Q3 2023 3M Co Earnings Call

Ladies and gentlemen, thank you for standing by welcome to the <unk> third quarter earnings Conference call.

During the presentation, all participants will be in a listen only mode.

Afterwards, we will conduct a question and answer session.

At that time, if you have a question. Please press the one followed by the four on your telephone keypad.

It is recommended that you use a landline phone if you're going to register for a question.

As a reminder, this conference is being recorded Tuesday October 24th 2000 Twenty's to me.

I would now like to turn the call over to Bruce Jo Mill in senior Vice President of Investor Relations at two P. M.

Thank you and good morning, everyone and welcome to our third quarter earnings Conference call.

With me today are Mike Roman <unk>, Chairman and Chief Executive Officer.

And more niche Buttala Waller, our president and Chief Financial Officer.

Mike <unk> will make some formal comments and then we'll take your questions.

Please note that today's earnings release and slide presentation.

Company in this call are posted on the homepage of our Investor Relations website at three of them dotcom.

Please turn to slide two.

Please take a moment to read the forward looking statements during today's conference call, we'll be making certain predictive statements that reflect our current views about <unk> future performance and financial results.

These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties.

Item one a of our most recent Form 10-Q.

Some of the most important risk factors that could cause actual results to differ from our predictions.

Please note throughout today's presentation, we'll be making references to certain non-GAAP financial measures.

Reconciliations of the non-GAAP measures can be found in the attachment to today's press release.

With that please turn to slide three and I'll now hand, the call off to Mike Mike.

Thank you Bruce good morning, everyone and thank you for joining us.

In the third quarter, we built momentum through strong operational execution as we again delivered for our customers positioning us for a solid close to 2023.

On an adjusted basis, we delivered earnings ahead of our expectations expanded margins sequentially across all four businesses.

<unk>, our third consecutive quarter of double digit year on year growth in free cash flow.

As we make progress and deliver improved financial results, we are increasing our full year adjusted earnings per share guidance to $8 95 to.

The $9.15.

Up from our previous range of $8 60 to.

At $9.10.

And our adjusted free cash flow conversion range to 100% to 110% up from 90% to 100% previously.

We continue to deliver against our priorities, we are driving performance throughout three of them with strong operational execution restructuring actions and spending discipline.

We are progressing the spin of the health care business, which we expect to be completed during the first half of 2024.

And we are reducing risk and uncertainty by reaching significant settlements to address combat arms and P fast litigation.

I will now provide some additional context around how we are advancing these priorities.

Next slide please.

Our margin expansion clearly demonstrates the performance our team is driving throughout three of them.

We delivered 240 basis points of year over year, adjusted operating income margin expansion, excluding 80 basis points of restructuring related charges we.

We are strengthening our business in several important ways.

We are progressing with our restructuring actions to streamline our organization reduce structural costs and get us closer to customers.

We have leaned out the center of our company simplified our global supply chain organization.

And optimized our global go to market models.

At the same time, we are advancing supply chain performance to improve service drive productivity and yield expand gross margins and increase cash conversion.

These results are being supported by initiatives that use our continuous improvement tool kit and.

And leverage data and data analytics.

For example.

We have benefited from more than 60 kaizen events this year to improve existing processes in our largest plants.

We are also progressing the spin of our health care business.

Building the leadership team as we work toward completing the spin in the first half of 2024.

During the quarter, we added two experienced leaders naming Brian Hanson as the CEO of the Standalone health care business.

And Carrie Cox as the board chair.

Finally, we continue to manage risk and uncertainty by proactively and effectively managing litigation.

We announced the combat arms settlement and we are working with all parties in the courts to implement it.

The settlement administration process has been established and funded the bellwether trial verdicts have been subtle in the process for notifying and settling with claimants has begun.

With respect to PFS the public water supplier settlement, we announced last quarter has received preliminary court approval we.

We successfully resolved objections from state attorneys general and.

Our working toward approval with the final hearing set for early February next year.

In closing I want to share a few thoughts about our future.

Our momentum accelerates our ability to define where we go next at three of them as.

As we prioritize attractive markets, where we have the right to win and the opportunity to differentiate ourselves through our unique capabilities and strengths.

A good example is our automotive OEM business, where we continue to outperform the market with double digit growth this quarter.

Auto electrification is on track to be a $600 million business. This year and has delivered organic growth of 30% year to date.

Our materials science expertise has led us to build a new business and we see similar opportunities in other core platforms, such as safety home improvement and consumer electronics.

We are also prioritizing emerging global trends that have attractive growth rates and customer needs that match up well with three of them capabilities.

We're building new platforms in areas like climate technology, industrial automation and next generation electronics.

Before I hand, it over to more niche for additional insight into our performance a few closing thoughts.

I am pleased with the way our teams are executing.

They delivered third quarter results that build on the momentum we saw in the second quarter setting us up for a solid close to 2023.

We're advancing our priorities driving performance progressing our healthcare spend and reducing risk and uncertainty three.

<unk> is delivering today lower cost better margins and greater cash generation and building for tomorrow prioritizing growth platforms innovating with impact and empowering our teams.

I will now turn it over to <unk> for more details on the third quarter and our outlook for the rest of the year Monish.

Thank you, Mike and I wish you all a very good morning.

Please turn to slide five.

As Mike mentioned, we are seeing significant traction from the actions we are taking to strengthen the business.

Through our focus on customers.

Effective adjustment of production benefits from efficiency and productivity initiatives ongoing proactive spending discipline and a relentless focus on managing inventory, we were able to deliver solid adjusted third quarter results, including sales of $8 billion at the high end of our guidance.

Range of seven 9% to $8 billion.

Operating margins of 23, 2%, an increase of 160 basis points year on year, and 390 basis points sequentially.

Earnings per share of $2.68, a year on year increase of 3% and free cash flow of $1 9 billion up 39% year on year with conversion of 130%.

Organic sales on an adjusted basis declined three 1% versus last year.

This included an expected year on year headwind of approximately $140 million or one seven percentage points related to lower disposable respirator demand and last year's exit of our operations in Russia.

Excluding this Q3 adjusted organic sales were down one 4%.

Consumer electronics end markets continued to be soft.

Our adjusted organic sales declined year on year mid single digits in our electronics business and high single digits in consumer.

This softness was partially offset by strength in our automotive OEM business.

Regionally the U S was up slightly despite continued challenges in retail.

Europe remains soft and China was down mid teens year on year organically due.

Due to continued end market softness along with lapping strong sales backlog recovery in the prior year.

Our strong adjusted EPS of $2.68 exceeded our expectations of $2 25 to $2.40.

Roughly two thirds of the beat was driven by operational execution in our supply chain and proactive spending discipline and the balance driven by restructuring timing.

The restructuring actions, we announced earlier this year are largely on track and we are seeing favorable margin impact in our results.

We continue to expect full year pre tax restructuring benefits of $400 million to $450 million, but offsetting charges.

Turning to slide six for the components that drove our year on year operating margin and earnings performance.

Manufacturing productivity and restructuring actions.

Strong spending discipline and selling prices, partially offset by lower sales volumes investments in the business and the previously mentioned headwinds from disposable respirator and last year's exit of Russia.

Resulted in improvement to operating margins of 260 basis points and earnings of 22 cents per share.

Pre tax restructuring and related charges in the quarter were $68 million or a negative impact to margins of 80 basis points and 10 cents to earnings.

This charge was lower than our anticipated range of $1 $25 million to $175 million in Q3 due to factors that impacted the timing of actions that are being pushed into Q4.

The carryover impact of higher raw material logistics and energy cost inflation created a year on year headwind of approximately $25 million or a negative 30 basis points impact to operating margins and three cents to earnings.

Foreign currency translation was a pause as Dave 0.6% impact to total adjusted sales.

This resulted in a one cent tailwind to earnings per share.

Last year's food safety divestiture, and the Reconsolidation of Arrow technologies resulted in a net year on year tailwind of 10 basis points to margins and no impact to earnings.

Finally, other financial items decreased earnings by a net <unk> <unk> per share year on year.

In summary.

Our team's focus on driving productivity.

Executing restructuring actions and controlling spending continues to yield results.

These actions drove meaningful year on year and sequential improvement in adjusted operating margins.

Please turn to slide seven.

Third quarter adjusted free cash flow was $1 $9 billion up 39% year on year with a conversion of 130% up 360 basis points versus last year's Q3.

This year on year improvement was driven by our ongoing focus on working capital management, especially inventory.

Inventory was down over $200 million sequentially and $550 million a year on year as we benefit from the power of daily management and data and data analytics to speed up inventory terms.

As always there is more we can do and will do to continue to realize benefits from our actions as we move forward.

Adjusted capital expenditures were $367 million in the quarter as we continued to invest in growth productivity and sustainability.

During the quarter, we returned $828 million to shareholders via dividends.

Net debt at the end of Q3 stood at $10 8 billion, a reduction of 11% year on year.

Our business segments continue their long history of robust cash flow generation.

In addition, our proven access to capital markets.

Along with the anticipated one time dividend from the spinoff help get at leverage of three to three five times EBITDA and 19, 9% retained stake will provide additional financial flexibility.

This combined with our existing strong capital structure provides us with the ability to continue to invest in the business.

We returned capital to shareholders and meet the cash flow needs related to ongoing legal matters.

Now please turn to slide nine for our business group performance.

Starting with our safety and industrial business, which posted sales of $2 $8 billion are down five 8% organically.

This result included a year on year headwind of approximately $130 million a full three percentage points due to last year's COVID-19 related disposable respirator decline and exit of our operations in Russia.

Excluding this Q3 adjusted organic sales were down one 5%.

Personal safety was down high single digits due to last year's Covid related disposable respirator call.

Excluding disposable respirators personal safety was up high single digits organically.

Closure and masking continued to be impacted by lower packaging and shipping activity.

And industrial adhesives, and tapes by end market softness in electronics.

Abrasives electrical markets and automotive aftermarket declined versus last year's strong comparison.

And finally organic growth in our roofing granules business was up high single digits.

Adjusted operating income was $708 million or up 5% versus last year.

Adjusted operating margins were 25, 7% up 250 basis points year on year, and up 350 basis points sequentially.

The year on year improvement in margins was mainly driven by ongoing productivity actions.

Restructuring benefits strong spending discipline and price.

Partially offsetting these benefits while headwinds from lower sales volume and restructuring costs.

Moving to transportation and electronics on slide 10.

Which boasted Q3 adjusted sales of $1 $9 billion.

Adjusted organic growth declined one 8% year on year, largely due to expected weakness in electronics.

Our electronics business experienced a year on year mid single digit decline in adjusted organic sales as semiconductor and data center end market demand continues to remain soft.

We are starting to see signs of stabilization in consumer electronics end market.

However, we are closely monitoring demand trends as we head into the upcoming holiday season.

Our auto OEM business had a strong quarter, increasing approximately 16% year on year versus a low single digit global car and light truck build as we continue to gain penetration on automotive platforms.

Operator: Ladies and gentlemen, thank you for standing by.

Operator: Welcome to the 3M third quarter earnings conference call. During the presentation, all participants will be in a listen only mode.

Turning to the rest of transportation and electronics.

Commercial solutions and transportation safety, both declined mid single digits year on year, mainly driven by weakness in China.

Operator: Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the one followed by the four on your telephone keypad. It is recommended that you use a line line phone if you're going to register for a question.

While advanced materials grew low single digits.

Transportation and electronics delivered $494 million and adjusted operating income up 21% year on year <unk>.

Operator: As a reminder, this conference is being recorded Tuesday, October 24th, 2023.

Adjusted operating margins were 26, 3% up 460 basis points year on year, and up 650 basis points sequentially.

Bruce Jermelin: I would now like to turn the call over to Bruce Jermelin, senior vice president of investor relations at 3M. Thank you and good morning everyone and welcome to our third quarter earnings conference call. With me today, our Mike Roman, 3M's chairman and chief executive officer and Monish Patolawala, our president and chief financial officer. Mike and Monish will make some formal comments and then we'll take your questions. Please note that today's earnings release and slide presentation, a company in this call are posted on the home page of our investor relations website at 3M.com.

The year on year improvement in margins was driven by productivity actions.

Restructuring benefits.

Strong spending discipline and price.

Partially offsetting these benefits or headwinds from lower sales volumes and restructuring costs.

Looking at our healthcare business on slide 11.

Q3 sales were $2.1 billion with organic growth up two 4% versus last year.

Organic sales in oral care were up high single digits year on year and medical solutions grew low single digits.

Bruce Jermelin: Please turn to slide two. Please take a moment to read the forward looking statement. During today's conference call, we'll be making certain predictive payments that reflect our current views about 3M's future performance and financial results. These statements are based on certain assumptions and expectations of future events that are subject to risk and uncertainties. Item 1A of our most recent form 10Q lists some of the most important risk factors that could cause actual results to differ from our predictions.

Separation and purification grew low single digits organically, including continued impact from lower post COVID-19 related biopharma demand.

Health information systems declined low single digits due to tighter hospital budgets.

As procedure volumes continued to improve and hospital budgets stabilize we are confident in the long term outlook of this business.

Health Care's third quarter operating income was $460 million are up 2% year on year.

Bruce Jermelin: Please note, throughout today's presentation, we'll be making references to certain non-gap financial measures. Reconciliation of the non-gap measures can be found in the attachments to today's press release. With that, please turn to slide three and on how hand the call off to Mike. Mike? Thank you Bruce. Good morning everyone and thank you for joining us. In the third quarter, we built momentum through strong operational execution as we again delivered for our customers, positioning us for a solid close to 2023. On an adjusted basis, we delivered earnings ahead of our expectations, expanded margins sequentially across all four businesses, and achieved our third consecutive quarter of double digit year on year growth in free cashflow.

Operating margins were 22, 2% up 50 basis points year on year and up sequentially 240 basis points.

The year on year improvement in margins was driven by productivity actions.

Restructuring benefits strong spending discipline and price.

These benefits were partially offset by restructuring costs.

Finally on slide 12.

Our consumer business posted third quarter sales of $1 3 billion.

Organic sales declined seven 2% year on year as discretionary spending trends on hardline categories remained subdued.

The back to school season was soft and rising interest rates continue to impact the housing market and related spending.

Mike Roman: As we make progress and deliver improved financial results, we are increasing our full year adjusted earnings per share guidance to $8.95 to $9.15. Up from a previous range of $8.60 to $9.10 and our adjusted free cashflow conversion range to 100 to 110% up from 90 to 100% previously. We continue to deliver against our priorities. We are driving performance throughout 3M with strong operational execution, restructuring actions and spending discipline. We are progressing the spin of the healthcare business, which we expect to be completed during the first half of 2024.

Consumers third quarter operating income was $269 million down 10% compared to last year with operating margins of 25% down 70 basis points year on year, However were up 230 basis points sequentially.

The year on year decline in margins was driven by headwinds from lower sales volume and restructuring costs.

These headwinds were partially offset by benefits from productivity actions restructuring and strong spending discipline and price.

That concludes our remarks on the third quarter. Please turn to slide 14 for an update on our full year expectations.

Mike Roman: And we are reducing risk and uncertainty by reaching significant settlements to address combat arms and PFAS litigation. I will not provide some additional context around how we are advancing these priorities. Next slide please. Our margin expansion clearly demonstrates the performance our team is driving throughout 3M. We delivered 240 basis points of year over year, adjusted operating income margin expansion, excluding 80 basis points of restructuring related charges. We are strengthening our business in several important ways.

Our strong third quarter performance shows the result of the significant actions we have put in place this year to generate better productivity.

Yield and efficiency from our supply chain.

Drive simplification.

Manage cost and deliver for our customers in an uncertain macro environment.

As a result, we are raising our full year 2023, adjusted earnings per share and free cash flow conversion guidance.

We now expect full year adjusted earnings in the range of $8.95 to $9.15 versus a prior range of $8 60.

Mike Roman: We are progressing with our restructuring actions, to streamline our organization, reduce structural costs, and get us closer to customers. We have leaned out the center of our company, simplified our global supply chain organization, and optimized our global go-to-market models. At the same time, we are advancing supply chain performance to improve service, drive productivity and yield, expand gross margins, and increase cash conversion. These results are being supported by initiatives that use our continuous improvement toolkit and leverage data and data analytics.

To $9.10.

We're also updating our full year adjusted free cash flow conversion to be in a forecasted range of 100% to 110% versus 90% to 100% previously.

Based on our year to date performance, we expect full year adjusted organic growth to be down approximately 3% versus our prior guidance to be at the lower end of flat to minus 3%.

Mike Roman: For example, we have benefited from more than 60 Kaizen events this year to improve existing processes in our largest plants. We are also progressing the spin of our healthcare business, building the leadership team as we work toward completing the spin in the first half of 2024. During the quarter, we added two experienced leaders, naming Brian Hansen as the CEO of the standalone healthcare business, and Carrie Cox as the board chair. Finally, we continue to manage risk and uncertainty by proactively and effectively managing litigation.

This updated expectation includes an incremental headwind of $50 million from continued softness in disposable respirator domain.

We now estimated our full year sales decline for disposable respirators of approximately $600 million versus $550 million previously.

Looking ahead to the implied fourth quarter, we expect end market trends to be consistent with Q3.

Hence, we anticipate fourth quarter adjusted sales to be in the range of seven six to seven $7 billion, taking into consideration normal seasonality with fewer sales days due to holidays.

Mike Roman: We announced the combat arms settlement, and we are working with all parties in the courts to implement it. The settlement administration process has been established and funded. The bell-weather trial verdicts have been settled, and the process for notifying and settling with claimants has begun. With respect to PFAS, the public water supplier settlement we announced last quarter has received preliminary court approval. We successfully resolved objections from state attorneys general and are working toward approval with the final hearings set for early February next year.

Fourth quarter pre tax restructuring charges are expected to be in the range of 70 million to $120 million incorporating the timing impact I mentioned earlier, the pre tax benefit of 145 million to $195 million.

Taken together, we expect fourth quarter adjusted earnings per share will be in the range of $2 13 to $2 33.

Mike Roman: In closing, I want to share a few thoughts about our future. Our momentum accelerates our ability to define where we go next at 3M. As we prioritize attractive markets where we have the right to win, and the opportunity to differentiate ourselves through our unique capabilities and strengths. A good example is our automotive OEM business where we continue to outperform the market with double digit growth this quarter. Auto electrification is on track to be a $600 million business this year and has delivered organic growth of 30% year to day.

To wrap up we are very focused on our priorities by driving improved performance through strong operational execution progressing on our restructuring actions and spending discipline.

Successfully spinning off health care.

And reducing risk by managing litigation exposures.

At the same time, we are positioning <unk> for the future as we prioritize the most attractive markets invest to support continued innovation and capitalize on emerging opportunities.

We expect our actions will continue to build momentum and drive long term improvement in our organic growth margins and cash flow performance into the future.

Mike Roman: Our material science expertise has led us to build a new business and we see similar opportunities in other core platforms such as safety, home improvement and consumer electronics. We are also prioritizing emerging global trends that have attractive growth rates and customer needs. We are building new platforms in areas like climate technology, industrial automation and next generation electronics.

As we exit 2023, we will be a stronger leaner and a more focused three am and I remain confident in our future.

Our solid third quarter is a direct result of the hard work of three employees.

I want to thank them for their dedication and focus as they continue to deliver in partnership with our suppliers for customers and shareholders.

Mike Roman: Before I hand it over to Monish for additional insight into our performance, a few closing thoughts. I am pleased with the way our teams are executing. They delivered third quarter results that build on the momentum we saw in the second quarter, setting us up for a solid close to 2023. We are advancing our priorities, driving performance, progressing our healthcare spend and reducing risk and uncertainty.

That concludes my remarks, we will now take your questions.

Yeah.

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Monish Patolawala: 3M is delivering today, lower costs, better margins and greater cash generation and building for tomorrow, prioritizing growth platforms, innovating with impact and empowering our teams. I will now turn it over to Monish for more details on the third quarter and our outlook for the rest of the year.

If you're using a speaker phone please lift your handset before entering your request.

Please limit your participation to one question and one follow up one moment. Please while we compile the Q&A roster.

Our first question comes from Scott Davis with Melius Research you May proceed with your question.

Monish Patolawala: Thank you, Mike and I wish you all a very good morning. Please turn to slide 5. As Mike mentioned, we are seeing significant traction from the actions we are taking to strengthen the business. Through a focus on customers, effective adjustment of production, benefits from efficiency and productivity initiatives, ongoing proactive spending discipline and the relentless focus on managing inventory. We were able to deliver solid adjusted third quarter results, including sales of $8 billion at the high end of our guidance range of $7.9 to $8 billion.

Good.

Good morning, Mike Emanation Bruce.

Good morning, Scott.

Haven't been able to say this in a while but a pretty solid complete quarter overall, so and progress there but.

I want to back up a little bit what are the remaining steps to get health care.

Spin complete.

The big hurdles still remaining.

Yeah, Scott I would say the team continues to make very good progress and so we don't see any hurdles ahead of us there's a lot of work to do to get ready for the spin and so we've got work to do getting ready for each step of that process.

Monish Patolawala: Operating margins of 23.2% and increase of 160 basis points year on year and 390 basis points sequentially. Earnings per share of $2.68 a year on year increase of 3% and free cash flow of $1.9 billion up 39% year on year with conversion of 130%. Organic sales on an adjusted basis declined 3.1% versus last year. This included an expected year on year headwind of approximately $140 million or 1.7 percentage points related to lower disposable respirator demand and last year's exit of our operations in Russia.

As we talked about in my remarks here, we named the CEO and we're adding to the leadership team and getting that built out. So that's really important foundation, we have the board chair named and continue to work on filling out the board. So those are important steps.

Don't see that the team has given us great confidence that we're going to continue to progress.

We're on track for the timing that we talked about in early 2024 and see ourselves getting their successfully importantly for us it's it's.

Much of it is and we've talked about it's about getting ready for the spin of health care. It's also about getting ready to stand up three of them as a as a standalone company with a health care spend being completed so we are putting focus there and even what we talked about in the quarter the.

Monish Patolawala: Excluding this, Q3 adjusted organic sales were down 1.4%. Consumer and electronics end markets continued to be soft. Our adjusted organic sales declined year on year mid single digits in an electronics business and high single digits in consumer. Business. Recently, the US was up slightly despite continued challenges in retail. Europe remained soft, and China was down mid-teens year on year organically due to continued end-market softness, along with lapping strong sales backlog recovery in the prior year.

Really driving the priorities.

Talking about the execution.

Our operational execution is an important part of getting ready for three of them for the spin as well and we're making good progress. There as you noted just processed by its too to add to Mike's comments. We have the teams are working through system changes.

Signing up legal entities and as well as all the regulatory filings Scott that we need to do and that's what everyone's focused on from the health care. So that's.

That's helpful. So Mike just taking your comments a little further.

The new three am do you envision a new three M, where you can kind of run at lower levels of Capex lower levels of even potentially R&D as a percent of sales in the knock on DRAM was always that it cost a lot of money to drive a point of growth.

Monish Patolawala: Our strong adjusted EPS of $2.68 exceeded our expectations of $2.25 to $2.40. Roughly, two-thirds of the beat was driven by operational execution in our supply chain and proactive spending discipline, and the balance driven by restructuring timing. The restructuring actions we announced earlier this year are largely on track and we are seeing favorable margin impact in our results. We continue to expect fully a pre-tax restructuring benefits of $400 to $450 million with offsetting charges.

And sometimes with Incrementals that worked out well, but.

In down cycles, that's certainly.

Did not work out well, but is there a is there a new vision and three am I should say that you can run it more productive efficient levels of Capex and R&D.

Yeah, Scott, there's a couple of dimensions to the answer to your question. The first starts with what we've been talking about we announced our restructuring back in Q1 and that was that was really coming from what we had learned as we operated our businesses and we looked at where we were going with our supply chain in the face of some of the challenges in <unk>.

Monish Patolawala: Turning to flight six for the components that drove our year on year operating margin and earnings performance. Manufacturing productivity and restructuring actions, strong spending discipline, and selling prices partially offset by lower sales volumes, investments in the business, and the previously mentioned headwind from disposable respirator, and last year's exit of Russia resulted in improvement to operating margins of 260 basis points and to earnings of 22 cents per share. Pre-tax restructuring and related charges in the quarter were $68 million or a negative impact to margins of 80 basis points and 10 cents to earnings.

Supply chains globally and it was it was really behind that was an expectation that we could we could drive.

Greater productivity improvement in our execution stronger performance improved margins and so that that was really the foundation of that restructuring and so I think part of the answer to your question is we took those decisions to lean out the center of the company simplify our supply chain streamline our go to market models. Those are foundation for the future.

Three of them and those are you can see starting to demonstrate that we can drive improved financial performance for the company and Thats, we expect that to be a foundation for the future as well I even talked about this is with that performance starting to build some momentum. We can we can accelerate all we view the future and then new.

You are talking about investing in growth and innovation and productivity and sustainability and our.

Monish Patolawala: This charge was lower than an anticipated range of $125 to $175 million in Q3 due to factors that impacted the timing of actions that are being pushed into Q4. The carrier impact of higher raw material logistics and energy cost inflation created a year on your headwind of approximately $25 million or a negative 30 basis points impact to operating margins and 3 cents to earnings. Foreign currency translation was a positive 0.6 percent impact to total adjusted sales.

We will continue to be our capital allocation first priority is going to be investing in organic growth in R&D and capex and really thinking.

<unk> targeting high growth market spaces places, where we can differentiate ourselves with our innovation capabilities.

Where we can be aligned to emerging market trends. So I think that's how we prioritize that investment is going to be aligned with where we see that ability to make a difference. So both are important foundations for the future.

Okay Best of luck guys. Thank you.

Monish Patolawala: This resulted in a 1 cent tailwind to earnings per share. Last year's food safety divesture and the reconsoldiation of error technologies resulted in a net year on year tailwind of 10 basis points to margins and no impact to earnings. Finally, other financial items decreased earnings by net 2 cents per share year on year. In summary, our teams focus on driving productivity, executing restructuring actions and controlling spending continues to yield results. These actions drove meaningful year on year and sequential improvement in adjusted operating John Banovetz, John Banovetz, John Banovetz, John Banovetz, This year-on-year improvement was driven by an ongoing focus on working capital management, especially inventory.

Our next question comes from Andrew <unk> with Bank of America. You May proceed with your question.

Yes, good morning.

Andrew.

Just a question on electronics.

You know been a headwind for a while.

You know what Kpis are you looking at when do you think.

I think you said there was broadly in line with expectations, but you.

When do you see the light at the end of the tunnel when does the bottom what does it take for this business to bottom.

Yes, Andrew I would say.

Through third quarter, we still saw as we said soft end markets for electronics and Thats consumer electronics, it's into semiconductor it's into a big part of our what what we have is our focus and our customers in electronics. When we look ahead there is.

Or some uncertainty here, but we're starting to see as Warner said electronics stabilize I think that really reflects that we don't see it continuing to go down it starting to stabilize there is some there is some companies are talking about things getting better as we go forward. We're I would say we're watching it closely we expect Q4 to <unk>.

Look a lot like Q3 in our end markets and I would say electronics included so we're watching what we what we always watch our customers are are a large electronics customers in consumer electronics and semiconductor.

Monish Patolawala: Inventory was down over $200 million sequentially and $550 million year-on-year as we benefit from the power of daily management and data and data analytics to speed up inventory terms. As always, there is more we can do and will do to continue to realize benefits from our actions as we move forward. Adjusted capital expenditures were $367 million in the quarter as we continue to invest in growth, productivity and sustainability. During the quarter we returned $828 million to shareholders via dividends.

With data centers and those are the that's where we're going to be taking the lead from where we see demand going where we see market performance going does when when we see the market improve we will take the lead from them.

Just another data point for you Andrew at the end of second quarter. We had said that the way we predicted electronics was the amount of negative vs.

Quarter on quarter would get better. So if you compare us to the first half and the amount we were down year on year versus the third quarter will be a less down doesn't mean, they're not down but that's another point that Mike was trying to make is.

Monish Patolawala: Net debt at the end of Q3 stood at $10.8 billion a reduction of 11% year-on-year. Our business segments continue their long history of robust cash flow generation. In addition, our proven access to capital markets along with the anticipated one-time dividend from the spin-of-health care at leverage of 3-3.5 times EBITDA and 19.9% retained stake will provide additional financial flexibility. This, combined with our existing strong capital structure, provides us with the ability to continue to invest in the business, return capital to shareholders and meet the cash flow needs related to ongoing legal matters.

That's the way we are starting to see some signs of stabilization, but as I said in my prepared remarks, I think we'll have to just watch how the holiday season plays out.

Just a follow up question on health care.

I appreciate that you guys are doing a lot of sort of.

You know sort of our accounting etcetera, etcetera, but yeah yeah.

These separations.

In the past and I was just a question I have.

Any thoughts you know as Brian has joined the company I know in the past.

Been headlines about health information system being separated.

I know there are other sort of businesses inside.

Health care any thought about sort of may.

Monish Patolawala: Now, please turn to slide 9 for our business group performance. Starting with our safety and industrial business, which posted sales of $2.8 billion or down 5.8% organically. This result included a year-on-year headwind of approximately $130 million or 4.3 percentage points due to last year's COVID-related disposable respirator decline and exit of our operations in Russia. Excluding this, Q3 adjusted organic sales were down 1.5%. Personal safety was down high single digits due to last year's COVID-related disposable respirator comp.

Maybe repositioning the portfolio as particulars, Brian came on board repositioning the portfolio for sort of future as a stand alone company. Thank you.

Yes, Andrew going back to really how did we think about the strategy to spin out health care and in one of the important questions was do we see health care as a leading healthcare technology company attractive to shareholders with a great future in that portfolio of businesses. The answer for US was yes and that the.

The best way to create that value was to stand it up as a standalone company and the portfolio work, we had done even out over time as part of three M position it to be a successful standalone company in each of the businesses play an important role there now it is going to be an independent company. It will have a new CEO and <unk>.

Monish Patolawala: Excluding disposable respirators, personal safety was up high single digits organically. Closure and masking continued to be impacted by lower packaging and shipping activity and industrial adhesives and tapes by end-market softness in electronics. Abrazes, electrical markets and automotive after-market decline versus last year's strong comparison. Evans, and finally, organic growth in our roofing granules business was up high single digits. Adjusted operating income was $708 million or up 5% versus last year. Adjusted operating margins were 25.7% up 250 basis points year-on-year and up 350 basis points sequentially. The year-on-year improvement in margins was mainly driven by ongoing productivity actions, restructuring benefits, strong spending discipline and price. Partially offsetting these benefits were headwinds from lower sales volume and restructuring costs.

And they will they will develop the strategies for how they think about creating the greatest value driving growth for that business thinking about how to really manage that portfolio of businesses as they go forward. So we see it as well.

Being ready to stand forward as a leader in.

Very confident in the leadership that will will take the company as Standalone.

Thanks, so much.

Our next question comes from the line of Joe Ritchie with Goldman Sachs. You May proceed with your question.

Thanks, Good morning, everyone.

Joe and Joe.

Hey, can we start just on the restructuring the benefits of <unk>.

On the push out a little bit to expenses.

It seems like you're running ahead of schedule on the benefits I would love to get any color about.

We're this is what you see coming in better than expected and then also just on the on the push out on the cost in the fourth Q.

Just what was some of the reasons for why the.

The costs are getting pushed out from <unk>.

Yeah. So I'll just start again as a reminder, Joe.

Monish Patolawala: Moving to transportation and electronics on slide 10, which posted Q3 adjusted sales of $1.9 billion. Adjusted organic growth declined 1.8% year-on-year largely due to expected weakness in electronics. Our electronics business experienced a year-on-year mid-single digit decline in adjusted organic sales as semi-conductor and data center end-market demand continues to remain soft. We are starting to see signs of stabilization in consumer electronics and market. However, we are closely monitoring demand trends as we head into the upcoming holiday season.

<unk> benefits for this program over the period of the program is $700 million to $900 million.

With costs approximately of $700 million to $900 million coming into the year. We had set for 2023, we would see benefits in the range of 400 to five 400 to 450 off benefits an equal offsetting charges. So when you look year to date, we are I would say largely on track for the year.

We still believe.

It will be in the 400 to 450 of benefits, which will get offset by cost of 400 to $4 50.

The teams have done a really nice job of continuing to execute there are multiple pieces to this program. One was corporate simplification. The second was streamlining our supply chain and third was making sure that we are closer to our customers.

Monish Patolawala: Our auto OEM business had a strong quarter increasing approximately 16% year-on-year versus a low single digit global car and light truck build as we continue to gain penetration on automotive platforms. Turning to the rest of transportation and electronics, commercial solutions and transportation safety both declined mid-single digits year-on-year, mainly driven by weakness in China, while advanced materials grew low single digits. Transportation and electronics delivered $494 million in adjusted operating income up 21% year-on-year.

In our business group units in all three of these programs are running well on track as regards to just timing from Q3 to Q4 I would say nothing big we operate in multiple countries as you know and we wanted to make sure. We follow all rules and regulations in those countries and so some items dropped from Q3 to.

Q4, and we had a couple of other small investments that we had to make in Q3 that just based on all of the work. The teams are doing we just felt better to do it in Q4. So nothing major so it's still pretty much largely on track 400 to 450 of benefits for the year and 700 to 900 got it.

Got it okay. Great. That's helpful. And then I guess I know, it's probably too early to think about 2024.

Monish Patolawala: Adjusted operating margins were 26.3% up 460 basis points year-on-year and up 650 basis points sequentially. The year-on-year improvement in margins was driven by productivity actions, restructuring benefits, strong spending discipline and price. Partially offsetting these benefits were headwinds from lower sales volumes and restructuring costs.

If you kind of think through like that the price cost equation from.

From here on out it seems like raw materials are becoming less and less of a headwind for you guys can.

Can you maybe just provide any type of framework for 2024 and ultimately like.

How you think about both price and what Youre seeing from us from a roadmap perspective.

So I'll just start first Joe by 2024 is.

Monish Patolawala: Looking at a healthcare business on slide 11, Q3 sales were $2.1 billion with organic growth up 2.4% versus last year. Organic sales in oral care were up high single digits year-on-year and medical solutions grew low single digits. Separation and purification grew low single digits organically including continued impact from lower post-COVID related by a farmer demand. Care, Health Information Systems declined low single digits due to tighter hospital budgets. As procedure volumes continue to improve and hospital budgets stabilize, we are confident in the long-term outlook of this business.

A little ways away. So I think our first focus is just getting Q4 done.

Getting the teams continuing to focus on our priorities you've seen.

What our teams have done so we continue to execute on our priorities you've seen we've delivered a solid Q3, we've taken guidance up for Q4, the whole year, we are gaining momentum and we want the team to continue to focus on doing that getting 2020 feet closed out so when we get into 2024.

Q4, 2023 earnings call, we'll we'll definitely give you an update on 2020.

To answer your question on deflation and price I'll start with deflation.

I'll start by saying first of all the headwinds that we've seen the caddy over headwinds are approximately $25 million in the quarter, which we called it out because it was very similar to Q2.

Monish Patolawala: Healthcare's third quarter operating income was $460 million or up 2% year-on-year. Operating margins were 22.2% up 50 basis points year-on-year and up sequentially 240 basis points. The year-on-year improvement in margins was driven by productivity action, restructuring benefits, strong spending discipline and price. These benefits were partially offset by restructuring costs.

When you look at overall market and material I would say, we are seeing more disinflation than deflation, but when you think about places where energy is still a little more is still inflationary downstream materials is still inflationary and then labor is still sticky from an inflation.

Perspective, where we have seen some benefits as up upstream.

Chemicals and logistics and the teams have taken.

The advantage of that but I would say more importantly, I don't think the teams are just focused on material cost. They are more focused on saying how do we drive overall costs down and the factories, whether it is driving yield and efficiency whether it is dual sourcing whether it is making sure. We have alternate materials, that's what Peter Gibbons and that team is.

Monish Patolawala: Finally, on slide 12, our consumer business posted third quarter sales of $1.3 billion. Organic sales declined 7.2% year-on-year as discretionary spending trends on hard-line categories remain subdued. The back-to-school season was soft and rising interest rates continued to impact the housing market and related spending. Consumers third quarter operating income was $269 million down 10% compared to last year with operating margins of 20.5% down 70 basis points year-on-year, however, were up 230 basis points sequentially. The year-on-year decline in margins was driven by headwinds from lower sales volume and restructuring costs. These headwinds were partially offset by benefits from productivity actions, restructuring, and strong spending discipline and price.

Working on and the work that they have done through this year is clearly evident in the results that youre seeing so that team has done a very nice job and then when it comes to price I would tell you we came into the quarter. We are into the Yogi said low single digit price increase that's what we have as of right now we are on track.

Pretty much the same range and Joe as you know you've followed three and longer than I have this is not a formula based pricing. We are very thoughtful about it we look at it market by market product by product and we make sure that the price that we're charging our customers.

It is a representation of the value that we that our customers get and I would say if you leave 2024 aside for a moment long term three M has always had.

Operator: That concludes the remarks on the third quarter.

A very good price cost equation because of the value that we add to our customers and I don't see that changing and I believe that but the innovation that we bring with the customer focus that we have that equation.

Monish Patolawala: Please turn to slide 14 for an update on our full year's expectations. Our strong third quarter performance shows the results of the significant action we have put in place this year to generate better productivity, yield and efficiency from our supply chain, drive simplification, manage costs, and deliver for our customers in an uncertain macro environment. As a result, we are raising our full year 2023 adjusted earnings per share and free cash flow conversion guidance.

<unk> remains.

Yes.

Thank you.

Our next question comes from the line of Chris Snyder with UBS. You May proceed with your question.

Thank you.

Well one thing that has really stood out to us over the last couple of quarters.

Monish Patolawala: We now expect full year adjusted earnings in the range of $8.95 to $9.15 versus a prior range of $8.60 to $9.10. We are also updating a full year adjusted free cash flow conversion to be in a forecasted range of 100 to 110% versus 90 to 100% previously. Based on our year-to-date performance, we expect full year adjusted organic growth to be down approximately 3% versus a prior guidance to be at the lower end of flat to minus 3%.

Underlying margin improvement of the business, if we ex out restructuring spend and savings we see in its operating margin on the underlying business is roughly 22% this quarter.

First less in 'twenty, one and Q2 and like a mid teens in Q.

Q1, so a very strong ramp here can you just talk about what's driving that outside of the obstruction, while the underlying business being somewhat margin momentum. Thank you.

So I would say first Chris it's a huge thanks to the three MS who are being focused on their priorities.

The priorities as Mike mentioned driving performance across all of three M spinning out healthcare reducing risk.

Monish Patolawala: This updated expectation includes an incremental headwind of $50 million from continued softness in disposable respirator dimmer. Mann. We now estimated a full year sales decline for disposable respirators of approximately $600 million versus $550 million previously. Looking ahead to the implied fourth quarter, we expect end market trends to be consistent with Q3. Hence, we anticipate fourth quarter adjusted sales to be in the range of $7.6 to $7.7 billion, taking into consideration normal seasonality with fewer sales days due to holidays.

By managing litigation is all starting to show up in the results to your point, even if you exclude out restructuring cost and benefits the margin rate is.

As shown a pretty good ramp and that's driven I would say by two or three things. One is continued execution in the supply chain with some of the restructuring that we have made and the supply chain is definitely more agile. We are also using a lot of data and data analytics. We have also learned through the pandemic on how to continue to.

Operator supply chain, so number one you're starting to see the benefit off of.

The improved yield and efficiency.

Able to take longer runs two is mature it gets better secondly that team has been very thoughtful in proactive cost management to the extent, where they saw they were places they could invest they have to the extent, where we had lower volumes. We have managed to control cost third is we've had a relentless focus on work.

Monish Patolawala: Fourth quarter pre-tax restructuring charges are expected to be in the range of $70 million to $120 million, incorporating the timing impact I mentioned earlier with pre-tax benefits of $145 million to $195 million. Taken together, we expect fourth quarter adjusted earnings per share will be in the range of $2.13 to $2.33.

<unk> capital with inventory and you're seeing that from a cash conversion basis. So I would just say it's continued good strong operating performance that you're starting to see and then as you add on the benefits that you get from the restructuring and once the cost goes away, which we have said this program will take approximately two years to complete.

Monish Patolawala: To wrap up, we are very focused on our priorities by driving improved performance through strong operational execution, progressing on our restructuring actions and spending discipline, successfully spinning off healthcare and reducing risk by managing litigation exposures. At the same time, we are positioning 3M for the future as we prioritize the most attractive markets, invest to support continued innovation, and capitalize on emerging opportunities. We expect our actions will continue to build momentum and drive long-term improvement in our organic growth, margins and cash flow performance into the future. As we exit 2023, we will be a stronger, leaner, and a more focused 3M and remain confident in our future.

You can see the overall long term benefits.

From from the margin rate that youre going to get from better operating performance as well as as.

Better restructuring benefits at the same time, you've got to keep in mind that we have.

That the teams are going to continue to watch this in the fourth quarter, it's an uncertain macro but I'm very confident with what we are doing.

That the execution is there, but there's always more we can do and we will keep trying to drive more and more execution as we go.

Thank you I appreciate that and maybe just taking that and bridging to the Q4 guide it seems to us by our math.

Youre kind of guiding underlying operating margins ex restructuring something like 19% down.

Monish Patolawala: Our solid third quarter is a direct result of the hard work of 3M employees. I want to thank them for their dedication and focus as they continue to deliver in partnership with our suppliers, for customers and shareholders.

Down from.

22% this quarter.

Revenues now, but it seems to suggest a very sharp decremental on can you just maybe talk about what.

What's causing that margin step down because it feels like a lot of the improvements whether it's supply chain or price cost.

Operator: That concludes my remarks.

Our sustainable thank you.

Operator: We will now take your questions. Ladies and gentlemen, if you like to register a question using a landline phone, please press the one followed by the four on your telephone keypad. You will hear a three-tone prompt to acknowledge your request.

Yeah, Chris.

Again, it depends on the math I think I'll just start with margin rates in total when we started the year. We came into the year. We had said margin rates for the year are going to be around 19% at the end of Q2, we said margin rates are going between <unk> 19, and a half of 20% for the year and now based on where we.

Operator: If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. If you are using a speaker phone, please lift your hands up before entering your request.

We are with the midpoint of our guide our margin rate will be approximately 20%. So when you back into it the fourth quarter is higher than the 19 and a half that you have it's somewhere in that 20, and a half of 21% for the fourth quarter and.

Operator: Please limit your participation to one question and one follow-up.

Operator: When moment, please while we compile the Q&A roster.

Scott Davis: Our first question comes from Scott Davis with Melius Research. You may proceed with your question.

And just to keep in mind. The reason you see this decremental one is of course, the restructuring is higher in Q4 versus Q3, plus its higher off of.

Scott Davis: Good morning, Mike and Monation Bruce. I haven't been able to say this in a while, but a pretty solid, complete quarter overall, so progress there. Guys, I want to back up a little bit.

The midpoint of <unk> $95 million to $100 million of restructuring on a year over year basis. So if you're doing year over year Decrementals. The second piece to keep in mind is in general revenue in.

Mike Roman: What are the remaining steps to get healthcare spin complete? Any big hurdles? Still remaining?

Three M drops from Q3 to Q4, you have less billing days are less business days in Q4, that's why our revenue guide, which is going from $8 billion. It goes down to between 76% and seven seven but just basically saying the underlying macro trends are the same it's just lower billing days of lower business days, which also puts an impact.

Mike Roman: Yes, Scott, I would say the team continues to make very good progress. And so we don't see any hurdles ahead of us. There's a lot of work to do to get ready for the spin. And so we've got work to do, getting ready for each step of that process. As we talked about in my remarks, we named the CEO and we're adding to the leadership team and getting that built out. So that's really an important foundation.

If you look at the history of three M. Chris when you look at Q3 to Q4, you will always see a pretty sharp decline from Q3 to Q4 and margin rate and that's mainly driven by just the lower volume because of the less business days that come into Q4, hopefully that answered your question.

Mike Roman: We have the board chair named and continue to work on filling out the board. So those are important steps. I don't see the team has given us great confidence that we're going to continue to progress. And you know, the we're on track for the timing that we talked about in early 2024 and see ourselves getting there successfully. And especially importantly, for us, it's much of it is and we've talked about it's about getting ready for the spin of healthcare.

Thank you I appreciate that.

Our next question comes from the line of Andrew Kaplowitz with Citi. Please proceed with your question.

Hey, good morning, guys, Hey, Andy.

Somebody I think.

Mike Roman: It's also about getting ready to stand up 3M as a as a standalone company with a healthcare spend being completed. And so we're putting focus there. And even what we talked about in the quarter, the really driving the priorities that we are talking about the execution in our operational execution is important part of getting ready for 3M for the spin as well. And we're making good progress there as you know, just a process by two to add to Mike's comments. We've, you know, the teams are working through system changes, standing up legal entities and as well as all the regulatory filings caught that we need to do. And that's what everyone's focused on from the healthcare.

Conference a month ago, you had lowered your revenue had some bad and then you sort of reported 8 billion. I think you had seven nine to eight so maybe you can talk about the cadence of revenues to the quarter did any of your businesses pick up in September here in October if you're just being conservative at the time and then how are you thinking about the impact of higher rates on your businesses.

So I'll start by saying.

At that moment in time, what we saw is what we told you all which we felt was in that seven 9% to eight there was uncertainty in electronics consumer and China I would say thanks to all of the focus the teams have on taking care of customers, we were able to get to the high end of our range of $8 billion.

Mike Roman: Yeah, that's helpful. So Mike, just taking your comments a little further, you know, the new 3M, do you envision a new 3M where you can kind of run at lower levels of catbacks, lower levels of even potentially R&D as a percent of sales and the knock on 3M was always that it cost a lot of money to drive a point of growth and, you know, and sometimes with the incrementals that worked out well.

I would say the same trends Andy pretty much stayed through the quarter electronics pretty much where we thought it was going to be China continue to remain weak in soda at consumer retail.

As Mike mentioned and so have I in my prepared remarks, we are seeing electronic stabilizing we are watching for the fourth quarter, what the holiday trends will bring for our consumer retail.

Mike Roman: But in down cycles that certainly did not work out well. But is there a new vision in 3M, I should say that you can run it kind of more productive, efficient levels of catbacks in R&D? Yeah, Scott, there's a couple of dimensions to the answer to your question. The first starts with what we've been talking about. We announced a restructuring back in Q1. And that was, that was really coming from what we had learned as we operated our businesses.

Back to school was softer than we expected.

And then China again, I would say is we are.

Pretty much the trends, we expected in China overall for the fourth quarter, you'll see us having revenue of 76% to 77%, which is again just driven by the fact, you have less business days on the other side. If you look at margin and you look at what the teams have done the teams have continued to be very good on an operating.

Mike Roman: And we looked at where we were going with our supply chains in the face of some of the challenges and supply chains globally. And it was, it was really behind that was an expectation that we could, we could drive greater productivity improvement in our execution, stronger performance, improved margins. And so that, that was really the foundation of that restructuring. And so I think part of the answer to your question is we took those decisions to lean out the center of the company, simplify our supply chains, streamline our go-to-market models.

Execution perspective, we have continued to drive.

Proactive cost control we've done that in Q3, we'll continue to do that in Q4 and as a result, we were able to.

B the 225 to 240, Ed said in that conference a few months ago and then we have raised totally a guide from 860 to 90 10 to $8 95.

915, and then the other point Andy that's another bright spot is the cash conversion the teams have done a marvelous job managing inventory.

Mike Roman: Those are foundation for the future of 3M. And those are, you can see starting to demonstrate that we can drive improved financial performance for the company. And that's, we expect that to be a foundation for the future as well. I even talked about this is, with that performance starting to build some momentum, we can, we can accelerate all we view the future. And then you are talking about investing in growth and innovation and productivity and sustainability.

130% free cash flow conversion in the third quarter, which has allowed us to raise our total year guide.

Free cash flow conversion adjusted free cash flow conversion from.

200% to 110% from 90% to 100%. So overall the team's focused on operating execution.

So if I can follow up on that the cash conversion target raise maybe talk about your efforts I know you. When you came in you talked about improving digitization of the company.

Mike Roman: And our, you know, we'll continue to be our capital allocation first priority is going to be investing in organic growth in R&D and CAPEX. And really thinking of and targeting high growth market spaces, places where we can differentiate ourselves with our innovation capabilities, where we can be aligned to emerging market trends. And so I think that, how we prioritize that investment is going to be aligned with where we see that ability to make a difference. So both our important foundations for the future.

It seems like your focus on Digitization inventories, having impact. So maybe you can talk about the confidence in generating higher cash conversion going forward sort of duration of these improvements as you go forward in 'twenty four and beyond.

Yeah from the day of coming year, Andy I've said working capital is a great opportunity for three M and through the pandemic. Unfortunately, we had to build inventory levels. In most companies did just to make sure. We took care of our customers and our first priority was always to take care of our customers. So we made sure we had enough inventory.

Scott Davis: Okay, that's the luck guys.

Operator: Thank you.

As two things as supply chains are stabilizing number one but more importantly, the execution that the teams are doing using data and data analytics and not and what I mean by that is not just going in using analytics, but being able to visualize by looking at data, they're able to see.

Andrew Obin: Our next question comes from Andrew Obin with Bank of America. You may proceed with the question. Yes, good morning, Andrew. Just a question from electronics. You know, been ahead of it for a while. You know, what KP Asi are you looking at? When do you think, and you know, I think you said there was probably in line with expectations, but, you know, when do you see the light at the end of the tunnel?

Where the inventory is better.

They are able to get a better demand signal, which allows them to get a better manufacturing signals, which allows them to get a better supply signal to their suppliers and then the third piece is that all the work that we've done through the restructuring where we have got the supply chain streamline and restructure so that it's more agile.

Andrew Obin: When does it bottom? What does it take for this business to bottom? Yeah, Andrew, I would say, you know, we came through third quarter. We still saw, as we said, soft end market for electronics. And that's consumer electronics. It's in the semiconductor. It's, you know, into a big part of our, what, what we have as a focus in and our customers and electronics. When we look ahead, there's a lot of uncertainty.

All of that is playing itself out in in the inventory that we are seeing I would tell you as I've said in my prepared remarks, there's more to go here, there's more that we can keep driving in this space.

And we are going to continue driving it because this is a.

Andrew Obin: We're starting to see as monists that electronics stabilize. I think that really reflects that we don't see it continue to go down. It's starting to stabilize. There's some, there's some companies are talking about things getting better as they go forward. We're, I would say we're watching it closely. We expect Q4 to look a lot like Q3 in our end markets. And I would say electronics included. So we're watching what we, you know, what we always watch our customers are our large electronics customers in consumer electronics and semiconductor.

Great place, where we can continue to generate very strong cash.

For three of them.

I appreciate all the color.

Our next question comes from the line of Deane.

Dray with RBC capital markets. Please proceed with your question.

Thank you and good morning, everyone.

What are you planning on and assuming for the auto strike impact for <unk>.

Yeah Deane so it's something we're watching very closely as you know we are.

Andrew Obin: You know, associated with data centers and those are the, that's where we're going to be taking the lead from where we see demand going, where we see market performance going does when, when we see the market improve, we'll take the lead from them. Just another data point for you, Andrew, at the end of second quarter, we had said that the way we predicted electronics was the amount of negative Vs quarter on quarter would get better.

<unk> stay very close with the automotive Oems are key customers there.

We are we haven't seen.

A significant impact on our business to date and we continue to watch it closely we're staying connected on on what happens week to week and impacting our demand, but it's something that.

Andrew Obin: So if you compare us to the first half and the amount we were down year on year versus the third quarter, we are less down. Doesn't mean we are not down, but that's another point that Mike was trying to make is that's where we are starting to see some signs of stabilization.

As part of an important part of our global automotive business automotive as we talked about in the quarter had very good performance.

16% growth in the quarter outgrowing build rates.

And thats the broader core of our automotive business, our auto electrification businesses is growing even faster.

Andrew Obin: But as I said in my prepare to mark, I think we'll have to just watch how the holiday season plays out.

It's an important part it's had some impact but relatively small impact to this point again, we're watching it closely as we move ahead.

Andrew Obin: And just a follow up question on healthcare, you know, I appreciate that you guys are doing a lot of sort of, you know, sort of accounting, et cetera, et cetera. But, you know, you have done these separations in the past.

Got it.

Then you mentioned earlier in the prepared remarks, the back to school sales were weak can you quantify that just maybe year over year and then how does this set up for holiday sales with consumer being weak higher rates.

Andrew Obin: And I just a question I have. Any thoughts, you know, as Brian has joined the company, I know in the past, they've been headlines about health information system being separated. You know, I know there are other sort of businesses inside healthcare. Any thought about sort of maybe repositioning the portfolio as, you know, particularly as Brian came on board repositioning the portfolio for sort of futures, a standalone company.

What's the assumption there as well thank you Dan I, probably would point you back at some of the data out there about year over year spend back to school being down per student Theres, a number of metrics out there for us our category.

Broadly in consumer.

As exposed to that like shifting discretionary spend so that that continues to be part of the consumer story. So it wasn't.

Mike Roman: Thank you. Yeah, Andrew, going back to really, how did we think about the strategy to spin out healthcare? And one of the important questions was, do we see healthcare as a leading healthcare technology company, attractive shareholders with a great future? And that portfolio of businesses, the answer for us was yes. And that the best way to create that value was to stand it up as a standalone company. And the portfolio work we had done even over time as part of 3M positioned it to be a successful standalone company and each of the businesses played an important role there.

Back to school story only back to school was muted we didn't see the strong replenishment cycles.

We would have seen in a stronger back to school. So I think we confirm the data that's out there and as we look ahead. We are I would say, we're just looking at the uncertainty around what happens for the holiday season, as well and so we'll be monitoring that and again there is a broader story around consumer retail for us shifted spending from.

Discretionary products into areas like food and and I would say experienced kinds of spending that that trend is continue. So those are both underlying some of the performance that we saw in consumer in the quarter and how we're thinking about it into Q4.

Mike Roman: Now, it is going to be an independent company. It will have a new CEO and a board and they will, you know, they will develop a strategy for how they think about creating the greatest value driving growth for that business thinking about how to really manage that portfolio of businesses as they go forward. So we see it as being ready to stand forward as a leader and a really confident in the leadership level will take the company as standalone.

Thank you.

Our next question comes from the line of Steven Tusa with Jpmorgan. You May proceed with your question Hi.

Hi, good morning.

Morning, Steve.

Andrew Obin: Thank you so much.

Could you just give us just an update on the total expected now inflation kind of carryover for the year I know you mentioned it in the second quarter or is that unchanged relative to what you had said before I think it was like $150 million.

Joe Ritchie: Our next question comes from the line of Joe Ritchie with Goldman Sachs. You may proceed with your question. Thanks, good morning, everyone.

That changed no change Steve.

Monish Patolawala: Hey, can we start just on the restructuring the benefits and the push out a little bit of the expenses? Just, it seems like you're running ahead of schedule on the benefits. So I'd like to get any comments. I'll just start again as a reminder, Joe, that total benefits for this program over the peer of the program is $700 to $900 million with costs approximately of $700 to $900 million. And coming in, I'm going to ask you, what are the benefits for this program?

And then I.

I guess low single digits for the year on pricing. So that's kind of like a mid single digit volume decline.

That that kind of feels already recessionary things seem like very stable for you guys revenue wise.

How much of that negative 5% do you think is a function of destocking.

Versus trend line on demand and then just one last one for the fourth quarter, how much of that sequential sales decline are you expecting from electronics.

Seasonality.

Yes, so Steve maybe just thinking about the take the channel dynamic first.

If you want I would say when we look across the channel, where we're seeing some destocking as an industrial channels and that's really I think we've talked about that last quarter or two as supply chain performance has improved and stabilized.

Seeing the industrial channels shorten up their replenishment cycles, and so they're managing their inventory may be back to more normal levels.

Prior to when we got hit with some of the supply chain disruption. So that's the one destocking effect. There is some destocking in consumer that that played out the biggest part of that played out over the last year retailers are focused on.

Monish Patolawala: So the teams have done a really nice job of continuing to execute. There were multiple pieces to this program. One was corporate simplification. The second was streamlining our supply chain and third was making sure that we are closer to our customers in our business group units and all three of these programs are running well on track. As regards to just timing from Q3 to Q4, I would say nothing big. We operate in multiple countries as you know, and we wanted to make sure we follow all rules and regulations in those countries.

Heavily on taking out inventory that seems to have played out although there's some of that with the soft demand thats continuing so.

I would say the rest of it when I look across the channel otherwise its pretty stable globally, maybe some adjustments in China.

And some of those same markets as we continue to see the macro looking for where the macro goes as we go forward.

Monish Patolawala: And so some items drop from Q3 to Q4, and we had a couple of other small investments that we had to make in Q3 that just based on all the work the teams are doing, we just felt better to do it in Q4. So nothing major. So still pretty much largely on track 400 to 450 of benefits for the year and 700 to 900. Got it. Okay. Great. That's helpful.

Looking as we move ahead in electronics, you talked about stabilizing it's it's really.

Pointed out it is part of it is the year over year comp, we remember last year third and fourth quarter. We saw a decline in the electronics end markets and we saw that in our businesses. So that's part of the view that Q4 stabilizes at year over year comp gets a little more.

Monish Patolawala: And then I guess is, I know it's probably too early to think about 2024, but if you kind of think through like the price cost equation from here on out, it seems like raw materials are becoming less and less of a headwind for you guys. Can you maybe just provide any type of framework for 2024 and ultimately like how you think about both price and what you're seeing from a raw map perspective?

Little changes a little bit as we as we lap some of those earlier declines from the first half so I would say it.

Staying close to that holiday season, and what happens that's an important season for electronics.

And we will we will be watching that closely as we go into the quarter, Steve I would just add this.

Are you sorry go ahead I just wanted to add one more disposable respirators is down $600 million on a year over year basis, that's approximately 200 basis points of growth.

Monish Patolawala: So let's just start first Joe by 2024 is a little ways away. So I think our first focus is just getting Q4 done, getting the teams continuing to focus on our priorities. You've seen the what our teams have done. So we continue to execute on our priorities. You've seen we have delivered a solid Q3. We have taken guidance up for Q for the whole year, beginning momentum. And we want the team to continue to focus on doing that, getting 2020, we closed out.

So I'm, sorry, or are you assuming kind of normal sequential seasonal decline in electronics like yes, yes, okay.

In the broader business, we have seasonality some of that is normal and market cycles, but its also billing days as well we have the holiday season. So we see sequentially from Q3 to Q4, we see that normal normal trend right, which you've always had of course, alright. Thanks, guys I appreciate it.

Monish Patolawala: So when we get into 2024 and Q4, 2023 earnings call will definitely give you an update on 2020 to answer your question on deflation and price. I'll start with deflation. I'll start by saying, first of all, the headwinds that we have seen or the carryover headwinds are approximately 25 million in the quarter, which we called out. Which is very similar to Q2. Andrew, when you look at overall market and material, I would say we are seeing more disinflation than deflation.

Our next question comes from the line of Nigel Coe with Wolfe Research you May proceed with your question.

Hi, Good morning, guys, Hey, Nigel.

You can never have too many excellent question so.

Whats got my attention of electronics is the sequential growth from <unk> through to <unk> as being quite sharp I think <unk> was about 680.

You know I think <unk> 750, or so I mean, I know some of that seasonality et cetera, but it must give you a lot of confidence that as we go into 2020 full that at least in the first half of the year, we should be in a market that should be a nice tailwind.

Monish Patolawala: When you think about places where energy is still a little more, is still inflationary, downstream materials is still inflationary, and then labor is still sticky from an inflation perspective. Where we have seen some benefits is upstream chemicals and logistics and the teams have taken advantage of that. But I would say more importantly, I don't think the teams are just focused on material cost. They are more focused on saying how do we drive overall cost down in the factories, whether it is driving yield and efficiency, whether it is dual sourcing, whether it is making sure we have alternate materials, that's what Peter Gibbons and the team is working on.

To the business, so any any thoughts on that well.

Well, Nigel I would say, it's going to depend on the outlook as we get to 'twenty 'twenty four for electronics in those key end markets.

We're talking about it.

We've seen.

Maybe that's part of the stabilization that we're seeing is the quarterly trend in electronics.

Against that year over year comparable is stabilizing in the second half.

What will decide the performance in first quarter or first half of next year will really depend on the demand that we see in some of that will come through the holiday season, but we'll be we'll be we'll come back at our Q4 earnings call and update on how we're looking at the first half of next year.

Monish Patolawala: And the work that they have done through this year is clearly evident in the results that you're seeing. So that team has done a very nice job. And then it comes to price, I would tell you, we came into the quarter, into the year we said low single digits price increase. That's what we are as of right now. We are on track with pretty much the same range. And Joe, as you know, you followed 3M longer than I have.

Okay, that's great and then.

The only thing.

I assume macro questions necessarily but you will have a short cycle like channel centric.

Such PMI for the U S was at 50.

In October September October .

Monish Patolawala: This is not a formula based pricing. We are very thoughtful about it. We look at it, market by market, product by product, and we make sure that the price that we are charging our customers. Is a representation of the value that our customers get. And I would say if you leave 2024 aside for a moment, long term, 3M has always had a very good price cost equation, because of the value that we add to our customers. And I don't see that changing. And I believe that with the innovation that we bring with customer focus that we have, that equation remains.

Are you seeing.

Monish Patolawala: Thank you.

More stabilization or maybe some sequential improvement in the U S relative to Europe , and China, Yes, I think <unk> called out the performance in the U S. It was up slightly and in that I would say mixed performance.

And industrial businesses in the U S, reflecting some some areas of strength, but also some I would say caution and uncertainty around the broader economy. So I think we're seeing the U S performing.

A little better.

Slightly and that's I would say that's.

In spite of the challenges that we've been talking about in consumer retail so safety and industrial posted.

I think mid single digit growth in the U S and in the quarter. So that that's a good reflection on what we're seeing more broadly and maybe that PMI is.

Chris Schneider: Our next question comes from the line of Chris Schneider with UBS. You may proceed with your question. Thank you. You know, one thing that has really stood out to us over the last couple quarters is the underlying margin improvement of the business. Chris, if we ex out restructuring spend and savings, we see an operating margin on the underlying business of roughly 22%. This quarter, you know, first less than 21 in Q2 and like a mid 18s and a Q1. So a very strong ramp here.

<unk> aligned to that that PMI.

Represents kind of them.

Our middle kind of expectation from the purchasing managers just the only other thing Nigel I would add to Mike's comments is just.

In certain pockets, we are seeing customers managing inventory channel and part of it is supply chains are definitely far more stable. So customers have lower lead times. So they are managing that in pockets.

Okay great.

Monish Patolawala: Can you just talk about what's driving that? You know, outside of the restructuring, why is the underlying business seeing so much margin momentum? Thank you. So I would say first Chris, it's a huge thanks to the 3Mers who have been focused on their priorities. The priorities as Mike mentioned, driving performance across all of 3M, spinning out healthcare, reducing risk by managing litigation is all starting to show up in the results. To your point, even if you exclude out restructuring cost and benefits, the margin rate has shown a pretty good ramp.

Yeah.

Our last question comes from the line of Julian Mitchell with Barclays. Please proceed with your question.

Hi, good morning, Thanks for asking Julien.

Hey, one quick question I, just wanted to circle back on them.

Sort of pricing outlook as you see it because volumes have been soft for some time headline inflation in theories easing.

Traditionally you do have some price pressure in areas like electronics, just through nature of the industry.

Just wanted to sort of the comfort level was as you look into Q4 and early next year.

Monish Patolawala: And that's driven I would say by two or three things. One is continued execution in the supply chain with some of the restructuring that we have made and the supply chain is definitely more agile. We have also using a lot of data and data analytics. We have also learned through the pandemic on how to continue to operate our supply chain. So number one, you're starting to see the benefit of the improved yield and efficiency.

You can hold price kind of firm wide at least flat.

Three M and.

And whether there's been any change.

How you sort of go to market to push price just given the experience of inflation the last couple of years.

Yeah, Julian I would just say same thing that I said with another question before the way I would just say long term.

Monish Patolawala: You're able to take longer runs to as material gets better. Secondly, the team has been very thoughtful in proactive cost management to the extent where they saw they were places they could invest they have to the extent where we had lower volumes. We have managed to control cost third is we've had a relentless focus on working capital with inventory and you're seeing that from a cash conversion basis. So I would just say it's continued good strong operating performance that you're starting to see and then as you add on the benefits that you get from the restructuring and once the cost goes away, which we have said this program will take approximately two years to complete out.

<unk> has always been able to add value to its customers and that is reflected in the pricing that <unk> charges.

We look at this not based on just a formula, but we look at it market by market.

Look at our competitive position and market by market look at the value, we add and Thats, how we come up with a pricing that we go with and I would say based on the innovation and the value that we add to our customers long term I don't see that changing in the short run as you have seen the company has been able to manage.

Inflation through price and if needed we will continue doing that but overall right now the teams are quite focused on delivering the fourth quarter.

Monish Patolawala: You can see the overall long term benefit, from the margin rate that you're going to get from better operating performance as well as better restructuring benefit. At the same time, you've got to keep in mind that the teams are going to continue to watch this in the fourth quarter, it's an uncertain macro, but I'm very confident with what we're doing, that the execution is there, but there's always more we can do and we'll keep trying to drive more and more execution as we go.

And then we'll see where the long term goals. This topic it will be a function of demand a function of inflation.

So.

That's the way I look at it.

Understood. Thank you and then just to focus on a couple of markets within safety and industrial that I guess had been pretty strong in most of the sort of rhetoric is fairly strong around them, but organically.

You had a little bit of pressure.

Monish Patolawala: Thank you, I appreciate that, and maybe kind of taking that and bridging to the Q4 guide, you know, it seems to us by our math that, you know, you're, you're kind of guiding underlying operating margins, extra structuring to something like 19% down from, you know, the almost 22% this quarter. I know revenues down, but it seems to suggest a very sharp decremental. Can you just maybe talk about what's causing that margin step down because it feels like a lot of the improvements whether it's supply chain or price cost are sustainable.

Pressure at least or less growth in Q3.

And that's the electrical markets and also automotive after market. So just wanted it.

Any color around those in terms of is it just kind of accelerated destocking.

Distributors, just holding off on orders for some reason you know any color at all on also often market and electrical please yes, Julien I wouldn't we saw a little bit of Destocking in electrical markets that was one of the areas in industrial that we saw that impacting.

Monish Patolawala: Thank you. Yeah, Chris, I, you know, again, depends on the math. I'll just start with margin rates in total when we started the year or we came into the year, we had said margin rates for the year are going to be around 19%. At the end of Q2, we said margin rates are going between 19 and a half to 20% for the year. And now based on where we are, with the midpoint of our guide, our margin rate will be approximately 20%.

I would say our automotive aftermarket probably saw a little bit of adjustments given what we talked about even when I highlighted that improving supply chains.

Distribution in the channel are managing their inventories their safety stocks.

More in line with stable supply chain. So I think thats part of it goes up both been seen.

Seeing good market performance as we've gone through the year I think.

Again, we are watching closely the trends as we go into the end of the year, but really it's I think reflects on the a little bit of Destocking and also the end market demand.

Monish Patolawala: So when you back into it, the fourth quarter is higher than the 19 and a half that you have, it's somewhere in that 20 and a half to 21% for the fourth quarter. And just to keep in mind, the reason you see this decremental one is, of course, the restructuring is higher and Q4 versus Q3 plus it's higher off of, you know, the midpoint is 95 to 100 million of restructuring on a year over your basis.

Great. Thank you.

That concludes.

The question and answer portion of our conference call I will now turn the call back over to Mike Roman for some closing comments.

To wrap up we continue to execute our strategies delivering results in a challenging environment, while positioning <unk> for the future prioritizing high growth markets and geographies, where three of them innovation can deliver the most impact. Thank you for joining us.

Monish Patolawala: So if you're doing year over your decremental, the second piece to keep in mind is in general revenue in 3M drop from Q3 to Q4, you have less billing days or less business days in Q4. That's why revenue guide, which is going from 8 billion, it goes down to between 7, 6 and 7, 7, 7, which is basically saying the underlying macro trends are the same. It's just lower billing days or lower business days, which also puts an impact.

Ladies and gentlemen that does conclude the conference call for today, we thank you for your participation and we ask that you. Please disconnect your line.

Monish Patolawala: If you look at the history of 3M, Chris, and you look at Q3 to Q4, you will always see a pretty sharp decline from Q3 to Q4 and margin rate. And that's mainly driven by just the lower volume because of the less business days that come into Q4. Hopefully that answered your question. Thank you. I appreciate that.

Okay.

Uh huh.

Okay.

Yes.

Uh huh.

Yeah.

Yeah.

Yes.

Yeah.

Okay.

Okay.

Stephen Tusa: Our next question comes from the line of Andrew Capowitz with City. Please proceed with your question. Hey, good morning, us. Hey, Andy. Hi, Andy.

Uh huh.

Okay.

Okay.

Uh huh.

Uh huh.

Stephen Tusa: Somebody, I think, you know, in a conference of a month ago, you had lowered your revenue, that's a bad, and then you sort of report 8 billion, I think you had 7.98. So maybe you can talk about the cadence of revenues to the quarter. And any of your businesses pick up in September here in October, you're just being considered at the time. And then how are you thinking about the impact of higher rates on your business?

Sure.

Alright.

Okay.

Stephen Tusa: So I'll start by saying at that moment in time what we saw is what we told you all which we felt was in that 7-9-8, there was uncertainty in electronics, consumer and China. I would say thanks to all the focus the teams have on taking care of customers we were able to get to the high end of our range of 8 billion. I would say the same trends, Andy pretty much stayed through the quarter.

Stephen Tusa: For electronics pretty much was where we thought was going to be China continue to remain weak and so did consumer retail. As Mike mentioned and so have I in my prepared remarks, we are seeing electronics stabilizing. We are watching for the fourth quarter what the holiday trends will bring for consumer retail. Back to school was softer than we expected. And then China again, I would say is we are, you know, it's pretty much the trends we expected.

Stephen Tusa: In China, overall for the fourth quarter, you'll see us having revenue of 7-6 to 7-7, which is again just driven by the fact of less business days. On the other side, if you look at margin and you look at what the teams have done, the teams have continued to be very good on an operating execution perspective, we have continued to drive proactive cost control. We've done that in Q3 will continue to do that in Q4.

Stephen Tusa: And as a result, we were able to be able to. The 225 to 240 had said in that conference a few a month ago, and then we have raised totally a guide from 860 to 910 to 895 to 915. And then the other point, Andy, that's another bright spot is the cash conversion. The teams have done a marvelous job managing inventory. 130% free cash flow conversion and the third quarter, which is allowed us to raise our total year guide of free cash flow conversion from 200 to 110% from 90 to 100%. So overall, the team focused on operating execution.

Monish Patolawala: Moniche, if I can follow up on that, the cash conversion target raise, maybe talk about your efforts. I know you, when you came in, you talked about improving digitization of the company. It seems like your focus on digitization and inventory is having impact. So maybe you can talk about the confidence in generating higher cash conversion going forward from the ratio of these improvements as you go forward in 24 and beyond. Yeah, from the day of coming here, Andy, I've said working capital is a great opportunity for 3M.

Monish Patolawala: And you, through the pandemic, unfortunately, we had to build inventory levels. And most companies did just to make sure we took care of our customers. And our first priority was always to take care of our customers. So we made sure we had enough inventory. As two things, as supply chains are stabilizing, number one, but more importantly, the execution that the teams are doing using data and data analytics. And what I mean by that is not just going and using analytics, but being able to visualize by looking at data, they're able to see where the inventory is better.

Monish Patolawala: They are able to get a better demand signal, which allows them to get a better manufacturing signal, which allows them to get a better supply signal to their suppliers. And then the third piece is that all the work that we have done through the restructuring, where we have got the supply chain, streamlined and restructures for that it's more agile. All of that is playing itself out in the inventory that we're seeing.

Monish Patolawala: I would tell you, as I said in my prepared remarks, there's more to go here, there's more that we can keep driving in this space. And we are going to continue driving it because this is a great place where we can continue to generate very strong cash for 3M.

Operator: Appreciate all the color.

Dean Dray: Our next question comes from the line of Dean Dray with RBC Capital Markets. Please proceed with your question. Thank you. Good morning, everyone. Hi, Dean. What are you planning and assuming for the auto strike impact for Q? Yeah, Dean, so it's something we're watching very closely, as you know, we are very close with the automotive OEMs, our key customers there. You know, we are, you know, we haven't seen a significant impact on our business to date and we continue to watch it closely.

Dean Dray: We're staying connected on what happens week to week and impacting our demand, but it's something that, you know, as part of important part of our global automotive business, the automotive as we talked about in the quarter had very good performance. We at 16% growth in the quarter, out growing build rate. And that's, you know, the broader core of our automotive business, our auto electrification businesses is growing even faster. So it's an important part.

Dean Dray: It's had some impact, but relatively small impact to this point. Again, we're watching closely as we move ahead. Got it. And then you mentioned earlier in the prepared remarks that back to school sales were weak. Can you quantify that just maybe year over year? And then how does this set up for holiday sales? You know, with the consumer being weak, higher rates, what's the assumption there as well? Thank you. Yeah, Dean, I probably would point you back at some of the data out there about year over year spend, you know, back to school being down per student.

Dean Dray: There's a there's a number of metrics out there for us. You know, our category, you know, broadly in consumer is exposed to like shifting discretionary spend. So that that continues to be part of the consumer story. So it wasn't a back to school story only back to school was muted. We didn't see the strong replenishment cycles that we would have seen in a stronger back to school. So I think we confirm the data that's out there.

Dean Dray: And as we look ahead, we're, I would say we're just looking at the uncertainty around what happens for the holiday season as well. And so we'll be monitoring that. And again, there's a broader story around consumer retail for us. The shift of spending from discretionary products into areas like food and, and I would say experience kinds of spending that that trend is, you know, continues. So those are both underlying some of the performance that we saw on consumer in the quarter and how we're thinking about it into Q4. Thank you.

Dean Dray: Our next question comes from the line of Stephen Tusa with JP Morgan. You may proceed with your question. Hi, good morning. Hi, Steve. Can you just give a just an update on the total expected now inflation kind of carry over for the year? I know you mentioned it in the second quarter. Is that unchanged, Ralph? What you said before? I think it was like 150 million. Maybe that changed. No, it's changed.

Dean Dray: Okay, and then I guess low single digits for the year on pricing, so that's kind of like a mid-single digit volume decline. That kind of feels already recessionary. Things seem like very stable for you guys, revenue wise. How much of that negative 5% do you think is a function of destocking versus trendline on demand, and then just one last one for the fourth quarter? How much of that? Sequential sales decline, are you expecting from electronics seasonality?

Stephen Tusa: Yeah, so Steve, I maybe just thinking about take the channel dynamic first if you want. I would say when we look across the channel where we're seeing some destocking as in industrial channels, and that's really, I think we talked about that last quarter too, as supply chain performance has improved and stabilized. We're seeing the industrial channels shorten up their replenishment cycles, and so they're managing their inventory maybe back to more normal levels, you know, prior to when we got hit with some of the supply chain disruption, so that's the one destocking effect.

Stephen Tusa: There is some destocking and consumer that that played out the biggest part of that played out over the last year. Retailers focused pretty heavily on taking out inventory. That seems to have played out, although there's some of that with a soft demand that's continuing. So it's a I would say that the rest of it when I look across the channel, otherwise it's pretty stable globally, maybe some adjustments in China in some of those same markets as we continue to see the macro looking for where the macro goes as we go forward.

Stephen Tusa: Looking as we move ahead electronics, you talked about stabilizing. It's really when it pointed out it's part of it's a year over your comp. We remember last year, third and fourth quarter, we saw a decline in the electronics and markets, and we saw that in our businesses. So that's part of the view that Q4 stabilizes that year over your comp gets a little more, a little changes a little bit as we as we lap some of those earlier declines from the first half.

Stephen Tusa: So I would say we're staying close to that holiday season and what happens that's an important season for electronics and we'll be watching that closely as we go into the quarter. I just wanted to add one more disposable respirators and down 600 million on a year over your basis. That's approximately 200 basis points of growth. Right. So sorry, are you assuming kind of normal sequential seasonal decline in electronics? Yes, you are.

Stephen Tusa: In the broader business, we have seasonality, some of that is normal and market cycles, but it's also billing days as well. We have the holiday season, so we see sequentially from Q3 to Q4, we see that normal trend. Which you've always had, of course.

Stephen Tusa: Thanks, guys. Appreciate it.

Nigel Coe: Our next question comes from the 9 of Nigel Cole with Wolf. Research you may proceed with your question. Hi, good morning, guys. Hey, Nigel. So you can have a timidly autonomous question. So what's got my attention about electronics is the sequential growth from 1Q through to 3Q is being quite sharp. I think 1Q is about 680. I think 3Q is about 750 or so. I mean, I know some of it sees now, etc.

Nigel Coe: But it must give you a lot of confidence that as we go into 2024, that at least in the first half of the year, we should be a nice tailwind, to the business. Any thoughts on that? Well, Nigel, I would say it's going to depend on the outlook as we get to 2024 for electronics and those key on markets that you're talking about it. And we've seen, you know, maybe that's part of the stabilization that we're seeing as the quarterly trend in electronics and against that year where you're comparable is stabilizing the second half.

Nigel Coe: What will decide the performance in first quarter? Our first half next year will really depend on the demand that we see and some of that will come through the holiday season, but we'll be we'll be we'll come back at our two for earnings, calling up data on how we're looking at the first half of next year. Okay, that's great.

Nigel Coe: And then I don't like to ask, you know, I said macro questions, that's very, but, you know, you are a short cycle, very channel centric. The flashlight, the flash PMI for the US was at 50 in October, October, yeah, October. Are you seeing more stabilization, or maybe some sequential improvement in the US relative to, you know, Europe and China? Yeah, I think, you know, Monish called out the performance in the US, you know, it was up slightly.

Nigel Coe: And, and that I would say, mix performance in our industrial businesses in the US and reflecting, you know, some, some areas of strength, but also some, I would say caution and certainly around the broader economy. So I, I think we're seeing the US performing. You know, a little better up, you know, up slightly. And that's, I would say that's in spite of the challenges that we've been talking about in consumer retail.

Nigel Coe: So safety and industrial posted. I think mid single digit growth in the US in the quarter. So that that's a good reflection on what we're seeing more broadly. And maybe that PMI is aligned to that PMI represents kind of a, you know, a middle kind of expectation from the purchasing managers. Just only other thing that I'd love to write to Mike's comments is just in certain pockets, we are seeing customers managing inventory channel. And part of it is supply chains are definitely far more stable. So customers have lower lead time. So they're managing that. So in pockets. Okay, great.

Julian Mitchell: Our last question comes from the line of Julian Mitchell with Barclays. Please proceed with your question. Hi, good morning. Thanks for your knowing. Hey, one quick question. I just want to circle back on, you know, your sort of pricing outlook as you see it. Because volumes have been soft for some time, you know, headline inflation in theories easing. And, you know, traditionally, you do have price pressure in areas like electronics just to nature of the industry.

Julian Mitchell: Just want to sort of what the comfort level was as you look, you know, into queue for an early next year that you can hold price, you know, kind of firm wide at least flat at 3M. And whether there's been any change in how you sort of go to market to push price, just given the experience of inflation the last couple of years. Yeah, Julian, I would just say the same thing that I said with another question before the way I would just say long term.

Julian Mitchell: C.M, has always been able to add value to its customers and that is reflected in the pricing that it charges. We look at this not based on just a formula but we look at it market by market, look at our competitive position and market by market, look at the value we add and that's how we come up with our pricing that we go with and I would say based on the innovation and the value that we add to our customers, long term I don't see that changing.

Julian Mitchell: In the short run as you have seen the company has been able to manage inflation through price and if needed we'll continue doing that but overall right now the teams are quite focused on delivering the fourth quarter and then we'll see where long term goes this topic it will be a function of demand or function of inflation and so that's the way I look at that. Understood, thank you and then just to focus on a couple of markets within safety and industrial that I guess had been you know pretty strong and most of the sort of rhetoric is fairly strong around them but organically you know you have a little bit of pressure at least or less growth in Q3 and that's the electrical markets and also automotive after market.

Julian Mitchell: So just wondered you know any color around those in terms of is it just kind of accelerated destocking you know distributors just holding off on orders for some reason you know any color at all on also after market and electrical please. Yeah Julian I wouldn't we saw a little bit of destocking in electrical markets that was one of the areas in industrial that we saw that impacting and I would say our automotive after market probably saw a little bit of you know adjustments given what we talked about even when I highlighted that you know improving supply chains with you know distribution in the channel are managing their their inventories their safety stocks a more in line with stable supply chain so I think that's part of it.

Julian Mitchell: Those have both been seeing good market performance as we've gone through the year I think you know well again we're watching closely the trends as we go into the end of the year but really it's I think reflects on the little bit of destocking and also the end market demand. Great thank you.

Mike Roman: That concludes the question and answer portion of our conference call I will now turn the call back over to Mike Roman for some closing comments. To wrap up we continue to execute our strategies delivering results in a challenging environment oppositioning 3M for the future prioritizing high growth markets and geographies where 3M innovation can deliver the most impact thank you for joining us.

Operator: Ladies and gentlemen that does conclude the conference call for today we thank you for your participation and we ask that you please disconnect your line.

Operator: Thank you very much.