3M

3M outperformed expectations after price increases & saw profits decrease by less than expected after hiking prices on its products

3M saw flat sales and a 4.7% drop in profit in Q4 2021, a better than expected performance the company credited to price increases. “For its fourth quarter ending Dec. 31, 3M posted flat sales and a 4.7% drop in profit compared to the same period a year ago, a better performance than company leaders anticipated. ‘I am pleased with how we effectively managed production operations to meet customer demand, despite ongoing logistics and raw material challenges that are impacting many companies,’ chief executive Mike Roman told investors on a conference call Tuesday morning. The industrial giant’s sales increased 0.3% for the three-month period as it raised prices for its products by 2.6%. ‘We implemented big price increases in the fourth quarter,’ said Monish Patolawala, 3M’s chief financial and transformation officer. ‘If we see the need in 2022, we’ll do the same.’” (Star Tribune, 1/25/2022)

Price increases helped 3M “offset the increased cost of doing business.” “A semiconductor shortage, challenges with shipping, warehousing and labor, the pandemic, and last February’s major winter storm all contributed to ‘inflationary pressures throughout the year,’ Patolawala said. Price increases helped offset the increased cost of doing business. ‘I think the first half is going to be tougher than the second half of 2022 when it comes to inflation,’ he said. ‘We are still seeing sequential increases, but slower, which is good.’” (Star Tribune, 1/25/2022)

3M’s CEO called the price increases a “tailwind” that offset any inflationary costs

The CEO of 3M said increasing price hikes would serve as a “tailwind” for the company in 2022. “Mike Roman — Chairman and Chief Executive Officer: In addition, our selling price actions continued to gain traction with a year-on-year increase of 2.6% in Q4 versus 1.4% in Q3. We expect this to be a tailwind for the full year in 2022. Overall, demand remains strong across our market-leading businesses, and we are continuing to prioritize growth investments in large attractive markets.” (3M Q4 2021 Earnings Call Transcript, 1/25/2022)

3M’s CEO said price hikes increased throughout 2021 and “offset raw material and logistics cost inflation.” “Mike Roman — Chairman and Chief Executive Officer: All in, these impacts lowered operating margins by 2.4 percentage points and earnings per share by $0.33 year on year. Moving to price and raw materials. As expected, our selling price actions continue to gain traction as we went through the quarter. On a year-on-year perspective, Q4 selling prices increased 260 basis points as compared to 140 basis points in Q3 and 10 basis points in Q2. In dollar terms, higher year-on-year selling prices offset raw material and logistics cost inflation in Q4, which resulted in an increase in earnings of $0.03, however, remained a headwind of 20 basis points to operating margins.”(3M Q4 2021 Earnings Call Transcript, 1/25/2022)

3M executives repeatedly boasted about how hard they worked to raise selling prices

3M’s CEO: “We also worked hard to raise selling prices, control spending, and drive improvements in operating rigor…” “Mike Roman — Chairman and Chief Executive Officer: We also worked hard to raise selling prices, control spending, and drive improvements in operating rigor through daily management, leveraging data and data analytics while continuing to execute on our restructuring actions. These actions, combined with strong organic growth, helped to deliver full-year operating margins of 20.8% or down 50 basis points year on year on an adjusted basis. This result included an 80-basis-point headwind from raw materials and logistics inflation net of selling price actions, along with increased spending to advance our sustainability efforts and higher legal-related expenses.” (3M Q4 2021 Earnings Call Transcript, 1/25/2022)

3M’s CFO: “The team has done a marvelous job in driving price. Price has gone up from 0.1% to 1.4% to 2.6%. Mike had talked about that also in his opening remarks that we see that to be a tailwind.” “Monish Patolawala — Chief Financial Officer: The team has done a marvelous job in driving price. Price has gone up from 0.1% to 1.4% to 2.6%. Mike had talked about that also in his opening remarks that we see that to be a tailwind. The team has done a good job of executing on restructuring so there’s approximately $70 million of carryover of restructuring benefits for the year. Auto and electric growth, right now, sequentially from a build rate is showing flat for the year of 2022. It’s a 9% increase. I think the chip shortage and where that ends up will have an impact on the auto business.” (3M Q4 2021 Earnings Call Transcript, 1/25/2022)

3M’s CFO said the “team did an amazing job” when it came to pricing and “they’re already working on higher price.” “Monish Patolawala — Chief Financial Officer: Sure, Scott. Listen, the team did an amazing job. As I’ve talked about the tools that we’ve had, the daily management. Last year, we started slow on pricing, 0.14%, which went up to 1.4% in Q3 and 2.6% in Q4. This quarter, we continued the momentum, which was driven by two pieces, the carryover impact, plus new pricing. As I said in my prepared remarks, we more than offset the amount of inflation. So, if you just do the math on a rate basis, not just on a dollar basis. So, that’s — we got a 3% plus price in the quarter. The team is very focused on looking at the extra inflation that’s coming in, they’re already working on higher prices. And as I said in my prepared remarks, the goal is to offset the extra inflation that we are seeing with an extra price and so a really good start to the first quarter.” (3M Q1 2022 Earnings Call, 4/26/2022)

3M’s CFO: “The team has driven momentum on all items, which is price.” “Monish Patolawala — Chief Financial Officer: Yes. So, I would tell you, I’ll start, Andy, with — if you go back to Mike Vale’s comments at investor day, he talked about one of his priorities is continuing to drive margin expansion. And we saw that sequentially. We knew going into the year that the year-on-year comp will be difficult, as you correctly pointed out with the amount of inflation. But the team has driven momentum on all items, which its price, continue to see the restructuring benefits, we’re able to continue to drive productivity in the factories, at the same time, continue to invest in the right amount of growth as based on the priority platforms that we have listed out, and you saw it in the first quarter. Our mask respirator did come in better. When we had come in at the beginning of the quarter, we had told you it would be down sequentially. $100 million to $150 million. It came in at $50 million down, so we know we came in stronger.” (3M Q1 2022 Earnings Call, 4/26/2022)

 3M’s CFO: “We continue to drive price actions, realize savings from past restructuring and maintain strong spending discipline.” “Monish Patolawala — Chief Financial Officer: On this slide, you can see the components that impacted our operating margins and earnings per share performance as compared to Q1 last year. We continue to drive price actions, realize savings from past restructuring, and maintain strong spending discipline, which helped offset both known and new headwinds. As I highlighted in my February Investor Day presentation, we made significant progress driving actions in 2021 to address rising raw material and logistics costs. We are leveraging the power of daily management, data, and data analytics, along with the spirit of embracing the direct actions to offset the inflationary pressures.” (3M Q1 2022 Earnings Call, 4/26/2022)

3M’s CFO: “we will continue to leverage daily management powered by data and data analytics with the expectation of offsetting raw material and logistics inflation through pricing actions in 2022.”Monish Patolawala — Chief Financial Officer: During last year, we developed new sourcing and pricing tools and processes to improve agility, drive alignment and simplify our processes. In addition, we are also enhancing our reporting and data analytics capabilities by rolling out tools that model price realization, leakage, and elasticity. These efforts continue to pay off in Q1 as benefits from selling price actions offset raw material and logistics headwinds. Looking ahead, while we see raw material and logistics inflation persisting, we will continue to leverage daily management powered by data and data analytics with the expectation of offsetting raw material and logistics inflation through pricing actions in 2022.” (3M Q1 2022 Earnings Call, 4/26/2022)

3M’s CFO: “ Our actions to continue to drive the price to offset inflation,” allowing the company to expand margins. “Monish Patolawala — Chief Financial Officer: While year-on-year margins and earnings declined, it is also important to look sequentially given the fluid and uncertain environment. Our actions to continue to drive the price to offset inflation, navigate supply chain challenges and control costs enabled us to expand adjusted margins and earnings 140 basis points and $0.20 per share, respectively. Please turn to Slide 10. First-quarter adjusted free cash flow was $715 million, with the conversion of 47%, which was in line with our expectations.” (3M Q1 2022 Earnings Call, 4/26/2022)

3M’s CFO: “we continue to get more price to offset the inflation.“Monish Patolawala — Chief Financial Officer: So I would say when you look at all of this from a macro perspective for the year as a whole, it’s – we still see ourselves in that range of 2% to 5%. And of course, we continue to get more prices to offset the inflation. So that’s number one. I would say, secondly, we did bring out the second quarter, because we wanted you all to know what we are seeing from a headwinds perspective, I’m sure you’re hearing it from all industries, and we are not telling you anything new that you haven’t heard from others.” (3M Q1 2022 Earnings Call, 4/26/2022)