3M 2Q17 Earnings Call Notes

Inge G. Thulin – 3M Co.

Germany is doing well

“I would say the comment relative to West Europe specifically is more around, I think Germany is still doing well. And if you look upon our figures and the way we do business over there, if you take manufacturing PMI in Germany, the second quarter was 59%, if you compare that to like 50% and 51%, 52% for China. So Germany, by definition, which is a big engine in Europe are doing well in the manufacturing side. And our business in Europe, if you look upon the portfolio, Industrial business is very strong.”

Nicholas C. Gangestad – 3M Co.

Two things have changed from first quarter on pricing power

“two main things that have changed from first quarter are strong growth in electronics which was much more of a price down that the other businesses that we saw that strong volume growth there contributed to more negative price growth in Asia Pacific. And then in Latin America, where we often see price growth often driven by a weakening currencies against the U.S. dollar, we saw much more stable currencies there versus the U.S. dollar, so some of the corresponding price growth we see didn’t materialize.”

Core price growth at the low end of expectations

“The core price growth and this gets into what we saw in the United States. Core price growth, we traditionally see somewhere between 30 basis points and 50 basis points of core price growth. In the U.S., we see ourselves now tracking to the low end of what we’ve been expecting for price growth. We expect it to be closer to flat for the total year in the U.S”

Slightly tougher comps for Electronics and industrial in 2H

“when it comes to the comps, there’s a couple of different things going on. One, like for instance our Electronics and Industrial, both of those, I agree with you, we’re going to have slightly tougher comps in the second half of the year. In the case of Consumer and in Health Care, both of those will be seeing easier comps. I wouldn’t call it a big statement on our fact that we’re seeing an improving economy. We’re seeing a fairly stable economy outlook for the balance of the year.”

3M 4Q16 Earnings Call Notes

3M’s (MMM) CEO Inge Thulin on Q4 2016 Results

We are laying out a localization strategy

“As you know, we are laying out very much localization strategy in terms of our business well all subsidiaries around the world. So at this point in time, we continue to lay out the plan as we have talked about. We are making investment in what we see the most important businesses for us to grow both in the United States and overseas based on that strategy, right. So by definition, even if we have both the global customers and local customers, we need to make the investment based on what they are and what they are going.”

Don’t see excess inventory in our consumer channels

“Julian as far as the consumer business in the trends we saw throughout the fourth quarter much of this differential we saw between sell in and sell out occurred in December and in particular in the last half of December. In regards to inventory, we don’t really see the channel is having excess inventory now. We considered a fairly normal inventory channel level in our consumer channels.”

Broad based growth in industrial

‘”Well, first of all it was broad-based growth in Industrial, both in terms of the businesses and in terms of the geographical area. So that was not one specific business that type stood out of in terms of growth, even if you saw a Nick comment on – again the fantastic performance for the automotive OEM business, but it was broad-based and it’s coming back, I would say a little bit as we have talked about earlier in terms of evolution of economies.

And I think you’ve seen now as becoming more output from manufacturing around the world, we are very early in that process. And if you look upon PMI, the United States had a PMI of 54.7% in the quarter, China 51.4%, and Germany 55.6%. If you think about that in terms of big economies that will help us as we move forward, and as I said, it was broad-based.”

Should see an uptick in the energy space by the end of 2017

“yes, we should see an uptick in the end of 2017 in the energy space and we have a very strong solid business in two utilities, right. That’s a core 3M business and in fact this is a Heartland division. That division will do well.”

3M 3Q16 Earnings Call Notes

3M (MMM) Q3 2016 Results

Inge Thulin

Healthcare business in the US slowed down

“Well I think first of all, geographically, U.S. slowed down. And it slowed down basically in the last months of the quarter. And then I think there’s two other elements out there in the world that happened to that business. Some, it’s in developing economy where Brazil had a little bit of slowdown that was more than we expected. And then as you know, things are going on in Central East Europe, specifically in Turkey, that tempered it, generally speaking. So when you look upon it from a business perspective, if you tempered in United States which we did, that would go over all businesses. The U.S. I think tried to move some purchases forward maybe one to two quarter. That’s what we’re talking about, like mid-term or short-term tempering.’

Will see positive industrial growth in 4Q driven primarily by comp

“so it being U.S. that hold back Industrial during the last couple of quarters, it was better in Q3. So that’s positive, and we will see positive growth for Industrial in Q4. And that will be driven exactly as you said relative to we start to deliver now on the body armor. And we see some uptick in some of the other businesses. But it’s very much the comp that will be a driver for us in Q4 and as we go into Q1. ”

I’m very positive that we start to see industrial turning the corner

” I’m very positive that we, now we start to see Industrial turning the corner as we move forward. And we will see the first quarter happen here in Q4.”

The portfolio of acquisition targets is rich

“as I’ve said the portfolio is rich in terms of candidates. I’d rather do slightly bigger than smaller. As I said earlier, we have during the last couple of years stepped up our probability – or the output on what we have done. And by definition, in order for us to move the needle forward, they should more sizable than we did in the past. So I think I hold it for then. Then when the news are coming out, we’ll look upon the size of them. But we are ready. I mean we are ready. We are ready. I think we’re on a good position to do what we need to do in order to bolster growth with or without acquisition. Also organically, we’re doing okay.”

Not too concerned about Healthcare slowdown in the US

“Yeah. I think the reality of business is that it will be both. But it start by people holding back a little bit and then they work down the inventory. But it’s not an inventory correction in any sort or shape or form. I think it is yes, that people have a little bit of uncertainty here in the quarter of how this will shake out and then they’re ready to go again. So I think it’s a normal reaction for anyone around the world when you’re going into a period of uncertainty relative to, will there be any changes or policies as you move forward, et cetera. So I’m not too, honestly, I’m not concerned at all – as I said, and you like to see more growth there of course with the margins we have. But it’s not overall concern at all.”

Nicholas C. Gangestad – 3M Co.

Anticipating a sideways move in 2017

“. As you can imagine, we’re still working on our 2017 outlook. And on December 13, we’ll provide more details on that at our outlook meeting. At a high level, Andy, we expect an external growth market to continue moving sideways in 2017. That’s the overall external picture we’re anticipating. From a business perspective, we do expect our Industrial and Electronics & Energy businesses to have improved growth rates in 2017 versus what we’ve been seeing in 2016.”

3M at Bernstein Conference Notes

Emerging market operations are higher margin because not using things that we built for the way things were done in the 60s and 70s

” I think you have to think about this, there’s always – you’re coming from somewhere, right, and I think when you start to build businesses back in to 1960s and 1970s and so forth, you build another type of infrastructure that you know in emerging and developing market do not need, you can capitalize from other entities around the world. And I think you learn, right. The world has changed in a way as you move ahead and my view is that 3M successfully was built on innovation and empowerment locally. That was the power. But that’s also meant that you build your own entities in many, many countries. I think that was very successful in the 1960s and 1970s, 1980s and 1990s. Today it’s not, right. So I think you need to be bigger and more relevant and drive leverage in your organization”

A lot has changed in six years

” when I came here six years ago, if you think about six years ago, at that time the developing world looked different for everyone, right. We talked about BRIC, if you think about BRIC today, you’d wonder where did they go, right; Brazil, Russia, India and China, right. So if you think about that perspective, that have changed for everyone. It’s not 3M, everyone. And you think about United States today, we thought six years ago, we were not overly excited about United States or West Europe. You look upon it today in relative terms United States and West Europe is okay, slightly better than okay. And then you looked upon the developing economy have slowed. ”

If you want to be a global growth company you must grow in the US and China

“If you decide to be a global growth company, global growth company, if you decide that, we have, then you need to grow two places guaranteed: the United States and China. You need to grow everywhere, but if you don’t grow in United States and China, you will not be a global growth company.”

…” if you are a global growth company, if you don’t grow in the United States and China, you have an issue. It doesn’t matter if you grow very well in Chile and Norway and Sweden and Finland, it doesn’t matter, you have to grow there, but you must grow in the United States and China.”

China is the second biggest economy in the world and it’s not moving from export to domestic

” I view China is the following way. It’s the second biggest economy in the world. It will be big and it is big and it’s growing. It’s also wrong perception to say that they are going from export to domestic. They’re not. They are continuing with export and they complement and build out domestic businesses. That’s what they do.”

3M Investor Day Notes

Inge Thulin

Infrastructure > Manufacturing > Retail > Healthcare

“as you know, in all economies, you have the evolution of infrastructure coming first, followed by manufacturing, after that, safety coming in place, then you have retail and then finally healthcare is the evolution of all economies and it’s true for all economies around the world. This is the way it goes.”

Paul Keel

Manufacturing is one component of supply chain, logistics, engineering and procurement are others

“manufacturing is one of our four fundamental strengths, very important. But manufacturing is just one component of supply chain at 3M. We also lead logistics, engineering, procurement and a number of other activities”

Drive returns with automation

“Pick a 3M product that you know well, post-it notes, scotch tape, Tegaderm dressings. These products run at line speeds several fold what you will find in a competitive plant. And when you automate this level of process capability, as you can see, the returns are very attractive. Now, those of you who have been following us for a while know that Lean Six Sigma is the foundation of our culture of customer centricity and operational excellence.”

Six sigma has yielded $16B in benefit to this company

“Since inception in 2001, Lean Six Sigma has generated over $16 billion of benefit for our company. We have completed more than 100,000 projects and we have trained more than 75,000 employees. And despite being more than a decade into the journey, we find that the impact from Lean Six Sigma continues to grow. In 2005, an average project for us yielded about $300,000 of benefit. By 2010, that number had grown to $450,000.”

Frank Little

7 million people died from air pollution in 2012

“There are over 120 million workers that are exposed to dangerous noise levels in the workplace today. Over 1 million people die in traffic-related accidents with over 20 million additional injuries. And in 2012 alone, there were more than 7 million people who died from air pollution-related health issues.”

Mike Roman

We stay very close to the customers in auto

“In automotive, that means we align our organization around our top 20 global OEMs. We get very close to them, sales, marketing, supply chain, technical top to top. We engage them on a regular basis. We get deep understanding of their challenges, leading to opportunities for designed-in unique solutions from 3M. We also get a very clear understanding of their value chains and so we can better support their tier suppliers. This deep engagement leads to an understanding of the market trends and what’s behind the market trends and you can see some examples here around fuel efficiency, light-weighting and electrification.”

Products come from listening to what our customers need

“This understanding leads to customer-inspired innovation, acoustic control, lightweight assembly and increasingly, solutions to help enable the use of aluminum in automotive manufacturing. Ultimately, all this turns into high-value 3M products, 3M Thinsulate acoustic control, glass bubbles for light-weighting and acrylic foam tapes to help solve the increasing complexity of the bonding solutions as automotive manufacturers introduce new materials and dissimilar materials.”

Jim Bauman

By 2030, 50% of component costs of an automobile will be electronics

“By 2030, 50% of the component cost of an automobile will be electronics. What we will do is leverage our existing partnerships. Mike talked about it, the automotive OEMs, the deep understanding at the tier”

Joaquin Delgado

Four industry success enablers in healthcare:

“We see that there are four industry success enablers: prevention; care pathways innovation; digitization; and health economic-based outcomes. A health economic-based outcome is that the outcome is going – has to be based on the clinical outcome that it delivers that solution, but also the economics that are associated with it. So, we see more and more the need to make the decisions by not only just in clinical data, but it’s in economics data put – being put together.”

H.C. Shin

Healthcare is the fastest growing and most profitable business for international

“I will start from healthcare. Joaquin talked about healthcare. We love healthcare. That’s the fastest growing and most profitable business for international. It has been growing very, very nicely. And I think we can accelerate the growth rate in healthcare. Why? Because healthcare spending is increasing rapidly, whether in developing – even in developed market, healthcare spending is growing very, very nicely. ”

Nick Gangestad

Seeing organic growth still down slightly but tracking better than expected

“Before I head into the main portion of the agenda, let me just comment on what we are seeing so far in 2016, where we remain on track for the planning estimates that we shared in our December Outlook Meeting. As we further stated in January, giving a little more color about first quarter, we stated that we are expecting first quarter organic growth to be very similar to what we saw in the fourth quarter, which was down slightly. And as the quarter is progressing, we are seeing four of our five businesses tracking either at or above what we were expecting at that time. Those are Healthcare, Consumer, Safety and Graphics and Industrial. Our Electronics and Energy business is trending below our expectations. We are seeing end-market demand weaker in the Electronics and Energy business. So, we are trending to a first quarter organic growth that is low double-digit decline due to softer consumer electronics.”

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.”

Minnesota Mining and Manufacturing 3Q15 Earnings Call Notes

Lowering guidance for 2015

“As we all know, the current economic growth environment remains challenging. Against that backdrop, today we are updating our full-year outlook for 2015. We now expect organic growth of 1.5% to 2% versus prior guidance of 2.5% to 4%.”

Ending the year with lower global growth rate than expected

“we’re ending out the year I will say at the lower global growth rate in the economy versus what all of us anticipated as we went into the year”

THe forest can change even when your map stays the same

“if you go out in a forest and you go out with your map, and the map in the forest doesn’t connect any longer, the forest is always right. So you cannot continue with your map if you think about that as a business plan.’

Brazil may be challenged for the next two years

“Brazil today will still, in my view and I think in most of our views, be a challenge maybe for the next two years.”

RMB devaluation has been modest at this point, not seeing much economic effect

“we’re watching for that. And the change – the movement in the renminbi has been fairly modest. We’re not seeing a movement on that. And if it is we expect it to be minor, although we do see it as a positive development for that portion of the business, but minor at this point.’

Tough to say how much longer inventory destocking could last, but on the whole inventories managed much much better than in past

“I would say it’s generally speaking very well balanced today”

“to give a timing on it is difficult. I cannot do that, Nigel, to be honest with you. It’s very difficult to do. But I think overall, management of inventory is handled much, much more effectively generally speaking, which is good for all of us.”

3M at Bernstein Conference Notes

Global growth basically on same path as 1Q but US doing slightly better, Europe not as well

“I said at our earnings call that I thought — we thought that second quarter will be very similar relative to growth to the first quarter. And I think that’s still true. But I see some slight changes in the different areas of the world. I see a slight improvement in United States versus the first quarter. And I see — I do not see as much acceleration in West Europe that I thought would count. And I see Asia grow sideways versus first quarter, which is good. Asia did good for us. And I see Latin American, maybe slightly down, basically driven by Brazil.

Mexico is doing fantastically, doing very, very well. Brazil have not been able as of yet to pull out of the challenge they have had for the last, maybe now 12 to 15 months or so. But I’m convinced it will’

People were careful with inventories in the US

“I think in United States, what we saw first quarter, one thing we saw was our sales into the channel was less than that sellout. So, we had a better sellout than we had sell in. That’s indicating that they were very careful with inventories. So, we had 2% sell in, but I think sellout was 6%.”

3M at Bank of America Conference Notes

Hak Cheol Shin – Executive Vice President-International Operations

Matt Ginter – Vice President-Investor Relations

3M does R&D commercialization well

“Third one is what 3M does very, very well R&D commercialization and innovation and we step up our investment, step up our growth engine in this regard, followed by more local, more regional in terms getting closer to the customers. ”

5 operating groups

“we are made up of five market facing business units, three core business groups, Industrial Business Groups, Health Care, Consumer, Safety and Graphics, Electronics & Energy. You see the size – relative size here, Industrial is about $11 billion, the other four in the range of $5 billion to $6 billion in size.”

4 fundamental strengths as a company

“four fundamental strengths as a Company: technology; manufacturing capability; global capability; as well as 3M brand.”

We can’t be everything so how do choose what businesses we want to be in

“how to manage this very complex portfolio is a key task of 3M. So when Inge arrived at 3M, he clearly laid out the role that we will not be able to invest everywhere, we will able to do everything. So let’s make a choice in where to play and how do win. So that is fundamentally our way of looking at our portfolio. So the end outcome is to reallocate 3M resources in terms of people and capital in the best opportunities, that’s a real outcome of portfolio management.”

Focusing on big trends

“In developing markets like China, we are very focusing on the megatrend. For example, air pollution is a big issue in many, many developing economies 3M has a wide range of solutions in this industry. So air pollution, water quality are full safety issue can provide a huge opportunity for 3M in a country like India and China in terms of developing markets, or of the infrastructure, for example, road construction, telecommunication, so on and so forth. Developed markets are slightly different. They are more developed by definition, sustainability, energy saving solutions, health care product in terms of aging population will be the opportunity for us. So we can win in developed market as well as developing market by focusing on what they are looking for in terms of market opportunities. Investing in innovation is really about R&D and commercialization.”

Investing in disruptive technology

“we’d like to use this money to create more new to the world or disruptive type technology which is not just incremental, which is purely differentiated technologies and products for 3M. So programs are underway from the 3M corporate innovation board. They are supervising these programs to make sure that 3M is truly innovating in disruptive technology into sub tier market opportunities’

Shifting the center of gravity in R&D

“We are also shifting the center of gravity in R&D activities, not everything is done in the United States. In fact, as far as central R&D capability we are shifting our center of gravity to locations like China, Germany and Japan to make sure that we have those regional capabilities not only in United States.”

In the 90s our hedging approach was different than it is today

“So, you’re right, late 90s when the Asian currencies devalued, our hedging approach was a little bit more short-term then. We were hedging intercompany activity maybe over a two to three month horizon. We weren’t hedging the translation risk and the company had fairly significant hits to earnings at that time. So it was – on the heels of that we decided to leg into the strategy that have been working since 2000, which is actually hedging 12 months forward on the developed market currency. So it’s a large basket of all of the countries in the world where the currencies are very liquid. And we do that on a rolling 12-month basis and we hedge roughly 50% of our net exposure defined as basically our translation risk and our intercompany transaction risk, plus any cross-border purchasing activity that we do. ”

Extended out our hedges 24 months

“recently, in mid-2014, we made the decision on a couple of the majors including the euro to just extend the horizon out to 24 months, still maintaining an overall roughly 50% hedge ratio. So that is the history and the view at the time was 3M was a global Company then, we felt we were going to continue to grow faster outside the US, which has happened. And we wanted to create a more predictable, lop off highs and lows in terms of currency ups and downs. But also, importantly, give the business time to respond because there are natural hedges in the business”

Can make and design products locally in emerging markets

“Obviously we made a significant investment in emerging markets like China, Brazil in the past 20 to 30 years. So we are relatively self efficient in terms of making products locally and designing product locally billion by our people in those locations. “

3M 3Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Consumer and retail piece are still doing ok in Germany

“I will say, a small temper in Germany relative to the industrial sector. But the consumer and retail piece in that market, meaning the domestic business were still doing okay if you talk about Germany as a country.’

Europe not alarming at all

“I will say that we saw a slight decline in the industrial piece but it’s not alarming by definition for us. And when we look upon data, when we look upon IPI growth, GDP growth, PMI growth, et cetera, you can see a temper, specifically PMI, that is related to the manufacturing space but is not a concern at all.’

China is not an alarming figure for me either

“Well, we look upon the same metrics as I talked about for Germany, so IPI, GDP, PMI, et cetera. And when I look upon that for China, it look actually slightly better than the figures I talked about for Germany…So it’s not – from that perspective looking forward, it’s not an alarming figure for me.”

Actually turned more positive on Brazil this quarter

“we were positive in Brazil this quarter. And as you probably recall, last quarter was more of a concern. So we actually turned more positive in this quarter.”