3M CO Q3 FY2024 earnings call

• Top three priorities: driving sustained top line organic growth through reinvigorating innovation and improving commercial excellence; improving operational performance across the enterprise; effectively deploying capital.
• In R&D, making progress on R&D effectiveness and efficiency, improving enterprise-wide visibility on product development pipeline, driving new rigor in product launch calendars, fast-tracking projects, shifting capital spending for R&D facility upgrades, and shifting people within R&D. New product launches expected to be up about 10% this year with further acceleration next year.
• On operational performance, delivering on-time in-full (OTIF) to customers improved to 89% in Q3. Implementing OEE metric in 38 large facilities, working on supplier on-time performance, redesigning forecasting process. Launched 'Journey to Zero' campaign for injury-free workplace.
• In capital deployment, generated $3.5 billion of adjusted free cash flow through 9 months, returned $2.7 billion to shareholders, balance sheet remains strong, and reviewing portfolio with small businesses in sale process.

Total adjusted sales were $6.1 billion in the third quarter. Safety and industrial sales were $2.8 billion, with organic growth of 0.9%. Transportation and electronics adjusted sales were $1.9 billion, up 2% organically. Consumer business sales were $1.3 billion, with organic sales declining 0.7%. Geographically, adjusted organic growth was led by Asia-Pacific (mid-single digits driven by electronics), the U.S. was flat (strength in home improvement and commercial branding and transportation, offset by tough comp in personal safety), and EMEA was down low single-digits (due to decline in global car and light truck builds). Adjusted operating margins expanded 140 basis points to 23%.

• Full year adjusted organic growth expected to be approximately 1%, with safety and industrial flat to up low single-digits, transportation and electronics up low single-digits, and consumer down low single-digits.
• Full year adjusted operating margins expected to be up 250 to 275 basis points versus prior range of 225 to 275.
• Raised the lower end of EPS guidance by $0.20 to a range of $7.20 to $7.30.
• Expect to continue delivering robust cash flow with strong working capital performance in the fourth quarter, and adjusted free cash flow conversion performance expected to be 100% plus for the full year.

• Insurance recovery efforts continue, with $54 million covered in Q3 and over $175 million year-to-date, but recovery is an ongoing process with potential uncertainties.
• Operational transformation faces challenges such as achieving the desired injury rate in the 'Journey to Zero' campaign and fully maturing the OEE metric for effective network consolidation.

Q: Talked about operational transformation and supply chain opportunity. How big of an opportunity is supply chain reorientation?

A: Cost of goods sold is a big piece of which supply chain is a part. Looking to drive 2% net productivity including in supply chain, with about 25,000 direct suppliers and 4,000 contract manufacturers, teams working hard to consolidate and drive performance.

Q: Views on centralization inside 3M and insurance recovery related to PFAS and combat arms?

A: Mike's consolidation of factories and supply chains under common leader was right for global coordination and reaping benefits. On insurance, $54 million covered in Q3, year-to-date over $175 million, recovery efforts continue with active arbitration and litigation.

Q: Sense on 2 points of net productivity, which initiatives are more important?

A: Biggest part of cost base is supply chain, but also seeing benefits in factories from lean activities, and more than doubled kaizen events this year.

Q: Thoughts on capital deployment, managing cash outflow on repurchase/dividend against liability payments?

A: Generating good cash flow, balance sheet strong, ended Q3 with hefty cash balance, leverage ratios attractive, and open authorization from Board to deploy capital.

Q: Color on consumer business, pricing in productivity and gross margin, labor cost?

A: Consumer business trending up, price playing a role in covering material inflation, labor cost close to $8 billion to $10 billion of costs.