Q4 2023 3M Co Earnings Call

Ladies and gentlemen, thank you for standing by welcome to the three fourth 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 January 23rd 2024.

Bruce Lynn: I would now like to turn the call over to Bruce German Lynn.

Bruce Lynn: Senior Vice President of Investor Relations at three P M.

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

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

Speaker Change: They're more niche potala Wallach, our president and Chief Financial Officer.

Speaker Change: Mike ammonia ish will make some formal comments and then we'll take your questions.

Mike Ammon: Please note that today's earnings release and slide presentation accompanying this call are posted on the homepage of our Investor Relations website.

At three a M dot com.

Mike Ammon: Please turn to slide two.

Mike Ammon: Please take a moment to read the forward looking statement.

During today's conference call, we'll be making certain predictive statements that reflect our current views about <unk> future performance and financial results.

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

Mike Ammon: Item one a of our most recent Form 10-Q lists some of the most important risk factors that could cause actual results to differ from our predictions.

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

Mike Ammon: Reconciliations of the non-GAAP measures can be found in the attachments to today's press release.

Mike Ammon: Please turn to slide three.

Speaker Change: During today's presentation, Mike and more niche will discuss our 2020 for outlook.

Speaker Change: This outlook will be provided on the same adjusted basis used during 2023.

Speaker Change: In the coming months, there are significant milestones that the company expects to complete including the spin of the health care business and the Finalization of the public water supplier and combat arms legal settlements.

Speaker Change: The health care spend remains on track for the first half of 2024 subject to customary closing conditions as detailed in our SEC filings.

Speaker Change: We continue to expect the business to be spun off with an estimated net leverage of three to three and a half times EBITDA and with the proceeds would be distributed to three M. Prior to the completion of the spin.

Speaker Change: We are working through the processes with all parties in the courts in both the public water supplier and combat arms Earplug legal settlements.

Speaker Change: Our goal is or Finalization and ultimate implementation.

Speaker Change: Absent the proceeds from the intended spin off of the health care business. The company has not concluded how it would fund amounts due under the public water supplier and combat arms Earplug legal settlements.

Therefore, we have not included the potential impacts of changes in net debt that may be needed to fund amounts under these agreements.

Speaker Change: For illustrative purposes, only and the absence of the proceeds from the spin.

Speaker Change: Adjusted earnings per share impact from financing legal settlements could be up to approximately <unk> 20 per share headwind based on current market conditions.

Speaker Change: Also please note that we will be treating to dilutive earnings impact of three EMS option.

Speaker Change: To satisfy the $1 billion in payments related to the combat arms Earplugs settlement with three M shares as an adjustment in arriving at results adjusted for special items.

Speaker Change: Finally, it is important to know that when considering three on financials post spin. It is not appropriate just simply remove the health care business financial results.

Speaker Change: There are other factors such as transition services agreements stranded cost and below the line items that need to be taken into account.

Speaker Change: We are planning on holding an investor meeting later this year following the spin of health care, where we will provide an update to our full year 2024 guidance along with our medium term financial framework with that please turn to slide four and I'll now hand, the call off to Mike Mike.

Mike: Thank you Bruce good morning, everyone and thank you for joining US three of them delivered a strong fourth quarter as we continued to improve our operational performance.

Mike: With adjusted EPS growth of 11%.

Mike: Operating margin expansion of 180 basis points and robust cash flow.

Speaker Change: <unk> will cover more details of the quarter, but first I would like to comment on our full year performance.

Speaker Change: Throughout 2023, we delivered on our commitments with results that exceeded our original earnings and cash flow guidance.

Speaker Change: While organic sales declined 3%, reflecting softness in certain end markets, including consumer retail and electronics, our disciplined execution supported year over year adjusted margin expansion is.

Speaker Change: Excluding restructuring we delivered increased margins of 60 basis points.

Speaker Change: Helping drive earnings of $9 24 per share.

Speaker Change: Along with a 30% increase in free cash flow and a conversion rate of 123%.

Speaker Change: Our strong cash flow enabled us to continue investing in the business, while reducing net debt by $2 billion or 17%.

Speaker Change: And returning $3 $3 billion to shareholders through our dividend. Please.

Speaker Change: Please turn to slide five.

Speaker Change: As you recall in January of last year, we committed to take a deeper look at everything we do.

Speaker Change: Our success in 2023 reflects that commitment along with our execution of three strategic priorities, which are unlocking value for customers and shareholders, both today and into the future.

Speaker Change: Let me highlight key achievements in these areas, including how we will build on our progress in 2024.

Speaker Change: Starting with driving performance through the three of them model.

Speaker Change: In 2023, we implemented the most significant restructuring and three of them history to streamline the organization reduce costs at the center and get us closer to our customers, which generated more than $400 million in savings during the year.

Speaker Change: These efforts included aggressively cutting management layers, reducing corporate shared services and modernizing our technology by removing hundreds of legacy systems.

Speaker Change: We reduced rooftops worldwide and took actions to help us address stranded costs as we progress the health care spend.

Speaker Change: We simplified our supply chains and are doing more to leverage data and data analytics Division lies the flow of goods. So we can serve customers more efficiently.

Speaker Change: We optimized our global go to market models for each of our business groups.

Speaker Change: In consumer for example, we simplified our division structure with each of our global area teams now better aligned around their prioritize product portfolios and brands.

At the same time, we have transitioned to an export led model and approximately 30 smaller countries around the world.

Speaker Change: Allowing us to reduce costs and complexity, while still bringing three of them innovation to local customers.

Speaker Change: The simplification of our organization also frees up resources to prioritize exciting growth opportunities for three such as automotive electrification climate technology and industrial automation.

Speaker Change: Well, we have more work to do in 2024, our actions are helping us improve our operational performance and create a more competitive three of them.

Our next priority is the spin off of Salt anthem, our health care business.

Speaker Change: Last year, we appointed experienced health care leaders to solve anthem, including Bryan Hanson CEO, Carrie Cox as board chair and weighed Mcmillan as CFO.

Speaker Change: The spin is on track to be completed in the first half of this year and we are confident in the value it will create for customers care providers patients and shareholders.

Speaker Change: As we look to 2024, we will continue to optimize our portfolio as we prioritize geographies markets and products, where we see the greatest opportunity.

Speaker Change: Finally, we are focused on addressing risk and uncertainty.

Speaker Change: The combat arms settlement, we announced last August has received strong support from both claimants and the broader military community.

Speaker Change: We completed the first three milestones of the settlement as planned.

Speaker Change: Including earlier this month, when we reached agreement with all plaintiffs who were being prepared for trial.

We will continue to work with all parties in the courts to fully implement the settlement.

Speaker Change: With respect to PFS, our settlement with public water suppliers is on track for the final approval hearing scheduled for February 2nd.

Speaker Change: We will continue to address other PFS litigation by defending ourselves in court or through negotiated resolutions as appropriate.

Speaker Change: We also remain on schedule to exit all P fast manufacturing by the end of 2025.

With production volumes down 20%.

Speaker Change: Looking back in a year full of change I'm pleased how three hours around the world stepped up to lead.

Speaker Change: Importantly, we stayed relentlessly focused on doing what three of them does best using materials science to make a difference in the world.

Speaker Change: I see exciting examples of innovation across our company.

Speaker Change: Earlier this month, we unveiled the world's first solar powered communications headset.

Speaker Change: Building on our decades of leadership in both personal safety and sustainability.

Speaker Change: We are advancing more durable energy efficient and connected vehicles with an array of solutions.

Including new thermal barrier materials that improve the range and safety of electric car batteries.

Speaker Change: One element of our automotive electrification program, which grew 30% in 2023 on top of 30% growth in 2022.

Speaker Change: Our medical solutions business, a world leader in advanced wound care, just announced a partnership with the U S Army, where we will collaborate with the military and leading universities to develop traumatic wounds solutions.

Speaker Change: And in consumer last year, we launched more than a dozen new products, including new solutions for heavyweight hanging.

Speaker Change: Part of our half a billion dollar command franchise, which Leverages our world class Adhesives technology.

Speaker Change: Three <unk> innovation engine is strong it will remain the heart of our business and our ability to deliver differentiated value for our customers.

Speaker Change: In summary, the three M team delivered a successful 2023 and I am confident we will accelerate our progress in the coming year.

Speaker Change: I will come back to talk about our 2024 priorities and guidance. After munition takes you through the details of the fourth quarter Monish.

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

Monish: Please turn to slide six.

Monish: The fourth quarter culminated a year, where we took significant steps to improve our operational execution, resulting in better financial performance, we aggressively controlled spending and initiated restructuring actions to simplify our supply chains reduce structure and streamline our go to market models.

Monish: Better serve customers.

Monish: At the same time, we continued preparing for the successful spin off of our health care business and work to reduce risks and uncertainties related to legal matters.

Monish: While there is more to do our team has made tremendous progress in 2023 that'd be built upon in 2024 and beyond.

Monish: Looking at fourth quarter performance adjusted sales were $7 $7 billion at the high end of our guidance.

Monish: End markets continue to play out as anticipated.

Monish: Notably the auto OEM market remained strong in the fourth quarter and we saw signs of end market stabilization in consumer electronics.

Monish: As expected China in consumer retail end markets continued to be soft.

Monish: Organic sales on an adjusted basis declined one 4% versus last year.

Monish: The expected decline in demand for disposable respirator negatively impacted organic growth by 60 basis points of $50 million.

Monish: Excluding this impact Q4, adjusted organic sales were down 80 basis points.

Monish: Adjusted operating margins were 29%.

Monish: Up 180 basis points year on year or up 320 basis points, excluding the impact of restructuring charges.

Monish: Adjusted earnings were $2.42 up 11% year on year.

Monish: What does that guidance fourth quarter earnings were benefited by six cents due to a lower than expected tax rate, which was partially offset by the acceleration of restructuring actions, which impacted earnings by approximately <unk> <unk>.

Monish: And finally fourth quarter adjusted free cash flow was $2 billion up 18% year on year.

Monish: For the full year, we delivered $6 $3 billion in adjusted free cash flow what does than originally expected range a full point to the $5 billion at the start of the year.

Monish: Please turn to slide seven for a recap of the components that drove our year on year operating margin and earnings performance.

Monish: Benefits from manufacturing productivity sourcing actions restructuring strong spending discipline and selling prices more than offset headwinds from lower sales volumes investments in the business and last year's disposable respirator sales comparison.

Monish: This net benefit drove a year on year expansion in Q4 operating margins of 400 basis points and earnings per share of 43 cents per share.

Monish: Pre tax restructuring and related charges in the quarter were $109 million or a negative impact of margins of 140 basis points and 17 cents to earnings.

Monish: Raw material logistics and energy cost inflation was a slight year on year headwind of 10 basis points to operating margins, our minus one cent to adjusted earnings per share.

Monish: Foreign currency translation was a negative 70 basis points impact to adjusted operating margins of negative seven cents per share.

Monish: This result was primarily due to the net impact of hedging and the devaluation of the Argentinian peso.

Monish: As previously.

Monish: Lee mentioned, our adjusted tax rate was lower than expected coming in at 14, 9%.

This compared to 16, 6% in last year's fourth quarter.

Monish: Routing and a five cent benefit to earnings.

Monish: And finally, other financial items and shares outstanding netted to a positive one cents per share year on year impact.

Monish: Please turn to slide eight.

Monish: Fourth quarter adjusted free cash flow was $2 billion up 18% year on year with conversion of 145% up 800 basis points versus last year's Q4.

Monish: Our ongoing focus on working capital management, especially inventory continues to yield results.

Monish: Inventory was down $550 million year on year and is now at 14, 8% of sales.

Monish: 90 basis points improvement year on year.

Monish: I am pleased with the progress to date and see significant opportunity to further improve performance in all aspects of working capital.

Monish: Adjusted capital expenditures were $308 million down 32% versus last year's up normally high fourth quarter.

Monish: For the year, we invested over $1 $4 billion versus an expected range of one three to $1 5 billion.

Monish: And finally, we returned $828 million to shareholders via dividends during the quarter.

Monish: Turning to the balance sheet net debt at the end of Q4 stood at $10 billion, a decline of $2 billion, a year on year or 17%.

Monish: Three of them continues to be a reliable and robust cash generator.

Monish: In addition, the upcoming spin of our health care business will further strengthen our balance sheet.

Monish: As Bruce mentioned, we anticipate receiving a one time dividend from solvent them at an initial leverage of three to three five times EBITDA.

Monish: We will also retain a 19, 9% equity stake, which will provide additional liquidity.

Monish: 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.

Monish: Now please turn to slide 10 for a discussion on our business group performance.

Monish: Starting with our safety and industrial business, which posted sales of $2 7 billion down three 9% organically.

Monish: The expected decline in demand for disposable respirators was a headwind of approximately $50 million negatively impacting segment organic growth by 160 basis points.

Monish: Organic growth was led by a double digit increase in roofing granules, while industrial adhesives and tapes was flat while all other businesses declined.

Monish: Geographically core industrial markets in the United States, but relatively strong while China remained weak.

Monish: Our businesses were impacted by a reduction in channel inventory towards the end of the quarter, particularly in the greater China and EMEA regions as channel partners manage cash in a cautious as we enter 2024.

Monish: Adjusted operating income was $524 million down 6% versus last year.

Ladies and gentlemen, thank you for standing by. Welcome to the 3M Fourth Quarter Earnings Conference Call. During the presentation, all participants will be in a listen-only mode.

Monish: Adjusted operating margins were 19, 7%.

Monish: Down 70 basis points year on year.

Monish: This decline was driven by lower sales volumes, which was partially offset by benefits from restructuring pricing and strong spending discipline.

Afterward, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone keypad. It is recommended that you use a landline phone if you want to register for a question.

Monish: Moving to transportation and electronics, which posted sales of $1 $8 billion are up two 7% organically.

Monish: Our auto OEM business continued to perform well and increased 13% versus a 9% increase in global car and light truck builds.

As a reminder, this conference is being recorded Tuesday, January 23rd, 2024. I would now like to turn the call over to Bruce Jermeland, Senior Vice President of Investor Relations, at 3 a.m. Thank you, and good morning everyone, and welcome to our fourth quarter earnings conference call. With me today are Mike Roman, TRAMS Chairman and Chief Executive Officer, and Monish Patolawala, our president and chief financial officer.

Monish: The electronics business was flat organically year on year as demand for consumer electronic devices began to stabilize while semiconductor remains soft.

Monish: We continue to closely monitor these trends and are well positioned to grow with our customers in these large and important end markets.

Monish: Looking at the rest of transportation and electronics.

Monish: Advanced materials grew organically high single digits.

Monish: Commercial solutions grew low single digits and transportation safety declined low single digits.

Bruce Jermeland: 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 accompanying this call are posted on the home page of our investor relations website, at 3M.com. Please turn to slide two.

Monish: Transportation and electronics delivered $370 million and adjusted operating income up 28% year on year.

Monish: Adjusted operating margins were 29% up 380 basis points versus Q4 last year.

Bruce Jermeland: Please take a moment to read this forward-looking statement. During today's conference call, we'll be making certain predictive statements 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 uncertainty. Item 1A of our most recent Form 10-Q lists some of the most important risk factors that could cause X's results to differ from our prediction.

Monish: The team achieved this result through restructuring actions pricing and strong spending discipline.

Monish: Turning to our healthcare business Q4 sales were $2 billion or down 1% organically versus last year.

Monish: Sales in our medical solutions business grew low single digits organically, while separation and purification and oral care or are both down low single digits.

Monish: Health information systems organic sales decreased high single digits.

Bruce Jermeland: 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 attachments to today's press release. For more information, visit www.fema.gov. Please turn to slide three.

Monish: Looking at the year, our businesses within healthcare continued to see lingering COVID-19 related impacts full.

Full year organic growth in health care was approximately 1% with both medical solutions and oral care posting positive low single digit growth, while health information systems, and separation and purification, but both down low single digits.

Bruce Jermeland: During today's presentation, Mike and Monish will discuss our 2024 outlook. This outlook will be provided on the same adjusted basis used during 2023. In the coming months, there are significant milestones that the company expects to complete, including the spin-off of the healthcare business and the finalization of the public water supplier and combat arms legal settlement. The healthcare spend remains on track for the first half of 2024, subject to customary closing conditions, as detailed in our SEC filing. We continue to expect the business to be spun off with an estimated net leverage of 3 to 3.5 times EBITDA and with the proceeds to be distributed to 3M prior to the completion of the spin. We are working through the processes with all parties and the courts in both the public water supplier and combat arms earplug legal settlement.

Monish: Healthcare's fourth quarter operating income was $372 million down 10% year on year.

Monish: Operating margins were 18, 3% or down one nine percentage points with adjusted EBITDA margins of 26%.

Monish: You're on your adjusted operating margins were impacted by lower sales volumes, along with added costs associated with the pending spin.

Monish: Lastly, the consumer business posted fourth quarter sales of $1 $2 billion.

Organic sales declined two 2% year on year.

Monish: Home improvement increased low single digits organically, while home health and auto declined low single digits, and stationery and office declined high single digits.

Monish: Geographically organic growth was down slightly in the U S. While EMEA was down mid single digits and Asia Pacific declined low double digits.

Bruce Jermeland: Our goal is their finalization and ultimate implementation. Absent the proceeds from the intended spinoff of the healthcare business, the company has not concluded how it would fund amounts due under the public water supplier and combat arms earplug legal settlement. Therefore, we have not included the potential impacts of changes in net debt that may be needed to fund amounts under these agreements.

Monish: Consumers fourth quarter operating income of $221 million up 4% compared to last year.

Monish: With operating margins of 18% up 100 basis points year on year.

Monish: The improvement in operating margins was driven by benefits from restructuring actions.

Monish: Portfolio optimization strong spending discipline and productivity actions.

Speaker Change: Before I turn it back to Mike for him to discuss outlook for 2024, I wanted to take a moment to reflect on our 2023 total company performance.

Bruce Jermeland: For illustrative purposes only, in the absence of the proceeds from the spin, the adjusted earnings per share impact from financing legal settlements could be up to approximately a twenty cent per share headwind based on current market conditions. Also, please note that we will be treating the dilutive earnings impact of 3M's options to satisfy the $1 billion in payments related to the Combat Arms Earplug Settlement with 3M shares as an adjustment in arriving at results adjusted for special items. Finally, it is important to note that when considering 3M's financials post-spin, it is not appropriate to simply remove the health care business financial results. There are other factors, such as transition services agreements, stranded costs, and below-the-line items, that need to be taken into account. We are planning on holding an investor meeting later this year, following the spin-off from health care, where we will provide an update to our full year 2024 guidance, along with our medium-term financial framework. With that, please turn to slide four, and I'll now hand the call off to Mike. Mike.

As the year progressed, we made strong improvements in adjusted operating margin.

Speaker Change: For reference slide 23 in the appendix provides a quarterly adjusted operating margin recalls for the year.

Speaker Change: As you can see we delivered significant improvement in performance, particularly when setting aside the impact from restructuring charges.

Speaker Change: Please turn to slide 12, and I will now turn the call back over to Mike Mike.

Mike: Thank you Monish, we are entering 2024 with strong momentum from our strategic priorities as we build on the actions taken in 2023.

Mike: We will remain focused on improving operational performance as we progress our restructuring, while driving even greater supply chain productivity and inventory reductions.

Mike: These represent significant opportunities to deliver sustainable margin and cash flow expansion in 2024.

Mike: We will also further accelerate efforts to optimize our portfolio, which has been an ongoing strategy for three of them.

Mike: In addition to finalizing the healthcare spin we will continue implementing our geographic prioritization strategy.

Michael F. Roman: Thank you, Bruce. Good morning, everyone, and thank you for joining us. 3M delivered a strong fourth quarter as we continued to improve our operational performance, with adjusted EPS growth of 11%, operating margin expansion of 180 basis points, and robust cash flow. Monish will cover more details of the quarter, but first, I would like to comment on our full year performance. Throughout 2023, we delivered on our commitments with results that exceeded our original earnings and cash flow guidance. However, organic sales declined three percent, reflecting softness in certain end markets, including consumer retail and electronics.

Mike: We will also step up our efforts to prioritize our product portfolios based on market potential right to wind supply chain complexity margins and returns.

Mike: For example, in our consumer business, we have identified approximately 5% of the portfolio, where we have limited market growth and a poor right to win.

While exiting these portfolios will impact consumers growth rate in the near term. These actions will better focus our efforts on products that best utilize three I'm invention, and ultimately drive improved growth and margins in the long term.

Michael F. Roman: Our disciplined execution supported year-over-year adjusted margin expansion. Excluding restructuring, we delivered increased margins of 60 basis points, helping drive earnings of $9.24 per share, along with a 30% increase in free cash flow and a conversion rate of 123%. Our strong cash flow enabled us to continue investing in the business while reducing that debt by $2 billion, or 17%, and returning $3.3 billion to shareholders through our dividends. Please turn to slide five. As you recall, in January of last year, we committed to take a deeper look at everything we do. Our success in 2023 reflects that commitment, along with our execution of three strategic priorities that are unlocking value for customers and shareholders, both today and into the future. Let me highlight key achievements in these areas, including how we will build on our progress in 2024, starting with driving performance through the 3M model.

Mike: At the same time three M succeeds across market cycles, because we remain close to customers and invest in innovation.

Mike: We will continue to invest in R&D and capital expenditures innate.

Mike: Enabling us to win in our core and also in new attractive markets, where three of them can make a difference.

Mike: Finally, we will stay focused on reducing risk and uncertainty by proactively and effectively managing litigation, including finalizing legal settlements.

Mike: Will advance the ramp down of P fast manufacturing, while continuing to make progress on our sustainability goals.

Mike: In 2024 for example, we expect to complete the investments in state of the art water filtration technology across our chemical manufacturing sites.

Mike: Please turn to slide 13.

Mike: Based on these focus areas along with the macroeconomic outlook, we are laying out our guidance for 2024.

We expect the execution of our priorities to support the strengthening of our competitive position continued underlying margin improvement and strong cash flows as we aggressively manage working capital.

Michael F. Roman: In 2023, we implemented the most significant restructuring in 3M history to streamline the organization, reduce costs at the center, and get us closer to our customers, which generated more than $400 million in savings during the year. These efforts included aggressively cutting management layers, reducing corporate shared services, and modernizing our technology by removing hundreds of legacy systems. We reduced rooftops worldwide and took actions to help us address stranded costs as we progressed the healthcare spin.

Mike: As we start 2020 for the macro environment remains muted.

Mike: Similar to what we saw in the fourth quarter.

Mike: On an adjusted basis, we anticipate organic full year growth of flat to plus 2%.

Mike: Excluding the impact from geographic prioritization and portfolio actions, we expect organic growth of 1% to 3%.

Mike: With respect to EPS, we anticipate earnings of $9 35.

Mike: The $9 75 per share.

Michael F. Roman: We simplified our supply chains and are doing more to leverage data and data analytics to visualize the flow of goods so we can serve customers more efficiently. We optimized our global go-to-market models for each of our business groups. In Consumer, for example, we simplified our division structure with each of our global area teams now better aligned around their prioritized product portfolios and brands. At the same time, we have transitioned to an export-led model in approximately 30 smaller countries around the world, allowing us to reduce costs and complexity while still bringing 3M innovation to local customers. The simplification of our organization also frees up resources to prioritize exciting growth opportunities for 3M, such as automotive electrification, climate technology, and industrial automation. While we have more work to do in 2024, our actions are helping us improve our operational performance and create a more competitive 3M. Our next priority is the spin-off of Solventum, our healthcare business. Last year, we appointed experienced healthcare leaders to Salventum, including Brian Hansen as CEO, Kerry Cox as Board Chair, and Wade McMillan as CFO.

Mike: We expect continued strong margin expansion along with another year of strong cash flow.

Mike: With an adjusted conversion rate of 95% to 105%.

Speaker Change: As Bruce noted following the completion of the healthcare spin, we will host an investor meeting and provide strategic updates along with updated guidance for three of them.

Speaker Change: As always underpinning our success will be the strengths of three of them.

Speaker Change: Our industry, leading materials science advanced manufacturing global capabilities and iconic brands.

Speaker Change: Along with some of the best and brightest people around the world.

Speaker Change: Before I turn it back to more niche, let me repeat a few important points.

Speaker Change: As I look across three M 2023 was a pivotal year for our enterprise.

Speaker Change: We executed our plans and delivered on our commitment to exit the year stronger leaner and more focused.

We improved our operational performance advanced the spinoff of solvent them and address risk and uncertainty I am proud of everything we accomplished in 2023 and equally excited about the year ahead.

Speaker Change: We are in excellent position to build on our progress continue to improve our operational performance and deliver another successful year.

Michael F. Roman: The SPIN is on track to be completed in the first half of this year, and we are confident in the value it will create for customers, care providers, patients, and shareholders. As we look to 2024, we will continue to optimize our portfolio as we prioritize geographies, markets, and products where we see the greatest opportunity. Finally, we are focused on addressing risk and uncertainty. The Combat Arms Settlement we announced last August has received strong support from both claimants and the broader military community.

Speaker Change: I think all three ml for their dedication and for everything they do for our company.

Speaker Change: I will now turn it over to more niche for more details on our guidance Monish.

Thanks, Mike Please turn to slide 14.

Monish: As Mike highlighted we expect another year of strong execution on our priorities, including strengthening our competitive position.

Monish: Continued margin improvement and robust cash flows as we aggressively manage working capital.

Let's now look at our 2020 for expected performance for our business segments.

Michael F. Roman: We completed the first three milestones of the settlement as planned, including earlier this month when we reached agreement with all plaintiffs who were being prepared for trials. We will continue to work with all parties in the courts to fully implement the settlement. With respect to PFAS, our settlement with public water suppliers is on track for the final approval hearing scheduled for February 2nd.

Starting with safety and industrial where we estimate organic sales growth to be flat to up low single digits.

Monish: As we start the year, we continue to see demand in industrial end markets remaining mixed.

Monish: Full year 2020 for industrial production forecast is currently expected to be at approximately 2% worldwide with the U S being flat.

Michael F. Roman: We will continue to address other PFAS litigation by defending ourselves in court or through negotiated resolutions as appropriate. We also remain on schedule to exit all PFAS manufacturing by the end of 2025 with production volumes down 20%. Looking back, on a year full of change, I am pleased how 3Mers around the world stepped up to lead. Importantly, we stayed relentlessly focused on doing what 3M does best, using material science to make a difference in the world. I see exciting examples of innovation across our company. Earlier this month, we unveiled the world's first solar-powered communications headset, building on our decades of leadership in both personal safety and sustainability. We are advancing more durable, energy efficient, and connected vehicles with an array of solutions, including new thermal barrier materials that improve the range and safety of electric car batteries.

Monish: This business has not only impacted by general industrial manufacturing, but also production activity in automotive and electronics end markets, which I will cover next with my comments on transportation and electronics adjusted.

Monish: Organic sales growth for transportation and electronics is forecasted to be flat to up low single digits organically.

Monish: This range excludes the impact of the exit of P fast manufacturing.

Monish: Consumer electronics end markets are expected to be up slightly year on year as the market works to turn the corner.

Monish: The semiconductor market is forecasted to start the year soft however, improve as we progress through the year.

Monish: Automotive unit volume production is forecast to be down slightly year on year.

Monish: Despite this forecast we continue to see significant opportunities in the automotive sector through our offerings in both electric vehicle and internal combustion engine vehicles.

Michael F. Roman: Just one element of our automotive electrification program, which grew 30% in 2023 on top of 30% growth in 2022. Our Medical Solutions business, a world leader in advanced wound care, just announced a partnership with the U.S. Army, where we will collaborate with the military and leading universities to develop traumatic wound solutions. And in consumer, last year, we launched more than a dozen new products, including new solutions for heavyweight hanging, part of our half-a-billion-dollar Command franchise, which leverages our world-class adhesive technology. 3M's innovation engine is strong. It will remain the heart of our business and our ability to deliver differentiated value for our customers. In summary, the 3M team delivered a successful 2023, and I am confident we will accelerate our progress in the coming year. I will come back to talk about our 2024 priorities and guidance after Monish takes you through the details of the fourth quarter.

Monish: Health Care's organic sales growth is anticipated to be flat to up low single digits year on year.

Monish: Brian and his team are excited to lead this great business and we'll be providing more details on 2024 and beyond as we progress towards the spin.

Monish: Turning to consumer organic sales are expected to be down low single digits as discretionary spending is expected to remain muted, especially in the U S along with our ongoing portfolio optimization initiatives.

Monish: As Mike mentioned these actions are estimated to create a year on year organic growth headwind of approximately $100 million or two percentage points.

Monish: As you create your models for 2024 I want to highlight some important items.

Monish: We anticipate pre tax restructuring charges in the range of $250 million to $350 million in incremental savings in the range of $1 $50 million to $250 million.

Monish: As I've previously mentioned our savings are net of the necessary cost required to provide sustained benefits from our restructuring for.

Monish Patolawala: Thank you, Mike, and I wish you all a very good morning. Please turn to slide 6. The fourth quarter culminated a year where we took significant steps to improve our operational execution, resulting in better financial performance. We aggressively controlled spending and initiated restructuring actions to simplify our supply chains, reduce structure, and streamline our go-to-market models to better serve customers. At the same time, we continue preparing for the successful spin-off of our healthcare business and work to reduce risks and uncertainties related to legal matters.

Monish: For example, this includes structure necessary to enhance our go to market models.

Monish: <unk> processes and continued investment in cyber security.

Monish: Additionally, the restructuring actions have helped to partially reduce stranded costs associated with the pending spin of health care.

Monish: Overall, our restructuring program remains on track to deliver pre tax savings in the range of $700 million to $900 million with a similar level of charges upon completion.

Monish: We anticipate our actions will be largely done by the end of 2024 with benefits getting into 2025.

Monish Patolawala: While there is more to do, our teams made tremendous progress in 2023 that we will build upon in 2024 and beyond. Looking at fourth-quarter performance, adjusted sales were $7.7 billion, at the high end of our guide, and markets continued to play out as anticipated. Notably, the auto OEM market remained strong in the fourth quarter, and we saw signs of end-market stabilization in consumer electronics. However, as expected, China and consumer retail end markets continue to be soft. Organic sales, on an adjusted basis, declined 1.4% versus last year.

Monish: Moving to pension expense the estimate of nonoperating pension headwind of approximately $100 million in 2024, or a negative <unk> 15 cents per share.

Monish: This headwind is primarily due to the updating of assumptions, including mortality along with the amortization of prior period losses.

Monish: While we will have an earnings headwind in 2024. It is important to note that our global plans are well funded ending 2023 at 94%.

Monish: Net interest expense is anticipated to be a small year on year benefit of approximately three cents per share.

Monish Patolawala: The expected decline in demand for disposable respirators negatively impacted organic growth by 60 basis points of $50 million. Excluding this impact, Q4 adjusted organic sales were down 80 basis points. Adjusted operating margins were 20.9%, up 180 basis points year-on-year or up 320 basis points, excluding the impact of restructuring charges. Adjusted earnings were $2.42, up 11% year-on-year versus our guidance. Fourth quarter earnings were benefited by $0.06 due to a lower than expected tax rate, which was partially offset by the acceleration of restructuring actions, which impacted earnings by approximately $0.03. And finally, fourth quarter adjusted free cash flow was $2 billion, up 18% year-on-year.

Monish: Again this excludes the pending impact of the health care spend and legal settlements that Bruce mentioned at the start of the call.

Monish: Our adjusted tax rate is expected to be between 18, 5% and 19, 5% for 2024.

This compares to our adjusted tax rate of 17, 5% in 2023, resulting in a year on year headwind of approximately 17 cents per share at the midpoint.

Monish: Therefore, the net impact of these below the line items is forecast to result in an earnings headwind of approximately 29 cents per share.

Monish: This combined headwind is included in our full year 2024, adjusted earnings range guidance of $9.35 to $9.75 that Mike mentioned.

Monish: Please turn to slide 15.

Monish Patolawala: For the full year, we delivered $6.3 billion in adjusted free cash flow versus an originally expected range of $4.2 to $5 billion at the start of the year. Please turn to slide 7 for a recap of the components that drove our year-on-year operating margin and earnings performance. Benefits from manufacturing productivity, sourcing actions, restructuring, strong spending discipline, and selling prices more than offset headwinds from lower sales volumes, investments in the business, and last year's disposable respirator sales comparison. This net benefit drove a year-on-year expansion in Q4 operating margins of 400 basis points and earnings per share of 43 cents per share. Pre-tax restructuring and related charges in the quarter were $109 million, or a negative impact on margins of 140 basis points and 17 cents to earnings. Raw material, logistics, and energy cost inflation was a slight year-on-year headwind of 10 basis points to operating margins or minus 1 cent to adjusted earnings per share. Foreign Currency Translation had a negative 70 basis points impact on adjusted operating margins of negative 7 cents per share.

Monish: Before we go to Q&A, let me briefly cover our thoughts on the first quarter.

Monish: As we look at the first quarter, we see our adjusted sales being approximately seven $6 billion are down slightly versus last year.

Monish: This forecast factors in unexpected for similar macroeconomic trends that we saw in Q4.

Monish: It also includes an approximate 100 million year on year sales headwind from geographic prioritization and consumer portfolio initiatives, along with the impact of last year's disposable respirator com.

Monish: Turning to earnings we expect first quarter adjusted earnings per share to be in the range of $2 to $2 15 per share.

Monish: This expectation reflects adjusted operating margin in the range of 19, 5% to 20%.

Monish: This range includes continued standup costs related to the spending spinoff health care, along with over 100 basis points impact from restructuring and related charges.

Excluding restructuring charges adjusted operating margins are forecasted to increase by over 250 basis points year on year.

Monish: In the first quarter non op pension will be a four cent per share headwind to adjusted earnings.

Monish Patolawala: This result was primarily due to the net impact of hedging and the devaluation of the Argentinian peso. As previously mentioned, our adjusted tax rate was lower than expected, coming in at 14.9%. This compared to 16.6% in last year's fourth quarter, resulting in a five cent benefit to earnings. And finally, other financial items and shares outstanding netted a positive 1 cent per share year-on-year impact. Please turn to slide 8.

Monish: And finally, we expect our adjusted tax rate in the first quarter to be in the range of 20% to 21%.

Monish: In closing I would like to emphasize a few things.

We remain focused on our priorities and the team continues to drive results through strong operational execution.

Monish: Our decisive actions in 2020 three set the foundation for a strong 2024.

Monish: As you know there are many important milestones in the coming months, including completing the spinoff health care.

Monish: And finally as a reminder, if you are creating financial models for three and post spin.

Monish Patolawala: Fourth quarter adjusted free cash flow was $2 billion, up 18% year-on-year, with conversion of 145%, up 800 basis points versus last year's Q4. Our ongoing focus on working capital management, especially inventory, continues to yield results. Inventory was down $550 million year on year and is now at 14.8% of sales, a 90 basis point improvement year on year. I am pleased with the progress to date and see significant opportunity to further improve performance in all aspects of working capital. Adjusted capital expenditures were $308 million, down 32% versus last year's abnormally high fourth quarter. For the year, we invested over $1.4 billion versus an expected range of $1.3 to $1.5 billion. And, finally, we returned $828 million to shareholders via dividends during the quarter. Turning to the balance sheet, net debt at the end of Q4 stood at $10 billion, a decline of $2 billion year-on-year or 17%.

Monish: Please keep in mind that simply moving the healthcare business from totaled three M financials will not equal pre and post spin.

Monish: There are other factors such as transition service agreements stranded cost and below the line changes that need to be taken into account.

Monish: As mentioned once the spin is complete we will hold an investor meeting and provide an update on our outlook for 2024 that incorporates these factors.

Monish: Yeah.

Monish: In summary, we are building on our momentum and driving sustainable operating improvements that will drive improved financial performance I wanted to thank the three M team for their dedication and focus.

Monish: As they continue to deliver for our customers and shareholders.

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

Monish: 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.

Monish: You'll hear a suite Tom problem to acknowledge a request.

If your question has been answered and you would like to withdraw your registration. Please press the one followed by the suite.

Monish Patolawala: 3M continues to be a reliable and robust cash generator. In addition, the upcoming spin-off of our healthcare business will further strengthen our balance. As Bruce mentioned, we anticipate receiving a one-time dividend from Solventum at an initial leverage of three to three and a half times EBITDA.

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

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

Monish: One moment, please while we compile the Q&A roster.

Monish: And our first question comes from the line of Andrew Kaplowitz with Citi. You May proceed with your question.

Hey, good morning, everyone. Good morning, good morning, Andy.

Monish Patolawala: We will also retain a 19.9% equity stake, which will provide additional liquidity. 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. Now please turn to slide 10 for a discussion on our business group performance, starting with our safety and industrial business, which posted sales of $2.7 billion, down 3.9% organically. The expected decline in demand for disposable respirators was a headwind of approximately $50 million, negatively impacting segment organic growth by 160 basis points. Organic growth was led by a double-digit increase in roofing granules, while industrial adhesives and tapes were flat, while all other businesses declined. Geographically, core industrial markets in the United States were relatively strong, while China remained weak.

Andrew Kaplowitz: My good moneys could you give us a little more color into the consumer and industrial channels that you deal with I know you said, you're seeing signs of consumer electronics and prudent but also mentioned the Destocking China for instance at the end of Q4, maybe you can elaborate on what you're seeing across to the consumer industrial channels. And then you are modeling Q1 sales I think to be.

Andrew Kaplowitz: Sequentially flat, excluding the $100 million of sales headwind, you called out which seems conservative if you're early cycle business starting to turn and so it was a what are you seeing.

Speaker Change: Yeah, Andy I would start with Q1 looks to us a lot like Q4, so some of the dynamics that you're asking about are part of that.

Speaker Change: We talked about electronics stabilizing in Q4, so starting year over year comparison.

Speaker Change: And stabilizing against that.

Speaker Change: As we look forward consumer retail similar as well we saw still softness in <unk>.

Discretionary product categories discretionary purchases consumer spending has been strong, but it's it's been shifting all through the year as you know too.

Speaker Change: Experiences services and even food as inflation has impacted that so we see that dynamic continuing to play out as we as we go forward. If you look at the channels I say broadly.

Monish Patolawala: Our businesses were impacted by a reduction in channel inventory towards the end of the quarter, particularly in the Greater China and EMEA regions, as channel partners manage cash and are cautious as we enter 2024. Adjusted operating income was $524 million, down 6% versus last year. Adjusted operating margins were 19.7%, down 70 basis points year-on-year. This decline was driven by lower sales volumes, which was partially offset by benefits from restructuring, pricing, and strong spending discipline. Moving to transportation and electronics, which posted sales of $1.8 billion, or up 2.7% organically. Our auto OEM business continued to perform well and increased 13% versus a 9% increase in global car and light truck sales. The electronics business was flat organically year on year, as demand for consumer electronic devices began to stabilize, while semiconductors remained soft.

Speaker Change: The channels are stabilizing consumer there was as we went through the first part of last year. There was aggressive reduction in inventory in the channel that played out and it's more balanced as we come through.

Speaker Change: The fourth quarter as we look into Q1, there was some cautious at the end of 'twenty three at the end of the fourth quarter. We saw some caution in the channel and in China, and consumer, but I think they are fairly well balanced at this point the one area, where we continue to note. Some adjustments is in the industrial channels and that's as supply.

Speaker Change: <unk> continue to perform better they're reducing their safety stock and that's been a steady I think theres a little bit of caution as we go into the new year in areas like.

Speaker Change: Europe Middle East Africa, there's a caution about demand China as I already said, so, but I think generally broader I would characterize it as more stable and in line with what the expectations are.

Speaker Change: I just would add Andy to Mikes comments that auto builds are expected to be down 10% sequentially.

Monish Patolawala: We continue to closely monitor these trends and are well positioned to grow with our customers in these large and important end markets. Looking at the rest of transportation and electronics, Advanced Materials grew organically in high single digits.

Andy: And then historically if you just look at a couple of our business services consumer and health care. They seasonally do come down Q4 to Q1, so we baked all that into the guide that you've given of approximately $7 6 billion.

That's helpful guys, and then moneys could you give us some more color on what's happening with your restructuring program, you're pretty much matching benefits to costs in 'twenty three and as you said you even pulled forward a few pennies of restructuring versus your expectations. In Q4 for 24, I think you're modeling now 100 million difference in terms of higher restructuring cost versus benefit. So maybe you can.

Monish Patolawala: Commercial solutions grew at low single digits, and transportation safety declined at low single digits. Transportation and Electronics delivered $370 million in adjusted operating income, up 28% year-on-year. Adjusted operating margins were 20.9%, up 380 basis points versus Q4 last year. The team achieved this result through restructuring actions, pricing, and strong spending discipline. Turning to our healthcare business, Q4 sales were $2 billion, or down 1% organically versus last year. Sales in our medical solutions business grew low single digits organically, while Separation and Purification and Oral Care were both down low single-digits. Health Information Systems Organic Sales Decreased High Single-Digit Looking at the year, our businesses within healthcare continue to see lingering COVID-related impacts. Full year organic growth in healthcare was approximately 1%, with both medical solutions and oral care posting positive low single-digit growth, while health information systems and separation purification were both down low single-digits. Healthcare's fourth-quarter operating income was $372 million, down 10% year-on-year.

Andy: Give us more color into why you can't get that sort of one to one faster return on your 24 actions.

Speaker Change: No I think Andy let me explain that first I'll just go all the way to their top again on our benefits and then explain the map to you.

Speaker Change: So for everyone's benefit in 2023, we implemented the both significant restructuring in our history, but generated $400 million in savings last year and approximately the same amount in cost, but when you look at the overall program. It remains on track to achieve the annual run rates of $700 million to $900 million.

Speaker Change: One completion.

Speaker Change: And assuming a no spin scenario of health care as Bruce mentioned earlier, we expect nearly 200 to 300 basis points of margin improvement to be realized upon completion of the whole program.

Speaker Change: And the program as you said Andy remains on track, we said that remains on track and we did pull in our accelerated some of our restructuring into 2023 based on the success that we have added in the program.

Speaker Change: What I would tell you to answer your question specifically is what I've said is the 152 to 50 is incremental benefit so on accumulative basis. If you did $400 million in 2023, and you say midpoint of $1 50 to 200, that's cumulative 600 or so on a year over year that's deemed <unk>.

Monish Patolawala: Operating margins were 18.3%, or down 1.9 percentage points with adjusted EBITDA margins of 26%. Year-on-year adjusted operating margins were impacted by lower sales volumes along with added costs associated with the pending spin. Lastly, the consumer business posted fourth-quarter sales of $1.2 billion. However, organic sales declined 2.2% year-on-year.

Speaker Change: <unk> $200 million, while on a cost basis.

Speaker Change: Third we incurred 400 and change in the fourth quarter I think the full 41 and I said, we will have 250 to $3 50 of cost so on accumulative basis, the cost will be around 750 again at the midpoint as I've also said in my prepared remarks. We believe this program will be largely completed by the end of 'twenty 'twenty four.

Speaker Change: Home Improvement increased low single digits organically, while Home Health and Auto declined low single digits, and Stationery and Office declined high single digits. Geographically, organic growth was down slightly in the U.S., while EMEA was down mid-single digits, and Asia Pacific declined low double digits. Consumers' fourth quarter operating income was $221 million, up 4% compared to last year, with operating margins of 18%, up 100 basis points year on year. The improvement in operating margins was driven by benefits from restructuring actions. Portfolio Optimization, Strong Spending Discipline, and Productivity Action. Before I turn it back to Mike for him to discuss Outlook for 2024, I wanted to take a moment to reflect on our 2023 total company performance. As the year progressed, we made strong improvements in adjusted operating margins. For reference, slide 23 in the appendix provides a quarterly adjusted operating margin recon for the year. As you can see, we delivered a significant improvement in performance, particularly when setting aside the impact of restructuring charges. Please turn to slide 12, and I will now turn the call back over to Mike. Mike.

Speaker Change: From an expense perspective, and the benefits will continue into 2025 and beyond.

Speaker Change: Just wanted to make sure one other thing and we think about restructuring I. Just wanted to also think through this is once you ought to know this is how we work and this is not a series of one time actions and I know a lot of investors have asked us show us the break between benefits and costs. So we are definitely trying to do that.

Best we can in 'twenty two 'twenty three it made all the sense because these are new actions. It was good to show it as individuals but as it becomes the way we work.

Speaker Change: My request to all of US focus on the total margin of the company, which is demonstrated in 2024, where our guide is saying we will improve margins. Another 75 to 100 basis points in total.

Speaker Change: So for example, and the reason I bring this up is you have to look at all of this in portability for example, we announced.

Speaker Change: That would be we're going to change our distribution model in 27 countries. The savings of the rooftops. The head count is shown as a benefit in our restructuring program, but as you all know there's a corresponding impact on the revenue and the action has to be looked at in totality with the standard on a standalone event and I just wanted to make sure we meet.

Bring that out too, but we will continue.

Speaker Change: <unk> bought it helps you all and that's what we've tried to do with this go around so hopefully I cleared that question Andy that you had yeah no I appreciate the color. Thanks.

Michael F. Roman: Thank you, Monish. We are entering 2024 with strong momentum from our strategic priorities as we build on the actions taken in 2023. We will remain focused on improving operational performance as we progress our restructuring while driving even greater supply chain productivity and inventory reduction. These represent significant opportunities to deliver sustainable margin and cash flow expansion in 2024. We will also further accelerate efforts to optimize our portfolio, which has been an ongoing strategy for 3M. In addition to finalizing the healthcare spin, we will continue implementing our geographic prioritization strategy. We will also step up our efforts to prioritize our product portfolios based on market potential, right to win, supply chain complexity, margins, and returns. For example, in our consumer business, we have identified approximately 5% of the portfolio where we have limited market growth and a poor right to win.

Speaker Change: Our next question comes from the line of Scott Davis with Melius Research you May proceed with your question.

Scott Reed Davis: Hey, Good morning, guys, Mike Saturday morning, Scott.

Scott Reed Davis: Guys can you help us understand the the ebb and flow when you go to an export model for 30 countries.

Scott Reed Davis: Maybe help us understand the materiality of that it could be 30 really small countries could be a mix I don't know, but you.

Scott Reed Davis: Do you think about kind of the revenue headwind versus the cost tailwind is it is there some numbers, we can talk around or any.

Scott Reed Davis: Perhaps even some color on how that ebbs and flows.

Speaker Change: Yeah, So Scott the total impact of geographic prioritization and portfolio actions that Mike mentioned is around 100 basis points for the company off that 60% is product portfolio optimization the balance is geographic.

Michael F. Roman: While exiting these portfolios will impact consumers' growth rate in the near term, these actions will better focus our efforts on products that best utilize 3M inventions and ultimately drive improved growth and margins in the long term. At the same time, 3M succeeds across market cycles because we remain close to customers and invest in innovation.

Speaker Change: Our organization.

Scott Reed Davis: And overall when you look at the margin rate in these smaller countries. They were at lower margins than the average for Korea.

Scott Reed Davis: So that's when you refocus what happens is since you are going through a distributor you basically have to drop price to some extent because now they are picking up your cost and so that's why you see the revenue headwind, but on a margin rate perspective. This is beneficial for us to do it helps us focus on the big.

Michael F. Roman: We will continue to invest in R&D and capital expenditure, enabling us to win in our core and also in new, attractive markets where 3M can make a difference. Finally, we will stay focused on reducing risk and uncertainty by proactively and effectively managing litigation, including finalizing legal settlements. We will advance the ramp-down of PFAS manufacturing while continuing to make progress on our sustainability goals. In 2024, for example, we expect to complete investments in state-of-the-art water filtration technology across our chemical manufacturing sites. Please turn to slide 13.

Scott Reed Davis: Countries. It also allows us to reinvest in those bigger countries, while at the same time, making sure that in the smaller countries, where we are changing the model. We can continue to serve those customers well.

Scott Reed Davis: What we would call internally as an export led model, which is we are going to ship out products out from the United States or wherever and manufacturing is into those countries. So we are still taking care of the customers. They just following a more efficient way to transact with those customers. So hopefully that adds some scout.

Michael F. Roman: Based on these focus areas, along with the macroeconomic outlook, we are laying out our guidance for 2024. We expect the execution of our priorities to support the strengthening of our competitive position, continued underlying margin improvement, and strong cash flows as we aggressively manage working capital. As we start 2024, the macro environment remains muted, similar to what we saw in the fourth quarter. On an adjusted basis, we anticipate organic foliar growth of flat to plus 2%.

Speaker Change: I think it does.

Speaker Change: And just separately you know working capital has been.

A real source of benefit for you folks.

Speaker Change: And particularly in 'twenty three but.

Are we as an entity are you learning to run at lower working capital levels and more specifically really what I'm talking about is the inventory and I think historically just having covered you guys for a while you know inventory levels kind of.

Speaker Change: It went up and down.

Based on demand, you're not expecting much demand in 24 or so.

Speaker Change: Explicitly I suppose that means you can run at lower inventory levels, but if demand were to start to snap back at better levels than you're expecting would you.

Michael F. Roman: Excluding the impact of geographic prioritization and portfolio actions, we expect organic growth of 1 to 3 percent. With respect to EPS, we anticipate earnings of $9.35 to $9.75 per share. We expect continued strong margin expansion, along with another year of strong cash flow, with an adjusted conversion rate of 95 to 105 percent. As Bruce noted, following the completion of the healthcare spin, we will host an investor meeting and provide strategic updates, along with updated guidance for 3M. As always, underpinning our success will be the strength of 3M, our industry-leading material science, advanced manufacturing, global capabilities, and iconic brands, along with some of the best and brightest people around the world. Before I turn it back to Monish, let me reiterate a few important points.

Speaker Change: Would you still be able to run at relatively low inventory levels have there been enough structural change I guess is what I'm asking to three am where you can run more productively and efficiently from a working capital perspective.

Speaker Change: I would say so Scott and the team has done Peter on the supply chain team have done a great job. One is learning through the pandemic on how do you manage the ebbs and flows as you go through supply chain disruptions. Two is we've spent a lot of time and energy investing in digital resources that allow us.

Speaker Change: To more efficiently.

Speaker Change: Look at demand plans look at where our inventory is and we have continued to keep working on dual sourcing et cetera that helps us get alternative sources of supply whenever you could have a disruption in one place.

Speaker Change: My view is this inventory still has ways to run using data and data analytics, we can keep reducing inventory working capital is going to continue to be a source of a three <unk> cash generation machine along with the good EBITDA that we generate.

Michael F. Roman: As I look across 3M, 2023 was a pivotal year for our enterprise. We executed our plans and delivered on our commitment to exit the year stronger, leaner, and more focused. We improved our operational performance, advanced the spinoff of Solventum, and addressed risk and uncertainty.

And at the same time I would tell you the volume if you see volume come back up the factories are ready and we have the capacity and we'll act accordingly, So I would say the team has done a really nice job, but there's always more we can do and we'll keep doing it.

Michael F. Roman: I am proud of everything we accomplished in 2023 and equally excited about the year ahead. We are in an excellent position to build on our progress, continue to improve our operational performance, and deliver another successful year. I thank all 3M'ers for their dedication and for everything they do for our company. I will now turn it over to Monish for more details on our guidance. Thanks, Mike.

Speaker Change: Hey, Scott.

Speaker Change: Just to add.

Speaker Change: The actions that we have been talking about all through 23 of the actions to streamline our supply chain operations simplify our go to market models that streamlining supply chain operations. It was more than a restructuring. This was about aligning our global supply chains to our go to market models really optimizing what we do across plan source make deliver in with us.

Monish Patolawala: As Mike highlighted, we expect another year of strong execution on our priorities, including strengthening our competitive position, continued margin improvement, and robust cash flows as an aggressively managed working capital. Let's now look at our 2024 expected performance for our business segments. Starting with safety and industrial, where we estimate organic sales growth to be flat to up low single digit. As we start the year, we continue to see demand for industrial products and markets remaining mixed. Full year 2024 industrial production is currently expected to be at approximately 2% worldwide with the US being flat. This business is not only impacted by general industrial manufacturing but also production activity in the automotive and electronics end markets, which I will cover next with my comments on transportation and electronics. Adjusted organic sales growth for transportation and electronics is forecasted to be flat to up low single digits organically. This range excludes the impact of the end of PFAS manufacturing.

Speaker Change: <unk> focus on and an expectation that we're going to drive improvements improvements in service improvements in cost improvements in working capital and cash and I.

So it's emotive said earlier, it's the actions we've taken about the way we operate and it's an expectation we're going to continue to improve our execution. So there's a there's a plan on strategy in data and data analytics.

Speaker Change: US a basis for driving a better visibility and improvement as well so.

Speaker Change: It is part of that so we do expect to continue to drive improvement as we our guide for 'twenty four has us.

Speaker Change: Again driving improvements in how we execute showing up in.

Speaker Change: Growth in earnings and expanded margins and another year of strong cash generation. So.

Speaker Change: It is important part of that those actions that we took as we went through 'twenty three.

Fair enough best of luck. This year guys. Thank you. Thanks Scott.

Speaker Change: Our next question comes from the line of Julian Mitchell with Barclays. You May proceed with your question.

Julian Mitchell: Hi, Good morning, Good morning, Julien Julien Good morning, maybe first off I just wanted to clarify some of monoecious comments on operating margins year on year. So I think many she was saying that Q1 the margin is up 250 bps excluding.

Monish Patolawala: Consumer electronics and markets are expected to be up slightly year on year as the market works to turn the corner. The semiconductor market is forecasted to start the year soft, but it is expected to improve as we progress through the year. Automotive unit volume production is forecasted to be down slightly year on year.

Speaker Change: Excluding restructuring and then the full year is up 75 to 100 bps, including restructuring I just want to make sure. If there are numbers youre right youre right and any color on sort of the segments within that or the corporate costs. There was some reallocation you talk about on <unk>.

Monish Patolawala: Despite this forecast, we continue to see significant opportunities in the automotive sector through our offerings in both electric vehicles and internal combustion engine vehicles. Healthcare's organic sales growth is anticipated to be flat to up low single digits year on year. Brian and his team are excited to lead this great business and will be providing more details on 2024 and beyond as we progress towards the spin. Turning to consumers, organic sales are expected to be down low single digits as discretionary spending is expected to remain muted, especially in the U.S., along with our ongoing portfolio optimization initiatives. As Mike mentioned, these actions are estimated to create a year-on-year organic growth headwind of approximately $100 million, or 2 percentage points. As you create your models for 2024, I want to highlight some important items. We anticipate pre-tax restructuring charges in the range of $250 to $350 million and incremental savings in the range of $150 to $250 million. As I previously mentioned, our savings are net of the necessary costs required to provide sustained benefits from our restructuring. For example, this includes the structure necessary to enhance a go-to-market model, automate processes, and continue investment in cybersecurity.

Speaker Change: Slide seven and any kind of major moving parts that you'd call out year on year on a segment basis or what that new sort of corporate run rate is.

Speaker Change: Yeah, I would say Julian as with prior years that number of miscellaneous items in carpet.

Speaker Change: Did that are always subject to fluctuations quarterly annual basis. So if you look at 2023, our incurred cost was $44 million.

And then in the fourth quarter, it was $120 million benefit.

Speaker Change: The Q4 benefit was largely the result of annual incentive compensation accruals for the first nine months.

Speaker Change: Allocated the businesses finally based on performance.

Speaker Change: This adjustment had no impact to total company margins. So it's just a bucket swap between corporate unallocated and the businesses and so for the full year of 2024 again based on health care being a part of three and for the whole year. So there's just the assumption we expect the expense range of being somewhere in the 100 to the 200 on an adjusted basis.

Speaker Change: Yes.

Speaker Change: Corporate unallocated.

Speaker Change: Got it. Thank you very much and then just my.

Speaker Change: My second question I'm, just trying to understand the free cash flow guidance, because I think you did $6 3 billion of free cash in 2023.

Monish Patolawala: Additionally, the restructuring actions have helped to partially reduce stranded costs associated with the tending spin of healthcare. Overall, our restructuring program remains on track to deliver pre-tax savings in the range of $700 to $900 million, with a similar level of charges for compensation. We anticipate our actions will be largely done by the end of 2024, with benefits carrying into 2025. Moving to pension expense.

Speaker Change: And the C is guided at about 5.3 billion. So it's a big decline year on year.

Speaker Change: Even with net income I think growing 200 million in the guide and Capex is up about 100 million in the guide.

Speaker Change: Anything to sort of call out on that.

Speaker Change: I would just say Julien three M has historically always been a good cash generator.

Speaker Change: And that's what we plan to continue doing if you look at 2022, we had 86% of free cash flow conversion, which we were not happy with at all and the teams have done a great job in 2023 to get US back if you take the two years instead of 100% and if you look at the history of three M.

Monish Patolawala: We estimate a non-operating pension headwind of approximately $100 million in 2024, or a negative 15 cents per share. This headwind is primarily due to the updating of assumptions, including mortality, along with the amortization of prior period losses. While we will have an earnings headwind in 2024, it is important to note that our global plans are well-funded, ending 2023 at 94%. Net interest expense is anticipated to be a small year-on-year benefit of approximately $0.03 per share.

Speaker Change: We have always been in that that range and I would say, we continue doing that but at the same time, we will keep investing in growth productivity and sustainability as and when the volume comes up as amend the opportunities that is because at the end of the day. Our first priority is organic growth because that gives us the best return.

Speaker Change: And the best way to do that as organic investments. So that's our first priority.

Speaker Change: Great. Thank you.

Speaker Change: Yes.

Monish Patolawala: Again, this excludes the pending impact of the health care spin and legal settlements that Bruce mentioned at the start of the call. Our adjusted tax rate is expected to be between 18.5% and 19.5% for 2024. This compares to our adjusted tax rate of 17.5% in 2023, resulting in a year-on-year headwind of approximately $0.17 per share at the midpoint. Therefore, the net impact of these below-the-line items is forecasted to result in an earnings headwind of approximately 29 cents per share. This combined headwind is included in our full year 2024 Adjusted Earnings Range Guidance of $9.35 to $9.75. Please turn to slide 15. Before we go to Q&A, let me briefly cover our thoughts on the first quarter.

Speaker Change: Yeah.

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

Speaker Change: Thanks. Good morning can you hear me Nigel Yes, we cannot morning Nigel.

Speaker Change: Hi, good morning, a great free cash flow by the way.

So just wanted to dig into the Cooper.

Speaker Change: <unk> line again, let me show you I think he said $100 million to $200 million.

Speaker Change: Kind of a run rate for 'twenty 'twenty four that's EBIT not EBITDA I just want to make sure. That's the case are you just are you affecting any corporate dis synergies or stand alone costs of health care within that 102 hundred.

Speaker Change: It's EBIT.

Speaker Change: And then.

Speaker Change: It's EBIT Nigel to that can you hear me.

Yes, yes, yes.

Nigel Coe: I'm sorry, what was your follow up question I didn't catch that.

The kind of the second part of that question was all.

Nigel Coe: All your affecting any standalone costs, though.

Nigel Coe: You stand alone costs of a corporate dis synergies from the healthcare spin, but then that number would that be additive to that to that range no.

Monish Patolawala: As we look at the first quarter, we see our adjusted sales being approximately $7.6 billion, or down slightly versus last year. This forecast factors in an expectation for similar macroeconomic trends that we saw in Q4. It also includes an approximate 100 million year-on-year sales headwind from geographic prioritization and consumer portfolio initiatives, along with the impact of last year's disposable respirator. Turning to earnings, we expect first quarter adjusted earnings per share to be in the range of $2 to $2.15 per share.

That number again you know if you just go back to Bruce's comment at the beginning of the call. Our current assumption is that health care is a part of three M. Even though the spin is on track for first half 2024, and as we go through the spinoff healthcare we plan to have an Investor day post spin we will update you on.

Nigel Coe: The stranded costs the impact of our transition services agreements as well as what three M looks post spin.

Speaker Change: Yes, Nigel just just to highlight <unk> during his prepared remarks did mention.

Speaker Change: There is additional cost in health care for standing it up as a standalone entity.

Speaker Change: So and that is having some margin impact within the health care.

Monish Patolawala: This expectation reflects adjusted operating margins in the range of 19.5 to 20 percent. This range includes continued stand-up costs related to the spending spin of healthcare, along with over 100 basis points of impact from restructuring and related charges. Excluding restructuring charges, adjusted operating margins are forecasted to increase by over 250 basis points year on year. In the first quarter, the non-op pension will be a 4 cent per share headwind to adjusted earnings. And finally, we expect our adjusted tax rate in the first quarter to be in the range of 20 to 21 percent.

Speaker Change: Oh no question, though just I just want to make sure that was the case.

Speaker Change: My final question is just really trying to dig into the restructuring cadence Youll see you you quantified Q1 impacts us, but take the 152 of cost savings in Q4.

Speaker Change: And then multiply that before you get to you know mathematically about $50 million of cost savings in the midpoint of your guide for 'twenty 'twenty four is $6 17, So I'm just actually wonder it doesn't look like we're getting in any incremental cost coming through from here on in 2020 full so just wondering what are the.

Speaker Change: What does the opposite to that is that is there some level of investment here just just wondering what's going on here.

Speaker Change: Yeah. So I would say, it's the same thing I've said before if you remember we have set our total benefits of 700 to 900 once the program is done with equal cost.

Monish Patolawala: In closing, I would like to emphasize a few things. We remain focused on our priorities, and the team continues to drive results through strong operational. Our decisive actions in 2023 set the foundation for a strong 2024. As you know, there are many important milestones in the coming months, including completing the spin of health. And finally, as a reminder, if you are creating financial models for 3M Postspin, please keep in mind that simply removing the healthcare business from total 3M financials will not equal 3M post-spin. There are other factors, such as transition service agreements, stranded costs, and below-the-line changes, that need to be taken into account.

Speaker Change: We are saying the actions will be largely done at the end of 2024. So you will see benefits continuing into 2025.

Speaker Change: And as I've previously mentioned our savings are net of the necessary investments required us to provide sustained benefit commodity restructuring programs. So for example, these investments include structure than is necessary to enhance our go to market models as we've talked about we have exited or change the distribution model for 'twenty.

Speaker Change: Seven are about 30% to 27% to 30 countries. So making sure we have a structure that supports that change continuing to automate our back end processes as we continue with the spinoff healthcare up upgrade rooftops as we consolidate space because they see the savings as we have exited the space, but I got to make sure that the rooftops upgrade.

Monish Patolawala: As mentioned, once the spin is complete, we will hold an investor meeting and provide an update on our outlook for 2024 that incorporates these factors. In summary, we are building on our momentum and driving sustainable operating improvements that will drive improved financial performance. I want to thank the 3M team for their dedication and focus as they continue to deliver for our customers and shareholders. That concludes my remarks. We will now take your questions. Ladies and gentlemen, if you would like to register a question using a landline phone, please press the 1 followed by the 4 on your telephone keypad.

Speaker Change: So people can can come into work there and then continued investment in cyber security and we have also said this before that the restructuring actions that we've taken one it's a way that will be all we work, but two it'll help us partially reduce the stranded costs associated with the pending spinoff health care. So all put together I still see the program's on track.

Speaker Change: At 700 to 900, but as I mentioned before too I would just ask you all to think through Theres a site of cost cadence, which once we are done with those actions those cost cadence will go away and the benefits will continue into 2025 and beyond at an annualized basis of 709 hundred.

Speaker Change: Assuming health care remains as a part of <unk> III.

Speaker Change: Okay, that's great.

Monish Patolawala: You'll hear a three-tone prompt to acknowledge a request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3. If you're using a speakerphone, please lift your handset before entering your request.

Speaker Change: Our.

Speaker Change: Question comes from the line of Chris Snyder with UBS you May proceed with your question.

Chris Snyder: Thank you I also wanted to ask on 2020 for margins.

Monish Patolawala: Please limit your participation to one question and one follow-up. One moment, please, while we compile the Q&A roster. And our first question comes from the line of Andrew Kaplowitz with Citi. You may proceed with your question. Good morning, everyone. Good morning, Andy.

Chris Snyder: And as we look through the restructuring it seems like the guide is implying flat margins year on year.

Chris Snyder: The business.

Chris Snyder: And I guess why isn't there.

Chris Snyder: Margin expansion and just as the company is expecting to grow volumes or at least grow organically year on year.

Chris Snyder: It sounds like some of the exits the company is making should be accretive for margins of your underlying business I'm. Just wondering is there. Thank you.

Andrew Kaplowitz: Michael and Monish, could you give us a little more color on the consumer and industrial channels that you deal with? I know you said you're seeing signs of consumer electronics improvement, but you also mentioned the destock in China, for instance, at the end of Q4. Maybe you could elaborate on what you're seeing across the consumer industrial channels, and then you are modeling Q1 sales, I think, to be sequentially flat, excluding the 100 million sales head when you called out, which seems conservative if your early cycle business is starting to turn. So what are you seeing?

So I would say exactly the same thing I said before when you look at it in total are planned for 2024 assumes a margin expansion of 75 to 100 basis points, which includes the piece, which includes the restructuring benefits and the lower restructuring cost, but at the same time. It also includes <unk>.

Chris Snyder: Many of the factors that we've taken for example, we're going to continue to invest in growth productivity and sustainability as the macro starts improving they're going to continue to invest in the product areas. We are going to continue to invest in our people. So I would again ask you all to look at it in total if you exclude restructuring cost in 2023.

Michael: Yeah, Andy, I'd start with Q1. Q1 looks a lot like Q4. So some of the dynamics that you're asking about are part of that, you know, that we talked about electronics stabilizing in Q4. So starting year over year comparisons and stabilizing against that, as we look forward, consumer retail, similar as well, we saw still softness in discretionary product categories and discretionary purchases. Consumer spending has been strong, but it's been shifting all through the year, as you know, to experiences, services, and even food as inflation has impacted that. So we see that dynamic continuing to play out as we go forward. You know, if you look at the channels, I'd say broadly the channels are stabilizing. You know, consumer, as we went through the first part of last year, there was an aggressive reduction in inventory in the channel. That played out, and it's more balanced as we come through the fourth quarter as we look into Q1. There was some cautiousness at the end of 23, at the end of the fourth quarter, we saw some caution in the channel in China and consumers, but I think they're fairly well balanced at this point.

Speaker Change: We expanded margins 60 basis points and in 2024, our total margin expansion, including the benefits of restructuring is 75 to 100 basis points, So Chris I would say.

Speaker Change: As the year progresses, and I've said this before volume gives us the best leverage so the as we get more volume you're going to continue to see leverage increase.

Speaker Change: I appreciate that and then just a follow up on the margins.

Speaker Change: I know you guys said 150 to 250 year on year net restructuring for the full year, but could you tell us what is implied in the Q1.

Speaker Change: The guidance and then also I believe you said that the margin. The Q1 margin includes some level of standing a cost for healthcare could you just tell us what dose.

Speaker Change: <unk> are expected to come in thank you, yes, so the.

Speaker Change: Benefits I would say again it depends on which way you are looking at it Chris I would tell you on a year over year basis as I said, there's approximately 75 to 100 basis points, sorry, 75 to 100.

Michael: The one area where we continue to note some adjustments is, I mean, the industrial channels, and that's as supply chains continue to perform better, they're reducing their safety stocks. And that's been steady. I think there's a little bit of caution as we go into the new year in areas like, you know, Europe, the Middle East, Africa. There's caution about demand. China, as I already said.

Speaker Change: <unk> million dollars of restructuring costs in the euro or euro basis. So if you exclude that margin rates on 19.5% to 20%.

Speaker Change: For Q1.

Speaker Change: No sorry, 19, Ive my numbers are getting it's 19, 5% to 20% as the guide which includes 75 to 100 million of costs. So if you adjust for that cost on a year over year basis margin rates will be up 250 to 300 basis points and then on standup cost again.

Michael: But I think, generally speaking, I would characterize it as more stable and in line with what the expectations are. I just would add, Andy, to Mike's comments that auto bills are expected to be down 10% sequentially. And then historically, if you just look at a couple of our businesses, just consumer and healthcare, they seasonalally do come down in Q4 to Q1. So we baked all that into the guide that we've given approximately 7.6%. It's very helpful, guys.

Speaker Change: Timing will determine what the final standup cost is but currently we see approximately seven to eight.

Speaker Change: Total cost that we're incurring as Brian and the team get ready.

Michael: And then, Monish, could you give us a little more color in terms of what's happening with your restructuring program? You pretty much were matching benefits to costs in 2023, and as you said, you even pulled forward a few pennies of restructuring versus your expectations in Q4. But for 2024, I think you're modeling now a $100 million difference in terms of higher restructuring costs versus benefits. So maybe you could give us more color into why you can't get that sort of one-to-one faster return on your 2024 assets. No, I think, Andy; let me explain that first.

Speaker Change: For spinoff health care.

Speaker Change: Thank you.

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

Joe Ritchie: Hi, good morning, everyone.

Joe Ritchie: Okay.

Joe Ritchie: Hey, just so.

Joe Ritchie: So obviously like the the volume environment remains fairly muted, but I'm curious like how are you guys thinking about pricing for 'twenty, four and particularly like what's embedded in the guide from us from a price cost standpoint.

Monish Patolawala: I'll just go all the way to the top again on our benefits and then explain the map to you. So, for everyone's benefit, in 2023, we implemented the most significant restructuring in our history that generated $400 million in savings last year and approximately the same amount in costs. But when you look at the overall program, it remains on track to achieve annual run rates of $700 to $900 million upon completion.

Speaker Change: So 2024 outlook assumes we will have selling prices year on year, it's helping us offset some of the moderate inflation, we are seeing in certain raw raw materials and then the labor market continues to remain strong, but I would just tell them you have seen we have become good at monitoring this.

Monish Patolawala: And assuming a no-spin scenario in health care, as Bruce mentioned earlier, we expect nearly 200 to 300 basis points of margin improvement to be realized upon completion of the whole program. And the program, as you said, Andy, remains on track. We've said that remains on track, and we did pull in or accelerate some of our restructuring into 2023 based on the success that we have had in the program. What I would tell you to answer your question specifically is that what I've said is the $150 to $250 are incremental benefits, so on a cumulative basis.

Speaker Change: We'll make sure we continue to take actions as needed and you've seen it we've done that in 'twenty. Two we've done that in 2023, but I would say more importantly, when you think about margin rate and.

Speaker Change: In the supply chain teams and the business teams.

Speaker Change: We're not just taking price raw is one item in total we are just saying how do we improve margins. So a lot of actions being taking on whether it's through selling price increases driving global sourcing benefits dual sourcing driving yield in the factories and then of course prioritizing demand and all of that put together, including the new.

Monish Patolawala: If you did 400 million in 2023 and you say the midpoint of 150 to 200, that's cumulative 600. So on a year-over-year basis, that's an incremental 200 million. While on a cost basis, we said we incurred 400 and change in the fourth quarter. I think it's 441.

Speaker Change: New wavy work with all the restructuring related items, we have announced last year or just help us continue to drive margin between 'twenty 'twenty four 'twenty five and beyond.

Speaker Change: Got it.

Speaker Change: It's clear monies and I guess, you know theres been a lot of discussion on the restructuring expenses and the benefits coming through in the next couple of years I guess just for just for 2025 as we're thinking about you know the low end versus the high end of the benefits range maybe like.

Monish Patolawala: And I said we'd have 250 to 350 costs. So on a cumulative basis, the cost will be around 750, again at the midpoint. As I've also said in my prepared remarks, we believe this program will be largely completed by the end of 2024 from an expense perspective, and the benefits will continue into 2025 and beyond. I just want to make sure one other thing, you know, and as we think about restructuring, I just want us to also think through, and want you all to know, this is how we work. And this is not a series of one-time acts.

Speaker Change: How would you kind of handicap what are the key drivers that potentially puts you guys at the low end of the 700 versus the high end of the $900 million benefit range.

Speaker Change: So I would first say number one you know again I keep reiterating this just because there's an assumption that's out there that we have assumed that health care remains as a part of that's just the guide but health care is on track for a first half 'twenty for Spain keeps.

Monish Patolawala: And I know a lot of investors have asked us to show them the break between benefits and costs, so we are definitely trying to do that the best we can. In 2023, it made all the sense because these were new actions. It was good to show them as individual.

Keeping that in mind when you think about 700 to 900, it's driven by two pieces. One is the pace at which we can execute some of these actions as well as some of the rooftop consolidations that we are working on.

Monish Patolawala: But as it becomes the way we work, my request to all of you is to focus on the total margin of the company, which will be demonstrated in 2024, where our guide is saying we'll improve margins another 75 to 100 basis points in total. So, for example, and the reason I bring this up is that you have to look at all of this in totality. For example, we announced that we were going to change our distribution model in 27 countries. The savings on the rooftops, and the headcount, are shown as a benefit in our restructuring program, but, as you all know, there's a corresponding impact on revenue, and the action has to be looked at in totality versus standalone events. And I just want to make sure we bring that out, too, but we'll continue, you know, showing how it helps you all. And that's what we have tried to do with this go-around. So hopefully, I have cleared that question, Andy, that you had. Yeah, no, I appreciate the color, Monish.

Speaker Change: In total I still feel good that the range of 700 to 900 is good for the overall program, but as you've seen quarter to quarter, there's always going to be.

A little movement.

Speaker Change: Because there are multiple actions that we're working through regulations in countries and we're working through making sure. We are doing it in a safe manner that you could have a month or two BLA, but overall I still feel good 700 to 900 is a good range.

Speaker Change: Okay. Thank you.

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

Hi, Good morning, how are you Steve.

Stephen Tusa: I'm still not 100% clear what the sequential.

Monish Patolawala: Thanks. Our next question comes from the line of Scott Davis with Melius Research. You may proceed with your question. Hey, good morning guys, Mike and Monisha. Good morning Scott.

Stephen Tusa: It is in EPS from <unk> to <unk> could you maybe just help bridge that a little more specifically I know there's attack.

Stephen Tusa: The impact there may be a little bit of a sequential sales decline.

Scott Reed Davis: Guys, can you help us understand the ebb and flow, you know, when you go to an export model for 30 countries? You know, maybe help us understand the materiality of that. It could be 30 really small countries, could be a mix, I don't know.

Stephen Tusa: I'm, just having a little bit hard to have a hard time reconciling.

Stephen Tusa: The work.

Stephen Tusa: I mean, I think you had a 710 charge in Forex from.

Stephen Tusa: Arjun Argentine devaluation, maybe that's a factor of I don't know just maybe maybe a little more color on the sequential EPS bridge from <unk> to <unk>.

Monisha: But you think about kind of the revenue headwind versus the cost tailwind. Is it, are there some numbers we can talk about or any, perhaps even some color on how that ebbs and flows? Yeah, so Scott, the total impact of geographic prioritization and portfolio actions that Mike mentioned is around 100 basis points for the company. Of that, 60% is product portfolio optimization, and the balance is geographic prioritization. And overall, when you look at the margin rate in these smaller countries, they had lower margins than the average for 3M. So that's when you refocus.

Speaker Change: Sure and Steve as I said, you know as you start lapping quarters and the benefits of.

Speaker Change: Restructuring starts showing up in the results is going to get harder and harder to do sequential but anyway I'll do my best and hopefully that answers. Your question. So I would start by first saying youre going to see another strong quarter of execution on a year over year basis, and I would ask you to look at that first when you look at our guide for January we are saying its approximate.

Speaker Change: Seven 6 billion.

Speaker Change: And there are no surprises in January so far it's very similar to Q4 trends. So volume is little lower Q4 to Q1 that has an impact secondly, there is usual seasonality that we see in our business. When it comes to resetting some of our pay plans and some of the other compensation things that we do.

Monisha: What happens is since you're going through a distributor, you basically have to drop the price to some extent because now they're picking up your. And so that's why you see the revenue headwind. But on a margin rate perspective, this is beneficial for us to do. It helps us focus on the bigger countries.

Speaker Change: Do so seasonally you see that as an impact third is as I mentioned earlier, we are incurring incremental costs are too.

Monisha: It also allows us to reinvest in those bigger countries while at the same time making sure that in the smaller countries where we are changing the model, we can continue to serve those customers well with what we would call internally an export-led model, which is we're going to ship our product out from the United States or wherever our end manufacturing is to those countries. So we're still taking care of the customers. We're just following a more efficient way to transact with those customers. So hopefully, that answers that question. I think it does, And just separately, you know, working capital has been a real source of benefit for you folks. And, you know, particularly in 23.

Speaker Change: To stand up this the health care business as we get ready for the spin. The total impact is approximately seven to eight cents is the total impact of the.

It's the total cost in the quarter.

Speaker Change: Have a headwind from our pension accounting that we've talked about which is false sense of headwind and then from a tax rate basis. We expect our 20 <unk> tax rate to be in the range of 20% to 21% versus we ended the fourth quarter.

Speaker Change: At 14, 9%, so I hope that kind of gives you all the puts and takes to get you to the range that we have of $2 $2.15.

Monisha: But are we as an entity, are you learning to run it at lower working capital levels? And more specifically, really, what I'm talking about is inventory. And I think historically, just having covered you guys for a while, inventory levels kind of, when up and down based on demand, you're not expecting much demand in 24. So explicitly, I suppose that means you can run at lower inventory levels.

Speaker Change: Yeah that makes sense and then just one last one last thing on the on restructuring.

Speaker Change: I don't I, usually think of restructuring as you know building a once you do a certain number in a quarter you kind of carry it over.

You know annually you guys are run rating at a pretty.

Speaker Change: Hi, hi level of benefits in the in the third and the fourth quarter that ramp pretty hard sequentially from the first half.

Monisha: But if demand were to start to snap back at better levels than you're expecting, would you still be able to run at relatively low inventory levels if there'd been enough structural change, I guess is what I'm asking 3M, where you can run more productively and efficiently from a working capital perspective? I would say so, Scott. As the team has done, Peter and the supply chain team have done a great job. One is learning through the pandemic how you manage the ebbs and flows as you go through supply chain disruption.

Speaker Change: Is there any like seasonality to these cost saves or I'm, just curious as to why they're not maybe carrying over a little more into.

Speaker Change: <unk> ended the first half of 'twenty four.

Speaker Change: Compounding of those benefits if you will I can understand the expense numbers are very clear.

It seems like you're kind of under punching.

Speaker Change: The benefits based on that carryover in 'twenty, four, especially in the first half.

Speaker Change: I I'm not sure I, one would agree with that but.

Monisha: Two, we have spent a lot of time and energy investing in digital resources that allow us to more efficiently look at demand plans, look at where our inventory is, and we have continued to keep working on dual sourcing, etc., that helps us get alternate sources of supply whenever you could have a disruption in one place. My view is that this inventory still has ways to run using data and data analytics. We can keep producing inventory. Working capital is going to continue to be a source of 3M's cash generation machine, along with the good EBITDA that we generate.

Speaker Change: You know when you look at one queue of 23 versus <unk> 24.

Speaker Change: There was no restructuring benefits pretty much in <unk> of 'twenty, three and we had a little bit of cost in 'twenty. Two so if you look at <unk> versus <unk>, you actually see margin rates up to 150 basis points, excluding the impact of restructuring costs. So you are seeing the benefits Steve on a year over year basis in <unk>.

Q4, the year as we have previously mentioned a savings that we are showing you in the 709 hundred which it always has been on net of the necessary investments that we are required to provide which we are going to spend to provide sustained benefits. So again just to repeat things like.

Speaker Change: And at the same time, I will tell you, if you see volume come back up, the factories are ready, and we have the capacity, and we'll act accordingly. So I would say the team did a really nice job, but there's always more we can do, and we'll keep doing it. Hey Scott.

Speaker Change: We changed our method of delivery in certain geographies 30 countries you need a structure.

Scott Reed Davis: Just to add, you know, the actions that we have been talking about all through 23, the actions to streamline our supply chain operations, simplify our go-to-market models, that's streamlining supply chain operations. It was more than a restructuring. This was about aligning our global supply chains to our go-to-market models, really optimizing what we do across plan, source, make, deliver, and with a focus on and an expectation that we're going to drive improvements, improvements in service, improvements in costs, improvements in working capital, and cash. And as Monish said earlier, these are the actions we've taken about the way we operate, and it's an expectation we're going to continue So there's a plan and strategy, and data and data analytics, you know, give us a basis for driving better visibility and improvement as well. So it is part of that.

Speaker Change: That has to get put into place to.

Speaker Change: So that you got rooftops. So we have exited the rooftops, you're starting to see the savings, but we have to spend the money to upgrade the rooftops that we have left because we're able to consolidate that space. So that people can come and work in that space and then we'll continue to invest in things like.

Speaker Change: Customer operations, and automate customer operations, which was a part of the whole there was a reason why we did this spike said it I've said it it's the way we work and some of these savings you're seeing got my head as you made those actions and now they're going to put it we are going to put in the necessary costs. So that we can continue to see those savings and that's why I keep.

Speaker Change: Saying at the end of 'twenty 'twenty four it will be largely done with these actions and the benefits will carry on into 'twenty, five and beyond that $700 million to $900 million.

Speaker Change: So we do expect to continue to drive improvement as we, you know, our guide for 24 has us. Again, driving improvements in how we execute, showing up in growth and earnings and expanded margins and another year of strong cash generation. So it is an important part of those actions that we took as we went through 23. Fair enough. Best of luck this year, guys.

Speaker Change: Yes, just so it's clear.

Speaker Change: The investments that are more niche is highlighting.

Speaker Change: Is included in the 700, and the 700 and $900 million.

Speaker Change: Yeah, Okay that all makes sense, so it's kind of a bit of a timing thing crown. Okay. Thanks a lot.

Speaker Change: Yep.

Speaker Change: Our next question comes from the line of Jeff Sprague with vertical Research partners. You May proceed with your question.

Speaker Change: Thank you. Yep. Thanks, Scott.

Speaker Change: Our next question comes from the line of Julian Mitchell with Barclays. You may proceed with your question. Hi, good morning, good morning.

Jeffrey Todd Sprague: Hey, Thank you good morning, everyone.

Jeff Sprague: Yes.

Jeffrey Todd Sprague: Good morning, Hey, I, just wanted to come back.

Jeffrey Todd Sprague: Just thinking about kind of the separation and just some of the math.

Julian Mitchell: Maybe first off, I just wanted to clarify some of Monisha's comments on operating margins year on year. So I think Monisha was saying that Q1 the margin is up 250 bits, excluding restructuring, and then the full year is up 75 to 100 BIPs, including restructuring. I just want to make sure those numbers were right. You're right.

Jeffrey Todd Sprague: When they should've taken some pains here the you know kind of remind us.

Jeffrey Todd Sprague: Now, it's not as simple as just splitting this into.

Speaker Change: So just to just a couple of questions. I think you had previously said that.

Kind of Standalone corporate costs for the health care business was about $100 million.

I Wonder if that's moving around at all if you could provide any additional color on that and.

Speaker Change: And any color on sort of segments within that or the corporate cost, there was some reallocation you talked about on slide seven, you know, any kind of major moving parts that you'd call out year on year on a segment basis or what that new sort of corporate run rate is. Yeah, I would say, Julian, as with prior years, there are a number of miscellaneous items in corporate and unallocated that are always subject to fluctuation on a quarterly and annual basis. So if you look at 2023, our incurred cost was $44 million. And in the fourth quarter, it was $120 million in benefits. The Q4 benefit was largely the result of annual incentive compensation accrued for the first nine months that was allocated to the businesses finally based on performance. This adjustment had no impact on total company margins.

Speaker Change: Is there some color you could provide on what you're expecting on the on the TSA.

Speaker Change: I think that's going to have to be an input of what's the EBITDA is for health care at the time of the spin and the associated dividend that comes off of that so.

Speaker Change: I know when they get the foreign tons to get little bit closer youre going to be more precise on this but it does seem like you're directionally warning us to be a prepay.

Speaker Change: Prepared for some friction here. So I'm wondering if you can give us a little bit more color.

Speaker Change: Yeah, Jeff.

Jeffrey Todd Sprague: As I said I think the timing of the spin will definitely determine some of these costs and I would just say you know let us work through it as we get closer to it Brian and the team will walk you through as they get closer to getting ready for the spin and as committed we are going to have an investor day.

Jeffrey Todd Sprague: Post spin while they'll walk you through all of the factors that you have to take into account which is <unk>.

Speaker Change: So it's just a bucket swap between corporate unallocated and the business. And so for the full year of 2024, again, based on health care, being a part of 3M for the whole year, so it's just the assumption that we expect the expense range of paying somewhere in the 100 to the 200 on an adjusted basis for Corporate Analog. Thank you very much.

Jeffrey Todd Sprague: Not only post III and what does that revenue and margin looked like but also the impact of transition services agreements because they will be transition services agreements for a period of time and then the amount of stranded cost. The good news Jeff is that through all the restructuring actions that we have done.

Speaker Change: And then just my second question, just trying to understand the free cash flow guidance because I think you did $6.3 billion of free cash in 2023. And this year it's guided at about $5.3 billion. So it's a big decline year on year, even with net income, I think growing $200 million in the guide, and CapEx is up about $100 million in the guide. Anything to sort of call out on that? I would just say Julian, you know, 3M has historically always been a good cash generator.

Jeffrey Todd Sprague: To some extent, we've been able to reduce the amount of stranded cost that would have been that if we hadn't taken. These these actions due to reduce some of the cost at the center.

Jeffrey Todd Sprague: And then unrelated just on slide three have you've definitively decided to use the $1 billion equity option to fund part of combat arms.

Jeffrey Todd Sprague: Have you decided I am sorry.

Jeffrey Todd Sprague: Have you decided to go ahead and use the equity option of $1 billion.

Jeffrey Todd Sprague: Combat arms settlement no no we have not yet that that's an option be hold and we will make the appropriate decision once.

Julian Mitchell: And that's what we plan to continue doing. If you look at 2022, we had 86% free cash flow conversion, which we were not happy with at all. And the teams did a great job in 2023.

Jeffrey Todd Sprague: We see the progress in the <unk>.

Jeffrey Todd Sprague: In the number of opt ins for the agreement for the combat Arms litigation, Yes, Geoff the purpose of our statement is so you guys can think about your outstanding share count.

Speaker Change: To get us back, if you take the two years, it's around 100%. And if you look at the history of 3M, we have always been in that range. And I would say we'll continue doing that. But at the same time, we'll keep investing in growth, productivity, and sustainability, as and when the volume comes up, and when the opportunities arise, because at the end of the day, our first priority is organic growth, because that gives us the best return, and the best way to do that is through organic investment. So that's our first priority. Great, thank you.

Jeffrey Todd Sprague: That if we do exercise.

That option to pay in equity that that will be treated as an excluded item in arriving at adjusted results.

Jeffrey Todd Sprague: So that was only just to highlight don't worry about the.

The impact is at our option that is yet to be determined.

Jeffrey Todd Sprague: But you don't have to take that into account relative to your share count on an adjusted basis.

Jeffrey Todd Sprague: But it sounds like you will then we're planning to use an adjusted share count if you go down this path right or.

Jeffrey Todd Sprague: Okay compounding adjustments on top of adjustments it sounds like.

Speaker Change: Yep. Our next question comes from the line of Nigel Coe with Wolf Research. You may proceed with your question. Thanks. Good morning, can you hear me? Yes we can. Morning Nigel. Hi, good morning.

Jeffrey Todd Sprague: There would be a difference in GAAP shares outstanding versus adjusted shares outstanding.

Jeffrey Todd Sprague: If we decide to exit exercise this option to issue equity.

Speaker Change: Okay understood. Thank you.

Nigel Coe: Great to catch up, by the way. So just want to dig into the corporate line again, Monish. I think you said $100 to $200 million, you know, kind of a run rate for 2024. That's EBIT, not EBITDA. I just want to make sure that's the case. And are you affecting any corporate disenergies or standalone costs for healthcare within that $100 to $200? It's even. Evan, It's EBIT, Nigel, to that, can you hear me?

Speaker Change: Yes, it will make it clear in our financial reporting.

Speaker Change: That were to incur.

Speaker Change: Our last question comes from the line of Deane Dray with RBC capital markets. You May proceed with your question.

Deane Dray: Thank you good morning, everyone. Thanks for fitting me in just had a couple of questions.

Questions on some of the outliers in the fourth quarter results and hopefully I didn't Miss this.

Deane Dray: For transportation electronics significant upside on the top line I saw that you.

Nigel Coe: Yeah, I can, yes. I'm sorry, what was your follow-up question? I didn't catch that.

Deane Dray: Haven't adjusted flat organic revenue growth. So what were those adjustments that were to be good and then on the corporate line.

Nigel Coe: Yeah, no, no, the kind of second part of that question was, was really, are you affecting any stand-alone costs or, yeah, stand-alone costs or corporate disingenuities from the healthcare spin within that number? Or would that be additive to that, to that range? No, that, that number again, you know, if you just go back to Bruce's comment at the beginning of the call, our current assumption is that healthcare is a part of 3M, even though the spin is on track for the first half of 2024. And as we go through the healthcare spin, we plan to have an Investor Day post-spin where we'll update you on the stranded cost, the impact of transition services agreements, as Yeah, Nigel, just to highlight, Monish, during his prepared remarks, did mention that there are additional costs in health care for standing it up as a standalone entity, and that is having some margin impact within healthcare. Oh, no question, no.

Deane Dray: That's one two a significant benefit.

Speaker Change: Just give us a sense of what those adjustments where that would have caused that and maybe you answered that question with Julien, but I just wanted to get those clarified please.

Speaker Change: Yeah, I think what you're looking at is the adjustment for PFS exited PFS. If you recall, we're we're excluding the PFS related men PFS manufacturing and related business.

As we report and that was part the primary business, where that was transportation electronics. So that's where you saw that maybe that that adjustment.

That's helpful and how about the corporate line.

Speaker Change: So as with previous years.

Speaker Change: There are a number of miscellaneous items in corporate and unallocated.

Speaker Change: That are subject to fluctuation of quarterly and annual basis. So if you answer specifically your question. If you look at for the year corporate and allocated was $44 million and on on it.

Speaker Change: In the fourth quarter, it was a benefit of $121 million.

Speaker Change: Q4 benefit was largely the result of annual incentive compensation accrual for the first nine months.

Nigel Coe: Just wanted to make sure that was the case. And then my final question is just really trying to dig into the restructuring cadence. You've quantified the Q1 impact, but if I take the $1.52 of cost savings in Q4, Monish, and then multiply that by four, you get to, mathematically, about $650 million of cost savings. And the midpoint of your guide for 2024 is $617. So I'm just actually wondering, it doesn't look like we're getting any incremental costs coming through from here on in 2024. So just wondering, you know, what is the opposite to that?

Speaker Change: That has now been allocated back to the business segments based on final performance DISA.

Speaker Change: This adjustment had no impact to total company margins because it is it's a move from corporate and allocated to the business segments.

Speaker Change: And then for the full year 2024, we expect the expense range to be in the range of $100 million to $200 million on an adjusted basis.

Speaker Change: Great I appreciate that and just one last follow up from me, Mike you talked about the goals for 24 related to P. Foster advanced to ramp down.

Speaker Change: From what you see today would there be any circumstances, where three of them, which continued to produce P. Fast after 2025 or is this just a non negotiable and will you dismantle the equipment or cannot be repurposed. Thanks Dean.

Speaker Change: Is there some level of investment here? I was just wondering what's going on here. Yeah, so I would say it's the same thing I've said before. If you remember, we said our total benefits would be $700 to $900 once the program was done at equal cost. We are saying our actions will be largely done by the end of 2024, so you will see benefits continuing into 2025. And as I previously mentioned, our savings are net of the necessary investments required to provide sustained benefits from our restructuring programs. So, for example, these investments include the structure necessary to enhance our go-to-market models.

Speaker Change: Dean.

Speaker Change: Third we're committed to that.

Speaker Change: We announced the exit PFS manufacturing by the end of 2025 and as I said, we're making good progress to that we're working to help customers transition. We will I think we talked about this or one of our earnings calls we will not.

Speaker Change: Solid equipment, we won't transfer any of the assets, we won't sell the business. We want license are our intellectual property. So we are we are going to exit and complete by the end of 2025 Thats everybody is focused on that goal.

Speaker Change: As we talked about, we have exited or changed the distribution model for 27 to 30 countries, so making sure we have a structure that supports that change. Continuing to automate our back-end processes as we continue with the spin of healthcare. Upgrade rooftops as we consolidate space because you see the savings as we have exited the space, but I got to make sure that the rooftops are upgraded so people can come into work there. And then continued investment in cybersecurity.

Speaker Change: Thank you.

Speaker Change: 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.

Michael F. Roman: To wrap up we are executing our priorities in delivering on our commitments. We will stay focused on continuing to improve our performance optimize our portfolio and reduce risk while using three M science to create unique solutions for our customers. Thank you for joining us.

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

Speaker Change: And we have also said this before, that the restructuring actions that we have taken, one, are a way of how we work, but two, they will help us partially reduce the stranded costs associated with the pending spin-off of healthcare. So, all put together, I still see the programs on track at 700 to 900. But as I mentioned before, too, I would just ask you all to think through this: there's a side of cost cadence which once we are done with those actions, those cost cadence will go away, and the benefits will continue into 2025 and beyond at an annualized basis of 700 to 900, assuming healthcare remains as a part of 3M. Great. Okay, thanks a lot.

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Speaker Change: Okay.

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Speaker Change: That's great. Thank you. Our next question comes from a line from Chris Schneider with UBS. You may proceed with your question. Thank you.

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Speaker Change: Yeah.

Chris Schneider: I also wanted to ask about 2024 margins. And if we look through the restructuring, it seems like the guide is implying flat margins year on year for the business. And I guess why isn't there expected margin expansion because the company is expecting to grow volumes or at least grow organically in a year. And it sounds like some of the exits the company is making should be accretive for margins. Just what are some of the headwinds there? Thank you.

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Chris Schneider: So I would say exactly the same thing I said before; when you look at it in total, our plan for 2024 assumes a margin expansion of 75 to 100 basis points, which includes the restructuring benefits and the low restructuring costs, but at the same time, it also includes many other factors that we take into account. For example, we're going to continue to invest in growth, productivity, and sustainability as the macro starts improving. We're going to continue to invest in product areas, and we're going to continue to invest in our people. So I would again ask you to look at, in total, if you exclude restructuring costs, we expanded margin by 60 basis points in 2023, and in 2024, our total margin expansion, including the benefits of restructuring, is 75 to 100 basis points. So Chris, I would say.

Speaker Change: Okay.

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Speaker Change: As the year progresses, and I've said this before, volume gives us the best leverage. So as we get more volume, we're going to continue to see leverage increase. I appreciate that.

Speaker Change: And then just a follow-up on the margins. I know you guys said $150 to $250 year-on-year net restructuring for the full year, but could you tell us what is implied in the Q1 guidance? And also, I believe you said that the Q1 margin includes some level of standing costs for healthcare. Could you just tell us what those are expected to come in at? Yeah, so the benefits, I would say, again, it depends on which way you're looking at it, Chris.

Speaker Change: I would tell you on a year-over-year basis, as I said, there's approximately 75 to 100 basis points—sorry, 75 to 100 million dollars of restructuring costs on a year-over-year basis. So, if you exclude that, margin rates are 19.5 to 20 percent for Q1. No, sorry, 19.5—my number is all getting bigger—it's 19.5 to 20 percent is the guide, which includes 75 to 100 million in cost. So, if you adjust for that cost on a year-over-year basis, margin rates will be up 250 to 300 basis points. And then on stand-up cost, again, timing will determine what the final stand-up cost is, but currently, we see approximately seven to eight cents of total cost that we are incurring as Brian and the team get ready for spin-off healthcare.

Speaker Change: Thank you. Our next question comes from the line of Joe Ritchie with Goldman Sachs. You may proceed with your question. Hi, good morning everyone. Morning Joe.

Joe Ritchie: Hey, obviously, like the volume environment remains fairly muted. But I'm curious, like, how are you guys thinking about pricing for 24? And particularly, like, what's embedded in the guide from a price cost standpoint?

Joe Ritchie: So the 2024 outlook assumes we will have selling prices year on year. It's helping us offset some of the moderate inflation we are seeing in certain raw materials. And then the labor market continues to remain strong.

Joe Ritchie: But I would just tell you, you've seen, we've become good at monitoring this. We'll make sure we continue to take action as needed. And you've seen it; we did that in 22, we'll do that in 2023.

Joe Ritchie: But I would say more importantly, when you think about margin rate and the supply chain teams and the business teams, we are not just taking price raw as one item in total. We're just saying, how do we improve margins? So a lot of action's been taken, whether it's through selling price increases, driving global sourcing benefits, dual sourcing, driving yield in the factories, and of course, prioritizing demand and all of that put together, including the new way we work with all the restructuring-related items we announced last year, just help us continue to drive margin between 2024, 25 and beyond. That's that's clear, Monish.

Monish Patolawala: And I guess, you know, there's been a lot of discussion about the restructuring expenses and the benefits coming through in the next couple years. I guess just for 2025, as we're thinking about, you know, the low end versus the high end of the benefits range, maybe like, how would you kind of handicap what are the key drivers that potentially put you guys at the low end of the 700 versus the high end of the $900 million benefit range? So I would first say, number one, you know, again, I keep reiterating this just because there's an assumption that's out there that we have assumed that healthcare remains as a part of 3M. That's just a guide, but healthcare is on track for a first half 24 spin. Keeping that in mind, when you think about 700 to 900, it's driven by two pieces.

Monish Patolawala: One is the pace at which we can execute some of these actions, as well as some of the rooftop consolidations that we are working on. In total, I still feel good that the range of 700 to 900 is good for the overall program. But as you have seen, Joe, quarter to quarter, there's always going to be a little movement because there are multiple actions that we're working through, regulations, and countries, and we're working through making sure we're doing it in a safe manner that could have a month or two delay. But overall, I still feel good. 700 to 900 is a good price range.

Monish Patolawala: Okay, thank you. Our next question comes from the line of Stephen Tusa with J.P. Morgan. You may proceed with your question. Hi, good morning, how are you?

Stephen Tusa: I'm still not 100% clear what the sequential decline is in EPS from 4Q to 1Q. Can you maybe just help explain that a little more specifically? I know there's PACs...uh...impact there, maybe a little bit of sequential sales decline...uh... I'm just having a little bit of a hard time reconciling uh... you know the walk, uh... I mean, I think you had a seven cent charge in forex from uh... Argentina's devaluation, maybe that's a factor, I don't know just maybe maybe Restructuring starts showing up in the results. It's going to get harder and harder to do sequentials.

Speaker Change: But anyway, I'll do my best, and hopefully that answers your question. So I would start by first saying you're going to see another strong quarter of execution on a year over year basis. And I would ask you to look at that first. When you look at our guide for January, we're saying it's approximately $7.6 billion. And there are no surprises in January so far.

Speaker Change: It's very similar to Q4 trends. So volume is a little lower, Q4 to Q1. That has an impact.

Speaker Change: Secondly, there is usual seasonality that we see in our business when it comes to resetting some of our pay plans and some of the other compensation things that we do. So seasonally, you see that as an impact. Thirdly, as I mentioned earlier, we are incurring incremental costs to stand up the healthcare business as we get ready for the spin. The total impact is approximately seven to eight cents. It's the total cost in the quarter. We have a headwind from our pension accounting that we talked about, which is $0.04 of headwind. And then on a tax rate basis, we expect our 1Q tax rate to be in the range of 20 percent to 21 percent versus where we ended the fourth quarter at 14.9. So I hope that kind of gives you all the puts and takes to get you to the range that we have of $2 to $2.15. Yeah, that makes sense.

Speaker Change: And then just one last thing on restructuring. I mean, I usually think of restructuring as, you know, building, once you do a certain number in a quarter, you kind of carry it over, you know, annually. You guys are running ratings at a pretty high, high level of benefits in the third and the fourth quarter, that ramped pretty hard sequentially from the first half. Is there any, like, seasonality to these cost saves? Or I'm just curious as to why they're not maybe carrying over a little more into the first half of 24.

Speaker Change: You know, like a compounding of those benefits, if you will. I can understand the expense numbers are very clear. But it seems like you're kind of under-pinning the benefits based on that carryover in 24, especially in the first half. I'm not sure one would agree with that, but when you look at one Q of 23 versus one Q of 24.

Speaker Change: There were no restructuring benefits pretty much in 1Q of 23, and we had a little bit of cost in 23. So if you look at 1Q versus 1Q, you actually see margin rates up 250 basis points-ish, excluding the impact of restructuring costs. So you are seeing the benefits, Steve, on a year-over-year basis in 1Q. For the year, as we have previously mentioned, our savings that we are showing you in the 700 or 900, which is always has been, net of the necessary investments that we are required to provide, which we are going to spend to provide sustained benefits. So again, just to repeat things like, We changed our method of delivery in certain geographies, 30 countries. You need a structure that has to get put into place to serve that. You've got rooftops, so we have gone off the rooftops.

Speaker Change: You're starting to see the savings, but we have to spend the money to upgrade the rooftops that we have left because we have to consolidate that space so that people can come and work in that space. And then we'll continue to invest in things like customer operations and automate customer operations, which was a part of the whole. There was a reason why we did this. Mike said it.

Michael F. Roman: I've said this is the way we work. And some of these savings you're seeing come ahead as you've made those actions. And now we're going to put it in, we're going to put in the necessary costs so that we can continue to see those savings. And that's why I keep saying at the end of 2024, we'll be largely done with these actions.

Michael F. Roman: And the benefits will carry on into 25 and beyond at 700 to 900 million. Yeah, just so it's clear, Steve, the investments that Monish is highlighting are included in the $700-$900 million. Yeah, okay, that all makes sense, so it's kind of a bit of a timing thing. Correct. Okay, thanks a lot.

Michael F. Roman: Yeah. Our next question comes from the line of Jeff Sprague with Vertical Research Partners. You may proceed with your question. Hey, thank you. Good morning, everyone. Good morning.

Jeffrey Todd Sprague: Hey, I just wanted to come back just to thinking about kind of the separation and just some of the math. Monish, you've taken some pains here to, you know, kind of remind us that, you know, it's not as simple as just splitting this in two. So, just a couple questions. I think you had previously said that the just kind of standalone corporate costs for the healthcare business were about $100 million. I wonder if that's moving around at all, and if you could provide any additional color on that.

Jeffrey Todd Sprague: And, you know, is there some color you could provide on what you're expecting from the TSAs? I think that's going to have to be an input to what the EBITDA is for healthcare at the time of the spin and the associated dividend that comes off that. So, I know when we get to 4 and 10, as we get a little bit closer, you're going to be more precise on this, but it does seem like you're directionaly warning us to be, you know, prepared for some friction here. So, I'm wondering if you can give us a little bit more color.

Speaker Change: Yeah, Jeff, as I said, I think the timing of the spin will definitely determine some of these costs. And I would just say, you know, let us work through it as we get closer to it. Brian and the team will walk you through it as they get closer to getting ready for the spin.

Speaker Change: And as committed, we are going to have an investor day post spin. Well, we'll walk you through all the factors that you have to take into account, which is. Not only post-3M, what does that revenue and margin look like, but also the impact of transition services agreements, because there will be transition services agreements for a period of time, and then the amount of standard costs. The good news, Jeff, is that through all the restructuring actions that we have done, to some extent, we have been able to reduce the amount of stranded costs that would have been there if we hadn't taken these actions to reduce some And then, unrelated, just on slide three, have you definitively decided to use the $1 billion equity option to fund part of Combat Arms? Thank you. Thank you. Thank you. Have we decided? I'm sorry.

Speaker Change: Have you decided to go ahead and use the equity option of $1 billion for the Combat Arms settlement? No, we have not, Jeff. That's an option we hold, and we will make the appropriate decision once we see the progress in the number of opt-ins for the Combat Arms litigation. Yeah, Jeff, the purpose of our statement is so you guys can think about your outstanding share count, that if we do exercise that option to pay in equity, that will be treated as an excluded item in arriving at adjusted results. So that was only just a highlight.

Speaker Change: Don't worry about it. The impact, at our option, is yet to be determined, but you don't have to take that into account relative to your share count on an adjusted basis. But it sounds like you then will be planning to use an adjusted share count if you go down this path, right? Compounding adjustments on top of adjustments, it sounds like. There would be a difference in GAAP shares outstanding versus adjusted shares outstanding if we decide to exercise this option to issue equity.

Speaker Change: Okay. Understood. Thank you. Yeah. Yeah.

Speaker Change: We'll make it clear in our financial reporting if that were to occur. Our last question comes from the line of Deane Dray with RBC Capital Markets. You may proceed with your question. Thank you. Good morning, everyone.

Deane Dray: Thanks for fitting me in. I just had a couple of questions on some of the outliers in the fourth quarter results, and hopefully, I didn't miss this. For transportation electronics, significant upside on the top line. I saw that you have an adjusted flat organic revenue growth. So what were those adjustments that were to the good? And then on the corporate line, and it swung to a significant benefit. Just give us a sense of what those adjustments were that would have caused that. And maybe you answered that question with Julian, but I just wanted to get those clarifications.

Speaker Change: Yeah, Deane, I think what you're looking at is the adjustment for PFAS, the exit of PFAS. If you recall, we're excluding the PFAS-manufacturing and related business as we report, and the primary business for that was transportation electronics. So that's where you saw, maybe, that adjustment.

Speaker Change: That's all for now. How about the corporate line? Yeah, so as with previous years, and Deane, there are a number of miscellaneous items, corporate and unallocated, that are subject to fluctuation on a quarterly and annual basis. So if you answer specifically your question, if you look at the year, the corporate allocated was 44 million. And in the fourth quarter, it was a benefit of one hundred and twenty one. The Q4 benefit was largely the result of annual incentive compensation accrual for the first nine months that has now been allocated back to the business segments based on final performance. This adjustment had no impact on total company margins because it's a move from corporate to the business side.

Speaker Change: And then for the full year 2024, we expect the expense range to be in the range of $100 to $200 million on an adjusted basis. Great. I appreciate that. And just one last follow-up from me, Mike. You talked about, you know, the goals for 24 related to PFAS to advance to ramp-down. From what you see today, would there be any circumstances where 3M would continue to produce PFAS after 2025, or is this just non-negotiable, and will you dismantle the equipment, or can it be repurposed?

Michael F. Roman: Yeah, Deane, we're committed to that, what we announced, to exit PFAS manufacturing by the end of 2025. And as I said, we're making good progress on that. We're working to help customers transition. I think we talked about this on one of our earnings calls. We will not sell the equipment. We won't transfer any of the assets. We won't sell the business. We won't license our intellectual property.

Michael F. Roman: So we are going to exit and complete by the end of 2025. Everybody's focused on that goal. 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 are executing our priorities and delivering on our commitments. We will stay focused on continuing to improve our performance, optimize our portfolio, and reduce risk while using 3M science to create unique solutions for our customers.

Speaker Change: Thank you for joining us. Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.