MMM 3M Company

First-Quarter Highlights:

• Sales of $7.7 billion, up 3.7 percent; organic local-currency growth of 4.6 percent
• GAAP EPS of $2.16, up 5.4 percent year-on-year
• GAAP operating income margins of 23.1 percent, down 100 basis points; includes $136 million, or 180 basis point impact from strategic investments
• Returned $1.4 billion to shareholders via dividends and gross share repurchases
• Announced pending acquisition of Scott Safety, a premier safety solutions company

3M (NYSE: MMM) today reported first-quarter earnings of $2.16 per share, an increase of 5.4 percent versus the first quarter of 2016. Sales were $7.7 billion, up 3.7 percent year-on-year in dollar terms. Organic local-currency sales increased 4.6 percent while divestitures reduced sales by 0.4 percent. Foreign currency translation decreased sales by 0.5 percent year-on-year.

Operating income was $1.8 billion and operating income margins for the quarter were 23.1 percent, down 1.0 percentage point year-on-year. This result includes an incremental $136 million of strategic investments in growth, productivity and portfolio actions. First-quarter net income was $1.3 billion, up 3.7 percent. The company’s operating cash flow was $1.0 billion, contributing to conversion of 53 percent of net income to free cash flow, as referenced in the “Supplemental Financial Information Non-GAAP Measures” section.

3M paid $702 million in cash dividends to shareholders and repurchased $690 million of its own shares during the quarter.

Organic local-currency sales growth was 11.5 percent in Electronics and Energy, 5.7 percent in Industrial, 4.8 percent in Safety and Graphics, 3.1 percent in Health Care, with a decline of 1.2 percent in Consumer. On a geographic basis, organic local-currency sales growth was broad-based, led by Asia Pacific at 10.1 percent; growth was 4.0 percent in EMEA (Europe, Middle East and Africa), 2.3 percent in Latin America/Canada and 1.4 percent in the U.S.

“The 3M team delivered a strong start to 2017, marked by organic sales growth of 5 percent – with positive growth in all geographic areas,” said Inge G. Thulin, 3M’s chairman, president and chief executive officer. “At the same time, we increased investments across the enterprise to further accelerate growth and improve productivity, while increasing our dividend for the 59th consecutive year. In the first quarter we also announced the acquisition of Scott Safety, which will bolster 3M’s already strong position in the personal safety market.”

3M updated its guidance for 2017 due to a strong first-quarter performance and improved outlook. The company now forecasts organic local-currency sales growth to be 2 to 5 percent, up from previous guidance of 1 to 3 percent.

3M expects earnings in the range of $8.70 to $9.05 per share – up 7 to 11 percent year-on-year – versus a prior expectation of $8.45 to $8.80. This includes a $0.05 to $0.10 benefit from the gain on sale of the pending Identity Management divestiture, net of various investments to drive growth and improve productivity.

The company also anticipates its full-year tax rate will be 26.0 to 27.5 percent, versus a prior range of 28.0 to 29.0 percent. Finally, 3M affirmed its free cash flow expectation of 95 to 105 percent.

First-Quarter Business Group Discussion

Industrial

• Sales of $2.7 billion, up 4.2 percent in U.S. dollars. Organic local-currency sales increased 5.7 percent, foreign currency translation reduced sales by 0.8 percent and divestitures reduced sales by an additional 0.7 percent.
• On an organic local-currency basis:
  • Sales grew in all businesses, led by automotive and aerospace solutions, advanced materials, abrasives, industrial adhesives and tapes, and automotive aftermarket.
  • Sales grew in Asia Pacific, the U.S., and EMEA; Latin America/Canada was flat.
• Operating income was $625 million, an increase of 0.5 percent year-on-year; operating margin of 23.1 percent.

Safety and Graphics

• Sales of $1.5 billion, up 3.4 percent in U.S. dollars. Organic local-currency sales increased 4.8 percent, while foreign currency translation reduced sales by 0.6 percent and divestitures decreased sales by 0.8 percent.
• On an organic local-currency basis:
  • Sales increased in roofing granules, personal safety, and traffic safety and security; commercial solutions was flat.
  • Sales grew in all areas, led by EMEA, Asia Pacific and the U.S.
• Operating income was $399 million, up 11.2 percent year-on-year; operating margin of 26.1 percent.

Health Care

• Sales of $1.4 billion, up 2.3 percent in U.S. dollars. Organic local-currency sales increased 3.1 percent and foreign currency translation reduced sales by 0.8 percent.
• On an organic local-currency basis:
  • Sales grew in drug delivery systems, food safety, oral care, and medical consumables; health information systems declined.
  • Sales grew in all areas, led by Latin America/Canada, Asia Pacific and the U.S.
• Operating income was $434 million, a decrease of 5.2 percent year-on-year; operating margin of 30.5 percent.

Electronics and Energy

• Sales of $1.2 billion, up 11.1 percent in U.S. dollars. Organic local-currency sales increased 11.5 percent, foreign currency translation reduced sales by 0.2 percent and divestitures decreased sales by 0.2 percent.
• On an organic local-currency basis:
  • Electronics-related sales were up 18 percent with growth in both display materials and systems, and electronics materials solutions; energy-related sales were up 1 percent with growth in electrical markets; telecom was flat.
  • Sales grew in Asia Pacific, EMEA and the U.S.; Latin America/Canada was flat.
• Operating income was $225 million, an increase of 15.1 percent year-on-year; operating margin of 18.6 percent.

Consumer

• Sales of $1.0 billion, down 0.7 percent in U.S. dollars. Organic local-currency sales decreased 1.2 percent and foreign currency translation increased sales by 0.5 percent.
• On an organic local-currency basis:
  • Sales grew in home improvement, consumer health care and home care; stationery and office declined.
  • Sales grew in Asia Pacific and Latin America/Canada, were flat in EMEA, and declined in the U.S.
• Operating income was $222 million, down 6.8 percent year-on-year; operating margin of 21.3 percent.

3M will conduct an investor teleconference at 9:00 a.m. EDT (8:00 a.m. CDT) today. Investors can access this conference via the following:

• Live webcast at http://investors.3M.com.
• Live telephone:Call 800-762-2596 within the U.S. or +1 212-231-2916 outside the U.S. Please join the call at least 10 minutes before the start time.
• Webcast replay:Go to 3M’s Investor Relations website at http://investors.3M.com and click on “Quarterly Earnings.”
• Telephone replay:Call 800-633-8284 within the U.S. or +1 402-977-9140 outside the U.S. (for both U.S. and outside the U.S., the access code is 21841622). The telephone replay will be available until 11:30 a.m. EDT (10:30 a.m. CDT) on April 30, 2017.

Forward-Looking StatementsThis news release contains forward-looking information about 3M's financial results and estimates and business prospects that involve substantial risks and uncertainties. You can identify these statements by the use of words such as "anticipate," "estimate," "expect," "aim," "project," "intend," "plan," "believe," "will," "should," "could," "target," "forecast" and other words and terms of similar meaning in connection with any discussion of future operating or financial performance or business plans or prospects. Among the factors that could cause actual results to differ materially are the following: (1) worldwide economic, political, and capital markets conditions and other factors beyond the Company's control, including natural and other disasters or climate change affecting the operations of the Company or its customers and suppliers; (2) the Company's credit ratings and its cost of capital; (3) competitive conditions and customer preferences; (4) foreign currency exchange rates and fluctuations in those rates; (5) the timing and market acceptance of new product offerings; (6) the availability and cost of purchased components, compounds, raw materials and energy (including oil and natural gas and their derivatives) due to shortages, increased demand or supply interruptions (including those caused by natural and other disasters and other events); (7) the impact of acquisitions, strategic alliances, divestitures, and other unusual events resulting from portfolio management actions and other evolving business strategies, and possible organizational restructuring; (8) generating fewer productivity improvements than estimated; (9) unanticipated problems or delays with the phased implementation of a global enterprise resource planning (ERP) system, or security breaches and other disruptions to the Company's information technology infrastructure; (10) financial market risks that may affect the Company’s funding obligations under defined benefit pension and postretirement plans; and (11) legal proceedings, including significant developments that could occur in the legal and regulatory proceedings described in the Company's Annual Report on Form 10-K for the year ended Dec. 31, 2016, and any subsequent quarterly reports on Form 10-Q (the “Reports”). Changes in such assumptions or factors could produce significantly different results. A further description of these factors is located in the Reports under "Cautionary Note Concerning Factors That May Affect Future Results" and "Risk Factors" in Part I, Items 1 and 1A (Annual Report) and in Part I, Item 2 and Part II, Item 1A (Quarterly Reports). The information contained in this news release is as of the date indicated. The Company assumes no obligation to update any forward-looking statements contained in this news release as a result of new information or future events or developments.

   

3M Company and SubsidiariesCONSOLIDATED STATEMENT OF INCOME(Millions, except per-share amounts)(Unaudited)

  Three months ended March 31, 2017 2016   Net sales $ 7,685   $ 7,409     Operating expenses Cost of sales 3,869 3,678 Selling, general and administrative expenses 1,571 1,493 Research, development and related expenses   471     450     Total operating expenses   5,911     5,621     Operating income   1,774     1,788     Interest expense and income Interest expense 45 47 Interest income   (8 )   (5 )   Total interest expense – net   37     42     Income before income taxes 1,737 1,746   Provision for income taxes   411     468     Net income including noncontrolling interest $ 1,326   $ 1,278     Less: Net income attributable to noncontrolling interest   3     3     Net income attributable to 3M $ 1,323   $ 1,275     Weighted average 3M common shares outstanding – basic 598.1 607.4 Earnings per share attributable to 3M common shareholders – basic $ 2.21   $ 2.10     Weighted average 3M common shares outstanding – diluted 612.0 621.3 Earnings per share attributable to 3M common shareholders – diluted $ 2.16   $ 2.05     Cash dividends paid per 3M common share $ 1.175   $ 1.11        

3M Company and SubsidiariesCONDENSED CONSOLIDATED BALANCE SHEET(Dollars in millions)(Unaudited)

  March 31, December 31, 2017 2016 ASSETS Current assets Cash and cash equivalents $ 2,173 $ 2,398 Marketable securities – current 141 280 Accounts receivable – net 4,722 4,392 Inventories 3,612 3,385 Other current assets   1,253     1,271   Total current assets   11,901     11,726   Marketable securities – non-current 17 17 Investments 133 128 Property, plant and equipment – net 8,551 8,516 Goodwill and intangible assets – net 11,527 11,486 Other assets   1,163     1,033   Total assets $ 33,292   $ 32,906     LIABILITIES AND EQUITY Current liabilities

Short-term borrowings and current portion of long-term debt

$ 909 $ 972 Accounts payable 1,701 1,798 Accrued payroll 532 678 Accrued income taxes 433 299 Other current liabilities   2,420     2,472   Total current liabilities   5,995     6,219   Long-term debt 10,802 10,678 Other liabilities   5,455     5,666   Total liabilities $ 22,252   $ 22,563     Total equity $ 11,040 $ 10,343 Shares outstanding March 31, 2017: 597,239,576 shares December 31, 2016: 596,726,278 shares         Total liabilities and equity $ 33,292   $ 32,906        

3M Company and Subsidiaries

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollars in millions)

(Unaudited)

  Three months ended March 31, 2017 2016 NET CASH PROVIDED BY OPERATING ACTIVITIES $ 988   $ 1,260     Cash flows from investing activities: Purchases of property, plant and equipment (287 ) (314 ) Acquisitions, net of cash acquired — (4 ) Purchases and proceeds from sale or maturities of marketable securities and investments – net 138 (61 ) Other investing activities   59     99     NET CASH USED IN INVESTING ACTIVITIES   (90 )   (280 )   Cash flows from financing activities: Change in debt (68 ) 138 Purchases of treasury stock (690 ) (1,227 ) Proceeds from issuances of treasury stock pursuant to stock option and benefit plans 315 357 Dividends paid to shareholders (702 ) (672 ) Other financing activities   (6 )   (22 )   NET CASH USED IN FINANCING ACTIVITIES   (1,151 )   (1,426 )   Effect of exchange rate changes on cash and cash equivalents   28     (15 )   Net increase (decrease) in cash and cash equivalents (225 ) (461 ) Cash and cash equivalents at beginning of year   2,398     1,798     Cash and cash equivalents at end of period $ 2,173   $ 1,337          

3M Company and SubsidiariesSUPPLEMENTAL FINANCIAL INFORMATIONNON-GAAP MEASURES(Dollars in millions, except full-year 2017 forecast)(Unaudited)

  Three months ended March 31, Major GAAP Cash Flow Categories 2017 2016   Net cash provided by operating activities $ 988 $ 1,260 Net cash used in investing activities (90 ) (280 ) Net cash used in financing activities (1,151 ) (1,426 )   Free Cash Flow (non-GAAP measure)

Full-Year 2017Forecast(Billions)

  Net cash provided by operating activities $ 988 $ 1,260 $6.3 to $7.3 Purchases of property, plant and equipment   (287 )   (314 ) $1.3 to $1.5 Free cash flow (a)   701     946   $5.0 to $5.8

 

Net income attributable to 3M $ 1,323 $ 1,275 $5.3 to $5.5 Free cash flow conversion (a) 53 % 74 % 95% to 105%

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

  March 31, December 31, Net Debt (non-GAAP measure) 2017 2016   Total debt $ 11,711 $ 11,650 Less: Cash and cash equivalents and marketable securities   2,331     2,695   Net debt (b) $ 9,380 $ 8,955

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(b)  Net debt is not defined under U.S. GAAP and may not be computed the same as similarly titled measures used by other companies. The Company defines net debt as total debt less the total of cash, cash equivalents and current and long-term marketable securities. 3M believes net debt is meaningful to investors as 3M considers net debt and its components to be an important indicator of liquidity and a guiding measure of capital structure strategy.

 

3M Company and SubsidiariesSALES CHANGE ANALYSIS (c)(Unaudited)

          Three months ended March 31, 2017 Europe, Middle Latin Sales Change Analysis United Asia- East and America/ World- By Geographic Area States Pacific Africa Canada Wide   Volume – organic 1.7 % 10.1 % 3.7 % 0.4 % 4.5 % Price (0.3 ) —   0.3   1.9   0.1   Organic local-currency sales 1.4 10.1 4.0 2.3 4.6 Divestitures (0.9 ) (0.1 ) (0.1 ) (0.5 ) (0.4 ) Translation —   (0.1 ) (4.0 ) 4.3   (0.5 ) Total sales change 0.5   % 9.9   % (0.1 ) % 6.1   % 3.7   %           Three months ended March 31, 2017 Organic Worldwide local- Total Sales Change Analysis currency sales By Business Segment sales Divestitures Translation change   Industrial 5.7 % (0.7 ) % (0.8 ) % 4.2 % Safety and Graphics 4.8 % (0.8 ) % (0.6 ) % 3.4 % Health Care 3.1 % — % (0.8 ) % 2.3 % Electronics and Energy 11.5 % (0.2 ) % (0.2 ) % 11.1 % Consumer (1.2 ) % —   % 0.5   % (0.7 ) % Total Company 4.6   % (0.4 ) % (0.5 ) % 3.7   %

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(c)  Total sales change is calculated based on reported sales results. The components of sales change include organic local-currency sales, acquisitions, divestitures and translation. Organic local-currency sales includes both organic volume impacts (which excludes acquisition and divestiture impacts), plus selling price changes. Acquisition and divestiture impacts are measured separately for the first 12 months post-transaction.

 

3M Company and SubsidiariesBUSINESS SEGMENTS(Dollars in millions)(Unaudited)

Effective in the first quarter of 2017, as part of 3M’s continuing effort to improve the alignment of its businesses around markets and customers the Company made the following changes:

1. Integrated the former Renewable Energy Division into existing divisions;
2. Combined two divisions to form the Automotive and Aerospace Solutions Division; and
3. Consolidated U.S. customer account activity - impacting dual credit reporting

Integration of former Renewable Energy Division

• The (a) solar and wind and (b) energy product lines (along with certain technology previously included in Corporate and Unallocated) of the former Renewable Energy Division (RED) were integrated into the existing Electrical Markets Division and Electronics Materials and Solutions Division, respectively, within the Electronics and Energy business segment. In addition, the former RED window film products were moved into the Commercial Solutions Division within the Safety and Graphics business segment. This change resulted in a decrease in previously reported net sales and operating income for total year 2016 of $203 million and $38 million, respectively, in the Electronics and Energy segment. These decreases were offset by a $207 million and $29 million increase in previously reported total year 2016 net sales and operating income, respectively, in the Safety and Graphics business segment, and a $4 million decrease and $9 million increase in previously reported net sales and operating income, respectively, in Corporate and Unallocated.

Creation of Automotive and Aerospace Solutions Division

• The former Automotive Division and Aerospace and Commercial Transportation Division (both within the Industrial business segment) were combined to create the Automotive and Aerospace Solutions Division. Because this realignment was within the Industrial business segment, it had no impact on business segment reporting.

Consolidation of U.S. customer account activity - impacting dual credit reporting

• The Company consolidated its customer account activity in the U.S. into more centralized sales districts to better serve customers. 3M business segment reporting measures include dual credit to business segments for certain U.S. sales and related operating income. This dual credit is based on which business segment provides customer account activity (“sales district”) with respect to a particular product sold in the U.S. Previously, a customer in the U.S. may have been aligned to several sales districts associated with multiple divisions or segments based on the individual products the customer purchased across 3M’s portfolio. The alignment of U.S. customer accounts to fewer, more focused sales districts therefore changed the attribution of dual credit across 3M’s business segments. As a result, previously reported aggregate business segment net sales and operating income for total year 2016 increased $163 million and $36 million, respectively, offset by similar increases in the elimination of dual credit net sales and operating income amounts.

The financial information presented herein reflects the impact of the preceding product line reporting change between business segments for all periods presented. Refer to 3M’s Current Report on Form 8-K furnished on March 9, 2017, for additional supplemental unaudited historical business segment net sales and operating income information.

    BUSINESS SEGMENT INFORMATION Three months ended NET SALES March 31, (Millions) 2017 2016   Industrial $ 2,709 $ 2,599 Safety and Graphics 1,527 1,477 Health Care 1,423 1,391 Electronics and Energy 1,210 1,089 Consumer 1,042 1,050 Corporate and Unallocated 2 — Elimination of Dual Credit   (228 )   (197 )   Total Company $ 7,685   $ 7,409         BUSINESS SEGMENT INFORMATION Three months ended OPERATING INCOME March 31, (Millions) 2017 2016   Industrial $ 625 $ 622 Safety and Graphics 399 359 Health Care 434 457 Electronics and Energy 225 195 Consumer 222 238 Corporate and Unallocated (81 ) (40 ) Elimination of Dual Credit   (50 )   (43 )   Total Company $ 1,774   $ 1,788    

About 3MAt 3M, we apply science in collaborative ways to improve lives daily. With $30 billion in sales, our 90,000 employees connect with customers all around the world. Learn more about 3M’s creative solutions to the world’s problems at www.3M.com or on Twitter @3M or @3MNewsroom.

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3MInvestor Contact:Bruce Jermeland, 651-733-1807orMedia Contact:Lori Anderson, 651-733-0831