3.1%, but excluding certain factors, they were only down 1.4%.

The company's sales in the consumer and electronics markets were down, but their automotive OEM business showed strength. The U.S. saw a slight increase in sales, while Europe and China experienced declines. Despite these challenges, the company exceeded expectations with strong earnings per share, driven by operational execution, spending discipline, and restructuring actions. The company expects to see continued benefits from their restructuring efforts. In terms of operating margin and earnings, manufacturing productivity, strong spending discipline, and selling prices offset lower sales volume, investments, and headwinds from disposable respirators and exiting the Russian market. Pre-tax restructuring charges were lower than expected due to timing issues.

In the third quarter, higher costs for raw materials, logistics, and energy had a negative impact on operating margins and earnings. However, foreign currency translation had a positive impact on sales and earnings. Other financial items also had a small negative impact on earnings. Despite these challenges, the company's focus on productivity, restructuring, and spending control led to significant improvements in adjusted operating margins. The company also saw a 39% increase in adjusted free cash flow and returned $828 million to shareholders through dividends. Net debt decreased by 11% compared to the previous year. Overall, the company's business segments continue to generate strong cash flow.

The company's access to capital markets and expected one-time dividend from the spin of health care, along with a strong capital structure, provides financial flexibility to invest in the business, return capital to shareholders, and meet cash flow needs. In the safety and industrial business, sales were down 5.8% organically, but excluding last year's COVID-related decline and exit from operations in Russia, adjusted organic sales were down 1.5%. Adjusted operating income was up 5% year-on-year, with margins improving due to productivity actions, restructuring benefits, and price increases. In the transportation and electronics business, adjusted sales were $1.9 billion.

In the third quarter, the company's adjusted organic growth declined 1.8%, largely due to weakness in the electronics sector. However, their automotive business had a strong quarter and their Transportation and Electronics division saw a 21% increase in adjusted operating income. In the health care sector, sales were up 2.4% and oral care and medical solutions saw growth while Health Information Systems declined due to tighter hospital budgets. Overall, the company remains confident in the long-term outlook of their health care business.

The company's operating margins increased by 50 basis points year-on-year and 240 basis points sequentially due to productivity actions, restructuring benefits, strong spending discipline, and price. However, restructuring costs partially offset these gains. The Consumer business saw a decline in organic sales and operating income, but margins improved sequentially due to similar factors. The company is raising its full year adjusted earnings and free cash flow conversion guidance, thanks to the actions taken to improve productivity and efficiency in a challenging market.

3M expects full year adjusted organic growth to be down approximately 3%, with an incremental headwind of $50 million from softness in disposable respirator demand. Fourth quarter sales are expected to be in the range of $7.6 billion to $7.7 billion, with pre-tax restructuring charges of $70 million to $120 million. Adjusted earnings per share for the fourth quarter are expected to be in the range of $2.13 to $2.33. 3M is focused on improving performance through operational execution, restructuring actions, and spending discipline. They are also positioning themselves for the future by prioritizing attractive markets, investing in innovation, and capitalizing on emerging opportunities. 3M is confident in their future and attributes their solid third quarter to the hard work of their employees.

The speaker thanks their team for their hard work and dedication in delivering results for their customers and shareholders. They then address a question about the progress of the health care spin and state that there are no major hurdles remaining. They have named a CEO and are filling out the leadership team and Board. The team is confident in their ability to meet the timeline for the spin in early 2024. They are also focused on preparing for 3M as a stand-alone company and are making progress in their operational execution.

Monish Patolawala and Mike Roman discuss the progress of the new 3M and the changes that are being made to the company's processes, legal entities, and regulatory filings. Scott Davis asks if the new 3M will be able to operate at lower levels of CapEx and R&D, and Mike explains that the recent restructuring and streamlining of the company's supply chain will serve as a foundation for improved financial performance in the future. He also mentions that with this improved performance, they can accelerate their plans for the future.

The company's top priorities for capital allocation are investing in organic growth and targeting high-growth market spaces. The electronics business has been a headwind, but the company expects it to stabilize in the fourth quarter and is closely monitoring the situation.

The company's main customers are large electronics and semiconductor companies. They will follow demand and market performance to determine their future plans. In the second quarter, they saw signs of stabilization in the electronics market. The company has previously considered separating their healthcare business, but they believe it is a leading company with a strong future.

3M has decided to create a stand-alone company in order to create the most value for its businesses. The company will have a new CEO and Board who will develop strategies for driving growth and managing the portfolio of businesses. 3M is confident in the leadership that will take the company forward. During the Q&A session, the company discussed its restructuring program and stated that they are on track to see benefits in the range of $400 million to $450 million for the year, with equal offsetting costs. The team has done a good job executing the program so far.

The company has implemented three programs to improve efficiency and is on track to achieve $400 million to $450 million in benefits for the year and $700 million to $900 million for the program. Some investments were delayed from Q3 to Q4 due to following rules and regulations in different countries. The company is not yet focused on 2024, but will provide an update in the future. The company has seen a decrease in raw material costs and may consider price changes in the future, but is currently focused on executing their priorities and gaining momentum.

In the third quarter, 3M faced headwinds of $25 million, mainly due to market and material factors. While energy and labor costs are still inflationary, the company has seen some benefits in upstream chemicals and logistics. The team is focused on reducing costs through various measures such as improving efficiency and sourcing alternate materials. The company has also stuck to its plan of low single-digit price increases and makes sure that its pricing strategy is based on the value it provides to customers. In the long term, 3M's focus on innovation and customer satisfaction will continue to drive a strong price/cost equation.

Chris Snyder from UBS asks about the recent margin improvement of 3M's business. Monish Patolawala attributes this improvement to the company's focus on priorities, such as spinning out healthcare and managing litigation. He also mentions the benefits of improved supply chain execution, data analytics, and proactive cost management. The company has also been successful in reducing working capital and controlling costs. Overall, this has led to a strong operating performance.

The company expects long-term benefits from its restructuring program, which will take two years to complete. The team is confident in their execution but will continue to monitor the uncertain macro environment. The company's fourth quarter operating margins are expected to be around 19%, lower than the current quarter, but still higher than their initial projection for the year. This is due to the ongoing improvements in supply chain and price cost.

The speaker discusses the factors affecting 3M's revenue in Q4, including restructuring costs and lower business days. They also mention how their revenue guidance was lowered due to uncertainty in certain markets, but thanks to their teams' efforts, they were able to reach the high end of their range. The speaker believes that the same trends will continue throughout the quarter.

In the electronics and consumer retail industries, China and back-to-school trends were weaker than expected, but electronic stabilization and proactive cost control led to an increase in revenue and cash conversion. The Company's focus on digitization and inventory management has contributed to this improvement and is expected to continue in the future. Working capital has been identified as a key opportunity for 3M.

The company had to build up inventory levels during the pandemic to ensure customer satisfaction. They have been using data and analytics to better manage their inventory and supply chain, and have seen positive results. They plan to continue driving this improvement. The impact of the auto strike on the company's business is being closely monitored.

The company's global automotive business had a strong performance in the quarter, with 16% growth and outpacing build rates. The auto electrification business is growing even faster. The impact of back-to-school sales being weak was relatively small, but the company is closely monitoring the situation. Consumer spending has shifted from discretionary products to food and experiences, which has affected the company's performance in the consumer category. The company is uncertain about the holiday season and will continue to monitor the situation.

The speaker is asked about the expected inflation and pricing for the rest of the year. They confirm that there have been no changes and that there will be a low single-digit decline in volume. They attribute this decline to destocking in industrial channels and consumer demand. The speaker also mentions that there may be some adjustments in China. They also mention that electronics sales are stabilizing.

The speaker, Monish Patolawala, mentions that the year-over-year comparison for the electronics end markets has been affected by declines in the third and fourth quarters of the previous year. He adds that disposable respirators have also seen a decline of $600 million, which is approximately 200 basis points of growth. The speaker, Michael Roman, agrees that there is seasonality in the business and that they see a normal trend from Q3 to Q4. The next question is about the sequential growth in Electronics from 1Q to 3Q and how it gives confidence for the first half of 2024. Michael Roman responds that it will depend on the outlook for electronics and its key end markets in 2024.

The company is seeing stabilization in the electronics sector and expects the performance in the first quarter of next year to depend on holiday season demand. The company is seeing mixed performance in the U.S. with some areas of strength and caution due to uncertainty in the broader economy. Customers are managing inventory and supply chains are more stable.

During a Q&A session, Julian Mitchell asks about 3M's pricing outlook for the coming months, considering soft volumes and easing inflation. Monish Patolawala responds by stating that 3M has always been able to add value to its customers and that their pricing is determined by market and competitive factors. In the short term, the company has been able to manage inflation through price, but the focus is on delivering results for the fourth quarter. Mitchell also asks about the electrical and automotive aftermarket markets, which have shown less growth organically.

During a conference call, 3M CEO Michael Roman addressed questions about the company's recent performance in the auto aftermarket and electrical markets. He mentioned that there has been some destocking and adjustments in these markets, but overall they have been performing well. He also noted that 3M is closely monitoring market trends and adjusting their strategies accordingly. Roman emphasized that 3M is focused on high-growth markets and utilizing their innovative products to drive success. The call concluded with a thank you to participants and a request to disconnect.

This summary was generated with AI and may contain some inaccuracies.