Download pdf - 3M (MMM) Earnings Report: Q1 2016 Conference Call … Gangestad; 3M Company ; CFO Other Participants Joe Ritchie; Goldman Sachs; Analyst Julian Mitchell; Credit Suisse; Analyst Steven

CompanyName:3MCoCompanyTicker:MMMSector:IndustrialGoodsIndustry:Industrial

EventDescription:Q12016EarningsCallMarketCapasofEventDate:102.05BPriceasofEventDate:165.556

©2014TheStreet,Inc.Al l R ightsReserved Page1of23

3M(MMM)EarningsReport:Q12016ConferenceCallTranscriptThefollowing3MconferencecalltookplaceonApril26,2016,09:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

BruceJermeland;3MCompany;InvestorRelationsIngeThulin;3MCompany;Chairman,President&CEONickGangestad;3MCompany;CFO

OtherPart icipants

JoeRitchie;GoldmanSachs;AnalystJulianMitchell;CreditSuisse;AnalystStevenWinoker;SanfordC.Bernstein&Co.;AnalystScottDavis;BarclaysCapital;AnalystJohnInch;DeutscheBank;AnalystAndrewKaplowitz;Citigroup;AnalystDeaneDray;RBCCapitalMarkets;AnalystNigelCoe;MorganStanley;AnalystJeffreySprague;VerticalResearchPartners;AnalystShannonO'Callaghan;UBS;AnalystSteveTusa;JPMorgan;AnalystLaurenceAlexander;Jefferies&Company;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Welcometothe3Mfirst-quarterearningsconferencecall.

(OperatorInstructions)

Asareminder,thisconferenceisbeingrecordedTuesday,April26,2016.

IwouldnowliketoturnthecallovertoBruceJermeland,DirectorofInvestorRelationsat3M.

BruceJermeland (InvestorRelations):

Thankyou.Goodmorning,everyone.Welcometoourfirst-quarter2016businessreview.

OnthecalltodayareIngeThulin,3M'sChairman,PresidentandCEO;andNickGangestad,ourChiefFinancialOfficer.Eachwillmakesomeformalcomments,andthenwe'lltakeyourquestions.

Asareminder,pleasemarkyourcalendarsforupcomingearningscalldatesJuly26andOctober25.Alsotakenoteofournextinvestormeeting,scheduledforDecember13.Moredetailswillbeavailableaswegetclosertothatdate.

Today'searningscall,today'searningsreleaseandtheslidepresentationaccompanyingthiscallare




postedonourinvestorrelationswebsiteat3M.com.Pleasetakeamomenttoreadtheforward-lookingstatementonslide2.Duringtoday'sconferencecall,wewillmakecertainpredictivestatementsthatreflectourcurrentviewsabout3M'sfutureperformanceandfinancialresults.

Thesestatementsarebasedoncertainassumptionsandexpectationsoffutureeventsthataresubjecttorisksanduncertainties.Item1AofourmostrecentForm10-Klistssomeofthemostimportantriskfactorsthatcouldcauseactualresultstodifferfromourpredictions.

Pleaseturntoslide3,andIwillhanditofftoInge.

IngeT hulin (Chairman,President&CEO):

Thankyou,Bruce.Goodmorning,everyone,andthankyouforjoiningusagain.WehadopportunitytoseemanyofyoulastmonthatourInvestorDay,wherewelaidout3M'snewfive-yearplan.Wealsoupdatedyouonthe3Mplaybookandhowitisbeingexecutedacrossourenterprisetodeliverefficientgrowth,bothtodayandintothefuture.

Inthefirstquarter,the3Mteamcontinuedtoexecuteourplaybookanddeliveranotherstrongoperationalperformance.Weincreasedmarginsmorethanafullpercentagepointandimprovedourcashflowgenerationby20%yearoveryear.Atthesametime,wecontinuedtoinvestinthebusiness,includingopeninganewworld-classlaboratoryintheUnitedStates,whilealsoreturningcashtoourshareholders.

Lookingatthenumbers,wepostedfirst-quarterearningsof$2.05pershare,whichisanincreaseof11%yearoveryear.Pleasenotethatthisincludesa$0.10earningsbenefitrelatedtoanewaccountingstandardthat3Madoptedinthefirstquarter,andNickwillprovidemoredetailsduringhiscomments.Adjustingforthisimpact,wedeliveredQ1earningsof$1.95pershare.

Company-wide,organicgrowthwasdownslightlyatminus1%.Threeofourbusinessgroupsgreworganicallyinthequarter,ledbyHealthCareat6%,withstrongorganicgrowthacrossallofitsbusinesses.OurConsumerbusiness,whichisthehometosomeof3M'smosticonicbrands,alsodeliveredagoodquarteroforganicgrowth.I'mverypleasedthatourtwodomestic-drivenbusinesses,HealthCareandConsumer,continuedtodowellandareofftoaverygoodstartin2016.

SafetyandGraphicsalsopostedsolidorganicgrowth,withparticularstrengthsincommercialsolutionsandpersonalsafety.OrganicgrowthinourIndustrialbusinesswasdownlow-single-digits,whichwassimilartolastquarter.Andasexpected,ElectronicsandEnergydeclinedlow-double-digits.ElectronicsandEnergycontinuetobeimpactedbysoftnessintheconsumerelectronicsmarkets,whichweexpecttopersistthroughthefirsthalfoftheyear.Acquisitionsnetofdivestituresadded2percentagepointstofirstquartersales,whileforeignexchangereducedsalesby3%.Asaresult,ourCompanytotalsaleswas$7.4billion,down2%yearonyear.

Ourabilitytoconsistentlydeliverpremiummarginsremainsahallmarkof3M,andit'sanimportantelementofourfocusondrivingefficientgrowth.Inthefirstquarter,wepostedmarginsof24%,upmorethanafullpercentagepointversuslastyear.Withouttheimpactfromlastyear'sfourthquarterrestructuring,wehaveexpandedmarginsyearoveryearfor10consecutivequarters.

Alsointhequarter,wereturnednearly$2billiontoourshareholdersthroughdividendsandsharerepurchases.Thisincludesan8%increaseinourfirst-quarterdividend,whichmarked3M's58thconsecutiveyearofdividendincreases.Allinall,wehadagoodstarttotheyear,withresultsthatwereinlinewithourexpectations.

Pleaseturntoslide4.Inadditiontoastrongfinancialperformanceinthequarter,wealsomadegood




progressonourthreekeylevels,startingwithpetroleummanagement.Afterstrategicreviewofourhealthinformationsystemsbusiness,wedecidedthatwecouldcreatethegreatestvaluebyretainingandfurtherinvestinthatbusiness.Infact,weplantoacceleratetheinvestmentacrossourentireglobalhealthcarebusinessinresearchanddevelopment,healtheconomicsandcommonsensecapabilities,tobuildstrengths[onstrengths]inbothdevelopedanddevelopingmarkets.

InFebruary,wesoldthePolyfoambusiness,whichwasasmallnon-costsegmentwithinourIndustrialbusinessgroup.Earlier,Imentionedtheongoingsoftnessintheelectronicsmarkets.Asyouknow,overthelastfewyears,wehaveconsolidatedanumberofbusinesseswithinElectronicsandEnergy,whichhasmadeusmorerelevanttoourcustomers,moreagileandmoreefficient.

Todayweareannouncingfurtheractionstobuilduponthatwork.Thisactionwillreduce250positionsworldwide,withamajorityofreductionsontheelectronicssideofthebusiness,andresultinanestimatedQ2chargeof$20million.ThiswillfurtherpositionElectronicsandEnergyforlong-termsuccess.Andgoingforward,thisbusinesswillcontinuetostayclosetocustomers,advanceitstechnologycapabilitiesandincreaseproductivity.

Investingininnovationisthesecondlever,andinthefirstquarter,weinvestednearly$0.5billioninresearchanddevelopment.Researchanddevelopmentsupportsorganicgrowthandpremiumreturns.Andasyourecall,wecontinuetostepupinvestmentsinR&Dfrom5.5%ofsales,closerto6%.InMarch,wealsoopenedournewlaboratoryintheUnitedStates,whichmanyofyouhadopportunitytoseeatourInvestorDay.Itwillhouse750scientists,whowillleverageour46technologyplatformstocreateunique,cutting-edgesolutionsforourcustomers.

Finally,inthefirstquarter,wecontinuedtomarchforwardwithbusinesstransformation,whichisourthirdlever.WehadasuccessfulERPdeploymentinGermany,andremainfocusedonexecutingtherolloutplanacrossWestEurope.Businesstransformation,whichstartsandendswithourcustomers,isimportanttoourfuture,especiallyasitrelatestoefficientgrowth.Weexpecttheseeffortstoresultin$500millionto$700millioninannualoperationalsavingsby2020,andanother$0.5billioninworkingcapitalimprovements.

Overall,asIlookatthequarter,wecontinuetoexecutethe3Mplaybookanddeliverthestrongperformanceintermsofbothfinancialresultsandbuildingourenterpriseforthefuture.Withthat,IwillturnthecallovertoNick,whowilltakeyouthroughthedetails.Nick?

NickGangestad (CFO):

Thanks,Inge,andgoodmorning,everyone.I'llstartonslide5witharecapofourfirst-quartersaleschange.Organiclocalcurrencysalesdeclined0.8%inthefirstquarter,withvolumesdown1.7%,partiallyoffsetbya0.9%increaseinsellingprices.

Acquisitionsnetofdivestituresadded1.6percentagepointstosales.ThisimpactincludestheacquisitionsofCapitalSafety,MembranaandIveraMedical,alongwiththedivestituresofLibrarySystems,PolyfoamandalicenseplateconvertingbusinessinFrance.Finally,foreigncurrencytranslationreducedsalesby3%.

InUSdollars,totalsalesdeclined2.2%versusthefirstquarterof2015.IntheUnitedStates,organicgrowthwasup0.3%,withstrongperformancesinourdomestic-orientedbusinesses,namelyHealthCareandConsumer.IndustrialproductionintheUSdeclined1.3%inQ1,whichimpactedgrowthinpartsofourindustrialbusiness.

OrganicgrowthinAsiaPacificwasdown5.6%.Threeoffivebusinessgroupspostedpositivegrowthintheregion,againledbyHealthCareandConsumer.Softend-marketdemandsandexcesschannel




inventoriesinconsumerelectronicsresultedinadouble-digitorganicgrowthdeclineinElectronicsandEnergy.WithinAsiaPacific,organicgrowthwasdown4%inChina/HongKong,anddeclined8%inJapan.Excludingourelectronicsbusiness,JapanandChina/HongKongwerebothflat.

MovingtoEMEA,organicgrowthincreased1.7%.WestEuropewasupslightly.AndthecombinationofCentralEastEuropeandMiddleEast-Africawasuphigh-single-digits.Finally,organicgrowthinLatinAmerica/Canadaincreased4.2%.Mexicoagainhadastrongquarter,with10%organicgrowth.AndBrazilalsopostedpositiveorganicgrowthof2%.

Pleaseturntoslide6forthefirst-quarterP&Lhighlights.First-quartersaleswere$7.4billion.Operatingincomeincreasedmorethan3%to$1.8billion,andearningsrose10.8%to$2.05pershare.AsIngementioned,wehadanotherstrongmarginperformanceinthefirstquarter,up130basispointsto24.1%.

Let'stakeacloserlookatthefirst-quartermarginimprovement.Thecombinationoflowerrawmaterialsandhighersellingpricesadded110basispointstofirst-quartermargins.Wecontinuedtobenefitfrombothlowercommoditypricesandfromourglobalsourcingteam'songoingeffortstoreducecosts.LowerpensionandOPECexpenseincreasedmarginsby100basispoints.Productivitygainsrelatedtolastyear'sfourth-quarterrestructuringcontributed40basispointstomargins.

Strategicinvestmentsreducedmargins10basispoints,aswebegantotakeactionsonourmanufacturingfootprintandincreasedgrowthinvestments.Foreigncurrency,netofhedgegains,broughtmarginsdownanother10basispoints,andfirst-yearacquisitionsreducedmarginsby20basispoints.Theyear-on-yeardeclineinorganicvolumereducedmarginsby30basispoints.

Andfinally,utilizationandotherwasanet50-basispointheadwindtomargins.Thisincludedtheimpactoflowerassetutilization,particularlyinourelectronicsandindustrialbusinesses,whichwaspartiallyoffsetbydivesturegainsinthequarter.

Alsowecontinuetoincreaseinvestmentsacrossthebusinesstodrivegrowthandstrengtheninourcompetitivenessgoingforward.Allin,wehavestartedtheyearonapositivenotewithrespecttomargins,andcontinuetoexpectapproximately150basispointsofmarginimprovementforthefullyear,whichreflectsourfocusondeliveringefficientgrowth.

Let'snowturntoslide7foracloserlookatearningspershare.Asstatedearlier,earningsforthefirstquarterwere$2.05pershare,anincreaseof10.8%.Marginexpansionnetoforganicsalesdeclinescontributed$0.04toearningsinthequarter.First-yearacquisitionsanddivestituresadded$0.07toearningspershare.ThisresultwasdrivenbysolidperformancesfromMembrana,CapitalSafetyandIvera,alongwithdivesturegainsinthequarter.

Foreigncurrencyimpactsnetofhedgingreducedpretaxearningsby$48million,ortheequivalentof$0.05ashare.Higherbalancesheetleverageledtoanincreaseinnetinterestexpenseyearonyear,reducingper-shareearningsby$0.02.Thefirst-quartertaxratewas26.8%versus29.5%inthecomparablequarter,whichincreasedQ1earningsby$0.07pershare.ThelowerQ1taxrateincludestheadoptionofanewFASBaccountingstandard,whichI'llwalkthroughinamoment.Finally,averagedilutedsharesoutstandingdeclinedby4%yearonyear,whichadded$0.09tofirst-quarterearningspershare.

Pleaseturntoslide8.OnMarch30ofthisyear,theFinancialAccountingStandardsBoardissuedanaccountingstandardsupdaterelatedtoemployeeshare-basedpayments.Thisnewstandardchangestherecordingofadditionaltaxsavingsorchargeswhenemployeesrealizebenefitsfromstock-basedcompensation.




Theadditionaltaximpactisaresultofthechangeinthevalueofstock-basedcompensationfromthetimeitisgrantedtoanemployeetothetimeitisrealizedbytheemployee.Previously,theseadditionaltaximpactswererecognizedintheequitysectiononthebalancesheet.Goingforward,itwillberecognizedontheincomestatement.

AllUSpubliccompaniesarerequiredtoadoptthenewaccountingstandardnolaterthanFY17year.Wechosetoadoptthisnewstandardinthefirstquarterof2016,whichcreatedafirst-quartertaxbenefitof$0.10pershare,netoftaxcostsrelatedtoglobalcashoptimizationactions.Forthefullyear,weexpectnoimpacttoourtaxrateandearningspershareguidance,asadditionalactionswechosetoimplementtofurtheroptimizeourglobalcashpositionwillincreaseourtaxexpenseinthelastthreequartersoftheyear.

Let'snowturntoourfirst-quartercashflowperformanceonslide9.Overall,wepostedanothersolidcashflowperformanceinQ1.Freecashflowconversionwas74%,up8percentagepointsversusthesameperiodlastyear.Asareminder,Q1istypicallyourlowestconversionrateoftheyear.

Wegenerated$1.3billionofoperatingcashflowinthequarter,a$180millionincreaseversusQ1in2015.Theprimarydriversoftheincreasewereimprovedinventoriesandaccountsreceivable,alongwithlowercashtaxes.Capitalexpenditureswere$314million,aswecontinuedtoinvestinthebusinesstodriveefficientgrowth.Forthefullyear,weexpectCapExinvestmentsintherangeof$1.3billionto$1.5billion.

Thestrengthofourbusinessmodelallowsustoinvestingrowthandalsoreturncashtoshareholders.Asyouheardearlier,weincreasedourfirst-quarterper-sharedividendby8%,whichincreasedourpayoutto$672millioninthequarter.Inadditiontodividends,wereturned$1.2billiontoshareholdersthroughgrosssharerepurchases.

Let'snowreviewourfirst-quarterperformanceonabusiness-by-businessbasis.Pleasegotoslide10.OurIndustrialbusinessgrouppostedquarterlysalesof$2.6billion.First-quarterorganicgrowthinourIndustrialbusinesswasdown1.9%,withmid-single-digitdeclinesintheUSandAsiaPacific.Asmentionedearlier,theUSindustrialproductionindexwasdown1.3%inthefirstquarter,whichimpactedpartsofourIndustrialbusiness.

Ouradvancedmaterialsbusinessdeclinedlow-double-digits,impactedbyongoingweaknessintheoilandgasendmarket.Conversely,ourautomotiveOEMbusinessgrewhigh-single-digits,continuingitsstrongtrackrecordofoutpacingglobalcarandlight-truckbuilds.Wealsopostedpositiveorganicgrowthinourautomotiveafter-marketbusinessinthequarter.

TheacquisitionofMembrana,netofthePolyfoamdivesture,added1.9%toIndustrialsalesgrowth.WearepleasedwiththesmoothintegrationofMembranainto3M,andthebusinesscontinuestoexceeditsfinancialperformanceobjectives.Industrialincreaseditsmargins150basispointsto23.9%,postingoperatingincomeof$617million.

Pleaseturntoslide11.First-quartersalesinSafetyandGraphicswereup2.4%organically,to$1.4billion.CommercialSolutionsdeliveredsolidorganicgrowth,withparticularstrengthinLatinAmericaantheUS.PersonalSafety,oneofourheartlandbusinesses,alsohadagoodquarteroforganicgrowth,ledbyEMEAandAsiaPacific.OurRoofingGranulesbusinessalsopostedstronggrowthinthequarter.

Acquisitionsnetofdivestituresadded4.5percentagepointstosalesgrowthinthequarter.ThisresultsincludesCapitalSafety,alongwiththeimpactfromthedivestituresofLibrarySystemsandthelicenseplate-convertingbusinessinFrance.Geographically,organicgrowthinSafetyandGraphicswasbroad-based,pacedbyamid--single-digitincreaseinAsiaPacific.Operatingincomeforthebusinesswas$345million,andoperatingmarginswereasolid24.5%.




Pleaseturntoslide12.OurHealthCarebusinessdeliveredanoutstandingquarterfromtoptobottom.Thebusinessgeneratedsalesof1.4billion,andledourCompany'sorganicgrowthat6.2%.Growthwasbroad-based,withallbusinessesandgeographicareasupmid-single-digitsorgreateryearonyear.HealthInformationSystemsandFoodSafetybothpostedstrongdouble-digitgrowthinthequarter.

Andourmedicalconsumablesandoralcarebusinesseseachdeliveredsolidmid-single-digitgrowthinQ1.TheIveraMedicalacquisitionadded90basispointstofirst-quartersalesgrowthyearonyear.Thisbusinessisperformingwellandexceedingitsfinancialperformanceobjectives.

OurHealthCarebusinessdelivered13%organicgrowthindevelopingmarketsinthequarter,withparticularstrengthinChina/HongKong,MexicoandRussia.Operatingincomewas$455million,up12%versuslastyear'sfirstquarter,andmarginswerestrong,at32.9%.Asyoucanseefromthisquarter'sresults,ourHealthCarebusinesscontinueditstrackrecordofstrongperformance.AndasIngementioned,weareincreasinginvestmentsacrossthebusinesstodriveefficientgrowthintothefuture.

Nextlet'scoverElectronicsandEnergyonslide13.First-quartersalesinElectronicsandEnergywere$1.1billion,down11.7%organically,andinlinewithwhatwecommunicatedatourMarchInvestorDay.Ontheelectronicssideofthebusiness,organicsalesweredown18%.Thedeclinewasduetoacombinationoffactors,includingsoftend-marketdemand,elevatedchannelinventoryandachallengingyear-on-yearcomparison.Ourteamremainsfocusedonincreasingrelevancewithcustomersanddrivingspecandwinstodeliverorganicgrowthastheindustryimproves.

Ourenergy-relatedbusinessesweredown1%organically,withgrowthinelectricalmarketsbeingoffsetbydeclinesintelcom,aswellasrenewableenergy.Asareminder,inlastyear'sQ4,wetookportfolioactionswithintherenewableenergybusiness.TheseactionsnegativelyimpactedQ1organicgrowth,buthaveimprovedprofitabilityinthisbusiness.

Withinelectricalmarkets,ourACCRoverheadconductorbusinesspostedstrongdouble-digitgrowth.Onageographicbasis,organicgrowthwasdowndouble-digitsinAsiaPacific,whereourelectronicsbusinessisconcentrated.First-quarteroperatingincomeforElectronicsandEnergywas$208million,withmarginsof18.2%,down330basispoints,largelyvolume-related.Lookingtowardthefullyear,wenowexpectElectronicsandEnergytodeclineorganicallyinthelow-tomid-single-digitrange.AsIngementioned,wearetakingactionsinthesecondquartertofurtherpositionthebusinessforlong-termsuccess.

I'llfinishwithourConsumerbusinessonslide14.Consumerhadanothersolidquarter,withsalesof$1billionandorganicgrowthincreasing2.8%yearonyear.Salesgreworganicallyinthreeofourfourbusinesses,ledbyhomeimprovementandconsumerhealthcare.

Acrossthebottomofthisslide,youseejustafewofthemarket-leadingbrandsthatarepoweringourconsumerportfolio.Withinthehomeimprovementbusiness,ourCommanddamage-freemountingproductspostedstrongdouble-digitgrowth,asacceleratedinvestmentscontinuetopayoff.Scotchbluepainter'stapeandFiltretefiltersalsodeliveredstronggrowthinthequarter.

Ourconsumerhealthcarebusinesspostedsolidfirst-quarterorganicgrowth,asthegrowingtrendofactivelifestylescontinuedtodrivestrongdemandforourACEandFuturobracesandsupportproducts.Geographically,organicgrowthwaspacedbyAsiaPacific,drivenbydouble-digitgrowthinChina/HongKong,alongwithsolidmid-single-digitgrowthintheUS.Operatingincomewas$238million,withoperatingmarginsof22.7%--bothsimilartolastyear'sfirstquarter.

Onslide15,wearereaffirmingour2016planningestimates.Weestimateearningsintherangeof$8.10to$8.45pershare,anincreaseof7%to11%yearoveryear.Organicgrowthisexpectedtobeup1%to3%,withacquisitionsnetofdivestituresadding1%tosales.Weestimatethatforeigncurrencytranslationwillreducesalesby1%to3%.Finally,ourtaxrateisstillexpectedtobe29.5%to30.5%,withfreecash




flowconversionintherangeof95%to105%.

Withthat,Ithankyouforyourattention,andwewillnowtakeyourquestions.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)

JoeRitchieofGoldmanSachs.

JoeRitchie (Analyst-GoldmanSachs):

Thankyou.Goodmorning,everyone.


Goodmorning,Joe.


Maybejuststartingoffonelectronics,sincethatseemedtobelikethebiggest,Iguess,surpriseinthequarter,atleastfromourperspective.Canyoutalkalittlebitaboutyourexpectationsandthecadencefortheremainderoftheyear,particularlyinlightofsomeofthecommentaryregardingslowersmartphoneshipments?That'skindofthenear-termquestion.

Thelonger-termquestionis--maybewecantalkaboutthisinthecontextofourportfolio.Inge,you'vedonealottorestructuretheportfoliosinceyoutookover.Justcuriouswhetherthisisabusinessthatyou'regoingtocontinuetore-evaluateaswemoveforward?


Well,goodmorning,Joe.Well,firstofall,itwasalittlebit--theslowestbusinessforusinthequarter.Butnotmuchofasurprise,ifyougobackandthinkaboutourInvestorDay,whenwetalkedaboutitintermsofwhatweexpectedforthefirstquarter.

Now,theelectronicpartwasdown18%,whichwas--Iwouldsayit'sallbasedonaweaker,near-termdemandintermsofconsumerelectronics.Sofromthatperspective,notasurpriseforus.ButIthinkaswelookoutforthenextquarter,wehavetoexpectinthesecondquartermid-tohigh-singlegrowthdown,andIthinkfortheyear,low-tomid-single.SoIthinkthat'showwehavetothinkaboutthebusinessgroup.

AndIwouldsaythatintermsoftheportfolio,thisisaverygoodbusinessforus.Becausewehaveallthecomponentsinorderforustobecompetitiveinthismarketplace,andwehaveworkedonthatbusiness,inordertobemorerelevant,nowforfouryears.Andasyoucanseehereinthisquarter,we'lltakesomemoreactionsinordertolineupourbusinessmodelversuswhatisrequiredinthatbusiness.

SoIwouldsay,firstofall,allbusinesses--youknow,portfoliomanagementisanongoingprocess.Welookeduponthatthewholetime.Butthefundamentalsforustobeinthisbusinessisverygoodandverystrong.It'sjustthatwehavetoadjustaswegoandonthefly.AndIthinkthat'swhatwe'redoinghereagain,right?Butforme,forus,it'smoreanear-term,weakerdemandinconsumerelectronics,aswespeak.





Okay,fairenough.Maybemysecondquestion,andturningittotheHealthCaregroup,whereyousawacceleratingorganicgrowth,themarginsnowapproaching33%.Maybetalkalittlebitabouttheexpectationsforthatbusinessnow?Havetheybeenratchetedupatallasweprogressthroughtheyear?Andshouldwestartthinkingaboutthisbusinessasbeing,youknow,a32%to33%-typemarginbusinessmovingforward?


Well,firstofall,youarecorrectrelativetotheperformanceofHealthCareovermanyyears,right?Thisisaverygoodbusinessforus,andverysolidfundamentals.AndIthinkit'sverymuchbasedonthevaluecreationforboththeprovidersandthepatientsinthatmarket.Yousawthisquarteragain,verysolidorganiclocalcurrencygrowth,marginexpansion.Andit'sbroadbased,it'sbothindevelopedanddevelopingmarkets,andit'sinallbusinesses.Andwewillnowcontinuetoacceleratethatinvestmentaswemoveahead.

Soit'snotonlyhealthinformationsystemsthatwedecidedtokeepinourportfolio.Wewillinvestinallthebusinesses.AndasIlaidout,itisaroundresearchanddevelopment,it'sabouthealtheconomicsandit'saboutcommercializationcapabilities.Thosethreethingsinacombinationisverypowerfulforus.

Andthinkaboutitaswellintermsofdevelopedversusdeveloping.Ourpositionisverystronginthedevelopedworld,andwecontinuetotakemarketshareandwepenetrateevendeeperthere.Indeveloping,thefieldsstarttoopenupforus,becausekeyopinionleadersarerecommendingourprotocols,includingourproducts,aroundtheworld.Sowehaveaverystrongpositionthere.

Andyouknow,youcanthinkaboutthisintermsofourfastest-growingbusiness,withthehighestmargin.Wearepleasedwiththemargins,butwearenot--wewillacceleratetheinvestmenttheretogetgrowthupevenfurther.


Okay,great.Thanks,Inge.


Thankyou.

Operator :

JulianMitchellofCreditSuisse.Pleaseproceedwithyourquestions.

JulianMitchell(Analyst-CreditSuisse):

Hi,goodmorning.


Goodmorning,Julian.


Goodmorning.JustaquestionfirstlyonIndustrial,andSafetyandGraphics,ifyouhadseenanychangeindemandtrendasyouwentthroughthequarterinChinaandindevelopedmarkets?


Julian,goodmorning.ForbothChinaandinUSandinEurope,asthequarterwenton,wesawno




discernablechangeinthetrends.Itwasaprettyconsistentperformancethroughoutthequarter.


Gotit.Thankyouverymuch.Andthen--


YouaskedtocommentonChina.Youknow,wesawagainbothConsumerandHealthCarewithverysolidgrowthinChinainthisquarter.Sothat's,again,agoodindicationrelativetowhatishappeninginthosemarkets,astheyaretypeofexpandingtheirbusinesses,specificallyinChina.They'renotshifting,butthey'reexpandingintomoredomestic-drivenbusinesses.Andwesawterrificgrowth,bothinConsumerandHealthCareinChina.


Thanks.AndthenjustmysecondonewouldbeonElectronicsandEnergy,youknow,ifyou'reseeinganypricepressurethere,orit'salljustvolumedeclines?Andalsoyoutalkedaboutsomeportfoliochangesrecently.Shouldweexpect,therefore,thattheenergy-relatedbusinesscouldgrowthisyear,actually,withinthatsegment?


Julian,firstonthepricefront,wehaven'tseenanychangeinthetrajectoryonpricing.It'sbeenprettyflat,asitwaslastyearandintothisyear.Norealchangesonthepricing,selling-priceenvironmentthatwe'reseeingontheelectronicsside.

Inregardstoportfoliomovementactions,asIsaid,ontheenergyside,wetookaportfolioactionwithinourrenewableenergybusinessinthefourthquarter,whichishavinganegativeimpactonourfirst-quarterorganicgrowth.Thatnegativeimpactwillcontinuethroughoutallfourquartersof2016,andit'sincorporatedintoourguidanceforthetotalbusinessintheCompany.


Thankyou.

Operator :

StevenWinokerofBernstein.

StevenWinoker (Analyst-SanfordC.Bernstein&Co.):

Thanks,andgoodmorning,all.


Goodmorning,Steven.


Couldyoumaybejusttalkalittlebitaboutthepricingrawmaterialdynamicintermsofhowthat's--youknow,it'sstillhuge,eventhoughit'sdiminishing.Whatareyourexpectationsforthatgoingforward?Andaspartofthat,howmuchofthatpricingwascurrency-relatedthisquarter?


Goodmorning,Steve.Forthefirstquarter,thecombinationofpricerawmaterials--thatbenefitedour




marginby110basispoints,thevastmajorityofthatcomingfromlowerrawmaterialprices.Andontherawmaterialside,wearecontinuingtoexpectourtailwinds,drivenbylowercommodityprices,andwithaheavierweightingtothefirsthalfoftheyearratherthanthesecondhalf.

Regardingsellingprices,we'vetraditionallybeenabletoachieveabout30basispointsofunderlyingpricegrowthwhenwestripoutFX.Wecontinuetoseethatasourcapability,andweprojectthatwewillbeatthattypeofcorepricegrowthinourCompanyfortheyear.IfIlookatthepricegrowththatwehadinthefirstquarterof90basispoints,allofthatcameinourinternationaloperations.Andthemajorityofthat90basispointswasinresponsetoourpricingactions,inresponsetoFXmovements,themajorityofthat90comingfromFXreaction.


Okay,that'shelpful.AndthenintermsoftheM&Athatyou'vedone--CapitalSafety,etcetera--whatwastheorganicgrowthofthosebusinesses?Whatweretheyachievingfromanorganicbasis?


Onanorganicbasis.Well,firstofall,I'lljustlevel-setthefactshere,thatwhatthey'readdingto3M'stotalgrowth--ourtotalacquisitionsbeforedivestituresadded2.1%to3M'sgrowth.Andourdivestituresreduced3M'srevenueby50basispoints.Sowehadanet160basispointsgrowth.

UnderlyingthatwithinourCapitalSafetybusinessorganically,wecontinuedtoseestrongrevenueperformanceacrosstheboardforthatbusiness,withtheexceptionoftheoilandgasmarketthattheCapitalSafetymarketserves.InourMembranabusiness,thatbusinesscontinuestoperformwell.Butfromanorganicbasis,wetypicallystartmeasuringtheorganiconcewe'velappedourselves12monthsafterweacquireit,Steve.


No,Iknow,I'mjustlookingforwhattheactual--youknow,whatthey'rerunningatorganically.Sothatwhentheydolap12months--itshouldbeinthethirdquarter--howmuchit'sgoingtoadd.That'swhatI'mtryingtogetto.


Low-single-digitswouldbeourbestestimaterightnow.


Okay,fantastic.AndifIcould,justonelast.Givenyouguysareholdingtheoneat3%,whatisthat?Whatareyouactuallytakingup,sinceElectronicsandEnergyaredown?


Wearenotchangingourguidanceatthispointintime.


Right.Sotheremustbesomeotherbusinessthat'shigher,Iguess?


Yes,correct.





Yes,Steve,wecontinuetoseeourotherfourbusinessessolidlyintherangethatwelaidoutinDecember.AndtheywillhelppropelourCompanytotheguidancewe'veputoutof1%to3%.


Fantastic.Thankyou.


Thankyou.

Operator :

ScottDavisofBarclays.

Scott Davis (Analyst-BarclaysCapital):

Hi,goodmorning,guys.


Goodmorning,Scott.


Canyougiveusasense--Inge,youtalkedaboutChinaalittlebit.Butcanyouwalkaroundtheworldandjusttalkaboutwhat'sgettingbetterorwhat'sgettingworseoutthere,geographically?


Idon'tthinksincewemetatInvestorDaythattherehavebeenanybigchangesinthemarketplaces,withmaybeoneslightexception,whichisEurope-MiddleEast-Africa.Ithinkthat,honestly,wasalittlebitofsurprisethatwesawslightlybettergrowththerethanwehadexpected.Ithinkthat'sthechangefromamaterialperspective,ifyou,thathavechanged.

Onthepositiveside--becauseIthinkwehavetolookforpositivesidesin--it'sinLatinAmerica.WecontinueverygoodgrowthinMexico.WewerepositiveinBrazilaswell.SoIthinkBrazilthen,bydefinitionisonecountry.Ithinkthat'ssomethingwecouldseechanging.

Butmorethanthat,Idon'tseeanychange.CentralEastEuropeisdoingwell.WestEuropewasactually,asIsaid,aslightsurprise.NothingchangedinAsia.NothingchangedforusintheUnitedStateseither.SoIthinkitwasverysolid,andnoupsordownsintermsof--Ithinkspecifically,therewasnonegativethatcameatus,asIseeit.Thereweresomeslightpositives,ifyoulike.


Okay.Iknowthisishardtodialdowntothiskindofdetail,butwhenyouthinkaboutthe150basispointsfull-yearguideonmargins,howmuchofthatareyouguysthinkingispricecost?


Pricedrawmaterials,Scott,fortheyear,we'vebeenexpectingthattobe50basispoints,andwestillseeourselvesliningupcloselywiththat.


Okay.Andjustaquickone.IsyourpricenowfullycaughtuptocurrencydislocationsinEM?





Yes,goingforwardwithwherethedollarisrightnow,IthinkthemajorityofourpriceincreasesduetoFXarebehindus,especiallyifthedollarstayswhereitis.


Okay,that'sgreat.Thankyou,guys.


Thankyou.

Operator :

JohnInchofDeutscheBank.

JohnInch (Analyst-DeutscheBank):



Goodmorning,John.


Goodmorning,guys.Hey,Inge,yourhistoryofbeingabletoraisepricing30basispointsayearmaynothelpyoumuchiftheserawcosts--metals,gas,oil--keepclimbingthewaytheydo.You'veputupveryimpressivemargins.What'syourplaybookforoffsettingapotentialmarginsqueeze,ifyoucoulddrawonhistoryandyourownthoughts,towardbeingabletoraisepricingmorethanyouhaveinyourhistory,tooffsetsomeofthesecostincreasesthatseemtobeabouttohitusall?


Yes,John,I'lltakethatone.The30basispointsiswhenwelookoveralongperiodoftimeofwhatourcapabilityhasbeen,andit'sbeenfairlysustainable.Intimesofcommoditypriceincreases,thattendstogoupslightly;intimesofcommoditypricedeclines,thattendstogodown.Butit'safairlyconstantwithin3M.

Toansweryourquestion,John,I'dliketotakeyoubacktoourInvestorDay.Aswelooktothenextfewyearsofwherewe'llbedrivingourefficientgrowthandpotentialformarginexpansion,we'rereallydrivingmanyofourinitiativestobeabletodothat.Ourinitiativesaroundbusinesstransformation,oneofourkeylevers.Actionswe'retakingwithourfootprinttobetter-optimizeourefficiencyandeffectivenessofourmanufacturingbusinesssupplychain.ThatIseeistheheartofwhatwe'llbedoinginthecomingyearstocontinueourabilitytogrowefficiently.Andpartofthatinvolvesmarginexpansion.


Okay.Soyoubasically,Nick,aresayingthatit'shighlyprobableyou'regoingtogetbehindonrawcostsversuspriceincreases.Butthere'sjustampleproductivitywithin3M,andyou'retakingmorerestructuringobviouslyinE&E,thatyoufeelgoodabout,justbeingabletooffsetit?Isthat--?


I'mnotreadytosayandIdon'tthinkitwouldbeaccuratetosaythatweseeourselvesflippingoverto




thenegativeonthepriceraws.Butithasbeenanoticeablebenefittousforthelasttwo-plusyears.We'renotplanningforittobeaspositiveforusasithasbeen,andwe'rerelyingmoreonotherproductivityinitiativestofuelourefficiencyandourgrowth.


That'sfair.I'mjusttryingtogetaheadofthis.Secondquestionisreallyon--yourownguidancehad,ifI'mnotmistaken,assumedthattheeconomygenerally,looselydefined--Iguesstheindustrialeconomywasgoingtomeaningfullypickupinthesecondhalf.YourIndustrialandE&Enumbersare,youknow,notshowingthat.Parker'snumbersareactually--theirordersareworse.There'saverymixedreportingseasonintermsoftheeconomycadence,right?Chinaisgood,butI'mtalkingkindofNorthAmericaandotherpoints.

Inge,areyoustillholdingtothefactthatyouthinknumberscangetbetterinthesecondhalf?Irealizeyou'vegotalotofmarginembedded,soI'mnotsoworriedaboutyournumbers.IjustwantyourcommentaryaroundyourthoughtstowardtheUSindustrialeconomy?


Yes,youknow,wedo.Ithinkthatifwelookuponourtotalportfolio,asIsaidearlier,thischangeweseeistheweakernear-termdemandinconsumerelectronics.Andmaybethatwillpersistalittlebitlongerthanwethought.Soyoucouldtakethatasagiven.Thatisthechange,Iwouldsay.

ButweseeintheIndustrialthat,thatmodelisstillworkingforus,andwearestickingtotheplanaswegothroughtheyear.AndthreeoftheotherbusinesseswillcompensateforwhatIwouldsayadelayofthegrowthratecominginthesecondpartforelectronicspartofourbusiness.Sothere'snochangethere,andIdon'tseethatchangecomingeither,tobehonest.I'mnotseeingthatasofyet.

Iseethereisaslightstrengthactuallycoming,bothforSafetyandGraphics,ConsumerandHealthCare.AndIndustrialstayverymuchaswelaidout,aswemetthelasttime.Andthenitlookedliketherewillbealittlebitlongerpersistentintheconsumerelectronicpart,aswethoughtjusttwomonthsago.


That'sallright.Soinotherwords,Industrialflat,andtheotherbusinessesaredoingalittlebitbetter.Hey,onelastthing,Nick,thisaccountingchange,yousayyou'rebasicallygoingtooffsetitwith,I'massuming,cashrepatriationonwhichyoupaytaxes.Doyouhaveasenseofhowthat'sgoingtobreakoutoverthenextthreequarters?

Andifyoudon'tdothat,haveyouactuallygivenyourself,somewhatfavorably,a$0.10tailwind?Well,Iguessit'stheaccountingchange.Butdoestheaccountingchangecreatea$0.10tailwindheadinginto2017,becauseyoumaynotrepatriateorwhatevernextyear,sothat'sjusthowthemathworks?


John,acouplepointsonthat.Asfarastheactionswe'retakingtooptimizeourglobalcashposition,Idon'twantyoutothinkofitasaone-timeevent.ThisisacontinuationofongoingeffortswedoinourCompanytoefficientlyandeffectivelymanageourcashpositions.Andasyoulookatourbalancesheet,ouramountsofourglobalcashhasbeendeclining.Andwe'realwayslookingforhowwecanmovecashtoimproveourefficiencyandeffectiveness,aswellasreducetheriskinholdingthatcash.

It'sbeenanongoingeffort.We'regoingtocontinuetodoit.Itdidgiveusanopportunitytotakesomeactionsinrepatriation,John,aspartofthat.Intermsofsettingupanother$0.10tailwindinto2017,Ithinkthatwouldbegoingtoofar.Ithinkitcontinuestopositionuswellfor2017,butIwouldn'tthinkofitallas




atailwindgoinginto2017.


Butisthe$0.10equallyspreadthenoverthenextthreequarters,inyourtaxline,Nick?


Yes,John,itis.Overthenextthreequarters,weexpecttoaverageapproximatelya31%taxrate.Butasyouknow,andasyoulookatourresults,there'sfluctuation.Somequarterswillbehigherandsomelower.Butoverthenextthreequarters,itaveragingaround31%.


Okay,gotit.Thanksverymuch.


Thankyou.

Operator :

AndrewKaplowitzofCitigroup.

AndrewKaplowitz (Analyst-Citigroup):

Goodmorning,guys.


Goodmorning,Andy.


SoifyoulookatyourbreakdownofpriceandyoulookattheUSpricing,youdidn'tgetanypriceintheUSthisquarter.Yougot0.6lastyearquarter.Andreally,you'veaveragedthat30to50basispointsoverthelastyearintheUS.AreyouseeinganymorecompetitionintheUS?OristhereanymoreofanissueinanyparticularsegmentintheUS?Didsomethingchangethatitmightgettoughertogetyourusual350basispointsintheUS?


Andy,I'lltakethatone.We'renotseeingabigchange.TherearecertainpartsofourbusinessintheUSwherewecontinuetofacegoodcompetitionandwereactwithprice,butIwouldcallthosepockets,notwidespread.Sometimeswithpricing,inparticularintheUS,wesawactionstocapturemoremarketshareandadjustpricing.Andthat'spartofwhat'sleadingtothat0%thatwepostedinpriceintheUSforthefirstquarter.


Nick,doyouthinkyoucouldstillaveragethat30to50basispointsasyougooverthenextyear?


Ofunderlyingpricecapability?





Yes,intheUS.


Westillseethe30basispointsasagoodreflectionofourunderlyingcapabilitythere.


Gotit.AndInge,ifIcouldaskyouagainaboutSafetyandGraphics,itpickedupnicelyin1Qintermsofgrowthversus4Q.Butweknowyouhadaverydifficultcompin4Q.Sodidyouactuallyseeapick-upinPersonalSafety,orwasitmostlyjusteasiercompsworkingtheirmagic?Andhowdowelookatthisbusinessgoingforward?


Yes,wesawitpickupinPersonalSafety.SoIthinkyouhavetolookuponitinacoupleofways.Firstofall,ifyouthinkaboutyourpositioninthemarket,whenyouaddanacquisitionlikeCapitalSafety,youarestrengtheningyourpositionbigtimeinthatwholepersonalsafetyspace.SoIwouldsaythat,inmyview,thisisonlythebeginningofsomethingbigthatwillcomeforus.Becauseourrelevanceinthatwholepersonalsafetysegmentationhasincreasedverymuch.

AndsoIwouldsaythere'sclearevidenceforusthatwemovedourpositionsforward,andthatwe--soit'snotbasedoneasiercomponly.Therewasaneasiercomp,butwecanalsosee,westarttotakebetterpositions,bothrespiratorsandnowforprotection.


Inge,maybeit'sbettermarketshareeventhanbettermarket--isthatfair?


Sorry?


Isitbettermarketsharethanimprovedmarket--isthatfair?


Marketshare,yes,marketshare.Butyouhavealsotolookuponitintermsofsegmentation,thatyouexpandwithCapitalSafety.Andasyouexpandfor3M,expandwithCapitalSafety,some--ofcourse,allofourout-of-productportfoliosisgoingwiththat.Sowe'rebecomingmuchstrongerinthatpositiontotally.OurbusinessthereinSafetyandGraphic,whatisdoingverywellforusisCommercialSolutionsthat,again,showed4%organiclocalcurrencygrowth,andhavenowformanyquarters,reallyperformedwellforus.


Thanks.


Thankyou.

Operator :




DeaneDrayofRBC.

DeaneDray(Analyst-RBCCapitalMarkets):



Goodmorning,Deane.


ForNick--seeingthatthedollarisbeginningtobelessofaheadwindforyouguys,wouldyouconsiderchangingorrampingbackyourhedgingplans?Irecallyouhadmovedfroma12-monthtoa24-monthhedging.Maybethat'snotasrequiredatthisstage.Haveyougiventhatsomethought?


Yes,Deane,thanksforthequestion.Theshortansweris,no.Butalittlelongeransweris,ourhedgingphilosophyismeanttohelpusreducesomeofourvolatilityandtoallowtimeforthebusinessestoadjusttoasustainedchangeincurrencies.It'snottoeliminatealltherisk.Andourobjectivethere--weuseoftentimesnaturalhedges,andwhenwecan'tdothat,thenweusefinancialhedgestooffsetsomeofthatrisk.

Ourstrategyofusinghedging--andwehedgeapproximately50%ofthatexposure,mostcurrenciesoutoneyear,andthenafewselectcurrenciesoutasecondandthirdyear--thatphilosophyisn'tchanging.We'regoingtocontinuetodothat.Anditreallylinesupwithourphilosophyofhowwethinkabouthedgingovertimetohelptakesomeofthatriskandgiveourbusinessestimetoreact.


Okay,that'shelpful.And,Nick,weretheredivesturegainsinthequarter?


Yes,therewere.Therewere--wedivestedofourPolyfoambusinessduringthefirstquarter.Andofthe$0.07relatedtoM&A,approximatelyonehalfofthat$0.07wascomingfromgainsondivestitures.


Gotit.Andthenforthechargeexpectedinthesecondquarter,that'sallheadcountrelated.Thepaybackonthat--what'stheexpectedpaybackonthatcharge?


Weexpectthatchargetopayforitselfbytheendofthisyear.


Anddoyoucontemplateotheractionsinelectronicsoverthenearterm?


No,notatthispointintime,Deane.





Okay,thankyou.


Thankyou.

Operator :

NigelCoeofMorganStanley.

NigelCoe (Analyst-MorganStanley):

Thanks,goodmorning,gents.


Goodmorning.


Justaquickfollowontheover$0.03,Nick,fromgains.Wheredidthatland?Wasthatinthesegment?


Nigel,thePolyfoambusinessisinourIndustrialbusiness,andthatresultedinabouthalf--approximately,approachinghalfofthe$0.07benefitthatwesawforthetotalCompany.Bytheway,itwasalsopartoftheoverallguidance,whenweguidedfortheyear,thatweexpected$0.10ofbenefitsfromM&A.ThesaleofourPolyfoambusinesswasincludedinthatestimate.


Okay,that'sveryclear,thanks.Andthenitseemsabitchurlishtopickon[tune]margins,justgiventheoverallstrengthinmargins.Buttheyweredown20bpsand,giventhetailwindsfrompensionandrules,itdoeslook--andIseethere'shigherupsidesinthere.Butistheremixthere?Istherepricing?Whatcanyoumaybeestimate[morecurrentonittoo]marginsthisquarter?


Nigel,theprimarythingyou'reseeingthereisthatwecontinuetoseegoodopportunitiesinourConsumerbusiness,andwe'reinvestingforcontinuedgrowth.Soit'ssomekeyinvestmentsthatwe'rechoosingtomakenow,thatwethinkwillpropelthisintoevenstrongerpositioninthefuture.


Okay.AndthenIknowyou'renotinthebusinessofgivingquarterlyguidance,butyourcommentsaround1QbackinJanuarywereveryhelpfulingettingourmodelsre-balanced.I'mjustwonderingifmaybeyoucouldaddsomecoloron2Q,howyouseeorganicsalesdevelopinginto2Q?


Yes,forthesecondquarter,wedoseeorganicgrowthbeingslightlybetterthanwhatwesawinQ1forthetotalCompany.Andwe'realsocontinuingtoestimatethatthesecondhalfisgoingtobestrongerthanthefirsthalf.Inparticular,inElectronicsandEnergy,we'reexpectingthatsecond-quarterorganicgrowthisgoingtobeadeclineinthemid-tohigh-single-digits.Soitwillgofromapproximatelya12%declineinthefirstquartertoamid-tohigh-single-digitdeclineinthesecondquarter.Andthenfortheyear,we'reexpectingElectronicsandEnergytobedownlow-tomid-single-digits.





Okay,that'sveryhelpful.Thanks.

Operator :

JeffreySpragueofVerticalResearchPartners.Pleaseproceed.

Jef f reySprague (Analyst-VerticalResearchPartners):



Goodmorning,Jeffrey.


Justacouplereallyquickones.Justontaxplanning,Nick,obviouslyyou'vehadanaspirationtodriveyourtaxratedown.Mysenseis,alotofthat'sbeenthehubsinSwitzerlandandPanamaandotherthings.ButisthereanythinginwhattheTreasuryrecentlypronouncedthatthwartsyourambitionstobringthetaxratedownoverthenextcoupleofyears?


Jeff,no,therecentactionsbeingtakentheredonotthwartoureffortstobringustoa27%taxrateby2020.We'recontinuingtoevaluatethoseproposalsandtheimpacttheycouldhaveon3M.Butwedon'tcontemplatethattheywouldhaveamaterialimpactonusatthistime.


AndthenjustaquickoneonHealthCare.WasR&Dactuallyupinthequarter?Iaskthat,inthatR&DwasactuallydownoverallfortheCompany.Sothecommentsaboutincreasedinvestment,isthatmoreaboutambitionandoutlookfortherestoftheyear?OrisR&DactuallymovingupinHealthCareinthefirstquarter?


Well,firstofall,whenyousaywewillaccelerateourinvestmentsintermsofbothR&Dhealth,economicsandcommercialization,thatiswhenwemoveforward.Youknow,ourintentonaCompanylevelinordertoaccelerateinvestmentinR&Dishappening,right?We're5.5%--wearecloseto6%atthispointintime.Sowe'removingforward,andwe'removingforwardinallgroups,Iwouldsay.Sotheanswerisyes,andaccelerationwillhappeninHealthCarespecifically.


Thankyou.


Thankyou.

Operator :

ShannonO'CallaghanofUBS.

ShannonO'Callaghan (Analyst-UBS):




Goodmorning,guys.


Goodmorning.


Hey,Inge,HealthCareandConsumeraretwobusinessesyou'vebeentryingto,youknow,growmoreindevelopingmarkets,fromtheirhistoricposition.Youhighlightedboththegrowthindevelopingmarketsforbothofthemthisquarter.I'mjustwonderingifyoufeellikeyou'rereachingsomekindofatippingpointthere?Ormaybejustalittlebitofwhatyou'reseeinggoingonthere?


Tippingpointintermsofmoregrowthcoming?


Intermsofmoredevelopingmarket,youknow,tractionforConsumerandHealthCare?


Yes.Ithinkbotharestrengtheningtheirpositions.Andthewayweshouldthinkaboutthisis,intermsoftheiraccelerationofgrowth,bydefinition,willgofasterinHealthCarethaninConsumer.Andthereasonforthatis,everythingyouhavetodoaroundbrandequityinConsumertakealittlebitlongertime.Sowhenyoucomparethetwoofthem,wewillseeafasteraccelerationforHealthCareversusConsumer,butbothofthemgrowingverywell.

AndIwouldnotsaythatintermsofoutcome--yes,weseebothofthemcomingstrongernowthanversusayearago.Butwe'vebeenonthisforquitesometime,andit'softenarealizationofchangeofbrandequitypositionforConsumer.Andthenit'saquestionaboutmoneyavailabilityforHealthCare.Sooursolutionsareveryadvanced,andit'sverymuchdrivenbasedonhealtheconomics.Andascountriesgetbiggerbudgets,theycanspendmoreintohealthcare,theyareshiftingfromlessadvancedsolutionstosolutionslike3Mcanprovide.

Sothat'swhywethinkthatbothHealthandConsumerhaveagreatfutureforusinthatpartoftheworld.Andasyoulookuponourmix,thosearealsotwoofourbusinessesthat,mixingtheportfolio,wehavelesspenetrationandlesssalesindevelopingversusdevelopedmarketsforthosetwobusinesses.Sothefuturelooksgood.It'suptousnowtoexecute,anddothatasfastaspossible.


Okay,great.AndjustmaybesomecommentsonwhattheM&Apipelinelookslike?Andshouldweexpectanythingofsizethisyear?


Itlooksgood.Allbusinessgroupshaveagoodpipeline.Weareconstantlylookingintothat.Iwouldsaythat,whenyouthinkaboutwhatwehavedonethelastyear,thatyousawwedidfewer,butmoresizeable,versusthepast.Andthatisstrategicrelativetoourportfolio.Thatiswhatyoushouldexpectfrom3Mgoingforward.


Okay,thanks.





Thankyou.

Operator :

SteveTusaofJPMorgan.

SteveT usa(Analyst-JPMorgan):

Hey,guys,goodmorning.


Goodmorning,Steve.


Sothanksfortherevenuecoloronthesecondquarterthere.Iguess,somemovingpartssequentially,withthetaxgoingup,obviously.Andthenyouhavethecharge,Iguess,whichisgoingtoflowthroughElectronicsandEnergy.Soyouknow,normalseasonalitywouldgettoyousomethinginthe210to215range.Iwouldassumethattheseitemsbringyouperhapsalittlebitlowerthanthat,givenwhatyoupulledintothefirstquarter.Isthatkindoftherightwaytothinkaboutit?

Andthenjusttheyear-over-yearmargin.Iguessanotherwaytoaskthequestionwouldbe,whatarethemajordifferencesintheyear-over-yearmarginbridge,giventhatthisutilizationandothersshouldprobablystillbewithyou?Youknow,youhavetheextrarestructuring.Justmaybealittlebitofcoloronthebottom-linedynamicstohelpsizethisforthesecondquarter?


Okay,soforthesecondquarter--Steve,I'vesharedmuchaboutthesecondquarteralready.I'dsayaboutwhatwe'reexpectingfortotalgrowthinElectronicsandEnergy,younotedthechargewe'retakinginourElectronicsandEnergybusiness.

IthinktheonlyotherthingonthemarginI'llpointoutis,corporateandunallocated,I'veguidedthatweexpectthattobebetween$150millionand$200millionfortheyear.Firstquarter,rightinlinewiththat.Aswelookattheseasonalityweexpectofcorporateandunallocatedfortheyear,wethinkthatwillstayrightinthatrange.IdoseeQ2asthehighestquarterforourexpensewe'llbeincurringincorporateandunallocated,andthenmoderatinggoingintoQ3andQ4.

InregardstomarginforQ2,asIlookQ2andforthetotalyear,Steve,FXandrawmaterialsareacouplethingsthatarealittlebetterthanhowwestartedtheyearthinking.AndIseethosepartiallyoffsettingwhatwe'reseeingfromlowerutilizationofourElectronicsandIndustrialassetsinthefirsthalfoftheyear.


Okay.Soyearoveryear,alittlebitofabetterliftonmarginsinthesecondquarter,iswhatyou'resaying?


AsIlookatourtotalguidancefortheyear,weexpectmarginsupabout150basispoints.Wewereat130inthefirstquarter.AsIlookacrossthewholeyear,fourthquarteris,Steve,whereweexpectthemostmarginexpansion,wherewehadtherestructuringchargeinfourthquarteroflastyear.Thesecondand




thirdquarterIwouldputbelowthemeanfortheyear,formarginexpansion.


Belowthemeanfortheyear,okay,Igotit.Socanyougetthis--Imean,IthinkI'mkindofwalkingthesemovingpartsdown.Imean,itseemslikethere'ssomething,youknow,roughlyaround$2--isthatkindoftherightareaforyouguys?


Yes,Steve,wegiveguidancefortheyear.$8.10to$8.45istherightguidancefortheyear.I'mnotgoingtotrytoguidetheEPSforthequarter.


Okay.Ihadtotry.Thanksalot.(laughter)


Thankyou,Steve.

Operator :

LaurenceAlexanderofJefferies.

LaurenceAlexander (Analyst-Jefferies&Company):

Goodmorning.


Goodmorning,Lawrence.


Iguesstwolonger-termquestionsontheElectronicsandEnergysegment.AreyouhappywiththeprospectsforacceleratinggrowththroughbetterR&D,thesamewayasyouexpressedonHealthCare?Andthenrelatedtothat,asyoulookatthelonger-termstrategicoptionsforthosebusinesses,areyouroptionsconstrainedbythedegreetowhichyourR&Dbackboneacrossthebusinessesintegrated?Sothatyoudon'twantcertainIPtoexittheCompanythatmightaffecttheothersegments?


Well,let'sstartwiththefirstquestion.Inaway,theyaremayberelated,right?Soyou'retalkingaboutresearchanddevelopment,investmentintothatbusiness,andsoforth.Theadvantageinthatbusiness,ifyouthinkabouttheelectronics,verymuchofthatisspecgains,right?Soweworkdirectwithourcustomersinordertomakesurewefindsolutionsforthem.That'sactuallyaverypowerfulmodel,ifyouthinkaboutit.

SowehavetwoprocessesintheCompany,onecalledIdea2Innovation,i2i,whichismoreforconsumables.Andthenyouhavecustomer-inspiredinnovation,whichisamodelwhereyoudirectworkwithonespecificcustomer.Soifthatisinaerospace,thatisinautomotive,ifthat'sconsumerelectronics,orwhereverthatis,it'srightintoonespecificcustomers.

Thestrengthofthatmodelisthatyouknowexactlytheoutcomeofthatmodel.Youdon'tworkonsomethingthatisbroad-basedfromamarketperspectivethateventuallywilltakeplace.Youknowitwill




takeplaceinthiscustomer-inspiredinnovation.Andifyoudon'tcometoasolution,youkillitveryearly.SoI'mveryconfidentinthatmodel.

Andthatiswhythatisaverygoodbusinessfor3M.Becausewecanprovidetrueall-technologyplatforms,multiplesolutionsthatwillgeneratebetterandmorecompetitiveproductsforourcustomers.Soalsotothatisveryconfidentintheresearchanddevelopmentintothatmodel.Andwecanadjust,ofcourse,basedonwhattheyarerequiring.Sothat'sanimportantelementontheelectronicsside.Ontheenergyside,it'samodelthatweareusinginnormalindustrialproduction,orinconsumer,etcetera,whereyouhaveabiggermarketspacethatyouneedtoserve,andwhereyougettheinputfromcustomerpanels,etcetera.

Sothebusinessisalwaysbuiltonresearchanddevelopment.Andthatistheheartbeatof3M.Thatisalsowhywe'reabletogenerateverygoodreturnstoourinvestors.Becausewearenotcommoditized.Wedon'tworkwiththosecustomersinordertoreplacesomethingthatisalreadyintheirdevicestoday.Wetrytomoveittothenextleveltogetherwiththem.Thatisthepowerwidth.


Thankyou.


Thankyou.

Operator :

Thatconcludesthequestion-and-answerportionofourconferencecall.IwillnowliketoturnthecallbackovertoIngeThulinforsomeclosingcomments.


Towrapup,wehadastrongstarttotheyear,highlightedbygoodearnings,marginsandcashflow.Goingforward,wewillcontinuetoexecutethe3Mplaybooktodriveefficientgrowthandcreateevengreatervalueforcustomersandshareholders.Thankyouforjoiningus,andwelookforwardtotalkingtoyouverysoon.Haveagreatday.

Operator :

Ladiesandgentlemen,thatdidconcludetheconferencecallfortoday.

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