3M Company 2009 Outlook Meeting

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3M Company 2009 Outlook Meeting

  1. 1. George W. Buckley Chairman, President and Chief Executive Officer 2009 Outlook Meeting December 8, 2008 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  2. 2. Patrick D. Campbell Senior Vice President and Chief Financial Officer 2009 Outlook Meeting December 8, 2008 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  3. 3. Forward Looking Statements This presentation 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,” “project,” “intend,” “plan,” “believe,” “will,” “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 and capital markets conditions; (2) competitive conditions and customer preferences; (3) foreign currency exchange rates and fluctuations in those rates; (4) the timing and acceptance of new product offerings; (5) 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); (6) 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; (7) generating fewer productivity improvements than estimated; and (8) 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 December 31, 2007 and its 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 “Risk Factors” in Part I, Item 1A (Annual Report) and in Part II, Item 1A (Quarterly Report). The information contained in this presentation is as of the date indicated. The company assumes no obligation to update any forward-looking statements contained in this presentation as a result of new information or future events or developments. 3 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  4. 4. Topics Of Discussion Update on 2008 finish 1 2009 scenario planning 2 Summary 3 Q&A 4 4 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  5. 5. Topics Of Discussion Update on 2008 finish 1 2009 scenario planning 2 Summary 3 Q&A 4 5 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  6. 6. Summary – Q3 Earnings Call (October 21, 2008) The 3M advantage – diversification of geographies, markets, products & technologies 106-year company history; proven ability to prosper during economic downturns Strong balance sheet and consistent cash flow Continuous assessment and rebalancing – More restructuring likely in slower growth markets – Investing prudently in under-penetrated businesses and geographic areas 2008 full-year financial expectations: – $5.40 to $5.48 per share – Operating margins 22.5% to 23% – Tax rate 31.5% to 32% – Cap-ex $1.3B to $1.4B *Excludes special items. Please refer to 3M’s October 21, 2008 press release for a complete list and explanation of the special items for the first nine months of 2008. 6 3M 2009 Outlook Meeting
  7. 7. Q4 2008 Trends Rapid Deterioration In Business Activity As Quarter Progresses October – sales were a little soft, but profits were in-line with guidance – Organic local currency sales down 3% – Currency down 5% November – rapid volume slowdown, many businesses impacted – Organic local currency sales down 17% – Currency down 6% December – highly uncertain but expecting another month similar to November Customers Aggressively Responding To Economic Perfect Storm 7 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  8. 8. 2008 EPS Update Q4 and FY ‘08 Expectations: 2008 Full Year EPS Q4 organic volume growth $5.40 - $5.48 $5.50 Was: -1% to -2% Q4 FX EPS impact $5.40 Was: flat to -$0.02 FY 2008 operating margin $5.30 Was: 22.5% to 23% FY 2008 Tax rate $5.20 Was: 31.5% to 32% $5.10 - $5.15 FY 2008 Cap-ex $5.10 $1.3B to $1.4B Q3 Earnings Call 10/21/08 *Excludes special items. Please refer to 3M’s October 21, 2008 press release for a complete list and explanation of the special items for the first nine months of 2008. 8 3M 2009 Outlook Meeting
  9. 9. 2008 EPS Update Q4 and FY ‘08 Expectations: 2008 Full Year EPS Q4 organic volume growth $5.50 Was: -1% to -2% Now: -10% to -12% $5.40 Q4 FX EPS impact Was: flat to -$0.02 Organic Volume $5.30 FY 2008 operating margin -$0.22 to Was: 22.5% to 23% -$0.25 $5.20 FY 2008 Tax rate $5.10 - $5.15 Was: 31.5% to 32% $5.10 FY 2008 Cap-ex $1.3B to $1.4B Q3 Earnings Call 10/21/08 *Excludes special items. Please refer to 3M’s October 21, 2008 press release for a complete list and explanation of the special items for the first nine months of 2008. 9 3M 2009 Outlook Meeting
  10. 10. 2008 EPS Update Q4 and FY ‘08 Expectations: 2008 Full Year EPS Q4 organic volume growth $5.50 Was: -1% to -2% Now: -10% to -12% $5.40 Q4 FX EPS impact Was: flat to -$0.02 Now: -$0.08 $5.30 FY 2008 operating margin Was: 22.5% to 23% $5.20 FX FY 2008 Tax rate -$0.08 Was: 31.5% to 32% $5.10 FY 2008 Cap-ex $1.3B to $1.4B Q3 Earnings Call 10/21/08 *Excludes special items. Please refer to 3M’s October 21, 2008 press release for a complete list and explanation of the special items for the first nine months of 2008. 10 3M 2009 Outlook Meeting
  11. 11. 2008 EPS Update Q4 and FY ‘08 Expectations: 2008 Full Year EPS Q4 organic volume growth $5.50 Was: -1% to -2% Now: -10% to -12% $5.40 Q4 FX EPS impact Was: flat to -$0.02 Now: -$0.08 $5.30 FY 2008 operating margin Was: 22.5% to 23% $5.20 Now: 21.5% to 22.0% $5.10 - $5.15 FY 2008 Tax rate $5.10 Was: 31.5% to 32% Now: 31.0% to 31.5% FY 2008 Cap-ex Revised $1.3B to $1.4B (no change) 2008 EPS *Excludes special items. Please refer to 3M’s October 21, 2008 press release for a complete list and explanation of the special items for the first nine months of 2008. 11 3M 2009 Outlook Meeting
  12. 12. Q4 2008 Restructuring Actions Continue To Aggressively Restructure The Business To Address Challenges Have reduced positions across all businesses and staffs – ≈1,800 internally announced – Another ≈500 before year-end; mostly international – More possible pending business conditions All geographies impacted somewhat but heavy focus on developed economies – U.S., Western Europe and Japan Rationalizing 10 manufacturing, technical and office facilities Aggregate Costs Of $215M (≈$0.22 Q4 Special Item) With 2009 Savings Of $225M 12 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  13. 13. Topics Of Discussion Update on 2008 finish 1 2009 scenario planning 2 Summary 3 Q&A 4 13 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  14. 14. 2009 Planning Mindset Adjusting To Low-Growth Economy In Short-Term While Maintaining Long-Term Growth Focus Cash optimization in highly uncertain world – planning conservatively and preserving cash – Capital expenditures < $1.2B  Disciplined A/R management – Tighter acquisition screens  Careful demand planning – Minimal share repurchase Facing into headwinds – Organic volume growth  Currency – Pension  Higher net interest expense Maximizing opportunities – Going after market share gains  Productivity programs – Restructuring  Raw materials/pricing – Deferring annual pay increases  Modifying working schedules Driving Sufficient Cost Reduction To Offset Volume Risk 14 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  15. 15. 2009 Scenario Planning Organic volume – -3% to -7% Foreign currency – -6% to -7% Earnings-per-share – -3% to -12% Margins steady vs. 2008 Free cash flow will approximate net income, however pension and severance funding will be a wild card 15 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  16. 16. WW IPI Forecasts For 2009 Source: Global Insight -0.4% 0% -0.4% Goldman Sachs UBS Global Insight Some Are Expecting A “V” Shaped Recovery – We Are Not Our Plan Assumes -2 % to -3% Planning For Softness Throughout 2009 16 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  17. 17. Forecasting 09 Organic Volume Growth Learning From The Recession Of 2001-02 Quarterly % YOY Growth, 2000-03 During the 4 worst quarters of the 2001-02 economic slowdown: 1) Global IPI was down 3% 2) 3M organic volume was down 5% to 6% Notes:1) 3M data excludes divested pharmaceutical business; 2) economic data from Global Insight 17 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  18. 18. We Have Been Experiencing A Slowing Economy For Some Time… • U.S. •Office retail • Telecom •Housing • Advertising •Auto OEM • Credit market crisis • Japan, Korea • Industrial • Economic slowdown • Western Europe spreads rapidly across industries U.S. Recession Started Q4 2007! (12/1/08) Organic Volume Growth …And We Expect To Come Out Faster On The Recovery 18 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  19. 19. Forecasting 09 Organic Volume Growth Working The Model Sequentially…A Hypothetical ‘09 Progression Organic Volume Growth % 2% Q408e Q109e Q209e Q309e Q409e FY09e 0% -2% -4% -6% -8% -10% Possible Trough Ave Organic Volume Down 5% 19 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  20. 20. Forecasting 09 Organic Volume Growth Working The Model Sequentially…A Hypothetical ‘09 Progression Organic Volume Growth % 2% Q408e Q109e Q209e Q309e Q409e FY09e 0% -2% -4% -6% -8% -10% Possible Trough Ave Organic Volume Down 7% 20 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  21. 21. Forecasting 09 Organic Volume Growth Working The Model Sequentially…A Hypothetical ‘09 Progression Organic Volume Growth % 2% Q408e Q109e Q209e Q309e Q409e FY09e 0% -2% -4% -6% -8% Range: -3% to -7% -10% Ave Organic Volume Down 3% Our Planning Headset Is Closer To The Upper End Of the Range 21 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  22. 22. Industrial Production Forecast – Past And Future Expecting Wide Variations Of Growth Across Regions (Global Insight: Industrial Production, YOY percent change) Growth Is Slowing Everywhere, But There Is Still Growth To Be Had In Developing Markets 22 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  23. 23. Emerging Markets A Bigger Factor Today Vs. 2001-02 And While Economic Growth Will Slow There In 2009, It Remains Robust 3M Sales To Emerging Market Industrial Production Growth % Countries $7.5B 20% China Brazil Central Eur/Balkans 15% India Russia 10% $2.7B 5% 0% Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 2001 2008e % of 3M 17% 30% Source: Global Insight Even In This Environment There Will Be Good Growth Opportunities Note: Emerging Markets = Central/East Europe + Middle East + APAC ex-Japan/ANZ + Latin America; economic data from Global Insight 23 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  24. 24. Organic Volume Impact 2009 EPS Impact Organic volumes to be in the range of -3% to -7% Recognizing Q4 2008 organic volume @ -10% Developing economies expected to have positive growth albeit at lower rates Developed economies expected to be negative Managing developed economies for operating leverage and investing in developing economies to drive growth -$0.30 to -$0.70 24 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  25. 25. Foreign Currency Step Change In Foreign Currency Rates Coincident With Credit Crisis Percent Change Foreign Currency A Significant Headwind In 2009 Note: currency mix based on Q3 2008 YTD weighted average sales 25 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  26. 26. Foreign Currency Step Change In Foreign Currency Rates Coincident With Credit Crisis Percent Change Ave 2008 November Currencies Rates End Rates EUR 1.47 1.29 JPY 103.5 95.2 BRL 1.83 2.34 CAD .93 0.81 RMB 6.92 6.83 GBP 1.85 1.52 KRW 1123 1478 Foreign Currency A Significant Headwind In 2009 Note: currency mix based on Q3 2008 YTD weighted average sales 26 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  27. 27. Foreign Currency Headwind 2009 EPS Impact Used spot rates as of November month-end $0.50 Tremendous volatility in rates over last couple of months Estimated 2009 sales impact in the range of -6% $0.25 to -7% -$0.45 toHedge approximately ½ of foreign currency -$0.50 exposures on a rolling 12-month basis $0.00 ($0.25) -$0.45 ($0.50) 27 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  28. 28. Restructuring Proactively Reducing Structure In A Slower Growth World Continuously assessing and rebalancing structure 2009 EPS Impact $0.50 to meet business needs Actions to date: $0.25 to $0.30 – Q2 2008: ≈200 positions $0.25 – Q3 2008: ≈900 positions – Q4 2008: ≈2,300 positions $0.00 Consolidating facilities Aggressive actions in slower growth mature economies ($0.25) More restructuring likely in 2009 ($0.50) 28 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  29. 29. Raw Materials And Selling Prices Raw Materials: 2009 EPS Impact In midst of rapid declines in many commodities; full benefit not expected until H2 2009 Commodities to trend down; more upside is $0.15 to $0.20 possible Raw materials represent ½ of COGS or approximately 25% to sales Selling prices: Focusing on maintaining 2008 price increases Drive opportunities to optimize price/value Category-defining brands a major strength Highly Fluid Environment But Net Upside in 2009 29 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  30. 30. Productivity Continuing To Aggressively Reduce Costs And Improve Processes 2009 EPS Impact Reducing indirect costs – a $4B+ category Lean Six Sigma Continued supply chain improvements $0.20 to $0.25 Redesigning employee benefit programs G&A cost containment Deferring annual pay increases Modifying working schedules 30 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  31. 31. Pension Expense Managing Through A Very Unique Market Environment Fully funded through Q3 2008 however Q4 2009 EPS Impact $0.50 market returns pressuring asset values Contributed $200M to U.S. plan in Q3 2008 Higher discount rate expected for year-end $0.25 liability measurement given current credit environment No mandatory funding obligation $0.00 Effective 2009, all new U.S. employees -$0.08 to -$0.12 participate exclusively in a new defined contribution plan ($0.25) ($0.50) 31 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  32. 32. Net Interest Expense Expecting Higher Costs But Improving Liquidity And Certainty AA/Aaa credit rating 2009 EPS Impact Uninterrupted access to CP market; strong demand for 3M paper; CP maturities out to Feb ’09 Strong, consistent FCF; unused $1.5B credit facility Opportunistic bond issuances: Aug ‘08: $850M, 5 yr @ 4.375%; Oct ‘08: $800M, 3 yr @ 4.5% 2009 expense higher due to extending duration on debt portfolio (less reliance on commercial paper) & lower interest rates on cash & marketable securities Q3 ‘08 Capital Structure Long-Term Debt Maturities $B $B -$0.05 to -$0.10 Q4’08 includes $0.4B in puttable securities with longer final maturities Cash > CP 32 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  33. 33. Putting It All Together $5.10 to $5.15 $0.20 to $0.25 $0.15 to $0.20 -$0.08 to $0.25 to -$0.12 -$0.05 to $0.30 -$0.10 -$0.30 to -$0.70 -$0.45 Productivity Efforts Cover The Volume Risk, But FX Too Much To Overcome *Excludes special items. 33 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  34. 34. Putting It All Together 2009 EPS -3% to -12% $5.10 to $5.15 $0.20 to $0.25 EPS $0.08 Range $0.15 to $4.50 $0.20 -$0.08 to to $0.25 to -$0.12 -$0.05 to $0.30 $4.95 -$0.10 -$0.30 to -$0.70 -$0.45 Productivity Efforts Cover The Volume Risk, But FX Too Much To Overcome *Excludes special items. 34 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  35. 35. Topics Of Discussion Update on 2008 finish 1 2009 scenario planning 2 Summary 3 Q&A 4 35 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  36. 36. 2009 Planning Mindset Adjusting To Low-Growth Economy In Short-Term While Maintaining Long-Term Growth Focus Cash optimization in highly uncertain world – planning conservatively and preserving cash – Capital expenditures < $1.2B  Disciplined A/R management – Tighter acquisition screens  Careful demand planning – Minimal share repurchase Facing into headwinds – Organic volume growth  Currency – Pension  Higher net interest expense Maximizing opportunities – Going after market share gains  Productivity programs – Restructuring  Raw materials/pricing – Deferring annual pay increases  Modifying working schedules Driving Sufficient Cost Reduction To Offset Volume Risk 36 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  37. 37. Questions and Answers 37 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting
  38. 38. 2009 Outlook Meeting December 8, 2008 © 3M 2008. All Rights Reserved. 3M 2009 Outlook Meeting

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