3M(MMM) - 2023 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q1 2023, total adjusted sales were $7.7 billion, down 9.7% year-on-year, with adjusted organic sales decreasing by 5.6% [13][17][18] - Adjusted earnings per share (EPS) were$ 1.97, with adjusted margins at nearly 18% [13][14] - Adjusted free cash flow increased to approximately $950 million, up 24% year-on-year, with a conversion rate of 87% [21][22] Business Line Data and Key Metrics Changes - **Safety and Industrial**: Sales of$ 2.8 billion, down 6% organically, with a significant decline in disposable respirator demand impacting results [23][25] - Transportation and Electronics: Adjusted sales of $1.7 billion, with an 11.3% decline in organic growth, heavily affected by consumer electronics demand [26][27] - **Healthcare**: Q1 sales were$ 2 billion, with organic growth of 1.4%, and operating income down 19% year-on-year [28][29] - Consumer: Sales of $1.2 billion, down 6.8% organically, with particular weakness in the U.S. market [30][31] Market Data and Key Metrics Changes - The company experienced significant end-market weakness in consumer electronics, with a 35% decline in the electronics business and a 20% decline in China [16][39] - The automotive sector showed resilience, with a 6% increase in the auto OEM business [26][39] Company Strategy and Development Direction - The company is focusing on high-growth markets such as automotive electrification, personal safety, and healthcare, while also investing in emerging markets like climate technology and sustainable packaging [11][12] - A restructuring program is being implemented to streamline operations, reduce costs, and enhance supply chain efficiency, with an expected total pre-tax restructuring charge of$ 700 million to $900 million [10][14] Management's Comments on Operating Environment and Future Outlook - Management noted ongoing challenges in consumer-facing markets and geopolitical issues, but expressed confidence in the company's ability to navigate these challenges and improve performance [15][32] - The full-year guidance for adjusted organic sales growth is expected to be in the range of -3% to flat, with adjusted EPS projected between$ 8.50 to $9 [33][34] Other Important Information - The company plans to eliminate approximately 6,000 positions globally, representing about 10% of its workforce, to improve cost structure [10][12] - The exit from PFAS manufacturing is being managed separately from the restructuring actions, with a total program cost expected to be between$ 1.3 billion to $2.3 billion [56][57] Q&A Session Summary Question: Sales cadence during Q1 and April - Management indicated that end markets played out as anticipated, with consumer-facing businesses experiencing declines, particularly in electronics and China [39][40] Question: Cost takeout and business disruption - Management emphasized that the restructuring actions are deliberate and aimed at positioning the company for growth and profitability without significant disruption [43][44] Question: Quarterly cadence of restructuring costs and savings - The restructuring charges are expected to be incurred throughout the year, with benefits primarily showing up in the second half [48][49] Question: Changes in go-to-market strategy - The catalyst for changes in the go-to-market strategy was the learning from recent experiences, aiming to optimize operations and better serve customers [51][52] Question: Impact of destocking at customer level - Management noted ongoing destocking in consumer retail and industrial markets, which is expected to continue into the second quarter [64][65]