2018 Third Quarter Business...

2018 Third Quarter Business Review

(Unaudited)

October 23, 2018

2. All Rights Reserved.22 October 2018© 3M

3M Investor Day

Welcome reception:

November 14, 2018

Formal program:

November 15, 2018

Earnings Conference Calls

Q4: January 29, 2019


Forward looking statementThis presentation contains forward-looking information about 3M's financial results and estimates and business prospects that involve substantial risks anduncertainties. 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 of similar meaning in connection with any discussion of future operating or financial performanceor business plans or prospects. Among the factors that could cause actual results to differ materially are the following: (1) worldwide economic, political, and capitalmarkets conditions and other factors beyond the Company's control, including natural and other disasters or climate change affecting the operations of theCompany or its customers and suppliers; (2) the Company's credit ratings and its cost of capital; (3) competitive conditions and customer preferences; (4) foreigncurrency exchange rates and fluctuations in those rates; (5) the timing and market acceptance of new product offerings; (6) the availability and cost of purchasedcomponents, compounds, raw materials and energy (including oil and natural gas and their derivatives) due to shortages, increased demand or supply interruptions(including those caused by natural and other disasters and other events); (7) the impact of acquisitions, strategic alliances, divestitures, and other unusual eventsresulting from portfolio management actions and other evolving business strategies, and possible organizational restructuring; (8) generating fewer productivityimprovements 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 that may affect the Company’s fundingobligations under defined benefit pension and postretirement plans; and (11) legal proceedings, including significant developments that could occur in the legal andregulatory proceedings described in the Company's Annual Report on Form 10-K for the year ended Dec. 31, 2017, and any subsequent quarterly reports on Form10-Q (the “Reports”). Changes in 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 2and Part II, Item 1A (Quarterly Reports). The information contained in this presentation is as of the date indicated. The Company assumes no obligation to updateany forward-looking statements contained in this presentation as a result of new information or future events or developments.

This presentation refers to certain non-GAAP financial measures including free cash flow, free cash flow conversion, return on invested capital (ROIC), and various measures excluding the impact of the Communications Markets divestiture gain and related restructuring actions, the legal settlement and the measurement period adjustment relative to the accounting for the 2017 enactment of the Tax Cuts and Jobs Act (TCJA). 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 the appendix to this presentation.

Note on non-GAAP financial measures


Q3 2018 summary

Sales of $8.2B, down -0.2% year-on-year

• Foreign currency translation -1.7%

• Acquisition/divestiture, net +0.2%

GAAP EPS of $2.58, up 11% year-on-year

Operating income of $2.0B, up 0.4% year-on-year

• Operating margin of 24.7%, up 10 basis points

Free cash flow of $1.8B, up 24% year-on-year

Returned $1.9B to shareholders via dividends and gross share repurchases

Organic local-currency growth

Operatingmargin

Earnings per share

$2.58 +10.7% year-on-year

24.7%+10 bps year-on-year

+1.3%year-on-year


Q3 and YTD 2018 organic local-currency growth

Q3/year-to-date (YTD)

IndustrialHealth Care ConsumerSafety & Graphics Electronics & Energy

+2% / +3%-1% / +2% -2% / +1%+2% / +6% +2% / +3%

Organic local-currency = organic volume + price

Total 3M: +1% / +3%


Q3 2018 sales recap

Brazil +5%

Mexico +3%

Canada flat

Foreign-currency translation:

• Euro -2%, RMB -2%, Yen -1%, Real -20%

Organic local-currency growth by key countries/regions:

China/Hong Kong +10%

West Europe -2%

Japan -7%

Organic local-currency growth by area:

• U.S. +0.5%

• Latin America/Canada +2.1%

• Europe/Middle East/Africa -0.9%

• Asia Pacific +3.2%

(year-on-year)

Net sales

Organic-local currency growth

Acquisitions/Divestitures

+0.2%year-on-year

+1.3%year-on-yearvolume +0.1%, price +1.2%

Foreign currencytranslation

-1.7%year-on-year

$8.2B-0.2% year-on-year


Q3 2018 P&L

Q3 2017 24.6%

Organic volume/ productivity/other

+0.7%+0.1% organic volume growth; lower portfolio & footprint actions $23M

Acquisitions -0.3% Primarily Scott Safety

Communication Markets divestiture (Q2 2018)

-0.1% Stranded costs

Price/raw material +0.3%Selling price benefits net of higher raw materials

FX -0.5% Net of hedge impact

Q3 2018 24.7%

Operating income margin reconciliation:Net sales

Gross margin

Operating Income

$2.0B+0.4% year-on-year

49.0%-130 bps year-on-year

Net income$1.5B+8.0% year-on-year



Q3 2018 EPS

+9.0%

Q3 2017 GAAP EPS $2.33

Organic growth/productivity/other +$0.12

Benefits from organic growth, Business Transformation and productivity; lower portfolio and footprint (Q3 2018 -$0.01 vs. Q3 2017 -$0.04)

Acquisitions +$0.01 Primarily Scott Safety

Communication Markets divestiture (Q2 2018)

-$0.03 Divested income; stranded costs

FX -$0.08Pre-tax earnings impact -$66M; FY 2018 estimate: -$0.05 vs. +$0.10, previously

Other expense -$0.05 Higher retirement expense and net interest

Tax rate +$0.22 Q3 2018 21.3%, in-line with expectations

Shares outstanding +$0.06 Average diluted shares down 2.3%

Q3 2018 GAAP EPS $2.58

Earnings per share:

$2.58+10.7% year-on-year


Q3 2018 cash flow

Free cash flow

Dividends

Gross sharerepurchases

$1.8BFree cash flow of $1.8B, up 24% year-on-year

Free cash flow conversion of 114%

Capital expenditures:

• Q3 2018: $377M, up $52M year-on-year

• FY 2018: ~$1.6B

Returned $1.9B to shareholders via dividends and gross share repurchases in Q3

• FY 2018 gross share repurchases:

• $4B to $5B

$794M

$1.1B


$3.0Bflat year-on-year

+2.2%year-on-year

$667M-0.7% year-on-year



Net sales

Operating income

Operating margin

Industrial

Organic local-currency growth by business, year-on-year:

• Sales growth led by advanced materials, automotive and aerospace solutions, and industrial adhesives and tapes; automotive aftermarket declined

Organic local-currency growth by area, year-on-year:

• Sales grew +3% in APAC, +2% in the U.S., +1% in Latin America/Canada and EMEA

Foreign currency translation decreased sales by -2.1% and divestitures decreased sales by –0.1%

Q3 2017 operating margin included -30 bps from portfolio and footprint actions


$1.7B+7.0% year-on-year

+2.2%year-on-year

$412M+0.4% year-on-year


Safety & Graphics


• Sales grew in personal safety, transportation safety, and commercial solutions; roofing granules declined


• Sales grew +5% in APAC, +1% in the U.S, Latin America/Canada, and EMEA

Foreign currency translation decreased sales by -2.2% andacquisitions, net of divestitures, increased sales by +7.0%

Strong growth across all personal safety segments; Scott Safety performance and integration on-track

Operating margins impacted by:

• Q3 2017: -40 ppts from portfolio and footprint actions

• Q3 2018: -150 bps from Scott Safety acquisition


Net sales

Operating income

Operating margin



-1.1%year-on-year



Health Care


• Sales grew in food safety, health information systems, oral care; drug delivery declined


• Sales grew +10% in Asia Pacific, +4% in Latin America/ Canada; sales declined -1% in EMEA and -6% in the U.S.

Foreign currency translation decreased sales by -1.7%

Developing market organic growth of +9% led by double-digit increases in China/Hong Kong


Net sales

Operating income

Operating margin



+2.3%year-on-year

$457M+6.2% year-on-year

31.7%+330 bps year-on-year

Electronics & Energy


• Energy-related sales grew +6%; electronics-related sales grew +1% led by electronics materials solutions


• Sales grew +5% in the U.S., +3% in APAC , and +1% in Latin America/Canada; sales declined -5% in EMEA

Foreign currency translation decreased sales by -1.0% and divestitures reduced sales by -6.1%

Operating margins impacted by:

• Q3 2018: +80 bps mix benefit from Q2 2018 divestiture of communication markets business


Net sales

Operating income

Operating margin



-2.0%year-on-year



Consumer


• Sales grew in home improvement; declined in stationery and office supplies, home care, and consumer health care


• Sales grew +5% in Latin America/Canada; sales declined -1% in the U.S., -5% in EMEA, and -7% in APAC

Foreign currency translation decreased sales by -1.4%

Continued strong 3M point-of-sale growth amongst major retail customers

Q3 2017 operating margins included -70 bps from portfolio and footprint actions


Net sales

Operating income

Operating margin


2018 planning estimates


Return on invested capital

$9.90 to $10.00

20%+

Free cash flowconversion

90% to95%

~3%year-on-year

GAAP EPS of $8.78 to $8.93 vs. $9.08 to $9.38, previously, up 11% to 13% year-on-year

Adjusted EPS of $9.90 to $10.00 vs. $10.20 to $10.45, previously; adjusted EPS range excludes:

• First quarter 2018 measurement adjustments to TCJA ($0.36) and legal settlement ($1.16)

• CMD divestiture gain, net of related actions +$0.40 to +$0.45

Sales components:

• Organic local-currency growth ~3% vs. 3-4%, previously

• Acquisitions, net of divestitures flat vs. ~1%, previously

• Foreign currency translation flat vs. ~1%, previously

Effective tax rate of 20-21% vs. 20-22%, previously, excluding:

• Measurement adjustments to TCJA, legal settlement and communications business gain on sale net of related actions

See appendix for reconciliation of FY 2018e free cash flow conversion, ROIC, adjusted EPS and adjusted effective tax rate

Earnings per share, ex. TCJA adj.;

legal settlement; CMD, net


Q&A Participants

Nick GangestadSenior Vice President and

Chief Financial Officer

Bruce JermelandDirector, Investor Relations

Mike RomanChief Executive Officer


Appendix


Q3 2018 sales recap

U.S. APAC EMEA LAC

Organic volume -0.9% +3.0% -2.5% -0.1%

Price +1.4% +0.2% +1.6% +2.2%

Organic local-currency +0.5% +3.2% -0.9% +2.1%

Acquisitions/Divestitures +0.8% -0.1% ---- -0.7%

FX ---- -1.5% -3.0% -6.9%

Total growth +1.3% +1.6% -3.9% -5.5%


Q3 2018 P&L

($M)Q3

2017Q3

2018 Change

Sales $8,172 $8,152 -0.2%

Gross profit $4,113 $3,993 -2.9%

% to sales 50.3% 49.0% -1.3 pts

SG&A $1,637 $1,547 -5.5%

% to sales 19.9% 19.0% -0.9 pts

R&D & related $468 $430 -7.9%

% to sales 5.7% 5.3% -0.4 pts

Operating income $2,008 $2,016 +0.4%

% to sales 24.6% 24.7% +0.1 pts

Net income $1,429 $1,543 +8.0%

GAAP earnings per share $2.33 $2.58 +10.7%


Business segment information

($M) Net Sales Operating Income

Business groups Q3

2017Q3

2018Q3

2017Q3

2018

Industrial $3,023 $3,024 $672 $667

Safety & Graphics $1,551 $1,660 $411 $412

Health Care $1,485 $1,445 $467 $446

Electronics & Energy $1,515 $1,443 $430 $457

Consumer $1,279 $1,235 $311 $291

Corporate and Unallocated $3 $35 ($112) ($77)

Elimination of Dual Credit ($684) ($689) ($171) ($180)

Total $8,172 $8,152 $2,008 $2,016

Effective first quarter of 2018, 3M adopted Accounting Standards Update (ASU) No. 2016-07 and made certain business segment reporting changes. Those changes are reflected in the segment reporting data above. Refer to 3M’s October 23, 2018 press release for full details.


Estimated Full Year 2018

($B, except EPS) GAAP measure

TCJA measurement

adjustment Legal settlementCMD divestiture,

net of actionsAdjusted Non-GAAP measure

Income before taxes $7.0 to $7.1 $0.9 ($0.4) $7.5 to $7.6

Provision for income taxes $1.6 to $1.7 ($0.2) $0.2 ($0.1) $1.5 to $1.6

Effective tax rate 23% to 25% 20% to 21%

Net income attributable to 3M $5.3 to $5.5 $0.2 $0.7 ($0.3) $5.9 to $6.1

Earnings per diluted share $8.78 to $8.93 $0.36 $1.16 ($0.40-$0.45) $9.90 to $10.00

Estimated Full Year 2018 TCJA measurement adjustment, legal settlement, CMD divestiture impact

In February 2018, 3M reached an agreement with the State of Minnesota that resolved the previously disclosed Natural Resource Damages (NRD) lawsuit filed by the State against the Company related to certain PFCs present in the environment. Under the terms of the settlement, 3M agreed to provide an $850 million grant to the State for a special “3M Water Quality and Sustainability Fund.” This Fund will enable projects that support water sustainability in the Twin Cities East Metro region, such as continued delivery of water to residents and enhancing groundwater recharge to support sustainable growth. The projects will also result in habitat and recreation improvements, such as fishing piers, trails, and open space preservation. 3M recorded a pre-tax charge of $897 million, inclusive of legal fees and other related obligations, in the first quarter of 2018 associated with the resolution of this matter. Also during the first quarter of 2018, 3M recorded a tax expense of $217 million related to a measurement period adjustment to the provisional amounts recorded in December 2017, from the enactment of the Tax Cuts and Jobs Act (TCJA). 3M’s provisional accounting continues to be subject to adjustment during the measurement period of up to one year following the December 2017 enactment of TCJA. In the second quarter of 2018, 3M completed the sale of substantially all of its Communication Markets Division and reflected a pre-tax gain of $494 million as a result of this divestiture. During the second quarter of 2018, management approved and committed to undertake certain restructuring actions related to addressing corporate functional costs following the Communication Markets Division divestiture. These actions resulted in a second quarter 2018 pre-tax charge of $105 million.

In addition to providing full-year estimated 2018 financial results in accordance with U.S. GAAP, the Company also provides non-GAAP measures that adjust for the impacts of the NRD resolution, measurement period adjustment to the impact of enactment of the TCJA, and the impact of the Communication Markets Division divestiture gain, net of restructuring actions. These items represent significant charges/benefits that impacted the Company’s financial results. Income before taxes, provision for income taxes, net income, earnings per share, and the effective tax rate are all measures for which 3M provides the estimated GAAP measure and an adjusted measure. The adjusted measures are not in accordance with, nor are they a substitute for, GAAP measures. The Company considers these non-GAAP measures in evaluating and managing the Company’s operations. The Company believes that discussion of results adjusted for this item is meaningful to investors as it provides a useful analysis of ongoing underlying operating trends. The determination of these items may not be comparable to similarly titled measures used by other companies.


Reconciliation of GAAP amounts to free cash flow conversion

Third-quarter 2018 results:

($M)Q3

2017Q3

2018 Change

Major GAAP cash flow categories:

Operating cash flow $1,750 $2,139 $389

Investing cash flow $781 ($269) ($1,050)

Financing cash flow ($843) ($1,453) ($610)

Free cash flow (non-GAAP measure):

Operating cash flow $1,750 $2,139 $389

Purchases of property, plant and equipment ($325) ($377) ($52)

Free cash flow $1,425 $1,762 $337

Net income attributable to 3M $1,429 $1,543 $114

Free cash flow conversion 100% 114% 14 pts

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 entire freecash flow is available for discretionary expenditures. The Company defines free cash flow conversion as free cash flow divided by net income attributable to 3M. TheCompany believes free cash flow and free cash flow conversion are meaningful to investors as they function as useful measures of performance and the Company uses thesemeasures as an indication of the strength of the Company and its ability to generate cash.

Full-year 2018 forecast:

($B)

Year 2018 Planning Estimate

Free cash flow (non-GAAP measure):

Operating cash flow $6.4 to $6.8

Purchases of property, plant and equipment ($1.6)

Free cash flow $4.8 to $5.2

Net income attributable to 3M $5.3 to $5.5

Free cash flow conversion 90% to 95%


Reconciliation of GAAP amounts to return on invested capital

Return on Invested Capital (ROIC) is not defined under U.S. generally accepted accounting principles. Therefore, ROIC should not be considered a substitute for other measures prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. The Company defines ROIC as adjusted net income (net income including non-controlling interest plus after-tax interest expense) divided by average invested capital (equity plus debt). The Company believes ROIC is meaningful to investors as it focuses on shareholder value creation.

Full-year 2017 results:

($B)Year 2017

Results

Return on invested capital (non-GAAP measure):

Net income including non-controlling interest $4.9

Interest expense (after-tax)* $0.2

Adjusted net income (return) $5.1

Ave. shareholder’s equity (including non-controlling interest) $11.6

Ave. short-term and long-term debt $12.2

Ave. invested capital $23.8

Return on invested capital 21%

*Effective income tax rate used for interest expense 35.5%

Full-year 2018 forecast:

($B)

Year 2018 Planning Estimate

Return on invested capital (non-GAAP measure):

Net income including non-controlling interest $5.3 to $5.5

Interest expense (after-tax)** $0.3

Adjusted net income (return) $5.6 to $5.8

Ave. shareholder’s equity (including non-controlling interest) $10.5 to $11.5

Ave. short-term and long-term debt $14.5 to $15.5

Ave. invested capital $25.0 to $27.0

Return on invested capital 20% +

**Effective income tax rate used for interest expense 23% to 25%

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