Category: MMM

3M Company (NYSE:MMM) J.P. Morgan 2023 Industrials Conference March 15, 2023 9:50 AM ET

Company Participants

Monish Patolawala – EVP, CFO & Transformation Officer

Conference Call Participants

Steve Tusa – J.P. Morgan

Steve Tusa

Hey, everyone. My name is Steve Tusa. I’m the Electrical Equipment And Multi-Industry Analyst here at J.P. Morgan. Welcome to day two of the J.P. Morgan Industrials Conference. We’re very pleased to kick it off today with 3M and Monish Patolawala, who’s the CFO at 3M. Monish has a few opening remarks. Then we’ll jump right into Q&A. Monish?

Monish Patolawala

Great. Thanks for having us, Steven. I just thought I’d get – I’ll just give a few opening remarks to get everybody caught up on generally what’s been going on with 3M over the last couple of years. 2022 was a pivotal year for 3M, and I mean, you just think about a couple of things. On the operating side, we continue to manage inflation through price actions. We made sure that we took care of our customers’ shortened cycle times, and we focused on making sure that we kept their factories running and their shops running versus ours. And then we also made sure that we made progress on just driving operating rigor. We made – we reached an agreement with the Flemish government to restart our Zwijndrecht operations in Belgium. And at the same time, we exited our Russia facility, our Russia business. Also, when you think at it on the actions we’ve taken on the strategic side, we have set up 3M for a lot of success. The goal is to have two world class companies, as we announced the spin-off of our healthcare business, which right now is on track. The teams are making tremendous progress on that. As always, all those transactions are subject to regulatory approvals. They’re subject to tax opinions, tax letters, final board approval, and other customary regulatory items that we have to work through. But the teams are doing a really nice job. But that’s also giving us a chance to look at 3M. Mike, in the earnings call, talked about, we are re-looking at everything. The split of healthcare of 25% of our revenue, allows us to re-look at our structure, relook at how we go to market. So, there’s a lot of positive momentum as regards to that. We also closed the food safety transaction in September of last year. It was an RMT with a company called Neogen. It was $1 billion of cash that we got. We also retired 16 million shares. We also announced the exit of PFAS manufacturing at the end of last year. We have continued to manage our litigation liabilities. We are supporting Aearo in its bankruptcy filing for the Combat Arms. And at the same time, when it comes to PFAS, we have either defended ourselves in court or have negotiated resolutions as appropriate. So, all the work that we have done sets us up to have two great companies going forward.

But when I come to 2023, 2023, as we have said in the fourth quarter, and during earnings, is still fluid and uncertain. Coming into the fourth quarter, we saw significant destocking at our retailers. We saw consumer electronics being very slow. We saw consumer discretionary spend also very low. And all of that is continuing to play out in the first quarter of 2023. Pretty much what we had predicted. You’ve still got China working through its challenges in COVID. You’ve got the uncertainty that remains in Europe, even though they had a warmer winter. So, we are cautious. All the trends, or at least third-party external data, tell us that life should get better in the second half. Both IPI, GDP, all of them turn positive, China growth positive. So, we are very hopeful that as the second half comes through, you’re going to see supply chains also starting to ease. What we are seeing is pretty much what we told you at earnings, that we are still seeing material shortages, but not as much as we saw a year ago. We are still seeing inflation, though at a lower level, and we’ll continue to work price as a lever to manage inflation, as we have done over the last few years. And overall, when you just look at what operating rigor is doing, we are using a lot more data, data analytics to drive operating rigor. We are making sure we are focused on being agile. Some of the actions that we have taken in the fourth quarter, as we saw the volume starting to soften, we decided to reduce output, got tighter on cost control. We are doing the same in 1Q. We’ve been very thoughtful about our hiring. We’ve been very thoughtful about our spending. We also announced a restructuring of 2,500 jobs in the factories, all driven due to lower volume. And we’ll continue doing more of that, I think, as you see us going through the second half, and as things start stabilizing. Supply chain is our biggest opportunity, and we’ll continue to take necessary actions to make sure we are always closer to the customer and making sure we continue to drive the operating rigor that I know we as 3M can do. So, as I said, 2022 was big year for us. 2023 is another big year of execution for us. Some of the strategies we’ve announced play itself out in 2023. And as you leave 2023, we believe 3M is going to be stronger and lighter. So, as the volume comes back, you’re going to see the leverage start coming through. So, with that, Steve, I’ll turn it back to you.

Question-and-Answer Session

Q – Steve Tusa

So, you’re effectively reaffirming your guidance today for the year?

Monish Patolawala

So, when we went into the year, Steve, we had said our range was on revenue minus 320, which includes 200 basis points of a headwind due to DR and Russia, with an EPS of $8.50 to $9. We had talked about the first quarter being in the range of 7.2 to 7.6 on revenue, with a midpoint of 7.4 and EPS of $1.25 to $1.65, with a midpoint of $1.45. What we have seen in the first quarter has pretty much played out as of right now to where we thought it was going to be. So, the same headwinds we talked about, slower consumer, slower customer, consumer electronics being very soft, China off to a slow sluggish start in 1Q. So, what I would tell you is, let’s get through 1Q. March is a big month for us. Two months, in we see ourself in the 7.2 to 7.6, and the $1.25 to $1.65, and then we’ll come back and relook at it. And hopefully, all the trends that we have thought coming into – when we gave you guidance remain and we’ll see where we are.

Steve Tusa

So, I guess, is that a comment that – like, that sounds like it’s – things are still a little bit mixed. Let’s talk about China maybe. There’s certainly more positive sentiment around some pickup following the lockdowns. What are you seeing there? And you sound a little bit more cautious on that recovery than maybe others.

Monish Patolawala

Yes. So, if you look at what the prediction was, the prediction was that China would have a slower start in the first half, and then have a much stronger second half. All the external third-party data says, it’s pretty much – that’s what they’re saying is going to happen. So, I’m optimistic and – but always cautiously optimistic that things will play out the way third-party data tells you it’s going to play out.

Steve Tusa

Yes. The third-party data is always right. To J.P. Morgan, it is.

Monish Patolawala

But what we are seeing right now is pretty much what we told you in the first quarter. We are off to a slower start in China. That’s playing itself out exactly what we had predicted. So, I would say nothing new news on that, other than what we had seen and what we thought coming into the first quarter.

Steve Tusa

And obviously, your China business has a pretty heavy flavor of electronics exposure. So, there’s an element there that is maybe also not just China opening up.

Monish Patolawala

Absolutely.

Steve Tusa

On the electronics front, what are you seeing in the various verticals there, and how do you see that playing out over the next couple of quarters?

Monish Patolawala

Yes. So, again, we saw a pretty steep roll down in the fourth quarter with consumer electronics. We felt that would continue into the first quarter. It’s pretty much played itself out, at least what we are seeing two months in. What we are seeing is smartphones down somewhere between 10%, TVs as high as down 30%. Sequentially, you’ve also seen semiconductors down mid-single digits. Auto, our auto business, which also has an impact of electronics because of our display and other electronic components we supply, also down mid-single digits. Pretty much – so I would say again, Steve, pretty much playing out in that same range that we told you. We are seeing consumer electronics destocking happening in the first quarter. There is – we think there’ll be a recovery as you hit the bottom starting in the second half. So, we should see consumer electronics come its way up. But at the same time, the great thing about 3M is, as consumer electronics have evolved, the technologies that we have allow us to use the micro replication technology that 3M has into devices, and use them into nanotechnology applications. So, for example, we are able to reinvent our business and start playing in the space of AR and VR. At the same time, we are allowed – we are using electronics in display technologies and cars as your cars are becoming the next computer on wheels. We also have tremendous opportunity with light management. So, the strength of 3M has been the light management technology that we have that allowed us to make displays like TVs and tablets and phones better. And as the world has evolved, and as there are more demanding applications for that, we can continue using light management technology. So, this electronics is a space that 3M has played in a long period of time. We understand the cycles that it goes through, and sometimes you’ll have a down cycle and an up-cycle. But this is where 3M’s technology comes heavy into play. And I think this is a segment that will continue to be long-term growth. Yes, there’s some short-term weakness, but I think long-term growth.

Steve Tusa

And then what is the expectation of a pickup in the second half there? Like, where do those comps go from what you’re assuming in the first half to the second half on the electronic side?

Monish Patolawala

Yes. So, I think if you look at last year’s fourth quarter, first, you’re going to get easier comps coming in because you saw fourth quarter being down significantly in that space, but it started sometime in the third quarter. So, our hope is, first, China comes back which is what the predictions are. Secondly, you start getting into easier comps, and you work through some of the pre-buy that people had with TVs and phones during the pandemic, and you get to the right spot. At the same time, there is technology transfer happening between LED and OLED, or LCD and OED that we have talked about. I think we see that journey continuing through the next few years. But again, that’s where 3M invents itself and starts bringing products that impact other spaces too.

Steve Tusa

And price there, are you seeing any kind of the normal type of pricing pressure? Or is that, with inflation, maybe a little bit less than it’s been historically in this type of volume environment?

Monish Patolawala

Yes. So, even the last two years, most of us at the industrial side have faced an unprecedented inflation. So, as consumers – we have managed price through – we have managed inflation through taking price. I think our customers understand it. I think what we are watching to see is, as demand slows down and you start seeing deflation, you’re going to start seeing elasticity of demand and price start playing itself out, not just for us, but the broader market. For us, we have always been able to create value for our customers. So, historically, we have had price raws benefit. It’s different segment by segment. Historically, electronics is always a down market, but so far, we have managed it the best we can. But we go market by market, product by product. So, it’s not a cost-based formula only that works.

Steve Tusa

So, do you think the electronics business will have negative price this year?

Monish Patolawala

I don’t know as of right now. We don’t know. We’ll see what the second half plays itself out, but our hope is we add a lot of value to our customers, so

Steve Tusa

On auto, maybe talk about what you’re seeing on inventory situation there in both the traditional ICE side, and then what kind of growth you’re seeing on the EV front. And just clarify your exposure to both of those.

Monish Patolawala

Yes. So, auto, if my memory’s right, IHS right now is saying it’s approximately 4% to 4.5% build for the year. It’s going to be down sequentially, fourth quarter, 1Q, which is quite normal for that industry, and then it picks itself up. China has been slower in the pickup as they went through 1Q, partly driven to the COVID exposure. Europe still continues to be strong, but I think there’s risk there, and that’s what’s been highlighted even by IHS. Our growth for our auto electrification business is now a $500 million business. It grew 30% last year. Overall, historically, 3M has always been able to beat auto build rates by 300 to 500 basis points. We did that last year too. So, I think we are quite bullish. For us, the E versus the I, so internal combustion engine versus electrification, to some extent, we are agnostic. And we are agnostic because some of the solutions that we offer in the internal combustion engines can be used in the auto electrification space, and it is being used. So, for example, our display technologies are the same, whether you’re using it for one car that’s auto or not. On the other hand, we also have a front row seat with a lot of the auto OEMs, because we’ve been in this business for a long, long time. And we are – our OEMs call us with solutions. So, we introduce new products like thermal management and batteries, et cetera, which will help only the auto E side of it. So, overall, I think we are quite bullish on auto electrification. I think that’s an area of long-term investment and growth. It’s an area of 3M strength. And to answer your specific exposure question, we are around $20 to $25 a car on an average, depending on which car you pick.

Steve Tusa

And so, that – the EV stuff continues to grow at a strong double-digit rate. Does the non EV-stuff, is it flat to down? Is it just growing in line with a little bit better than builds? Like, how do you see the trend there?

Monish Patolawala

So, the trend there is, again, it’s all – it’s a penetration game, which is how many applications can you get onto a car? The team’s continuing to do a great job of driving penetration, even in internal combustion engines. So, again, it goes back to quite agnostic between the two. And as long as the teams can keep driving penetration, you’re going to keep seeing us get to the 300 to 500 basis points of growth over build rate.

Steve Tusa

So, effectively you’ve embedded this year like a high single-digit type of growth rate for that?

Monish Patolawala

So, we have embedded – pretty much what I’ve told you is, historically 300 to 500 basis points uplift. So, that’s what we are trying to do. I think what’ll play out is to see where the regional bills come, because you have a range. You have some cars that have lower penetration, some cars that have higher penetration. So, it’ll also come down ultimately to what cars get made and what type of cars get made.

Steve Tusa

And then just on the general industrial side, you guys are pretty broad-based in your exposure. There’s some MRO-related exposure. There’s aerospace. There’s some energy. What are you guys seeing on the general industrial side?

Monish Patolawala

So, I would say coming into the fourth quarter with general industrials, we saw general industrials pretty much being stable. So, it was a dichotomy of consumer-facing businesses were harder hit than industrial-facing businesses. Coming into the first quarter, we had – we continued to see, I would say, consumer businesses much heavier hit than industrial. We saw inventory levels at industrial pretty steady in the fourth quarter, with industrial deeper and consumer. We have continued to see consumer have destocking in the first quarter, both consumer goods and consumer electronics. But we’ve also seen pockets of industrial where we have seen some destocking going on. We don’t know if it’s cautionary because people do tell us that they’re being cautionary right now. We don’t know if it’s a deeper trend. So, that’s why I said let’s play out March and see where we are. But we have seen certain areas of industrial destocking.

Steve Tusa

And any particular verticals there or regions that you’ve seen that?

Monish Patolawala

So, Asia and China definitely we have seen more. Part of it, of course, is what they’ve gone through. Part of it is electronics. So, the industrial side also impacts electronics. But also, in the US, we are seeing certain distributors telling us, we’re just being cautious. Doesn’t mean demand has collapsed, but they’re being cautious. So, we’ll see where it goes. Our goal is to make sure our cycle times are as short as possible so that when there is demand, we continue to supply.

Steve Tusa

Right. On the consumer side itself, what are you seeing in retail or home improvement or any verticals like that?

Monish Patolawala

Yes. So, as you reflect, and you’ll have, I’m sure, read a lot of what’s going on with most of the retailers, you’re finding that consumers have moved away from discretionary goods and spending more money on groceries, et cetera, because of the inflation, and I think that’s having an impact on our business. It’s pretty much in the same guide that we had told you. So, it’s no new news, but that trend continues, which is, consumer discretionary spending is lower. And secondly, destocking, which was the other big piece that happened in the fourth quarter, and we predicted in the first quarter, has continued to be at rapid levels. We believe that destocking continues till the second half, and then you start seeing stabilization.

Steve Tusa

Into the second half.

Monish Patolawala

Into the second half.

Steve Tusa

And that’s embedded in your guide, obviously.

Monish Patolawala

Yes. As of – yes, up to a point, right? None of us know what they’re going to do, but we believe there’s a point where you won’t be able to serve customers.

Steve Tusa

And then just lastly, on the healthcare side, some staffing issues, elective procedures, at some point they’re going to get back to 100% COVID levels. What are you guys seeing in that channel, both globally and in the US?

Monish Patolawala

So, first, I’ll start, Steve, by saying, healthcare is a business we believe, or a market that’s GDP plus in the long run. Just when you look at demographics and you look at health across the world, this is a market or an industry that has to grow if the world becomes a better place. So, I’ll start with that. What has happened through the pandemic, for everyone’s benefit is, there was tremendous pressure on frontline workers, tremendous pressure on cleaning protocols, et cetera, which have slowed down the pace of recoveries. Secondly, you’re seeing through the pandemic, that hospitals operating margins have been hurt quite a bit. Many of our US hospitals actually run on negative operating margin. Thirdly, you’re seeing care move out of the hospital space and start moving into – out of hospital space. Part of it is just in general reimbursement rules. Part of it is the advent of surgical innovations that allow you to do procedures outside. And then we are seeing recovery happening more at home. So, the connected being at home and you being monitored at home, is another trend. And the last trend is digital.

And when you talk about that is assisting physicians, assisting caregivers to have better quality of care. So, when you put all that together, you have seen the pace of recoveries go down. When we came into the fourth quarter, we thought we are at 90% of pre-pandemic levels. In the first quarter, we said it’s going to be somewhere in that range. It is playing out somewhere in that range right now. We believe we will start seeing sequential increases in elective procedures as the quarters go on and as the hospitals work through some of their staffing shortages, et cetera. 3M is well placed to be in the hospital. It’s well placed to be outside the hospital. You all know we have a world class healthcare digital business. And then when you think about drug and drug delivery and biopharma, we have a great business there that continues to grow very strong. So, I would say long-term, we are very well positioned to continue to grow in that business. And I think short-term, you’re going to take some – the hospitals are going to take some time to go figure out how they get their procedure volumes back up, whether it is extra quantity of hospitals being built, whether it is digitization that helps in some way. I think all of those will play itself out. And then emerging markets, I think is another tremendous opportunity for healthcare growth. When we came into the year, we had said 90 would go to 95 by the end of the year for pre-pandemic levels. Sitting two months into the year, I think that’s doable. I think the world will have a different crisis if at some point we don’t get ourselves – get surgeries back above pre-pandemic levels.

Steve Tusa

Right. On price, you had mentioned that there will be – there’s a risk of some deflation. First of all, on the raw material side and from a supply perspective, where are still the most acute pinch points? And then how do you see pricing evolving? Will you exit the year at a flattish level, or can you grow price exiting this year as well? I think 2% is roughly what we have in our model for price this year.

Monish Patolawala

And 2% is pretty much what we told you in our embedded guide. When you think about the inflation side of things, as I mentioned, our carryover impact plus energy inflation is in the 150 to 250 range, which is what we had disclosed even on earnings day. We are continuing to manage that through price actions. If there’s more inflation, we’ll definitely do more. You have seen we have been able to do that last year. The team’s got a very good pricing playbook. We look at it market by market. We look at it competitively. We make sure we are looking at it product by product. We’ve got a lot of analytics that tell us about where inflation is coming. We’ve got analytics that tell us where we have opportunity for price or not. So, the team has done a really nice job using data and data analytics in this area. I would say, on the inflation side, you continue to – you’ve seen inflation but at a slower rate. So, that’s a positive news. You still are seeing inflations in resins. You’re seeing inflations in finished goods, so goods that we ask third parties to make for us. Labor inflation is still pretty strong in their world. So, that gets passed on to us. But it is a playbook we’ve seen before. The team has done a nice job of looking at dual-sourcing, making sure we’re expanding our vendor base. We are re-looking at chemistries that allow us to do material substitution that helps us drive yield and efficiency. And so, I would say in the long run, and I’ve always said this before, and so has Mike. Supply chain is our biggest opportunity. And as you start seeing supply chains heal, which we hope will start healing in the second half, you should be able to get much more efficiency out of those factories and help from a margin perspective, and cash.

Steve Tusa

And will you be exiting the year with positive price, or should we think about exiting it kind of a more stable rate?

Monish Patolawala

I think we’ll have to see what deflation plays itself out, Steve. I think, again, it’s market by market, product by product. So, it’s too early two months into it to start predicting what the second half or what the exit rate is.

Steve Tusa

And is that energy price relatively fixed now for the year? I mean, I would assume that bounces around a bit. Now it doesn’t – it’s relatively fixed, but you see headwinds?

Monish Patolawala

Yes. So, I would say, it’s Europe energy, which I talked about. It’s relatively fixed. There’s some variable piece of it. The reason is, with the relationship we have with some of the utilities in Europe, we were able to get a certain amount of fixed pricing that also gives us access to demand if needed. So, I would say relatively fixed. We have a little bit of variable portion.

Steve Tusa

On the margins, what is the – it’s tough to discern what the core margin is this year, I mean, especially when a company is trending around the flat line up or down, incremental margins are tough to call. I mean, what is – talk about that algorithm. I mean, what is the core incremental that you would expect as you grow? And it seems to us that there has been more of a decremental – when you decline, there’s like a higher rate of deleveraging. How do you – are we wrong about that? And if we’re not, what is that? What’s driving that?

Monish Patolawala

So, mathematically, you’re not wrong, right? The deleverage is heavier than what you’ve seen. But I would also say, with the number of things that have happened through the pandemic, whether it was hyperinflation, whether it is raw material availability, shorter runs, logistics cost, availability of carriers, air freighting for making sure our customers, there’s a lot that happened in the pandemic that doesn’t allow you to really get a clean look at what it is, because each one of them has a different X that plays itself out. But when you step back, and you always ask me the question, do you feel you can get to the 30% to 40%? Here’s the simple math. On an average, if you take gross margin for our products, if you just look at our own P&L statement, I think it’s in that 40%, 45%, 50% range. So, as a start, every dollar that you put in, gives you $0.50 of revenue. Second, you take some of that and say, I reinvested back in the business for R&D, for SG&A. That’s why that 30 to 40 in the long run plays itself out. And that’s why I keep saying, volume gives us the best leverage. When you have low volume, it’s very hard to get that leverage because there are certain fixed costs that you just can’t take out. To that, then you start adding the yield and efficiency benefits you start getting, whether you use data, data analytics, whether you start seeing supply chains starting to heal themselves, materials start flowing, you can get longer production runs. You add to that. Then third piece you add to that is all the work we are doing on dual-sourcing, et cetera, opens you up to get to the 30 to 40. Take some of that saving and continue to invest it back in the business as you see fit in the area. So, that’s why the longer-term, when people ask that 30 to 40, that’s the calculus that you get to. I fully admit that in the short-term with the pandemic, it is very hard for anybody to exactly figure out what is really causing some of the pain. We do root cause, but that root cause is good to know, but it doesn’t solve the issue that we said we will take care of our customers first. And I think that’s the right thing for us to do. At the end, if we don’t have our customers, we don’t have a business. And so, that’s something Mike and I said, we are going to take care of them, and they’ve – so that’s what we’ve done and that’s hurt us from an efficiency perspective.

Steve Tusa

Right. So, it’s expediting something here. It’s a little bit extra cost …

Monish Patolawala

It’s shorter runs.

Steve Tusa

… to make sure your customers are happy.

Happy. Absolutely.

Steve Tusa

Inefficiencies, if you will.

Monish Patolawala

A lot. Like for example, you would have a material that is supposed to land up tomorrow morning, and you’re saying, okay, I’m going to run. And now suddenly you said, okay, it won’t land up. The supplier couldn’t deliver it. They didn’t have the labor force. So, now you have to recycle yourself and change your production run for a period of time. That’s why you’ve also seen us having more inventory levels, because as we are learning through this algorithm, we are saying, let’s keep the buffer stock so that we can keep our factories running, because at the end of the day, if our customers have lined downs, it’s quite expensive for them too. And our goal has always been to make sure we try to do the best we can. Doesn’t mean we’ve been able to avoid every line down, but we do our best to make sure we are taking care of that.

Steve Tusa

So, when all – when this kind of normalizes, I would expect you guys will be taking the inventory levels down. Is that a target? So, are these inefficiencies – usually, you have some utilization headwinds when you do that. Is this time different from that perspective? And should we think about the utilization headwinds being offset by more – effectively a more efficient cost to serve, if you will?

Monish Patolawala

Yes. So, you are right on. First, I’ll start by inventory levels coming down. In the fourth quarter itself, we took inventory levels down, which is a start. So, you can see as change is starting to heal, we are saying there’s an opportunity to take level down. We also reduced production in the fourth quarter as we started seeing volumes starting to come down. And that did hurt us from an efficiency perspective. To the extent that it’s not a raw material buy, but it’s a finished goods, we will reduce production, and to your point, you will get hurt. But as supply chains heal, eel and efficiency and all of that coming in should start helping to offset that. In the long run, I don’t know if it is a shutdown – I don’t know if it’s a slowdown in manufacture. I think in the long run, it’s more you buy less because you just don’t need it.

Steve Tusa

Got it. That makes sense. If we go into a period where you get some deflation and there’s opportunity to drive, obviously, you said highly high incremental leverage on volume growth. If you had an opportunity to trade off volume for a little bit of price, would you make that trade? Like, if I told you, you could get 4% of volume and price was negative one, but you kind of maintained a little bit of spread on raws, is that a favorable scenario from your perspective?

Monish Patolawala

So, businesses do that every day, Steve. This is not a cost-based formula. It appears like at the top it’s all one number, but businesses do that every day. They’re looking at their competitive position. They’re seeing what value they add to customers. They look at what it costs us, and all of that calculus goes into their pricing. So, it’s not new. This is – the last year just has been unprecedented with this amount of inflation. But you’ve always had products that are inflationary, and you’ve always had products that are deflationary and the teams do a nice job.

Steve Tusa

Well, I guess just going back to like 2014 and ‘15 when oil prices went down, 3M booked like a cumulative $2 in price cost spread. That seems excessive to me, that maybe it could have been $1 and they could have driven more volume and market share. That’s why I’m asking the question.

Monish Patolawala

Yes. So, if that’s the question that historically, we just look at a long period, it’s been a 30 to 50 basis points of margin expansion due to price raw subject to electronics, which is a very different industry. But I would say that the value and innovation we drive, that should – why can’t we do the 30 to 50? And my view is we can.

Steve Tusa

Right. Okay. Any questions on fundamentals before we get into the liability discussion? There were some news out around the EPA proposing some levels on PFAS, the 4 million parts for – can you maybe talk about how that influences you guys at all and what’s your – what that news means?

Monish Patolawala

Yes. So, 3M was the first company that exited PFOA and PFOS 20 years ago, which are two substances of the announcement that was made yesterday. I would say, 3M continues to continue its cleanup in its factories, that has committed at the same time manage litigation through either defending ourselves in court or negotiated agreements or resolutions as appropriate. You saw us exiting PFAS manufacturing in – we announced that in December of 2023 – that by 2025 we are going to exit PFAS manufacturer. We are also going to remove – we are trying to remove all PFA from our products. So, at the end of the day, we are aware of the announcement that came out yesterday, but 3M is committed to continuing down the path that we’ve announced and working through it.

Steve Tusa

What are the next big gating factors here, and how do we look at the news flow? What are you watching for the next call it six months, six, nine months?

Monish Patolawala

So, from a litigation perspective, our AFFF MDL, the first case is early June of this year, and the teams are working hard to prepare for that. At the same time, we are continuing our commitment to keep cleaning up our factories, continuing to work through the agreement we have with the Flemish government to make sure that we are continuing down the path of the cleanup commitment that we had, or remediation that we had. But at the same time, as I said, we are managing litigation by defending ourselves in court or getting to a negotiated resolution as appropriate.

Steve Tusa

What’s the feedback from customers on your decision to end the manufacturing of this material for them?

Monish Patolawala

So, I think customers understand, and the reason we decided to exit PFAS manufacturer was, when we looked at the changing regulatory landscape, requirement from customers, and also, we just felt in that environment, we could not have a viable business that’s profitable, we just felt that it was the right time to exit. So, I would say, customers are – they understand why we made the decision. We have committed to them that we will work with them on an orderly transition out by the end of 2025, and that’s what the teams are working on, is with the supply chain teams of our customers, working through that right now.

Steve Tusa

So, this is still somewhat open-ended with not a lot of visibility on the PFAS and related liabilities seems still pretty open-ended.

Monish Patolawala

I don’t know.

Steve Tusa

From a timeline perspective.

Monish Patolawala

From a timeline perspective, I would say, again, we think this will play out over many years. We will continue what we have said we would do, which is continuing to remediate our facilities and defend ourselves in court, as well as fine negotiated resolutions where appropriate. And I would say the AFF MDL is the first one that you’ll see in June.

Steve Tusa

On Combat Arms, there’s definitely been more movement there, some numbers, and you guys have taken action, I’d say a little bit more aggressively on that one. Where do we stand in your view on Combat Arms?

Monish Patolawala

Yes. So, the teams are – we are supporting Aearo and the confidential mediation that’s going on with the plaintiffs right now on Combat Arms. You’ve also seen the co-mediators put out a release or a note that says we are actively engaged. So, that’s what we are continuing to do. A couple of dates for you all to keep in mind, other than of course, what we are going on with the mediation is, our first appeal for the bellwethers off the MDL will now get held in May or June of – I think it’s May or June. I can’t remember. One of the two. We clarify that in – of this year. We’ve got early April, our first appeal on where we were – where 3M was not allowed to be a party to the filing with Aearo. And then we’ve got notice of dismissal or request for dismissal from the plaintiffs, which will also get heard, I think it’s April 19th, is the date. So, those are three from a litigation date perspective. We also – as you saw, Aearo put out what we call is information about audiograms of 210,000 plaintiffs, which were, as a part of the MDL, the Department of Defense released that. Charlie Mullen, who’s the expert from Baker White, ran that analysis and tested functional hearing loss using both American Medical Association and the World Health Organization and checked for that. Majority of those plaintiffs don’t show that they have functional hearing loss. So, Aearo filed a motion to ask the court to take that into account when they decide the size of the trust. And the way it’ll work is, once that trust is established, people who were harmed can go in and appeal and get money from their trust based on how they think their functional hearing losses. As we’ve said this before, Steve, our goal always here has been to find an effect effective, efficient, and expedited resolution to this issue, and that’s what the teams are working on.

Steve Tusa

And I guess, when you look at managing these issues, your stock currently reflects tens of billions of dollars probably of risk around these liabilities. I mean, do you judge how you’re going to approach this by shareholder value? Or is it more of a, hey, start with the science first and we’re going to get to an answer on the science. So, because obviously there’s a – if your stock is undervalued by $60 billion and you settle for $20 billion, that’s positive, even if you don’t think it’s $20 billion, using round numbers. I mean, what’s the mindset on how you’re going about this and does where the stock is trading in the implicit discount come into play when you’re thinking about how to manage this stuff?

Monish Patolawala

So, I’ll just start first by, 3M will always stand by two or three principles. One is, we’ll always be transparent and let you know what’s going on. So, I would request all of you to read our Ks and Q disclosures. Second is responsibility. To the extent that we have done something wrong, we will definitely stand by it. And third is, we will use a science-based approach to solve some of the issues. But with that said, as I told you, with Combat Arms and PFAS, we believe that we can – we believe that from a PFAS perspective, the product is safe to make and use. Same thing, secondly, on Combat Arms, we don’t believe we have done anything wrong, or Aearo hasn’t done anything wrong. But we take all these factors into account, including what you just mentioned, Steve, as we come to decisions. But I reiterate, to the extent that if 3M has done something wrong, we will always stand by it and do what it takes to fix it.

Steve Tusa

But it seems like Combat Arms is much more front-burner when it comes to some sort of a definitive resolution, whether it’s positive or negative?

Monish Patolawala

Yes. So, I think you break out Combat Arms versus PFAS, Combat Arms is one product, one segment. So, it’s a different resolution mechanism or timeframe than PFAS, which has AFFF. It has our own factories that have got impacted, and then it has got just the general impact on PFAS on human health, et cetera. And each one of them have a different time dimension that you have to consider.

Steve Tusa

Right. Okay. Any other questions out there? One more? Right here.

Unidentified Analyst

Just a question on capital allocation. You have some bonds maturing this year. You have hypothetically some nice proceeds coming in from the healthcare sale. Is the plan to deleverage the balance sheet, to buy back some shares, or maybe does it make sense to build some cash? We’re talking about this liability discussion. Thank you.

Monish Patolawala

Yes. So, I think your question is, what’s my capital allocation priorities? I didn’t hear the first few pieces of it. So, I think that’s your question. So, I would just – I would tell you, first I would always invest in R&D first, because that gives me the best organic investment, is the best leverage that we get. Number two has been dividend, which is important for our shareholders. Third is M&A, and fourth is share buyback. So, that’s our method of capital allocation. What we’ll do is, as you have seen, our net debt to EBITDA leverage, which was 2.3 a few years ago, is already down to 1.4. So, the company is in very good financial position. And to the extent that we will pay back debt or buy shares, will all depend on the capital allocation policy, will also depend on the cash flow that gets generated in the company. In an environment like this, we have a slow start, which we have predicted in the first quarter, and our hope is that we’ll recover in the second half. So, we’ll keep you posted as we make decisions, but deleveraging, we have already done. We are down to 2.3 to 1.4. And I would tell you, in the long-term, the ability for 3M to keep generating cash using data and data analytics, especially coming from inventory, the question Steve asked, I think is an opportunity for us to continue driving cash flow generation. We have good margins, good EBITDA, will continue to increase as we = hopefully supply chains stabilize. So, all that actually puts itself in a great place for us to be able to take the cash, do our capital allocation. And then to your point, where you correctly said when we spin out healthcare, you end up getting a dividend as you lever up the balance sheet for 3M healthcare, which is somewhere between the three to 2 to 3.5x leverage, which we have said, plus we’ll own 20% equity stake in that entity that we can also liquidate, which we will over the five years for it, because our goal is to make it a tax-fee transaction for shareholders. So, there’s tremendous opportunity for us to keep driving growth margin and cash and deploying that in the capital framework that I just mentioned.

Steve Tusa

Do you expect the combined companies’ healthcare and 3M to pay the same dividend as 3M is paying today?

Monish Patolawala

So, we’ll have to see as that plays itself out, Steve. I think at the end of the day, the capital allocation priorities for 3M don’t change. They will still be R&D, dividend, M&A, and share buyback. At the same time, the dividend for SpinCo will get decided by SpinCo management and SpinCo board. So, a little too early right now to talk about it, but I would say capital priorities don’t change.

Q – Steve Tusa

Great. Thanks, Monish.

A – Monish Patolawala

Thank you.

3M‘s (MMM -1.02%) 5.5% dividend yield is compelling, but it’s not enough to offset the company’s problems.

A company’s ability to meet guidance and to generate revenue growth and margin expansion are critical considerations when investing in a stock. Unfortunately, based on recent history, 3M is, arguably, failing on all three counts.

Unhappy shareholders

One of 3M’s significant shareholders, Flossbach von Storch, isn’t satisfied with its performance. The asset manager’s co-founder Bert Flossbach has already written to 3M’s management and expressed concern about how it’s being run, and about management’s positive statements regarding the company.

Flossbach has a point. The chart below shows 3M’s recent history of meeting the guidance range for organic local currency growth that management gave at the beginning of each year. Forget about beating the high end of the range: 3M only managed to beat the low end of the guidance range in four of the last nine years, and in one of those (2018) it just scraped through. Moreover, 3M only beat the high end of guidance in 2017 and 2021, when industrial production growth bounced strongly from trough years.

It gets worse. 3M held an investor day in 2016 and targeted annual local-currency organic sales growth of 2% to 5% in 2016-2020; in 2019 it held another investor day and targeted 3% to 5% in 2019-2023. If 3M manages to hit the midpoint of its 2023 guidance, then average annual growth over the 2016-2023 period will be just 1.7%.

Whether you look at it year by year or or over the medium term, 3M’s record of meeting guidance is not good.

Disappointing margin performance

3M traditionally commands relatively high profit margins, partly because it focuses on research and development to create high-quality and differentiated products. The company invented the new-product Vitality Index — a measure, now widely used in industry, of the share of sales coming from products released in the last four years.

Indeed, 3M continues to command excellent gross margins and margins based on earnings before interest, taxation, depreciation, and amortization (EBITDA). Gross margin is helpful as it indicates a company’s pricing power in a marketplace — it only strips out the cost of goods. EBITDA margin also strips out operating expenses.

However, the problem is that neither its gross margin nor its EBITDA margin have gone anywhere over the last decade. A combination of lackluster growth and margin decline doesn’t make good reading for shareholders.

What’s going wrong at 3M

This disappointing operational performance is part of why the stock is down 54% over the last five years compared to the S&P 500‘s 46% gain and the 43% increase at one of its multi-industrial conglomerate peers, Illinois Tool Works.

Meanwhile, CEO Mike Roman earned nearly $6 million in incentive payments (on top of $3.9 million in salary) in 2019-2021, and CFO Monish Patolawala (appointed in July 2020) earned $1.9 million in incentive payments (on top of $1.4 million in salary) in 2020-2021. During these years, management made significant restructuring actions — none of which seem to have improved performance.

3M is having problems maintaining its margins. One obvious answer is to try and raise pricing, but that’s not how 3M operates. Instead, as Patolawala said to Barclays analyst Julian Mitchell on the last earnings call, “as I’ve always said … the volume gives us the best leverage.” In other words, 3M tries to generate margin expansion through growing sales volume (and taking advantage of the benefits of scale) rather than pushing through price increases.

One possibility is that 3M doesn’t have the pricing power to push through price increases without suffering volume decreases. Alternatively, it might not have enough quality in its products to generate the volume necessary to expand its margin. In either case, 3M is not demonstrating the ability to grow margins.

Why guidance matters

Not hitting guidance isn’t just an issue of disappointing investors who bought the stock by failing to pencil in the numbers the company gave earlier; it also raises questions about executive planning. For example, if margins are supposed to expand primarily due to volume growth, and management is getting assumptions about sales volumes wrong, then it’s not hard to see where problems could occur. In addition, a business structured for one volume has a different cost profile than one structured for another.

Indeed, after yet another year of missing guidance and now expecting lower volume in the first quarter, management expects a first-quarter operating profit margin in the mid-teens, compared to 21.4% and 24.1% in the previous two years’ first quarters.

Until management can demonstrate an ability to hit guidance, grow revenue meaningfully, and increase margin, it’s hard to make a case for buying the stock — with or without a 5.5% dividend yield.

3M Company (NYSE:MMM) Citi 2023 Global Industrial Tech and Mobility Conference February 22, 2023 1:50 PM ET

Company Participants

Mike Roman – Chairman and CEO

Monish Patolawala – EVP, CFO and Transformation Officer

Conference Call Participants

Andrew Kaplowitz – Citi

Andrew Kaplowitz

All right. Good afternoon, everyone, again. We’ll let a few stragglers come in here, but we’ll get started here. We’re extremely excited to have 3M with us today. We’ve got Mike Roman, who is the Chairman and CEO; and Monish Patolawala, who is the EVP, CFO and Transformation Officer.

Mike became CEO in July of 2018; Monish, CFO in July 2020. So Mike, as I walk over to you. I know you want to talk about a few things. So I’ll just turn it over to you, and then we’ll get into a fireside chat.

Mike Roman

Yes. Thanks, Andy, and thanks for hosting us. It’s a pleasure to be here. Yes, I thought I’d just do a quick review of 2022 and then I’ll look into ’23 and kind of kick things off.

So 2022 was a pivotal year for 3M. We not only took actions to manage through some challenges during the year. We also made some big strategic decisions and initiated strategies that are going to be foundational for the future of 3M. Now like everyone, we were managing inflation with pricing actions and cost management and sourcing strategies.

And we navigated the supply chain disruptions really with a focus on our customers, something we talked about during the year. We spent money on to make sure we deliver for customers, including adding a distribution center on the East Coast so that we could access some of the logistics alternatives that we needed.

We also navigated the COVID lockdowns in China. We worked with Flemish authorities to reopen and restart our operations in Zwijndrecht and we exited our business in Russia.

So a lot of actions during the year. And we took some big strategic decisions, too. We divested our Food Safety business, which we received $1 billion in cash and retired 16 million outstanding shares as part of that process.

We continue to make progress on our — spin of our health care business. And as I have noted before, this is still subject to regulatory approval and tax rulings and Board approval and other customary closing, but our team is making good progress there. We continue to support Aearo Technologies as was in the press last week in confidential mediation in their Chapter 11 proceedings and negotiations.

And we continue to manage PFAS — the PFAS litigation, defending ourselves in court and resolving and through negotiation where appropriate. And notably, at the end of the year, we made an announcement to exit all PFAS manufacturing by the end of 2025.

So really important year. And as I turn to 2023, I — we look at the year as seeing some of the same dynamics that we saw coming into the end of 2022. So a challenging year. We came out in our earnings call in January with a guidance, organic growth of minus 3% to flat.

This is reflecting the end market dynamics. It’s also reflecting about 200 basis points of headwinds from disposable respirators coming off of the Omicron surge in demand a year ago and coming off the pandemic demand for disposable respirators to more of a more normalized safety business. And then we also had that exit of Russia. So that’s about 200 basis points. We have overall EPS in the $8.50 to $9 a share. And that includes a number of items that are headwinds. We have the Russia and disposable respirator headwinds on the top line and the impact on the bottom line.

We have FX in $0.10 to $0.20 range on FX. And then we have the divestitures, I talked about hitting us about $0.15 so puts us in that guidance range. And then we expect to deliver 90% to 100% of free cash flow. So it also reflects, I would say, what we see as a challenging first quarter to the year.

We see some of the same dynamics that we called out at the end of the year, hitting us in the first quarter. The consumer electronics end markets down, negative growth in those end markets and continue to play out in the first quarter and first half of the year.

Consumer — Retail spending. While retail spending has been holding up, you see that in the news. It’s shifting to food and experiential spending and away from discretionary products. And so we were seeing that at the same time, retailers are taking action as they see that shift and they’re driving out inventory.

So we saw that in the end of 2022 and carrying into ’24. So those are dynamics. And we actually don’t do this, but we — as a regular course, but we guided first quarter because it was such a challenging first quarter. And so excluding PFAS, we are in a range of $7.2 billion to $7.6 billion in revenue.

We have EPS between $1.25 and $1.65, midpoint of $1.45. And really some of those same challenges in the first quarter impacted even more heavily by disposal respirators and Russia. We suspended operations in Russia and eventually exited as we went through the year.

But first quarter, we had that business as one of the headwinds this year. So a challenging first quarter. We have been taking actions as we saw the slowdown last year. We’re not satisfied with where our performance is today. So we continue to take additional actions. We announced in our earnings call, a reduction of 2,500 positions in manufacturing to adjust to that volume outlook that we’re talking about.

So flexing as we see the volume demand and really taking action to take that on directly in that — in those costs. And then we said that we will be looking at everything we do as we work through the spin. This is an opportunity for us to look at how we focus on ParentCo at the same time we work and — focus on SpinCo.

And so we’re looking at all the things that we can do to simplify streamline and get closer to the customer. And we expect to take additional actions as we go through the year. So it’s — we are — we’ll lean into additional actions as we go. At the same time, we continue to invest in innovation and growth.

We see opportunities, high-growth market spaces that can leverage our innovation areas like automotive electrification, industrial automation, biopharma processing, home improvement, all areas that are opportunities to take advantage of 3M invention and innovation and enables growth.

And really delivering and improving our performance, a big part of it is going to be our ability to drive volume. So it’s an important part of what we do. So I sit here today, I’m really confident in our future. And I — as I said in our earnings call, we expect to — as we go through the year and exit ’23, we’ll be a stronger, leaner and more focused 3M going forward.

So I’ll frame a little bit from the earnings call, but I think also really frame up of what we’re doing and how we’re focused on execution in 2023.

So Andy, I’ll turn it back to you for questions for Monish and myself.

Question-and-Answer Session

Q – Andrew Kaplowitz

Yes. Mike, very helpful color. You basically answered my first question, but I’ll ask it to you, maybe just in a quick follow-up. So you kind of reiterated the guidance for the year and for Q1.

But just in terms of the nuance here, I know you — when you reported, you said industrial was mixed with some weakness in destocking, especially related to electronics market. So — and you said January overall started slow. So can you give us a little update on whether February continued with slower activity?

Any sort of commentary from customers and how you’re thinking about sort of the overall environment as you go through the quarter?

Mike Roman

Yes. So 7 weeks into the quarter. I would say it’s playing out as we expected and some of the dynamics I talked about consumer electronics, consumer retail, those are continuing to be soft.

Consumer electronics of anything is getting — the end markets are getting softer in demand. We did start off with a slow January. China had decelerated in Q4 and was soft in January as well. And we did see mixed performance across our industrial markets, I would say.

And some of that, we did see some destocking in industrial channel. Most of it is really around caution ahead of the outlook for the year. There are some specific areas where we saw destocking in Asia with some of the industrial demand softening there.

We saw destocking there. We also saw some specific end markets, not the largest end markets, but we saw some destocking areas like specialty vehicles and construction and a few areas like that where we saw a soft start to the year. So we’re — areas like China, we’re like everybody else, we’re looking at and watching closely what happens in the economy and the market segments that we play in as we come out of Chinese New Year.

And there’s some hope is that, that will get better. Certainly, the projections are for the macro GDP, IPI to improve in China as you go through the year. So we’ll be watching that closely. There are some spots that are continuing to perform. Automotive build rates, sequentially down from Q4, but it’s a build rate — projection for build rate growth is almost 4% in the year and continue to see that as something that is a positive in the end markets. But I would say, soft start in line with what we had expected.

Andrew Kaplowitz

Got it. Maybe just 2 quick follow-ups, and I’ll leave the newsroom alone. So like — have you seen any broadening though in destocking in industrial? Is it kind of still kind of niche? And then China, have you seen anything post Chinese New Year? Is it still too early to know…

Mike Roman

Yes. In China, it’s too early to tell. It’s — we’re — like I said, we’re watching it closely and looking for kind of a better, broader indication. Destocking — we started Q4 in pretty good position. The one notable was retail. It was destocking hard at that point, and we were in the middle of that, that has continued.

I think that will play out through the first half. I think there is a lot of focus on that going into the end of the quarter for the retailers, but it’s going to continue to play out. The destocking and industrial, I talked about it, it is not when you look broad-based, it’s not a deep restocking.

You think it’s cautious against the outlook. Other places are balanced. We — I would say, health care against the elective procedure is expecting to improve is pretty well in line. So it was — the notable ones are the ones I talked about.

Andrew Kaplowitz

Got it. Okay. And then let’s step back. So priority; is like, I think your #1 priority is to grow faster than your markets, right? And so if I look at you guys since 2019, since before the pandemic, like you grew but you averaged kind of less than 1% growth.

And your competitors are kind of 2% to 3%. And again, that includes a lot of volatility around the pandemic. So what do you think 3M needs to do to improve, to accelerate growth?

Mike Roman

Yes. I think it is what we do in our model and doing it better all the time. But I would — just a level set. I would say, if you look at — since 2019, so your ’19 to ’22, we were about 2% growth ex DR and almost 3% with DR in the ups and downs that we saw in the pandemic. Since 2020 we are more like 3% growth ex DR and over almost 6% growth with the — excuse me, 3% including DR and 6% ex DR.

Yes. So there’s been good growth dynamics. The point is, since the last couple of years, we’ve been performing well in our growth dynamics. We certainly saw the impact of those end markets last year. But it’s — and it’s — and the pandemic certainly had some ups and downs in that.

So there’s some — within all that, there is examples of what I would say we’re doing to drive growth, and that’s investing in the high-growth market spaces in the attractive parts of our portfolio where we can differentiate ourselves with our innovation.

And we’ve got a number of large commercial platform areas that we talked about as we went through the last couple of years that we’re investing in organic growth. And driving that organic growth areas like automotive electrification. You and Andy had a conversation, you said automotive electrification gets to be a $1 billion business. Then I start to think it could be a $2 billion business, and it’s interesting.

Well, it got to be a $0.5 billion business last year with 30% growth. So that’s an example of where we can invest and drive market growth and create value for our customers. We have our home improvement platforms that are more than $0.5 billion each. And in key areas and key trends, they’re going through some of the same retail spending dynamics, but our filtrate — home filtration products have normalized and are — we see these as areas where our science and innovation makes a difference, and we can drive growth and value.

And we have other areas that we are investing in electronics, safety. In health care, we have areas like biopharma processing, which I mentioned, but also advanced wound care. These are all significant commercial platforms that leverage 3M innovation and enable us to add up more of the portfolio that can help drive us GDP plus, IPI plus, deliver above the macro growth. And give us an opportunity to leverage that into margin improvements and strong cash flow.

Andrew Kaplowitz

So let me just ask a follow-up there. Like, so you had your Investor Day. When was it? Like, early last…

Mike Roman

February. Almost a year ago.

Andrew Kaplowitz

And so like you highlighted a lot of the markets. You talked about, home improvement, health care IT, automotive, wound care, electronic materials. Like, we already talked about automotive electrification. Like, any — so I assume that one is at or above sort of what you thought it would be. Any others that you would say have accelerated more than you thought? And any others that have been harder to really sort of move up on…

Mike Roman

Yes, maybe I’ll talk about both sides of that. If you look at health care, a couple of things. I mean, we talked about health care IT I think, in that call. And our revenue cycle management, our 360 Encompass product has had strong performance. There’s budgets and hospitals are impacted.

So the growth dynamic — market growth dynamics aren’t strong, but we’re well positioned with that. Then our — I would say, our clinical and computer-aided documentation capabilities, natural language processing, AI capabilities in our products that we’ve invested in. Those are — we see that as providing a strong growth trend as you see health care markets get back to pre-pandemic kinds of performance.

Same on our wound care management. We had a wound care business. We made the acquisition of Acelity. In the middle of pandemic, procedures were down and that impacted those wound care businesses. One area of notable exception is surgical site management. And we have a solution that has been performing extremely well and helping to drive growth. But we expect that to perform well. And we expect that to continue. Our home improvement, just one other thing to note, even as the market trends have been strong during the pandemic, double-digit growth in those home improvement. And now seeing the impact of the shift to retail spending, we’ve been a category share leader and continue to be.

So those — that’s an encouraging part of that. Other areas — general manufacturing, there’s — industrial automation, it’s an interesting space. We have products in our Safety and Industrial business, our repair stack product and our automotive aftermarket.

Our Finesse-it abrasives in our Abrasive Systems business. Our Extrudable, very high-bond tape, [indiscernible] version that lend themselves to automation, and they’re working with robotics and system integrators to really penetrate new solutions.

So we’re excited about the growth opportunities that our differentiated performance in our material science enable in more of a digital automation kind of space. And there are — our other areas are electrical and electronics.

We talked about the importance of winning in consumer electronics and continue to innovate there. When you look at the end market dynamics, even when we get through this slowdown, the build rates are going to be fairly nominal. But you — the innovation is high value, and you can continue to keep your business growing at a nominal rate in that marketplace. The key is moving into other electronic segments. And we talked about automotive electrification, which is one of them. But data centers with our interconnect solutions and you look at semiconductor manufacturing and our pad conditioners, the technology, the material science technology we bring into that really enable the next generation of semiconductor fabrication.

So those are all areas that we called out, I think, a year ago and all areas that still are exciting for innovation, and we see as growth drivers. And they are, all that, $0.5 billion plus, but electronics are — the VR, AR, ER space, it’s the next — the next horizon for our material science film technologies and will be a fast grower starting at a relatively lower level today than other display technology but going to grow very rapidly.

Andrew Kaplowitz

Interesting. So I already asked you about China. Like, just if I step back and think about the regions, you’ve said in China, EMEA, like geopolitical challenges will continue in Q1. But — if I step back, North America and EMEA, like how do you — what do you bake into guidance for ’23?

Mike Roman

Yes. So the U.S. — the dynamics we talked about are part of that, the macro — if you look at the macro for the U.S., it’s going from 3% last year, GDP, IPI to 1.5% this year.

It gets a little bit better as you go through the year. So we bake in that projection of macro into what we’re thinking about that we’ve got those specific markets, that we called out in our earnings call is kind of part of how we were thinking about the whole year.

That’s certainly true for the U.S. markets as well. EMEA, it’s — I would say, the uncertainty around the geopolitics, the energy issues that they’ve been facing now. We’ve had a warm winter, so that’s helping, but it’s just watching that and making sure that we are keeping track of how that evolves, not just judging it by a macro projection.

I would say that in almost — in our markets, in our macro, we really build our view of the year around those kinds of projections, but then we watch them closely because they can change very quickly. And so I would say with Europe, that’s also — now Europe, interestingly starting the year with a strong performance in automotive build rates. So we’re seeing some opportunity there.

Andrew Kaplowitz

Interesting. So this one might be for Monish, but you can certainly chime in too. It’s around margin. So Monish, we asked you again at the same Analyst Day about sort of incrementals. You talked about 30% to 40% incrementals through the cycle.

Can you sort of do that? Like, this year, there are some utilization issues in Q1 [2023] . Can you do that in a world where you’re getting out of PFAS, which I think can put some pressure on utilization you tell me, and where supply chain is still a little choppy.

And then I think you said at your Investor Day that you’re focused on value stream simplification portfolio to increase margin. But again, there’s a lot of macro noise. So update us on where you are on those things.

Monish Patolawala

Yes. So Andy, I’ll start first by just saying mathematically that when we say 30% to 40%, I’d just break it out. You’ve got gross margin give or take, 45% to 50%.

So for every dollar of extra revenue, you get $0.45, $0.50. And then you say a piece of it, I reinvest back. That’s why the 30% to 40% incremental is doable. To that, you add the supply chain efficiency that we get, whether it’s using data, data analytics, whether it is helping to drive yield and efficiency in our factories, better utilization in our factories, all of them will add to that 30% to 40%.

You also sit back and say, “I can drive dual sourcing, better sourcing benefits.” And then you take some of that savings and you say, I continue to reinvest in the business with growth, productivity and sustainability. And that’s why in the long term, the 30% to 40% is doable.

What has happened in the short term, as you all know, is with the supply chain inefficiencies, most supply chains have gone through some pain. We decided through the pandemic that we would first focus on our customers and worrying about our own bottom line because we felt it was important that we had to take care of our customers.

So we air freighted stuff, we had short runs, all of that have impacted how our margins are shown. As supply chains heal, and it’s going to be ’23 and beyond. The first half is going to be tougher than the second half.

You should start seeing the benefits of some of these things starting to come through. That’s why in the long run, I would say 30% to 40% is doable. The team has made good progress. The teams have continued to drive yield and efficiency in many of our lines.

To answer your specific question on will PFAS have an impact. Yes, it has an impact only on factories that are multimodal. But as we have disclosed, and you all should read the 8-K that we filed yesterday, which actually gives you the breakout of PFAS by year — exit of PFAS manufacturing by year and the margin. You will see actually is margin dilutive.

So exiting that also should help. And the margin rate has got — has diluted over the last few years because the investments that we have to make to keep that business running, the regulatory trends, et cetera, which is one of the factors that we factored in from a PFAS exit of — exit of PFAS manufacturing. So I would say that to answer your question, that should be margin accretive when we are done with that.

Andrew Kaplowitz

Very helpful, Monish. So maybe just I’ll ask a related question now because it’s around selling prices and price versus cost, right? So I think you mentioned 2% selling prices in your guide. Commodities kind of all over the place, maybe rising again a little.

So is there any pressure to sort of continue with price increases? How do you think about the stickiness of prices if we go the other way? And then just, again, talking about the PFAS chemistries that you’re getting out of, I felt like you guys provided good value, in quotes, with your PFAS chemistry. So if you get out of it, can you still provide value to the customer so that price versus cost stays green?

Monish Patolawala

Yes. So to reiterate, so in our guide, we said 2% selling price is built in. At the same time, we said the carryover impact of inflation — because remember, first half of last year was very inflationary plus the higher utility costs we’re going to see in Europe was at a range of [1 50] to [2 50].

So price — we are managing inflation through price. If this turns out to be more inflation, the teams have the playbook that will allow you to go after more price. I think, Andy, what we’ll all have to think through is if there’s strong deflation very quickly, which I don’t know it will be, because its — inflation so far has been persistent and sticky. I think price elasticity discussions will start coming into many markets, not just with 3M.

What I would go back and say we add value to customers. When I’ve seen the history of 3M and certainly, when you look at the P&L, historically, 3M has always been able to add value and get a range of anywhere between 50 to 70 basis points of margin expansion due to price cost.

You have to exclude electronics and auto because historically those businesses have always been a price-down business. You get specced in and there’s all the — that’s just that whole industry is based on that thing. And that’s where innovation comes in.

Because the more you can innovate, the more you can maintain margin that, back to Mike’s words, a portfolio innovation. They all are part of that whole exercise. And so I would say time will play itself out on how much inflation is there this year. This is what we see right now.

We are prepared to act either way depending on how it goes. And I don’t think it’s just PFAS that adds all the value, and therefore, our customers are paying us. The exit of PFAS is a 4% of our total business.

We add value to our customers in many ways. It’s through our quality, it’s through the product, it’s through the innovation and most importantly, the partnership that we bring with solutions. So I feel pretty confident that that’s not going to change. So therefore, as long as we add value, we should see the price cost equation play itself out to the positive.

Andrew Kaplowitz

Helpful. And then maybe another question on margins, just in health care specifically, right? So I mean health care was a very high-margin business. It’s still a high-margin business. But maybe over the last few quarters, it’s been ticking down.

Again, that’s a little bit lower than it was a few years ago. And we know you sold the food business, that was high margin. The portfolio has been changing. But help us think about where does the margin go from here? Can it start to improve from here? And what are you doing to make sure that it does improve from here?

Monish Patolawala

Yes. So I’ll start by first saying you got OI, but you need to look at EBITDA for health care because you’ve got 2 big acquisitions that we made, Acelity and M*Modal, both of them had pretty good pressure.

So if you just use 2019 as math, the OI — the EBITDA is somewhere in that 29% to 30%. I think it was 29.5%. If you look over the pandemic in 2020, it was I think 29.2%. 2021 was a little higher. 2022 is in the 29%. If you take the quarter where Acelity got exited, which is third quarter, so the end of second quarter, EBITDA was also 29.5%. So we have remained in that range of 29.5% to 30%.

And a lot of — all this data is available in the press releases that we give you also. It’s — you all should go and look at that. With that said, that business has got impacted by some of the raw material costs, the supply chain inefficiencies, inflation, they have managed it through price, but that’s where the opportunity lies on the supply chain side.

With the gross margin that exists in that business, the volume will be the best leverage. Mike already talked about it. We have seen elective procedures have been 90% of pre-pandemic levels. Hospital budgets have been impacted by COVID. They are all running in negative — many of them, negative operating margin.

The oral care business gets impacted by consumer sentiment because it’s a consumer-ish facing business, but that’s where the volume comes in. So when we look at health care in the long run, that industry is a GDP-plus industry. And as you get the volume come in, plus all the other things the teams are doing, you should be able to see that margin rate pick up. But — what I would tell you is, as I mentioned through the pandemic, if you look at EBITDA, we have managed to at least maintain the margins in pretty much the ranges that I talked about. Would we like more, I think so. And I think as they keep using daily management, driving operating rigor, better factory productivity, you will keep seeing that go up.

Andrew Kaplowitz

So Monish, just following up on that, you mentioned daily management. That’s one of your priorities as you came in that you kind of told us day 1. Digitization is probably the other. So what have those 2 things done for 3M so far? And maybe to use the American baseball analogy, what inning are you in of those two?

Monish Patolawala

So first thing is, I watch baseball, but I love cricket. But I’ll still try to use the baseball analogy…

Andrew Kaplowitz

We got an international crowd.

Monish Patolawala

The best as I can. So let me start by just saying that we had laid this out. Our operating framework is based on 2 things. One is operating rigor, daily management; and two, is making sure that, most importantly, we’re taking care of customers’ solution. That gives us the best growth.

What operating rigor is based around is daily management talks about you’ve got to embrace the red, which is you admit you have a problem. You bring teams together and you get sustainable solutions. And in that, as we have gone through the framework, we have said the teams have got much better at calling out their issues early, which allows us as a team to all work together to find sustainable solutions.

We also have said, digital is a multiplier for us. And if you ask me where digital is in its innings of baseball, you’re in the second innings or the third innings. There’s a lot we can do. There’s a lot of good data available at 3M, and we break our digital into 3 or 4 different pieces.

The easiest one is to talk about digital enterprise, which is ERP. Most companies talk about that and say, do you have an ERP, does it work? The second is digital operations, which is, how do you use data and analytics to improve your factory yield and productivity?

For just, as an example of pandemic, when we were able to increase the output of disposable respirators, [Manifold], we were using Digital Twins that told us how to you run these factories better. Then you go into digital product, take our health information systems business, which is basically providing a product as a solution to help customers with billing cycles in hospitals.

And then the last one is digital customer where you’re actually making sure it’s easier for customers to do business. So think about the omnichannel in our Safety and Industrial business. Think about e-commerce, where we sell on Amazon through our consumer business, et cetera.

So in my view, that is clearly an area that as long as you can use data and data analytics and provide solution to customers, digital will be a multiplier. And operating rigor is a place that I would say are daily managed and never stops, Andy. That’s a part of this whole continuous improvement.

You always got to be able to look and say there’s more we can do, we will do. There are pockets of the company that do it very well. There are pockets of the company that are continuing to get there. But I think we have got better at agility we have got better at predicting.

We’ve got better at bringing teams together and mapping end-to-end. But with all that said, as Mike said, I mean, there’s tremendous opportunity. We are not happy where we are. There’s a lot more we can do and we’ll keep doing it, and we’ll keep driving it.

Andrew Kaplowitz

That’s very helpful, Monish. And Mike, you said, I think — you took the restructuring in Q4, as you said. But could you elaborate on what you meant by saying that you’re examining all aspects of the business in preparation for the health care spin?

And what further actions you could take? I mean, you said you see an opportunity for the streamlined supply chain and to further simplify, so what does that all mean?

Mike Roman

Yes. I would say some of the actions, like the 2,500 in manufacturing, that’s really about the macro and what we face on the volume that we’re looking at.

What I was talking about in terms of looking at everything we do, it’s — as part of the spin, we are looking at what — what is the path to standing up a successful stand-alone health care company. That’s a big part of the separation team’s efforts and focus.

At the same time, we are learning and focusing on what is going to be important to do in terms of positioning ParentCo for success as we move forward. And those are future looking and not that far in the future as you think about working through the preparation of the spin. But they’re future-looking and they’re giving us insights into the kinds of things that we can do to improve our supply chain.

We — if you look at the opportunities that we have to deliver improved performance as we go through the year, volume driving greater volume is an important way. It’s our best leverage of improving margins and cash flow. We think we have a lot of opportunity in the supply chain.

We have an opportunity in just optimizing what we do. And I would say the work we’ve done in referring for spin is giving us insights into how to think about the supply chain. And our team made some changes even as we restructured and focused on addressing the macro as we came through the end of last year. They were looking at the things that we can do to position ourselves better for the future, plan, source, make, deliver, how do we optimize that even better.

And that will require also to some degree that we streamline the company and it’s pointing out opportunities we have to streamline the company in some of the things that we historically have done in our commercial operations, in our supply chain operations. And also, how do we get closer to customers?

So it’s — these are actions, restructuring actions, I would say its actions to improve processes that we have. It’s making changes that optimize what we do in our model. Our — we’ve got — great strength is at the heart of our model. Delivering those to customers, delivering that value in terms of our performance for shareholders, that’s what we’re looking to do. And we’re learning from the process on the spin on things that we can step into.

Andrew Kaplowitz

Mike, I want to — I’ll ask you one more question and then we’ll open up to the audience and maybe I’ll pick up more after that. So just focusing on cash flow for a second, guidance is 90% to 100% versus 82%, I think, in ’22.

Levers you can pull to get back to that? And then — we have received many questions over the last year. Let’s say, what circumstances would you pull back on things like CapEx, R&D, dividend to conserve cash? I mean, obviously, you’re spending on separation costs, getting out of PFAS, have a drag from continued liabilities, we all know that.

So like, I get the question a lot of what does 3M do with all of these sort of whether it’s CapEx divided or — so how do you respond?

Mike Roman

Yes. I think there’s 2 parts to that, maybe I’ll touch on. One is, I’ll take us back to the announcement of the spin of health care. An important part of that announcement we talked about we are going to create 2 world-class companies. And it was important that we position both those companies for success in a successful future.

And part of that was making sure they are well capitalized to execute their strategies, to capital allocation. We talked about our plans to have 3 to 3.5x leverage on health care and also to take an equity stake in ParentCo. And what that did was that sort of leverage position health care to be able to execute the capital allocation strategies, their strong cash flow driver.

They’ll delever quickly. They’ll be able to manage that and be successful in executing at the same time. It takes a strong balance sheet and 3M, and ParentCo that makes it even stronger. And so we position ourselves to execute the capital allocation strategies that we talked about. And our priorities, I don’t see them changing.

I mean, they are, first and foremost, investing in organic growth of the business. We can continue to drive R&D, CapEx as we move forward and a strong balance sheet will position us to be able to do that.

Now near term, we’re focused on going back to 82% and our plan for 90% to 100%. We have an opportunity to improve our free cash flow conversion.

And one of the biggest opportunities we have is in working capital. So back to our discussion about what are the things that we see as an opportunity this year to improve our performance. It’s addressing the opportunity we have to do better in working capital. Days inventory outstanding.

And certainly, the disruptions in the supply chain have contributed to some of the challenges there. We made some progress at the end of last year. We took down inventory even in a tough fourth quarter. We took down inventory and made progress in our supply chain there. There’s more to do there. There’s more opportunity there.

So that will — that gives us a position to continue to drive even stronger cash flow, which gives us more flexibility in our capital allocation priorities.

Andrew Kaplowitz

Questions in the audience? Any questions? All right. Well, I still got 4 minutes. So maybe just can you update us on how much of your cash like ended up being spent in liabilities? I probably should know that number in ’22, but like how much was it?

And then separately, can you update us on the time line? And you talked a little bit about Aearo Technologies. In terms of Combat Arms, PFAS litigation milestones. And then I just wanted to ask you one — well, maybe I’ll ask those 2, and then I’ll ask 1 specific one after that.

Mike Roman

Well, I know Monish already has answered the first one once today. Are you going to answer it?

Monish Patolawala

Yes. So it’s $900 million, is the amount of…

Andrew Kaplowitz

Okay. Good. And then like time line — and I’ll ask the other question here. So basically, Combat Arms will begin to be heard on May 1. I think the appeals for those, that’s what I have in my notes. You tell me.

And thoughts on a reasonable time for the Seventh Circuit to rule on the Aearo bankruptcy case. Like — and finally, like I’m getting little in the weeds, so forgive me. But why is the Seventh Circuit potentially different than the Third Circuit in terms of using the Texas 2-step rule?

Mike Roman

Yes. Maybe I’ll start there just to differentiate it because there’s a good level setting there, too. So what we have done with Aearo Technologies is not a Texas 2-step. It’s — Aearo Technologies is an existing independent business in 3M.

It really represents the business we acquired when we acquired Aearo Technologies in 2008. And so we — they entered Chapter 11, and we have been supporting them in the mediation as part of that Chapter 11 process.

And the — I would say the difference between Seventh and Third Circuit, there’s a ruling in Third Circuit court on the J&J [LTL] case.

Andrew Kaplowitz

That’s why I asked the question.

Mike Roman

There’s still a lot of discussion about what the implications are of that ruling. So we are — as we learn more about that, we’ll update as we go. But we are — right now, we are continuing to support Aearo in the mediation process, and that’s our focus.

We have appeals pending on both the — extending the state to 3M and in the Seventh Circuit and also the appeals in our original MDL bellwether cases. And we had some appeals related to that. So those are both pending and to come yet this year.

Andrew Kaplowitz

Got it. And PFAS later this summer is…

Mike Roman

PFAS is that next trials targeted and schedule is the MDL, the AFFF MDL, that in Federal Circuit Court in South Carolina, which is scheduled for June.

Andrew Kaplowitz

So let me ask you one more question, I’ve been asking all companies. So what are the top 2 or 3 innovations, megatrends or structural changes affecting your company over the next 5 years? And are there any emerging industry trends that are perhaps being overlooked?

Mike Roman

Well, I would frame it up this way, wherever there is a disruptive innovation in our customers is a tremendous opportunity for us in material science. And you see that in the answer to your question. And I’ve talked about a number of these already.

Automotive electrification is — the electrification of transportation is a disruptive trend. And there’s a lot of projections on how it’s going to play out. It’s — a lot of innovation is going to come to bear on this. So we see opportunities. We see this as a growth opportunity.

We’ve been able to outgrow the build rate consistently of automotive build rates year-over-year by 300 to 500 basis points. The opportunities that come from that disruptive innovation enable us to continue to do that and continue to do that with our innovation and create value.

We see other areas that are exciting — other areas, growth areas in electronics. We see — electronics continues to be at the leading edge of material science innovation. And we participate in that, moving into those growth segments. We also are able to leverage that back into our company and into other areas and notably industrial kinds of applications.

I think areas like industrial automation is an [interesting] space. If you click down a little deeper, you look at something like film technology and electronics. And we’ve talked a lot about consumer electronics, build rates aren’t growing as fast as they once did.

We talked a lot about our solutions into TVs, tablets, notebooks, mobile handheld. You look at the next-generation AR/VR/ER, the requirements on film technology goes to the next [1/1,000] of the structure in size. And so you’re talking metamaterials. You’re talking about flat optics for AR/VR, that really improve the performance and drive the viability and the effectiveness of those.

And those are some of the exciting areas where you’re seeing disruption and our material science can play a role. And you see those in every one of our businesses health care, even as you prepare for the stand-alone company, biopharma processing, the material science opportunities there. Wound care management, material science opportunities there. Oral care and digital dentistry, the material science opportunities there.

They’re all spaces that are disrupting and creating opportunities for new solutions, new penetration, even new businesses being built.

Andrew Kaplowitz

It sounds like a lot of opportunity. Well, we appreciate it. Mike, Monish. Thank you very much.

Mike Roman

All right. Thanks, Andy.

Whether it’s through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you’re an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company’s earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

3M in Focus

3M (MMM Quick QuoteMMM – Free Report) is headquartered in St Paul, and is in the Conglomerates sector. The stock has seen a price change of 14.17% since the start of the year. Currently paying a dividend of $1.48 per share, the company has a dividend yield of 2.97%. In comparison, the Diversified Operations industry’s yield is 0.29%, while the S&P 500’s yield is 1.36%.

Taking a look at the company’s dividend growth, its current annualized dividend of $5.92 is up 0.7% from last year. 3M has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.85%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company’s annual earnings per share that it pays out as a dividend. 3M’s current payout ratio is 58%, meaning it paid out 58% of its trailing 12-month EPS as dividend.

MMM is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $10.11 per share, with earnings expected to increase 15.68% from the year ago period.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer a quarterly payout.

For instance, it’s a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It’s more common to see larger companies with more established profits give out dividends. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, MMM is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).

In Bangladesh, students often rely on after school learning centers for study help or test preparation, but many of the best ones are concentrated in major cities. Edtech startup Shikho was created to make supplementary education more accessible and affordable. The company announced today it has closed a $1.3 million seed round co-led by returning investor LearnStart (the seed fund of edtech investment firm Learn Capital) and Anchorless Bangladesh. 

The round also included participation from Wavemaker Partners and Ankur Nagpal, founder and chief executive officer of online course platform Teachable. Shikho’s last round of funding was $275,000 in pre-seed financing last year from LearnStart and strategic angel investors. 

Founded in April 2019, Shikho is focused on grades 9, 10, 11 and 12, with plans to introduce content for grades 6 up to university level and continuous education. Its learning material, created by educators and subject experts, is based on the Bangladeshi National Curriculum. To keep students engaged, it uses gamification techniques, like points, leaderboards and virtual awards. 

Shikho was founded in April 2019 by CEO Shahir Chowdhury, who previously worked in finance and business, including as a director at HSBC UK’s Private Bank, and chief operating officer Zeeshan Zakaria, who also worked in finance before becoming a mathematics teacher. 

Both grew up in Dhaka before moving to the United Kingdom, where they went to university. Chowdhury told TechCrunch that even while working in finance, his goal was to launch a socially impactful business in Bangladesh. 

At first, Chowdhury looked at fintech because of his career experience, but realized there were already many players focused on financial inclusion in Bangladesh, like bKash. He started thinking about education–Chowdhury’s father is a retired professor and his mother still teaches high school. Then by coincidence, he worked on a client report about the emergence of Indian and Chinese edtech startups, like Byju’s and Toppr. 

“I tried to understand what edtech was and why it was working in those markets and why it didn’t exist in Bangladesh,” said Chowdhury. “When I looked at that closely, there was no reason for it not to exist in Bangladesh. From an macroeconomic perspective, you have all the elements you need. You have a very large population, about 165 million people, and half of that is under the age of 25.”

Chowdhury reached out to Zakaria to lead Shikho’s academic programming. Shikho’s goal is to find more engaging and effective ways to teach students material from the Bangladesh National Curriculum. 

“Not much has changed since my dad was in grade 10 in terms of the syllabus,” said Zakaria. “I’m not a politician, so I can’t bring about change there, but I can change how it’s delivered. We deliver the curriculum in a way that has never been seen before in terms of the pedagogical experience.” 

Shikho launched about a year before the COVID-19 pandemic began, but that didn’t change its approach to product development because it was always meant to be an online learning platform. 

The company works with educators to create content, including animated videos that break down topics into short segments of about six minutes each to help students learn at their own pace. Each video is supplemented with digital resources called smart notes to replace the guidebooks many students buy for studying, and practice questions with detailed solutions.

Shikho’s main video content is pre-recorded, but it will also launch live classes for its app and web portal in about six weeks. The company’s new funding will allow it to scale-up content production, including an app for parents. 

One of the biggest challenges for online learning platforms is keeping students motivated. Chowdhury said Shikho’s gamification system was inspired by the Nike Run Club app. Similar to how Nike Run Club users get points every time they go on a run, Shikho gives students points when they log in, do a test or watch a video. The points can be collected for milestones ranging from beginner to “legend,” and special badges are awarded for accomplishments like finishing a test quickly and accurately. 

The point system also feeds into a leaderboard, so students can see how many points they have compared to other Shikho users at their school, or on the entire app. 

The app is free to use for seven days. One of the company’s plans for its new funding is to launch more freemium content to increase user conversions into paying customers. Chowdhury says that paying users have high engagement rates, typically spending about 45 to 50 minutes daily in the app. Shikho plans to double-down on its user acquisition strategy, including offline sales teams in front of schools, at the end of the year after launching its app for parents. 

“Students are the users and the actual customers are their parents, so we’re conscious that we’re going to have to flip communication to the parents,” said Chowdhury. “That’s part of what this funding round is for.” 

In statement about investment, Anchorless Bangladesh founding partner and CEO Rahat Ahmed said, “Bangladesh has one of the largest allocations of private education expenditure as a percentage of disposable income in the world, but lags behind countries like India and Indonesia when it comes to edtech funding. The market is primed for growth and we believe the team at Shikho is well-fit to lead the charge and take education to the next level.” 

3M (MMM Quick QuoteMMM – Free Report) closed the most recent trading day at $195.21, moving +1.88% from the previous trading session. This move outpaced the S&P 500’s daily gain of 1.4%.

Prior to today’s trading, shares of the maker of Post-it notes, industrial coatings and ceramics had lost 5.08% over the past month. This has lagged the Conglomerates sector’s loss of 1.87% and the S&P 500’s gain of 1.07% in that time.

Wall Street will be looking for positivity from MMM as it approaches its next earnings report date. This is expected to be July 27, 2021. On that day, MMM is projected to report earnings of $2.20 per share, which would represent year-over-year growth of 23.6%. Meanwhile, the Zacks Consensus Estimate for revenue is projecting net sales of $8.41 billion, up 17.26% from the year-ago period.

MMM’s full-year Zacks Consensus Estimates are calling for earnings of $9.78 per share and revenue of $34.99 billion. These results would represent year-over-year changes of +11.9% and +8.71%, respectively.

It is also important to note the recent changes to analyst estimates for MMM. These recent revisions tend to reflect the evolving nature of short-term business trends. As a result, we can interpret positive estimate revisions as a good sign for the company’s business outlook.

Research indicates that these estimate revisions are directly correlated with near-term share price momentum. Investors can capitalize on this by using the Zacks Rank. This model considers these estimate changes and provides a simple, actionable rating system.

The Zacks Rank system ranges from #1 (Strong Buy) to #5 (Strong Sell). It has a remarkable, outside-audited track record of success, with #1 stocks delivering an average annual return of +25% since 1988. Within the past 30 days, our consensus EPS projection has moved 0.51% higher. MMM is currently a Zacks Rank #3 (Hold).

Digging into valuation, MMM currently has a Forward P/E ratio of 19.59. This represents a discount compared to its industry’s average Forward P/E of 19.72.

Meanwhile, MMM’s PEG ratio is currently 2.06. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company’s expected earnings growth rate. The Diversified Operations industry currently had an average PEG ratio of 1.6 as of yesterday’s close.

The Diversified Operations industry is part of the Conglomerates sector. This group has a Zacks Industry Rank of 45, putting it in the top 18% of all 250+ industries.

The Zacks Industry Rank includes is listed in order from best to worst in terms of the average Zacks Rank of the individual companies within each of these sectors. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1.

To follow MMM in the coming trading sessions, be sure to utilize Zacks.com.

3M (MMM Quick QuoteMMM – Free Report) closed the most recent trading day at $203.73, moving -1.13% from the previous trading session. This change lagged the S&P 500’s 0.08% loss on the day.

Heading into today, shares of the maker of Post-it notes, industrial coatings and ceramics had gained 1.47% over the past month, outpacing the Conglomerates sector’s gain of 0.96% and lagging the S&P 500’s gain of 1.68% in that time.

MMM will be looking to display strength as it nears its next earnings release. On that day, MMM is projected to report earnings of $2.20 per share, which would represent year-over-year growth of 23.6%. Our most recent consensus estimate is calling for quarterly revenue of $8.41 billion, up 17.26% from the year-ago period.

For the full year, our Zacks Consensus Estimates are projecting earnings of $9.73 per share and revenue of $34.99 billion, which would represent changes of +11.33% and +8.71%, respectively, from the prior year.

Investors should also note any recent changes to analyst estimates for MMM. These revisions help to show the ever-changing nature of near-term business trends. As a result, we can interpret positive estimate revisions as a good sign for the company’s business outlook.

Our research shows that these estimate changes are directly correlated with near-term stock prices. To benefit from this, we have developed the Zacks Rank, a proprietary model which takes these estimate changes into account and provides an actionable rating system.

The Zacks Rank system, which ranges from #1 (Strong Buy) to #5 (Strong Sell), has an impressive outside-audited track record of outperformance, with #1 stocks generating an average annual return of +25% since 1988. The Zacks Consensus EPS estimate remained stagnant within the past month. MMM is holding a Zacks Rank of #3 (Hold) right now.

Digging into valuation, MMM currently has a Forward P/E ratio of 21.17. This represents a premium compared to its industry’s average Forward P/E of 20.96.

Investors should also note that MMM has a PEG ratio of 2.23 right now. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company’s expected earnings growth rate. MMM’s industry had an average PEG ratio of 1.61 as of yesterday’s close.

The Diversified Operations industry is part of the Conglomerates sector. This industry currently has a Zacks Industry Rank of 71, which puts it in the top 28% of all 250+ industries.

The Zacks Industry Rank includes is listed in order from best to worst in terms of the average Zacks Rank of the individual companies within each of these sectors. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1.

You can find more information on all of these metrics, and much more, on Zacks.com.