2017 First Quarter Business Review

Transcription

1 2017 First Quarter Business Review (Unaudited) April 25,

2 Earnings Conference Calls Q2: July 25, 2017 Q3: October 24, Outlook Meeting December 12,

3 Upcoming 2017 investor events European Investor Meeting Neuss, Germany June 6 evening welcome reception June 7 management presentations and plant tour 3

4 Forward looking statement This presentation contains forward-looking information about 3M's financial results and estimates and business prospects that involve substantial risks and uncertainties. You can identify these statements by the use of words such as "anticipate," "estimate," "expect," "aim," "project," "intend," "plan," "believe," "will," "should," "could," "target," "forecast" and other words and terms of similar meaning in connection with any discussion of future operating or financial performance or business plans or prospects. Among the factors that could cause actual results to differ materially are the following: (1) worldwide economic, political, and capital markets conditions and other factors beyond the Company's control, including natural and other disasters or climate change affecting the operations of the Company or its customers and suppliers; (2) the Company's credit ratings and its cost of capital; (3) competitive conditions and customer preferences; (4) foreign currency exchange rates and fluctuations in those rates; (5) the timing and market acceptance of new product offerings; (6) the availability and cost of purchased components, compounds, raw materials and energy (including oil and natural gas and their derivatives) due to shortages, increased demand or supply interruptions (including those caused by natural and other disasters and other events); (7) the impact of acquisitions, strategic alliances, divestitures, and other unusual events resulting from portfolio management actions and other evolving business strategies, and possible organizational restructuring; (8) generating fewer productivity improvements than estimated; (9) unanticipated problems or delays with the phased implementation of a global enterprise resource planning (ERP) system, or security breaches and other disruptions to the Company's information technology infrastructure; (10) financial market risks that may affect the Company s funding obligations under defined benefit pension and postretirement plans; and (11) legal proceedings, including significant developments that could occur in the legal and regulatory proceedings described in the Company's Annual Report on Form 10-K for the year ended Dec. 31, 2016, and any subsequent quarterly reports on Form 10-Q (the Reports ). Changes in such assumptions or factors could produce significantly different results. A further description of these factors is located in the Reports under "Cautionary Note Concerning Factors That May Affect Future Results" and "Risk Factors" in Part I, Items 1 and 1A (Annual Report) and in Part I, Item 2 and Part II, Item 1A (Quarterly Reports). The information contained in this presentation is as of the date indicated. The Company assumes no obligation to update any forward-looking statements contained in this presentation as a result of new information or future events or developments. 4

5 Q summary Organic local currency growth +4.6% year-on-year Operating Margins GAAP EPS $ % year-on-year Free cash flow conversion Sales of $7.7 billion, up 3.7% year-on-year Net income of $1.3 billion, up 3.7% Incremental strategic investments of $136 million to accelerate growth and increase productivity Returned $1.4 billion to shareholders via dividends and gross share repurchases Increased dividend 6%; 59 th consecutive year of annual increases Announced pending acquisition of Scott Safety, a premier safety solutions company 23.1% -100 bps year-on-year 53% Refer to 3M s April 25, 2017 press release for full details; see the appendix for the reconciliation of GAAP amounts to free cash flow conversion 5

6 Q1 Strategic Investments Incremental investment of $136 million Growth investments Portfolio actions Footprint optimization 6

7 Q year-on-year sales recap Net sales Organic local currency growth +3.7% +4.6% volume +4.5%, price +0.1% Divestitures Foreign currency translation $ $ -0.4% -0.5% Organic local currency growth: U.S. +1.4% Asia Pacific +10.1% China/Hong Kong +13% Japan +13% Europe/Middle East/Africa +4.0% West Europe +5% Latin America/Canada +2.3% Canada +3% Mexico +8% Brazil -3% Foreign currency translation: RMB -5%, Euro -4%, Yen +2%, Real +25% Refer to 3M s April 25, 2017 press release for full details 7

8 Q P&L Net sales $7.7B +3.7% year-on-year Operating income $1.8B -0.8% year-on-year Gross profit 49.6% -0.8% year-on-year Net income $ $1.3B +3.7% year-on-year Operating margin of 23.1%, down 100 bps year-on-year Q % Organic volume/ productivity +1.2% 4.6% positive organic volume Price/raw material +0.5% Lower raw materials; core price flat FX -0.4% Stronger Euro, net of hedge impact Strategic investments -1.8% Up $136M year-on-year; growth investments, portfolio actions and footprint optimization Pension/OPEB -0.3% Higher year-on-year expense Divestiture gains -0.2% Lower year-on-year divestiture gains Q % Refer to 3M s April 25, 2017 press release for full details. 8

9 Q GAAP EPS Earnings Per Share Q GAAP EPS $2.05 Organic growth/ productivity +$0.22 Divestitures* -$0.03 Strong organic growth, raw material benefits, and Business Transformation value realization Impact from divestitures (first 12 months post-close) FX -$0.04 Pre-tax earnings impact of -$34M $ % year-on-year Refer to 3M s April 25, 2017 press release for full details Strategic investments -$0.16 Up $136M year-on-year; growth investments, portfolio actions and footprint optimization Tax rate +$0.09 Q % vs. Q % Shares outstanding +$0.03 Average diluted shares down 2% Q GAAP EPS $2.16 * Divestitures include Library Systems, Polyfoam, Polymask, the sale of certain intellectual property, and prescription eyewear business 9

10 Q cash flow Free cash flow $ $ $701M Dividends $ $702M Free cash flow conversion 53% Gross share repurchases $ $690M Free cash flow of $701 million, down $245 million year-on-year Primarily due to higher year-on-year U.S. pension contribution Q1 typically lowest conversion rate; expecting FY 2017 conversion of % Capital expenditures Q1: $287M, down $27 million year-on-year FY 2017: estimated range of $ B Returned $1.4 billion to shareholders via dividends and gross share repurchases Refer to 3M s April 25, 2017 press release for full details; see the appendix for the reconciliation of free cash flow and free cash flow conversion 10

11 Industrial Net sales Organic local currency growth Organic local currency growth: $2.7B +5.7% +4.2% year-on-year year-on-year By business: broad-based growth led by automotive and aerospace solutions, advanced materials, abrasives, industrial adhesives and tapes, and automotive aftermarket By area: sales grew 8% in Asia Pacific, 6% in the U.S., 5% in EMEA; Latin America/Canada was flat Operating income $625M +0.5% year-on-year Operating Margins 23.1% -80 bps year-on-year FY 2017 range of +2-5% vs. +1-3% prior Sales were reduced 0.8% by foreign currency translation and 0.7% by divestitures Automotive OEM business organic growth continues to outpace global auto builds Operating margins up 40 basis points, adjusting for Q divestiture gain 11

12 Safety & Graphics Net sales Organic local currency growth Organic local currency growth: $1.5B +4.8% +3.4% year-on-year year-on-year By business: sales increased in roofing granules, personal safety, and traffic safety and security; commercial solutions was flat By area: sales grew 7% in EMEA, 6% in Asia Pacific, 4% in the U.S., and 2% in Latin America/Canada Operating income $399M +11.2% year-on-year Operating Margins 26.1% +180 bps year-on-year FY 2017 range of +2-5% vs. +1-3% prior Sales were reduced 0.6% by foreign currency translation and 0.8% by divestitures Operating margins up 80 basis points, adjusting for acquisition and divestiture actions year-on-year Announced pending acquisition of Scott Safety, a premier safety solutions company 12

13 Health Care Net sales Organic local currency growth Organic local currency growth: $1.4B +3.1% +2.3% year-on-year year-on-year By business: sales grew in drug delivery systems, food safety, oral care and medical consumables; health information systems declined By area: sales grew 8% in Latin America/Canada, 7% in Asia Pacific, 2% in the U.S., and 1% in EMEA FY 2017 range of +3-5%, unchanged Operating income $434M -5.2% year-on-year Operating Margins 30.5% -240 bps year-on-year Foreign currency translation reduced sales by 0.8% Strong developing market growth led by China/ Hong Kong, Taiwan, Brazil and Mexico Invested $21M across the business to accelerate future growth opportunities 13

14 Electronics & Energy Net sales Organic local currency growth $1.2B +11.5% +11.1% year-on-year year-on-year Operating income Operating Margins $225M 18.6% +15.1% year-on-year +70 bps year-on-year Organic local currency growth: Electronics-related sales up 18% with growth in both display materials and systems, and electronics materials solutions; energy-related sales were up 1%, with growth in electrical markets; telecom was flat By area: sales grew 17% in Asia Pacific, 3% in both EMEA and the U.S.; Latin America/Canada was flat FY 2017 range of +1-6% vs. -3% to +1% prior Sales were reduced 0.2% by foreign currency translation and 0.2% by divestitures Spec-in wins at several electronics OEMs; stable channel inventories Operating margins of 23.9%, up 600 basis points, adjusting for strategic investments 14

15 Consumer Net sales Organic local currency growth $1.0B -1.2% -0.7% year-on-year year-on-year Operating income Operating Margins $222M 21.3% -6.8% year-on-year -140 bps year-on-year Organic local currency growth: By business: sales grew in home improvement, consumer health care and home care; stationery and office declined By area: sales grew 7% in Asia Pacific, 2% in Latin America/Canada, and were flat in EMEA; declined 5% in the U.S. FY 2017 range of +1-3% vs. +2-4% prior Foreign currency translation increased sales by 0.5% Strong growth in Command mounting and Filtrete filter products Solid 3M point-of-sale performance amongst major retail customers, more than offset by customers channel inventory reductions, particularly office retail Increased growth investments in core platforms 15

16 Portfolio and footprint optimization actions: 2017 impact Gain on pending divestiture of Identity Management Lost operating earnings Portfolio and footprint actions 2017 EPS Impact +$0.55 -$0.05 -$0.40 to -$0.45 Transaction price $850M, subject to closing and other adjustments Identity Management income for remainder of 2017 Estimate -$0.20 to -$0.30 in Q2 2017; balance across 2H 2017 Identity Management pending divestiture Announced divestiture December 2016; expected to close Q Annual sales of approximately $205 million Aligned with portfolio prioritization strategy; non-core business within Safety and Graphics Portfolio and footprint optimization actions Impact included in updated 2017 guidance Net impact +$0.05 to +$

17 2017 planning estimates GAAP EPS $8.70 $9.05 ROIC 20%+ Organic local currency growth +2 5% Free cash flow conversion % GAAP EPS of $8.70 to $9.05, up 7% to 11%, vs. prior range of $8.45 to $8.80 Includes $0.05 to $0.10 net benefit from pending Identity Management divestiture; expected to close Q Sales growth Organic local currency growth of +2-5% vs. prior range of +1-3% Acquisitions, net of divestitures of approximately -1% Foreign currency translation of -1% to -2% Effective tax rate of % vs. prior range of 28-29% Estimates exclude pending acquisition of Scott Safety; see appendix for reconciliation of FY 2017E free cash flow conversion and ROIC 17

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19 Sales Recap U.S. APAC EMEA LAC Organic volume +1.7% +10.1% +3.7% +0.4% Price -0.3% % +1.9% Organic local currency +1.4% +10.1% +4.0% +2.3% Divestiture -0.9% -0.1% -0.1% -0.5% FX % -4.0% +4.3% Total growth % -0.1% +6.1% 19

20 Q P&L ($M) Q Q Change Sales $7,409 $7, % Gross profit $3,731 $3, % % to sales 50.4% 49.6% -0.8 pts SG&A $1,493 $1, % % to sales 20.2% 20.4% +0.2 pts R&D & related $450 $ % % to sales 6.1% 6.1% ---- Operating income $1,788 $1, % % to sales 24.1% 23.1% -1.0 pts Net income $1,275 $1, % GAAP earnings per share $2.05 $ % 20

21 Business Segment Information ($M) Net Sales Operating Income Business Groups Q Q Q Q Industrial $2,599 $2,709 $622 $625 Safety & Graphics $1,477 $1,527 $359 $399 Health Care $1,391 $1,423 $457 $434 Electronics & Energy $1,089 $1,210 $195 $225 Consumer $1,050 $1,042 $238 $222 Corporate and Unallocated $0 $2 ($40) ($81) Elimination of Dual Credit ($197) ($228) ($43) ($50) Total $7,409 $7,685 $1,788 $1,774 Effective in the first quarter of 2017, 3M continued to improve the alignment of its businesses around markets and customers, impacting segment reporting. Refer to 3M s April 25, 2017 press release for full details. 21

22 Reconciliation of GAAP Amounts to Free Cash Flow Conversion Quarter Results: ($M) Major GAAP cash flow categories: Q Q Change Operating cash flow $1,260 $988 ($272) Investing cash flow ($280) ($90) $190 Financing cash flow ($1,426) ($1,151) $275 Free cash flow (non-gaap measure): Operating cash flow $1,260 $988 ($272) Purchases of property, plant and equipment ($314) ($287) $27 Full-Year 2017 Forecast: ($B) Free cash flow (non-gaap measure): Year 2017 Planning Estimate Operating cash flow $6.3 to $7.3 Purchases of property, plant and equipment $1.3 to $1.5 Free cash flow $5.0 to $5.8 Net income attributable to 3M $5.3 to $5.5 Free cash flow conversion 95% to 105% Free cash flow $946 $701 ($245) Net income attributable to 3M $1,275 $1,323 $48 Free cash flow conversion 74% 53% -21 pts Free cash flow and free cash flow conversion are not defined under U.S. generally accepted accounting principles (GAAP). Therefore, they should not be considered a substitute for income or cash flow data prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. The Company defines free cash flow as net cash provided by operating activities less purchases of property, plant and equipment. It should not be inferred that the entire free cash flow is available for discretionary expenditures. The Company defines free cash flow conversion as free cash flow divided by net income attributable to 3M. The Company believes free cash flow and free cash flow conversion are meaningful to investors as they function as useful measures of performance and the Company uses these measures as an indication of the strength of the Company and its ability to generate cash. 22

23 Reconciliation of GAAP Amounts to return on invested capital Full-Year 2017 Forecast: ($B) Return on invested capital (non-gaap measure): Year 2017 Planning Estimate Net income including non-controlling interest $5.3 to $5.5 Interest expense (after-tax)* $0.2 to $0.2 Adjusted net income (return) $5.5 to $5.7 Average shareholder s equity (including non-controlling interest) $11.5 to $12.0 Average short-term and long-term debt $12.5 to $13.5 Average invested capital $24.0 to $25.5 Return on invested capital 20% + Effective income tax rate used for interest expense* 26% to 27.5% Return on Invested Capital (ROIC) is not defined under U.S. generally accepted accounting principles. Therefore, ROIC should not be considered a substitute for other measures prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. The Company defines ROIC as adjusted net income (net income including non-controlling interest plus after-tax interest expense) divided by average invested capital (equity plus debt). The Company believes ROIC is meaningful to investors as it focuses on shareholder value creation. 23