![Presentation q4 2023](https://www.moneycontroller.it/upload/aziende/3m-company_20210802123908.png)
2023 Fourth Quarter Earnings
(unaudited)
Mike Roman |
Monish Patolawala |
Bruce Jermeland |
Chairman of the Board and |
President and Chief |
Senior Vice President, |
Chief Executive Officer |
Financial Officer |
Investor Relations |
2
Forward-looking statements
This presentation contains forward-looking information about 3M's financial results and estimates and business prospects that involve substantial risks and uncertainties. You can identify these statements by the use of words such as "plan," "expect," "aim," "believe," "project," "target," "anticipate," "intend," "estimate," "will," "should," "could," "would," "forecast" and other words and terms of similar meaning in connection with any discussion of future operating or financial performance or business plans or prospects. Among the factors that could cause actual results to differ materially are the following: (1) worldwide economic, political, regulatory, international trade, geopolitical, capital markets and other external conditions and other factors beyond the Company's control, including inflation, recession, military conflicts, natural and other disasters or climate change affecting the operations of the Company or its customers and suppliers; (2) foreign currency exchange rates and fluctuations in those rates; (3) risks related to certain fluorochemicals, including liabilities related to claims, lawsuits, and government regulatory proceedings concerning various PFAS-related products and chemistries, as well as risks related to the Company's plans to exit PFAS manufacturing and discontinue use of PFAS across its product portfolio; (4) risks related to the proposed class-action settlement ("PWS Settlement") to resolve claims by public water systems in the United States regarding PFAS, including whether court approval of the PWS Settlement will be obtained, whether the number of plaintiffs that opt out of the PWS Settlement will exceed current expectations or will exceed the level that would permit 3M to terminate the PWS Settlement (and whether 3M will elect to terminate the PWS Settlement if this occurs), whether the PWS Settlement is appealed, the timing and amount of payments made under the PWS Settlement, and the impact of the PWS Settlement on other PFAS-related matters; (5) legal proceedings, including significant developments that could occur in the legal and regulatory proceedings described in the Company's Annual Report on Form 10-K for the year ended Dec. 31, 2022 and any subsequent quarterly reports on Form 10-Q (the "Reports"); (6) competitive conditions and customer preferences; (7) the timing and market acceptance of new product and service offerings; (8) the availability and cost of purchased components, compounds, raw materials and energy due to shortages, increased demand and wages, supply chain interruptions, or natural or other disasters; (9) unanticipated problems or delays with the phased implementation of a global enterprise resource planning (ERP) system, or security breaches and other disruptions to the Company's information technology infrastructure; (10) the impact of acquisitions, strategic alliances, divestitures, and other strategic events resulting from portfolio management actions and other evolving business strategies; (11) operational execution, including the extent to which the Company can realize the benefits of planned productivity improvements, as well as the impact of organizational restructuring activities; (12) financial market risks that may affect the Company's funding obligations under defined benefit pension and postretirement plans; (13) the Company's credit ratings and its cost of capital; (14) tax-related external conditions, including changes in tax rates, laws or regulations; (15) matters relating to the proposed spin-off of the Company's Health Care business, including whether the transaction will be completed, or if completed, will be on the expected terms; the risk that the expected benefits will not be realized; the risk that the costs or dis-synergies will exceed the anticipated amounts; the ability to satisfy the various closing conditions; potential business disruption; the diversion of management time; the impact of the transaction (or its pendency) on the Company's ability to retain talent; potential impacts on the Company's relationships with its customers, suppliers, employees, regulators and other counterparties; the ability to realize the desired tax treatment (including whether an Internal Revenue Service private letter ruling will be sought or obtained); the risk that any consents or approvals required will not be obtained; risks associated with financings that may be undertaken and indebtedness that may be incurred in connection with the
transaction; (16) matters relating to the proposed spin-off of the Company's Health Care business; and (17) matters relating to Combat Arms Earplugs ("CAE"), including those relating to the August 2023 settlement that is
intended to resolve, to the fullest extent possible, all litigation and alleged claims involving the CAE sold or manufactured by the Company's subsidiary Aearo Technologies and certain of its affiliates ("Aearo Entities") and/or
3M ("CAE Settlement"), including, but not limited to, whether the anticipated participation by plaintiffs in the CAE Settlement will be achieved, whether the number of plaintiffs that participate in the CAE Settlement will meet
current expectations or will fall below the level that would permit 3M to terminate the CAE Settlement (and whether 3M will elect to terminate the CAE Settlement if this occurs), whether there will be a significant number of future claims by plaintiffs that decline to participate in the CAE Settlement, whether the CAE Settlement is appealed or challenged, matters related to the potential issuance of the equity securities that are contemplated to be part of the CAE Settlement, the filing of additional, or the outcome of any other pending or future, litigation relating to the products that are the subject of the CAE Settlement, or changes in related laws or regulations. Changes in such assumptions or factors could produce significantly different results. A further description of these factors is located in the Reports under "Cautionary Note Concerning Factors That May Affect Future Results" and "Risk
Factors" in Part I, Items 1 and 1A (Annual Report) and in Part I, Item 2 and Part II, Item 1A (Quarterly Reports). The Company assumes no obligation to update any forward-looking statements discussed herein as a result of new
information or future events or developments.
Note on non-GAAP financial measures
This presentation refers to certain non-GAAP financial measures. Refer to 3M's January 23, 2024, press release for descriptions of non-GAAP financial measures such as adjusted net sales (and adjusted sales change); adjusted purchases of property, plant and equipment (also referred to as adjusted capital expenditures); adjusted net cash provided by (used in) operating activities; adjusted free cash flow; adjusted free cash flow conversion; net debt; adjusted EBITDA (and adjusted EBITDA margin); and various measures that adjust for the impacts of special items. These non-GAAP measures are not in accordance with, nor are they a substitute for, GAAP measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in that press release.
2023 Q4 Earnings | January 23, 2024. All rights reserved.
3
2024 outlook approach
Notes on guidance
- At this time, the 2024 guidance approach
-
- Includes the Health Care business as part of the company for the full year and
- Does not reflect the potential impact of funding the litigation payments, absent the receipt of the cash payments in the spin (each as discussed below), therefore no corresponding impact on interest expense/income
- The pending spin of the Health Care business remains on track for 1H 2024. 3M expects the business to be spun-off with net leverage of 3 to 3.5 times EBITDA and distribute proceeds of the financing to 3M prior to spin
- Management continues to support the Public Water Systems (PWS) and Combat Arms Earplug (CAE) settlements and is working with all parties and the courts to reach finalization and ultimate implementation
-
- 3M has not selected from the options available to fund amounts due under the PWS and CAE legal settlements absent receipt of cash payments in the spin, therefore, has not forecasted the impacts of changes in net debt that may be needed to fund amounts under these settlements
- For illustrative purposes only, estimated based on the current market and company expectations, in the absence of the receipt of cash payments in the Spin, the potential adjusted EPS impact from complete debt financing of the legal settlements could be up to ($0.20)
- 3M will treat the dilutive EPS impact of 3M's option to satisfy $1 billion of the CAE settlement payments via shares as an adjustment in arriving at results, adjusted for special items
- When considering 3M financials post spin, it is not appropriate to simply remove the Health Care business
- 3M will host an investor meeting following the spin of Health Care
2023 Q4 Earnings | January 23, 2024. All rights reserved.
4
2023 performance
Executed our plan and delivered on commitments
Original Guidance |
||
January 2023 |
2023 Actuals |
|
Adjusted earnings per share |
$8.50 to $9.00 |
$9.24 |
Adjusted free cash flow conversion |
90% to 100% |
123% |
Adjusted organic sales growth |
Flat to -3% |
-3% |
Drove operational performance and improved underlying operating margins;
exceeded earnings and cash flow expectations
2023 Q4 Earnings | January 23, 2024. All rights reserved.
Advancing our priorities:
1
Driving performance through the 3M model
- Took actions to simplify the company; initiated restructuring actions that drove strong benefits in 2023
- Improved adjusted operating margins to 20.3%, which includes 140 bps headwind from pre-tax restructuring charges
- Generated $6.3 billion in adjusted free cash flow, resulting in conversion of 123%, up 37 ppts year-on-year
- Met or exceeded expectations throughout the year through strong operational execution
- Driving future growth by streamlining our go-to-market structures and investing in attractive markets such as automotive electrification, climate technology, and industrial automation
2023 Q4 Earnings | January 23, 2024. All rights reserved.
5
2
Spinning off
Health Care
- Spin remains on track for first-half 2024
3
Reducing risk
and uncertainty
- Combat Arms settlement continues to achieve milestones amid strong support from claimants
- PWS settlement progressing
- PFAS manufacturing exit remains on track by year-end 2025; 2023 PFAS production volumes down ~20%
6
Driving margin and cash flow through operational execution
Q4 2023 performance
Adjusted Sales of $7.7B
vs. $7.6 to $7.7B guidance
Adj. organic growth of -1.4%
Includes 60 bps headwind from disposable
respirator decline
- End-markettrends played out as anticipated
-
- Strength in automotive OEM
- Electronics stabilizing
- China and consumer retail remain soft
- Disposable respirator decline as expected
Adjusted Op. Income
Margin of 20.9%
- Adjusted operating income margin up 180 bps YoY, includes 140 bps headwind from restructuring & related charges
- Continued strong operational execution
- Corporate & Unallocated benefit driven by costs moved into business segments based on final full-year performance; no impact to total company operating margins
Adjusted EPS of $2.42
vs. $2.13 to $2.33 guidance
- Adjusted EPS up 11% YoY
- Accelerated restructuring actions; Q4 EPS impact of $0.17 vs. guidance mid-point of $0.14
- Adjusted tax rate of 14.9%, or $0.06 EPS benefit vs. guidance (FY 2023 guide of ~18%; Q3 YTD actual of 18.3%; implied Q4 of ~17%)
Adjusted Free Cash
Flow of $2.0B
- Adjusted free cash flow conversion of 145%
- Remained focused on working capital improvement; inventory levels down $550M year-on-year
- Continuing to invest in growth, productivity, and sustainability
2023 Q4 Earnings | January 23, 2024. All rights reserved.
7
Q4 2023 operating margin and EPS
Adjusted |
Adjusted |
||
operating |
earnings |
||
margin |
per share |
Commentary |
|
Q4 2022 |
19.1% |
$2.18 |
|
Total organic growth/ |
+4.0% |
+$0.43 |
|
productivity/other |
|||
Disposable respirator |
-0.1% |
-$0.03 |
• Decline in COVID-related disposable respirator demand |
Remaining organic growth/ |
+4.1% |
+$0.46 |
• Benefits from productivity, sourcing actions, restructuring, spending discipline, and selling price |
productivity/other |
• Partially offset by lower sales volumes and growth, productivity, and sustainability investments |
||
Restructuring & related charges |
-1.4% |
-$0.17 |
• Q4 2023 pre-tax charge of $109M |
Raw material |
-0.1% |
-$0.01 |
• Carryover impact of raw material, logistics, and energy cost inflation |
FX |
-0.7% |
-$0.07 |
• Net of hedge impact; Argentina devaluation |
Other expense/income |
NA |
+$0.02 |
• Primarily lower net interest |
Adjusted tax rate* |
NA |
+$0.05 |
• Q4 2023 adjusted tax rate of 14.9% versus 16.6% in Q4 2022 |
Shares outstanding |
NA |
-$0.01 |
• Average diluted shares up YoY |
Q4 2023 |
20.9% |
$2.42 |
|
* The effect of income taxes on items that had specific tax rates are reflected within their respective impacts in the table above.
2023 Q4 Earnings | January 23, 2024. All rights reserved.
8
Q4 2023 cash flow and balance sheet
Adjusted free cash flow
$2.0B
Adjusted free cash flow
conversion
145%
Cash returned to
shareholders
$0.8B
Adjusted free cash flow
Adjusted free cash flow conversion
Adjusted capital expenditures
Net debt
Capital returned to shareholders
- Q4: $2.0B, up 18% YoY
- FY: $6.3B, up 30% YoY
- Q4: 145%, up 8 ppts YoY
- FY: 123%, up 37 ppts YoY
- FY: improvement driven by working capital, especially inventory
- Q4: $308M, down 32% YoY
- FY: $1.4B, down 8% YoY
- Q4: $10.0B, down 17% YoY
- Q4: dividends $0.8B
- FY: dividends $3.3B
2023 Q4 Earnings | January 23, 2024. All rights reserved.
Business Group performance
Safety & |
Transportation & |
Health Care |
Consumer |
|||||
Industrial |
Electronics |
|||||||
2023 Q4 Earnings | January 23, 2024. All rights reserved.
10
Business Group performance
FY 2023 |
Q4 2023 |
|||||
Organic |
Organic |
|||||
growth |
growth |
|||||
Adjusted |
Adjusted |
|||||
operating |
operating |
|||||
margin |
margin |
Q4 Commentary |
||||
Safety & |
-5.1% |
-3.9% |
• Double digit organic growth in roofing granules, industrial adhesives and tapes flat, all other divisions declined |
|||
• Disposable respirator sales down ~$50M, and reduced segment organic growth by 1.6 ppts |
||||||
Industrial |
22.0% |
19.7% |
• Adjusted operating margin -70 bps YoY; decline driven by lower sales volume partially offset by benefits from |
|||
restructuring, pricing, and strong spending discipline |
||||||
Transportation |
-3.5% |
2.7% |
• Adjusted organic growth in advanced materials, automotive and aerospace, and commercial solutions; electronics flat and |
|||
transportation safety declined |
||||||
& Electronics* |
21.0% |
20.9% |
• Consumer electronics stabilizing; closely monitoring demand trends |
|||
• Adjusted operating margins +380 bps YoY; benefits from restructuring, pricing, and strong spending discipline |
||||||
0.7% |
-1.0% |
• Organic growth in medical solutions; separation and purification, oral care and health information systems declined |
||||
Health Care |
||||||
• Operating margin -190 bps YoY; decline driven by lower volumes and costs to build out the team ahead of spin |
||||||
19.6% |
18.3% |
• EBITDA margin of 25.5% |
||||
-4.7% |
-2.2% |
• Organic growth in home improvement; home health and auto care, and stationery and office declined |
||||
Consumer |
• Operating margin +100 bps YoY; benefits from restructuring, portfolio optimization, spending discipline, and productivity, |
|||||
18.0% |
18.0% |
partially offset by lower volume |
||||
• Continued softness in consumer discretionary spend |
*"Transportation & Electronics" organic sales is provided on an adjusted basis while all other business segments are not provided on an adjusted basis
2023 Q4 Earnings | January 23, 2024. All rights reserved.
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Disclaimer
3M Company published this content on 22 January 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 23 January 2024 11:32:11 UTC.