2016 second quarter business review · q2 2015 q2 2016 +3.0% q2 2015 gaap eps $2.02 organic growth,...

1. All Rights Reserved.4 August 2016© 3M

2016 Second Quarter Business Review

July 26, 2016

(unaudited)


Forward Looking StatementThis presentation contains forward-looking information about 3M's financial results and estimates and business prospects thatinvolve substantial risks and uncertainties. You can identify these statements by the use of words such as "anticipate," "estimate,""expect," "aim," "project," "intend," "plan," "believe," "will," "should," "could," "target," "forecast" and other words and terms ofsimilar 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, andcapital markets conditions and other factors beyond the Company's control, including natural and other disasters or climatechange affecting the operations of the Company or its customers and suppliers; (2) the Company's credit ratings and its cost ofcapital; (3) competitive conditions and customer preferences; (4) foreign currency exchange rates and fluctuations in those rates;(5) the timing and market acceptance of new product offerings; (6) the availability and cost of purchased components, compounds,raw materials and energy (including oil and natural gas and their derivatives) due to shortages, increased demand or supplyinterruptions (including those caused by natural and other disasters and other events); (7) the impact of acquisitions, strategicalliances, divestitures, and other unusual events resulting from portfolio management actions and other evolving businessstrategies, and possible organizational restructuring; (8) generating fewer productivity improvements than estimated; (9)unanticipated problems or delays with the phased implementation of a global enterprise resource planning (ERP) system, orsecurity breaches and other disruptions to the Company's information technology infrastructure; (10) financial market risks thatmay affect the Company’s funding obligations under defined benefit pension and postretirement plans; and (11) legal proceedings,including significant developments that could occur in the legal and regulatory proceedings described in the Company's AnnualReport on Form 10-K for the year ended Dec. 31, 2015, and its subsequent quarterly reports on Form 10-Q (the “Reports”). Changesin such assumptions or factors could produce significantly different results. A further description of these factors is located in theReports 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 information contained in this presentation is as ofthe date indicated. The Company assumes no obligation to update any forward-looking statements contained in this presentationas a result of new information or future events or developments.


GAAP EPS of $2.08, up 3.0% year-on-year

Sales of $7.7 billion, down 0.3% in dollar terms

Organic local currency declined 0.2%

Acquisitions, net of divestitures, increased sales by 1.4%

Foreign exchange translation (FX) reduced sales by 1.5%

Operating margins of 24.4%, up 0.5 percentage points year-on-year

Continued progress on Business Transformation, including West Europe ERP deployments

Returned $1.5 billion to shareholders via dividends and gross share repurchases

Q2 2016 Summary

Refer to 3M’s July 26, 2016 press release for full details.


-0.3%

-1.5%

1.4%

-0.2%

1.1%

-1.3%

Total

FX

Acquisition/divestiture

Organic local currency

Price

Organic volume

Worldwide Sales Change Due To: Organic local currency:

U.S. +0.4%

APAC (Asia Pacific) -5.4%

China/Hong Kong -7%

Japan -1%

EMEA (Europe/Middle East/Africa) +3.0%

West Europe +3%

LAC (Latin America/Canada) +4.8%

Mexico +5%

Brazil -2%

FX reduced sales by 1.5%

Euro +2%, Yen +14%, Real -11%

Q2 2016 Sales Recap

U.S. APAC EMEA LAC

Organic volume +0.1% -5.3% +1.5% -2.4%

Price +0.3% -0.1% +1.5% +7.2%

Organic local currency +0.4% -5.4% +3.0% +4.8%

Acq/div +1.5% +0.8% +2.0% +2.0%

FX ----- -0.2% -1.7% -10.5%

Total growth +1.9% -4.8% +3.3% -3.7%



Q2 2016

Legal/Other

Strategic investments

FX

Acquisitions

Organic volume/utilization

Productivity from restructuring

Pension/OPEB

Price/raw materials

Q2 2015

Operating margin of 24.4% Up 50 basis points

+0.4%

($M)Q2

2015Q2

2016 Change

Sales $7,686 $7,662 -0.3%

Gross profit $3,828 $3,863 +0.9%

% to sales 49.8% 50.5% +0.7 pts

SG&A $1,550 $1,560 +0.6%

% to sales 20.2% 20.4% +0.2 pts

R&D & related $438 $437 -0.4%

% to sales 5.7% 5.7% ----

Operating income $1,840 $1,866 +1.4%

% to sales 23.9% 24.4% +0.5 pts

Net income $1,300 $1,291 -0.7%

GAAP earnings per share $2.02 $2.08 +3.0%

23.9%

----

-1.1%

-0.3%

24.4%

Q2 2016 P&L

-0.3%

+1.1%

+1.3%


-0.6%


$2.02

$2.08

Q2 2015 Q2 2016

+3.0% Q2 2015 GAAP EPS $2.02

Organic growth, marginexpansion

+$0.04 Includes tailwind of $0.10 from

pension/OPEB expense

Acquisitions and divestitures*

+$0.03 Net impact from first 12 month closed

acquisitions and divestiture gains

FX -$0.04 Pre-tax earnings impact of $40M

Tax rate -$0.04 Q2 2016 29.6% vs. Q2 2015 28.1%

Shares outstanding +$0.07 Average diluted shares down 3%

Q2 2016 GAAP EPS $2.08

Q2 2016 GAAP EPS

* Acquisitions include Capital Safety and Membrana; divestitures include Library Systems, license plate converting business in France and Polyfoam adhesive business



($M)Q2

2015Q2

2016 ChangeQ2 YTD

2015Q2 YTD

2016 Change

Free cash flow (non-GAAP measure):

Operating cash flow $1,338 $1,285 ($53) $2,418 $2,545 $127

Capital expenditures ($370) ($323) $47 ($661) ($637) $24 Expecting FY 2016 of $1.3B to $1.5B

Free cash flow $968 $962 ($6) $1,757 $1,908 $151

Net income attributable to 3M $1,300 $1,291 ($9) $2,499 $2,566 $67

Free cash flow conversion 74% 75% +1 pt 70% 74% +4 pts Expecting FY 2016 of 95% to 105%

Cash to shareholders:

Dividends $646 $672 $26 $1,298 $1,344 $46 Increased per-share dividend 8%

Gross share repurchase $1,695 $828 ($867) $2,581 $2,055 ($526) Expecting FY 2016 of $4B to $6B

Total cash to shareholders $2,341 $1,500 ($841) $3,879 $3,399 ($480)

Q2 2016 Cash Flow

Refer to 3M’s July 26, 2016 press release for full details. In addition, see the appendix for the reconciliation of expected FY 2016 free cash flow conversion.


($M)Q2

2015Q2

2016%

Growth

Sales $2,632 $2,631 -0.1%

Organic local currency -1.4%

Acquisition/divestiture +2.6%

FX -1.3%

Operating income $608 $615 +1.2%

Operating margin 23.1% 23.4% +0.3 pts

Industrial Organic local currency growth:

By business: sales growth in automotive OEM, automotive aftermarket, and abrasives was offset by declines across the rest of the portfolio

By area: sales increased in Latin America/Canada and EMEA, and declined in Asia Pacific and the U.S.

Automotive OEM business organic growth continues to outpace global auto builds

Advanced materials business awarded a $93 million body-armor contract with U.S. Defense Logistics Agency

Membrana integration on track and exceeding financial expectations


($M)Q2

2015Q2

2016%

Growth

Sales $1,432 $1,499 +4.7%

Organic local currency +2.3%

Acquisition/divestiture +4.6%

FX -2.2%



Safety & Graphics Organic local currency growth:

By business: sales growth was led by roofing granules and commercial solutions

By area: sales increased in Latin America/Canada, the U.S. and EMEA, and declined in Asia Pacific

Strong growth in roofing granules business driven by increased demand in replacement shingle market

Commercial solutions delivered solid growth, with particular strength in EMEA and the U.S.

Capital Safety integration on track and meeting profit expectations


($M)Q2

2015Q2

2016%

Growth

Sales $1,364 $1,404 +3.0%


Acquisition/divestiture ----

FX -1.9%



Health Care Organic local currency growth:

By business: sales grew across all businesses

By area: sales grew in all geographic areas led by Latin America/Canada and Asia Pacific

Continue to accelerate investments across the business to further enhance growth opportunities

Strong organic growth in developing markets led by China/Hong Kong, Taiwan and Mexico

Business group wins Practice Greenhealth’s“Champion for Change” award for sustainability in business operations, and for solutions that help customers improve their environmental footprint


($M)Q2

2015Q2

2016%

Growth

Sales $1,312 $1,181 -10.0%

Organic local currency -9.1%


FX -0.9%

Operating income $278 $229 -18.1%

Operating margin 21.3% 19.3% -2.0 pts

Electronics & Energy Organic local currency growth:

By business: electronic-related sales decreased 14%, with declines in both electronics materials solutions, and display materials and systems; energy-related sales declined 2% as sales growth in telecom was offset by declines in electrical markets and renewable energy

By area: sales increased in EMEA and were flat in Latin America/Canada and the U.S.; sales declined in Asia Pacific

Consumer electronics end-market challenges continued in Q2

Completed Q2 actions to adjust business to market realities; reduced margins 80 basis points in the quarter


($M)Q2

2015Q2

2016%

Growth

Sales $1,111 $1,130 +1.7%



FX -1.0%



Consumer Organic local currency growth:

By business: sales growth was led by home improvement and consumer health care

By area: sales grew in Asia Pacific, the U.S. and Latin America/Canada, and declined in EMEA

Investments in Command™ and ScotchBlue™ painter’s tape products driving strong double-digit organic growth

“Back-to-school” season off to a good start led by strong sales in Post-it® and Command™ products

Introduced ScotchBlue™ PLATINUM Painter's Tape, the only interior painter’s tape that delivers 90-degree hand tears


Updating 2016 Planning Estimates

Q1 Earnings Call4/26/16

Today7/26/16

Sales growth:

Organic local currency

FX

Acquisitions, net divestitures

+1% to +3%

-1% to -3%

Approx. +1%

0% to +1%

-1% to -2%

Approx. +1%

GAAP EPS% change

$8.10 to $8.45+7% to +11%

$8.15 to $8.30+8% to +10%

Tax Rate 29.5% to 30.5% 29.0% to 29.5%

Free cash flow conversion* 95% to 105% 95% to 105%

*See the appendix for the reconciliation of expected FY 2016 free cash flow conversion.


Q & A


Appendix


Business Segment Information

($M) Net Sales Operating Income

Business Groups Q2

2015Q2

2016Q2

2015Q2

2016

Industrial $2,632 $2,631 $608 $615

Safety & Graphics $1,432 $1,499 $364 $411

Health Care $1,364 $1,404 $440 $460

Electronics & Energy $1,312 $1,181 $278 $229

Consumer $1,111 $1,130 $259 $281

Corporate and Unallocated ($4) $4 ($74) ($88)

Elimination of Dual Credit ($161) ($187) ($35) ($42)

Total $7,686 $7,662 $1,840 $1,866

Net Sales Operating Income

YTD 2015

YTD2016

YTD 2015

YTD2016

$5,288 $5,207 $1,204 $1,232

$2,804 $2,911 $699 $756

$2,693 $2,787 $848 $915

$2,636 $2,325 $563 $437

$2,159 $2,179 $499 $519

($2) $5 ($174) ($129)

($314) ($343) ($69) ($76)

$15,264 $15,071 $3,570 $3,654


Reconciliation of GAAP Amounts to Free Cash Flow Conversion

Free cash flow and free cash flow conversion are not defined under U.S. generally accepted accounting principles (GAAP). Therefore, they should not be considered asubstitute for income or cash flow data prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. TheCompany defines free cash flow as net cash provided by operating activities less purchases of property, plant and equipment. It should not be inferred that the entirefree cash flow is available for discretionary expenditures. The Company defines free cash flow conversion as free cash flow divided by net income attributable to 3M.The Company believes free cash flow and free cash flow conversion are meaningful to investors as they function as useful measures of performance and the Companyuses these measures as an indication of the strength of the Company and its ability to generate cash.

Full-Year 2016 Forecast:Quarter and Year-to-Date Results:

($M)Q2

2015Q2

2016 ChangeQ2 YTD

2015Q2 YTD

2016 Change

Major GAAP cash flow categories:


Investing cash flow $166 ($350) ($516) $166 ($630) ($796)

Financing cash flow ($320) ($602) ($282) ($1,474) ($2,028) ($554)



Capital expenditures ($370) ($323) $47 ($661) ($637) $24

Free cash flow $968 $962 ($6) $1,757 $1,908 $151

Net income attributable to 3M $1,300 $1,291 ($9) $2,499 $2,566 $67

Free cash flow conversion 74% 75% +1 pts 70% 74% +4 pts

($B)Year 2016

Planning Estimate


Operating cash flow $6.1 to $6.9

Purchases of property, plant andequipment

$1.3 to $1.5

Free cash flow $4.8 to $5.4

Net income attributable to 3M $5.0 to $5.2

Free cash flow conversion 95% to 105%

2016 second quarter business review · q2 2015 q2 2016 +3.0% q2 2015 gaap eps $2.02 organic growth,...

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