3M 2016 Outlook Call Notes

Nick Gangestad

Lowering 2015 outlook

“Before I address the 2016 outlook, let me provide a few comments as we close out 2015. Global end-market demand continues to be soft, as reflected in declining macroeconomic forecast, a trend that has had a notable impact on our industrial business, particularly in the United States. We are also seeing weaker than expected demand in the consumer electronics market which is impacting our electronics and energy business. Therefore today, we’re updating guidance for the full year. We expect organic local currency growth to be approximately 1% versus prior guidance of 1.5% to 2%. As a result, we forecast full year GAAP earnings to be approximately $7.55 per share versus a prior range of $7.60 to $7.65.”

Seeing particular weakness in industrial businesses in the US

“As I said earlier, it does reflect the reality globally of what we’re seeing. We’re seeing particular weakness in industrial related businesses in the United States, and we’re also seeing weaker than expected demand in consumer electronics. For the quarter, we’re estimating organic growth in electronics and energy to be down high single-digits and we’re estimating industrial and safety and graphics to be down low single-digits. Our health care and consumer businesses were continuing to see good performance, Andrew.”

October, November, December has all been consistent with low to negative growth

“Fourth quarter last year, we were seeing quite a bit of activity in what we consider building inventory in the channel. We’re clearly not seeing that occurring now. I’m not ready to declare that we’re seeing necessarily channel inventory contracting more but it’s clearly not building. As far as quarterly trending of what we’re seeing so far, Nigel, there is no particular trend we’re seeing. What we’ve seen in October and November and what we’re estimating for December, it’s all a very consistent movement of the low to negative growth that we’re seeing in — the negative growth we’re seeing in industrial in the fourth quarter.”

Inge Thulin

There is growth in China

“I was recently in China, and I would say there’s of course growth. You have to prioritize and execute the plan. And I don’t think, generally speaking, that — you talked about the step change, I don’t know if it’s a step change. This is the second biggest economy in the world; there’s growth, generally speaking, specifically to what I would call domestic businesses; and by definition, our penetration is low. So, we should grow there, no doubt about it.”

There is a global slowdown in consumer electronics

“I think as Nick said, we see a slowdown, what I think is more of a global phenomenon in consumer electronics. And I think we all have seen some reports coming out lately that if you go the whole way from smartphones to tablets and TVs, there’s a small downturn in that in my view temporarily because we know that’s a cyclical business and they will come back again. ”

I don’t see anything to say that 2016 will be much much slower

“I will say that I don’t at this point in time see anything that is indicating for me that it will be much-much slower as we move into ‘16. So, I think what you see here is realistic based on the information that I have at hand at this point in time. I think that this change maybe as we indicated here is maybe on the consumer electronic part where you saw other indication coming out earlier this week or end of last week, where it looked like smartphones, tablets and even TVs in that space and I think also into semiconductor had slowed a little bit. But reality is those businesses go in a cycle and they will — they would turnaround again.”

Healthcare and consumer still growing

“You still see good growth in, generally speaking, in healthcare and consumer around the world. So, those domestic markets are growing well and we capitalize on that. So, health care is one of the highest growth rates for us going into next year with a highest margin that we say as well.”

The industrial slowdown is broad based

“I think it’s slowed and I will say — I will more categorize it maybe broad based versus saying there was one specific area that’s slowed more than the other. So, I think it was broad-based, generally speaking. And the industrial sector in United States has been going very well for quite some time. So, it’s — I would say, we’re slowing a little bit. So, it’s not a huge, someone falling off the cliff, it’s just that it’s slowing down a little bit. They’ve done very well in the big — one of the biggest sector in the United States economy. So, I think it’s broad-based.”