Ladies and gentlemen, thank you for standing by. Welcome to the 3M Fourth Quarter Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, January 26, 2021. I would now like to turn the call over to Bruce Jermeland, Vice President of Investor Relations at 3M.

Thank you and good morning, everyone, and welcome to our fourth quarter earnings conference call. Let me begin today by expressing our sincere hope that you and your families continue to be safe and are doing well. With me today are Mike Roman, 3M's Chairman and Chief Executive Officer; and Monish Patolawala, our Chief Financial Officer. Mike and Monish will make some formal comments, and then we'll open it up for questions. Please note that today's earnings release and slide presentation accompanying this call are posted on our Investor Relations website at 3M.com, under the heading quarterly earnings. Please turn to Slide 2. Before we begin, I would like to introduce the dates for 2021 quarterly earnings conference calls, which will be held on April 27, July 27, and October 26. The please take a moment to read the forward-looking statement on Slide 3. During today's conference call, we will make certain predictive statements that reflect our current views about 3M's future performance and financial results. These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Item 1A of our most recent Form 10-Q lists some of the most important risk factors that could cause actual results to differ from our predictions. Finally, throughout today's presentation, we'll be making references to certain non-GAAP financial measures. Reconciliations of the non-GAAP measures can be found in the attachments in today's press release. Please note we have provided segment and total company adjusted EBITDA reconciliations for reference in today's press release attachments as part of our non-GAAP measures. Please turn to Slide 4, and I will hand it off to Mike. Mike?

Thank you, Bruce. Good morning, everyone, and thank you for joining us. The 3M team finished the year strong as we continue to execute well, innovate for our customers and fight the pandemic from every angle. In an uncertain economic environment, we delivered organic growth in all business groups and geographic areas, along with margin expansion, a double-digit increase in earnings and strong cash flow during the fourth quarter. Throughout 2020, I am proud of how 3M stepped up to help meet the extraordinary challenges facing the world, which includes our comprehensive response to COVID-19. Last year, we also took actions to transform for the future, advanced our core values and strengthen our balance sheet through robust cash generation. At the same time, we know that more work remains to deliver for our customers, shareholders and all stakeholders. Moving forward, we will build on our progress and continue to prioritize investments in growth, productivity and sustainability. 3M is well positioned as we head into 2021. And today, we are providing guidance for the year, where we expect a return to healthy growth. Overall, I'm confident in our ability to deliver a successful 2021, lead through the economic recovery and capitalize on opportunities from emerging trends that are favorable to 3M and our market-leading businesses. Please turn to Slide 5. Companywide total sales in the fourth quarter increased to $8.6 billion, with organic growth of 6% and earnings of $2.38 per share, up 22% year-on-year on an adjusted basis. Demand remains strong in end markets such as personal safety, home cleaning and semiconductors and we saw a sequential improvement in general industrial and automotive OEM. We also saw ongoing weakness in other end markets, including healthcare and oral care elective procedures, which declined sequentially, as it continued to be impacted by COVID-19. Geographically, organic growth was led by the Americas, up 8%, with the United States up 9%. EMEA grew 6% and Asia Pacific grew 2% with China up 14%. Our team delivered another quarter of good operational performance. We expanded our adjusted EBITDA margins to over 27%, with all business groups above 26% and increased our adjusted cash flow to $2.1 billion. That wraps up my opening comments. I will come back to discuss our full-year performance, along with my perspective on 2021, after Monish takes you through the details of the quarter. Monish?

Thank you, Mike, and I wish you all a very good morning. Please turn to Slide 6. Companywide fourth quarter sales were $8.6 billion, up 5.8% year-on-year. This result was better than we had anticipated. Our personal safety team continued to execute well in expanding respirator production to support pandemic-related demand. We also saw continued end market strength through year-end in automotive OEM, electronics and home improvement. Strong operating rigor and disciplined cost management drove robust adjusted operating income of $1.8 billion, up 20%, with adjusted operating margins of 21.5%, up 250 basis points year-on-year. On the right-hand side of this slide, you can see the components that impacted margins. Organic volume growth, along with our ongoing cost management and productivity efforts, were the biggest contributor to a margin improvement, adding 160 basis points. Included in this 160 basis point benefit were two items that I had called out during a conference in early December. First, we exited a product line within our closure, masking and packaging business and sold the related property in Q4. This resulted in a pre-tax gain of $54 million, or 60 basis points margin benefit. Please note that this gain is included in safety and industrial's Q4 operating income. And second, we had increased our respirator mask reserve by $107 million in Q4, which resulted in a 90 basis point headwind to margins year-on-year. For the full-year, we increased our respirator mask reserve by roughly $130 million, which is a little higher than the $100 million average over the last few years. This increase in our reserves is reflected in corporate and unallocated. As you may have noticed, adjusting for last year significant litigation charge, our fourth quarter corporate and unallocated expense was up approximately $100 million year-on-year. This increase was primarily driven by our…

Thank you, Monish. Looking at our 2020 performance, we posted an organic sales decline of 2% and adjusted earnings of $8.74 per share. We increased adjusted free cash flow by 18% to $6.7 billion with a conversion rate of 132% which demonstrates the strength of our business model, and our continued ability to perform across economic cycles. Additionally, we posted a good return on invested capital of 18% and expanded our adjusted EBITDA margins to over 27%, up 100 basis points year-on-year. Our strong cash flow along with disciplined capital allocation helped us reduce net debt by over $4 billion in the year. During the year, we strengthened our Health Care portfolio with a successful integration of Acelity and the completion of the divestiture of drug delivery. We returned $3.8 billion to our shareholders through cash dividends and share repurchases. And last year marked our 62nd consecutive year of dividend increases. Beyond financial results, 2020 was a year where 3M stepped up when we were needed the most. Please turn to Slide 11. Throughout the pandemic, 3Mers have been relentless in applying science to improve lives and make the world a better place. Our COVID-19 response has been guided by three priorities, protecting our employees, fighting the pandemic from every angle, and delivering for our customers and shareholders. Beginning last January, we immediately activated our surge capacity, and doubled our production of respirators to help protect nurses, doctors and first responders. We have since worked tirelessly to bring on more capacity, which includes additional investments from 3M and partnerships with governments at all levels. In total, last year, we produced and delivered 2 billion respirators globally, with approximately half in the United States. Today, we are at an annual run rate of 2.5 billion respirators, a fourfold increase versus 2019.…

Thanks, Mike, please turn to Slide 13. As Mike mentioned, we are initiating full year 2021 guidance as end market visibility has continued to improve despite ongoing macroeconomic uncertainty. As a result, we will no longer be reporting monthly sales updates as we had in 2020. Looking at sales; we are forecasting total sales growth of 5% to 8% with organic growth in the range of 3% to 6%. Earnings per share is projected to be between $9.20 and $9.70, or up 5% to 11% on an adjusted basis. The primary contributors to earnings growth in 2021 include organic sales growth, productivity as we continue to increase our focus on operating rigor through daily management and leveraging the use of data and data analytics, and our ongoing efforts to advance and streamline our global operating model. And lastly, we anticipate benefits from foreign currency due to the weaker US dollar. Partially offsetting these benefits are anticipated year-on-year headwinds from the Q4 2020 gain on sale of real estate and expected increase in areas such as travel, variable incentive compensation and advertising and merchandising investments. Turning to cash, we expect another year of robust cash flow, with free cash flow conversion in the range of 95% to 105%. From a capital allocation perspective, our first priority remains investing organically in our business, including R&D and CapEx. As we have noted, we are increasing investments in growth, productivity and sustainability in 2021. As a result, CapEx for the year is expected to be in the range of $1.8 billion to $2 billion. Returning cash to shareholders remains a high priority for 3M including both dividends, along with a disciplined approach to share repurchases, which we plan to restart in 2021. Please see the appendix in today's slide presentation for additional details regarding…

[Operator Instructions] Our first question comes from the line of Deane Dray from RBC Capital Markets. Please proceed with your question.

Thank you. Good morning, everyone.

Hey, Deane.

Good morning, Deane.

Hey, it's nice to see you guys back in the guidance business. But I have to admit I'm going to miss those monthly sales updates. First question for Monish. Can you comment on the – how the company has been benefiting from lowered temporary cost, no travel or less travel trade shows and so forth? And for 2021, what assumptions are you making about how do these temporary costs start to get feathered back in?

Yes, so I would just say, Dean, thanks for the question. And as you know, we've done a great job as a team trying to keep up costs under control. You can see that in Q3 results. You can see that in Q4. How it will bounce back will actually all depend on where we see the recovery of the pandemic and how the vaccine plays itself out. Currently, as you can see from the guidance that we've given you, there is headwind that we're planning on the bounce back of $0.35 to $0.45 that was put in there. And there are two or three things in there, Dean. One is, as you think about the property sales that are year-over-year, that are non-repeat. Secondly, all these indirect costs, travel is a big piece of that that comes back. And the third one is the variable compensation that gets reset for 2021. And from 4Q to 1Q, also there will be a reset and an increase in cost. So those are the factors we're looking at. And I would just say from a quarter perspective, it's all going to depend on our how revenue comes across, how growth happens, how the economy recovers. The other piece, just to keep in mind, as Mike mentioned, our plan is to invest more in opportunities on growth, productivity and sustainability. And that also will have an impact on each quarter, depending on how the economy recovers.

That's helpful. And then as a follow-up, and just broadly, I really appreciate all the work that 3M has done with regard to wrapping up the respirator mask capacity and how you've responded, that's been terrific. Just want to express my appreciation. Can you comment on any updates on the MIT collaboration and the rapid test system that you have in development?

Yes. Sure, Dean, thanks for that question. Our team has been working with MIT researchers, as we've talked about, really focused on developing a low-cost rapid detection capability for COVID-19. And over the past nine months, we've made some very significant technical advances in the design. And we're bringing our expertise in manufacturing and scaling up working with MIT with their capabilities and technology around the assay, the measurement development. And we've been focused on some of the challenges that are inherent in this kind of development, which is the stability of the tests and the robustness of the device, and improving sensibility, sensitivity in the detection. And we're in the middle of the development phase. We're working to address those challenges. We've made very good progress. We'll continue to update as we go along and we're continuing to be very, very encouraged by the partnership with MIT.

What would be the optimistic view on a rollout?

Well, we're in development. We’ve got to resolve some of the requirements that are here around sensitivity and stability of the device. So we're in the middle of that. Well, as soon as we get further along, I would say, in the development phase, we will give you a better view of timelines.

Appreciate it. Best of luck to everyone.

Thanks, Deane.

Thanks, Deane.

Thank y ou. Our next question comes from the line of Scott Davis from Melius Research. Please proceed with your question.

Good morning, guys.

Hey, Scott.

Good morning, Scott.

I want to just dig in on the T&E guide a little bit. I mean, it's a kind of drive a truck through that low to high range. And when I look at it at least and based on what we've seen this quarter, it seems like the bias could be a little bit more to the higher side of that. Is there something that concerns you? Perhaps maybe emerging market recovery or something like that that concerns you that make you a little bit more conservative on that specific segment?

Well, Scott, I'll start with something Monish said, it's great to see this business turn positive in Q4. It's a very good business that faces into markets that have very innovative customers and segments. And it's a good opportunity for us to continue to grow and leverage our innovation. As we look into 2021, we see some positive outlooks. We saw and highlighted some of the strength in semiconductor and in automotive build rates turning positive in Q4, that's expected to continue to get better in 2021. I would say there's - we start with - there's some uncertainty on how that's going to play out as we start the year. COVID is still the driving factor here, what is the visibility through that. I think we get better clarity on the plans of our customers and how they're thinking about it. There's still that uncertainty around the pandemic and how that plays out even in those areas. You see some of that, and I'll look of maybe some softness in consumer electronics, as we start the year. We also - as a reminder in this business, we have exposure to oil and gas and highway infrastructure and commercial solutions, which really depends on people in the office working in the office and in commercial settings. So there's a balance across those businesses with the view of the uncertainty in how the pandemic is going to play out and we'll get better clarity as we go through the year.

I would just add Scott to everything Mike said. I would just add the supply chain stability in the electronics and the auto OEM market, also something that we are watching. So as that plays out and that gets more stable, I think it'd give us more stability and certainty on how we're going to deliver against it.

Okay. And then just a quick follow-up. I mean are there any tangible PFAS milestones in 2021 that you guys can remind us of?

Well, Scott, we've continue to...

Anything at all where we can get some more color?

Yes, I would say, for us, we continue to focus on proactively managing PFAS. And that we've got three principles, and one of those is providing transparency to you and our investors. And right now, there had been scheduled some initial bellwether case in Michigan that's been postponed, it's still to be determined when that'll be scheduled. So we'll update as we go. We do continue to keep our 3m.com site updated with all recent PFAS information. And we'll continue to update on whether it's litigation, our work or our work in support of regulatory standards. Any of those categories we will update there and we’ll update in these calls as well.

Okay. Thank you. Good luck, guys.

Thank you.

Thanks, Scott.

Thank you. Our next question comes from the line of Joe Ritchie from Goldman Sachs. Please proceed with your question,

Thanks. Good morning, everybody.

Hey, Joe.

Hey, Joe.

Hey, maybe my first question, just trying to understand, obviously, great ending to the year from an organic growth standpoint. I'm trying to understand, I guess, like, what's embedded from a cadence perspective, as we progress through 2021? And then secondly, is it - there was some pandemic-related benefits that you received in 2020? I'm just wondering what your base case expectation is for 2021? Is there - is it a headwind? Is it neutral, just trying to understand that better?

So I'll try again, Joe, I think you're asking what our cadence is and how we're going to look at 2021. So what we're going to, we're going to be as helpful as we can, as you know, Joe, we have initiated annual guidance, and based on where we see some of the end markets that I mentioned about in my prepared remarks. Based on that we'll see where - how those end markets play out that will determine how our quarterly things play out. Our guidance is right now organic 3% to 6% with 5% to 8% growth in total, including FX. One of the things that we have seen over the pandemic, Joe, is our normal trends that historically you would see don't seem to play itself out. So for example, in December, the company usually sees deceleration we didn't see the deceleration. Similarly, on a month-to-month trend, sometimes what you see in variability in the months was higher due to COVID and therefore, my personal belief is I think you're going to see more variability throughout the year depending how different parts of the world play itself out. We are also aggressively prioritizing our investments throughout on all the three items Mike mentioned growth, productivity and sustainability. Again, that will have an impact based on how revenue plays itself out. We would love to go heavy and invest early so that we can capture the growth that's coming. But we'll have to see how the world recovers. So we'll have to just walk through that. And then just another piece for you to keep in mind, as you're thinking about the quarters is from a restructuring charge perspective, we had announced the charge in the fourth quarter, you're going to see the balance of that charge somewhere between $110 million to $160 million in the second half of this year. And we'll tighten that as we go through the quarter. So our goal is to be as helpful as we can, throughout and through the various interactions we have with all of you is to tell you what's going on in the world. But that's the way we see it right now. So hopefully I answered your question, Joe.

Yes, Monish, that's helpful, and maybe just my follow-on question, since you mentioned the restructuring, you did announce the call it $75 million to $100 million in benefits, that we're going to impact 2021. I guess how do we think about that in the context of some of the temporary cost actions that are reversing fully recognizing that the investments that you've just laid out, are likely going to be dependent on how the volume shakeout?

Yes, it's a great one, Joe. And the same thing we keep thinking about all the time of how do we do it. So we have tried on our, on one of the presentation pages, there's a guide out there, where we show you headwinds is $0.35 to $0.45, and the benefit from restructuring is anywhere between $0.20 to $0.30. If you think about the headwinds, as I mentioned before, there's property sales that don't repeat some of the indirect costs that was snapped back. Example, travel and variable compensation is in that range of $0.35 to $0.45. And then on the restructuring side, the $0.20 to $0.30, I would ask you to think about two pieces. One is for all the other actions that the companies had taken other than the fourth quarter, there's a carryover benefit of give or take $100 million. And then the benefits of the restructuring that we announced in the fourth quarter are another $75 million of benefits $75 million to $100 million. And then, of course, it's offset by the charge that we're going to take a $110 million to $160 million. So that's why we have called out the restructuring benefits in the guide of $0.20 to $0.30.

Our next question comes from the line of Julian Mitchell from Barclays.

Hi, good morning. Maybe, hey, maybe just the first question on just the firm wide adjusted sort of operating margin expansion for 2021 that's dialed in. So I see all those moving parts on Slide 21, which is very helpful. So maybe thinking about it just differently from a sort of P&L standpoint, I think your adjusted EBIT margin in 2020 was around sort of between 21% and 21.5% maybe, if you could just confirm that. And then of that base, what level of margin expansion you dialing in for 3M in 2021 at the midpoint of the guidance, let's say.

Sure, Julian. I would say a couple of things. So first, just answer your question to give you the 20% to 21.5%. That's correct. So it's 21, 3 is the perfect number. If you think about 2021 ad how we look at margin, I'll just elevate first to say our general view over the long term is growth at or about macro, sustainable margin improvement; strong cash that ultimately helps us have a very strong capital structure. So keeping that in mind, we would say that's basically how we are thinking about long term, things to factor in from a margin guide perspective, as Mike mentioned, we are going to invest properly in growth, productivity and sustainability. So that's going to have one factor. The second factor is going to be the amount of productivity that we are generating. We've got a lot of proprietary technologies that we are rolling out in supply chain. Mike mentioned that the stability of our supply chain is one of our priorities for 2021. We're going to continue that path. So you should see benefit from the productivity actions that the supply chain team is driving. The third piece is making sure that we have factored in correctly the snap back of 2020 costs. We have shown you that it's $0.35 to $0.45 of headwind again on the three items that I mentioned before, and I would say the last one to think about this is thinking about what revenue is going to be and what growth looks like quarter-to-quarter. And that's going to also have a pretty big impact on where we end up from a margin perspective. So those are all the factors that we are putting in here as we think about but long-term growth at or about macro, sustainable margin improvements, and then strong cash.

I see. So, Monish, is around the sort of plus 30, 40 basis points margin expansion is that the rough ballpark then putting in all of those different pieces.

So I go back again, Julian, I would say it all depends on where revenue ends up being and where - how much we invest. So it all depends on how fast the world recovers.

Fair enough. And then just the second topic quickly, you'd alluded in the prepared remarks to the buyback perhaps resuming clearly the balance sheet starting to look under levered and very good free cash flow last year. You're not dialing in much in the way of share count reduction on that Slide 21. So maybe help us understand what scale of buybacks you might be contemplating for the year?

Sure. The way that we look at it, Julian, is our first step in all of this is to make sure that we are investing organically R&D and CapEx, you're seeing us increase capital expenditure at $1.8 billion to $2 billion because we see some growth opportunities, some productivity opportunities, as well as sustainability. Our second priority is dividends and making sure that our shareholders think that's important. We acknowledge that our third priority is M&A. And then our last priority share buyback. So we as I said in my prepared remarks at 3M, we understand returning cash to shareholders is important. So we have both, we're going to dividend as well, as we have always supported a reasonable amount of share buyback. And that's our current plan. How much and how that plays out from a timing perspective is again goes back to where we see where the economic recovery is going to look like. And then based on that we'll work it with the board, and we'll keep y'all posted as we announced.

Our next question comes from the line of Nigel Coe with Wolfe Research.

Thanks. Good morning. Hi, I just wanted to go back to the increase investments comments. So just go into your 2021 EPS Bridge; the $0.47 of organic growth, I think that kind of recap, and it's down to like a sub 30% of in gross margin. So it feels like this investment spending gains that. Just want to confirm that. And are we thinking about R&D to kind of get back to that 5.5% - 6% of sales kind of range in 2021?

Is a question, Nigel, are we getting back to 5.5% to 6% of sales R&D? Is that the question?

That's part and then would that investment spent be against your organic growth bucket?

Yes, so I would say, listen, R&D right now is I would say is in that range. But it always goes back to the point Mike made, which is our plan is to keep investing in growth, productivity and sustainability. On the growth side, we have so many good opportunities, whether it's home care, personal safety, digital, health care, data analytics, as well as auto OEM. From an electrification perspective, we have tremendous opportunities of growth. And depending on how we see 2021, and then 2022 and beyond play out, we won't be shy to invest in those areas, we won't be shy to invest in advertising and merchandising too as required in our businesses to make sure that we capture for the long-term growth. So I would say that yes, but I would also ask us to start thinking to be four great businesses and depending on how the end markets play out in those four businesses, we're going to flex up or down. So I don't know if I answered your question, Nigel, but that's the way I look at it from an R&D perspective.

Yes, I think so. I think that's good answer. And then on the pricing side, obviously, we saw a pickup in pricing, especially in T&E, I think, EMEA is [Indiscernible] in the quarter. You talked about reduced discounting activity because of COVID which makes a lot of sense. I'm just wondering if we can just talk about raw pricing. So are you increasing pricing responds to the raw material inflation and maybe just a little bit color around that will be helpful?

Sure. So we are seeing inflation. One of the things about 3M is we buy so many diverse products, there's not one product that's greater than $200 million to $300 million that's - that has a big impact. But we are seeing I would say inflation in three areas. Area number one is just raw material and feed. Couple of them we look at is polypropylene, wood pulp, ethylenes are areas that we look at and say all of them are showing inflation. The second is as you're seeing also from different industrials is logistics cost is higher, whether it's air or truck, the logistics costs are higher. So we're seeing inflation there. And the third piece even though the economies still are not that very strong from a labor shortage perspective, that's another area where we're seeing inflation and manpower cost. So those are the three areas that we are seeing, we have a great sourcing team that's working to minimize that as much as they can. And then also your specific question on pricing. Our aim is to have prices that will go up on a year-over-year to take into account the inflation that we're seeing.

Our next line comes from the line of Andrew Obin from Bank of America.

Hi, guys. Good morning. I had just sort of a softer question. I think 3M is going through a period where there are a lot of changes happening below the surface, which are sort of less than apparent to us looking from the outside. But you have new systems; you have sort of this new structure where organization is much more globally focused. Can you just talk to us, as 2020 evolved how did it change your planning process? And how did it impact your planning process going into 2021?

Yes, Andrew, thanks for the question. We have even in the middle of the pandemic we've continued to make very good progress on some of what you outline there. And part of it is the digitization of 3M, transforming our company deploying new ERP and ecosystem around it that continues to move forward. We are also now operating for one year, our new operating model that we launched in January of 2020. And that we moved ahead in the middle of the pandemic, we benefited from it, we saw the benefits come in our ability to respond to just the dynamics that we hit. It's on our markets as we went through the year. So I would say we benefited from it, it validated where we are going with the 3M model, it validated the strengths of the 3M model and how we apply our innovation in our markets. And I would say it encouraged us to continue to really press ahead, and I talked about that in my prepared remarks about the digitization, improving our operations, I see it in terms of more agility, shorter cycle times, improved response. And ultimately, it's really at the foundation of how we drive productivity, operational improvements as we go. So that's becoming the way we take advantage of it. That's how we focus it. And so planning broadly, as part of that we're getting, I would say better in terms of cycle times. And I better at using the greater visibility on data and the analytics that go with it. So it's, I'm encouraged with the progress we've made. And I believe there's more to come as we go through 2021.

Andrew, I would just add, I've been here only six months. So just to tell you the changes that I've seen in the six months I've been here. There's a lot more focus on daily management, are we winning daily? Are we not winning daily, much more tie into what external market trends that we are seeing, so we can quickly react as needed? You can see the work the supply chain teams have done to keep our supply chain lines running despite supply chains in general being broken. I look at also the ability to see visibility of data. So there's data democratization, where we can see stuff that is happening much faster on a daily basis. So it's all about driving the operating rigor getting the daily management quickly going into root cause and then finding sustainable improvements. Here we're using, so I think there's much more transparency on issues that we are facing and the team is going in eyes wide open and trying to find solutions as quickly as we can.

And just follow up question; you're sort of highlighted, like the procedure slow down. But if I look at medical solutions that were probably driven by Acelity I guess on oral care, you said it down organically, but I think reported number is still up. Can you just talk about where is organic growth for product lines like Acelity and Tegaderm and how do you expect them to sort of evolve into the second half of the year?

Sure. So Acelity I would say is one of the divisions that does get impacted, the highest due to hospitalization rate and elective surgeries but overall when you just step back and say what is Acelity done? I would say as the volumes came up in Q2, off Q2 lows the business has continued to grow tremendously through those Q2 lows, the reason why Acelity is so good for 3M, I think there are a couple of things. One is it's in a market that is ever growing right now based on where our demographics are. Secondly, it gives 3M a lot more relevance when it comes to talking to caregivers. Third is it gets us into a post-acute space and a home care space, which I think post-COVID is going to be a trend from a home care perspective. And then what 3M brings to Acelity is the synergies that it can bring one is its brand, its global reach, and its ability to do global and high-speed manufacturing. It brings it to that and 3M did already have an advanced wound care business. So when you put this together, it basically makes it a very good acquisition for 3M. We have seen growth in both. We have made positive income in third and fourth quarter. And we are very encouraged with all the work that the health care team is doing that this business will keep growing. But of course, it will be partially dependent on how the world recovers from electives.

And is Tegaderm, are they comp positive or still negative?

Andrew, I think we have to get back to you.

Unfortunately I don't have that handy. Sorry.

Our next question comes from the line of Steve Tusa from JPMorgan.

Hey, guys, good morning. I'm going to disagree with Dean for once and say I'm glad we're not getting the monthly sales. Just it's I'm in favor of less work, less work these days. Given the industry trends, that's negative productivity for us. On that side, that productivity bucket for you guys, the $0.20 to $0.35 for this year. Where did that end up for? I know this is kind of a messy bridge for 2020. But where did that number end up for 2020?

You are saying the full year 2020?

Yes, the full year 2020 kind of productivity bucket.

So the leverage, I think if my memory is right was landed up somewhere. Again, it's so messy with all the indirect snap backs and in and out of 2020 and what we did by quarter-to-quarter timing, et cetera. But I would just say, Steve, in general, you should just think about the leverage range for 3M in the range of 30% to 40% from an incremental volume perspective.

Okay, that's helpful. And then within the organic growth assumption, what are you assuming for price?

So as I said before on the earlier question that was there. We expect prices to be positive based on all the inflation that we are seeing. And historically, when you think about what 3M has been able to do, they have been able to get price just because of the value that they add to customers. And I don't expect that to change.

So like 50 to 100 bps something in that range.

Well, historically 3M, if my memory is right and Bruce can correct me it has been in the range of 30 to 50 basis points excluding electronics, which electronics as you know an industry that definitely sees price decrease, but we'll have to see where inflation ends up here. And we'll do the best we can.

Okay, and then one last one, just for maybe Mike. DuPont had some news around PFAS recently. Can you just kind of help put that in context? Is that kind of meaningless for you guys because you're on like a very different glide path with your exposures there? I don't know what kind of color you can provide is as far as helping frame that kind of read across to you guys.

Yes, Steve, and we did see their press release. And we won't comment on the agreement that they've announced. I would just reinforce what I've been saying is we are committed to proactively manage PFS, and the three principles are the way we think about this. Sound science and how can we apply that in our 3M expertise to move ahead. Our corporate responsibility and we're stepping into that with where we manufactured, historically manufactured and dispose the PFS and then transparency and keeping you and our investors updated on what we are seeing and how we progress. And that's something that we'll continue to focus on as we go through the year. So that's probably where I'll leave it for now.

Our next question comes from the line of John Walsh from Credit Suisse.

Hi, good morning, everyone. Maybe just a different way to ask this PFS question and also a follow on to the capital allocation question, but I think in response you said the economic recovery is what going to govern your expectations around the pace of share repurchases. I guess the follow-on question to that is, are any expectations around PFAS timing factoring into that? Or is it really about the economic recovery?

So I would say, John, we always take multiple factors into account as needed. Right now, one of the big factors is the pace of the core economy. But as things evolve, and things change, we'll definitely update you on our guidance.

Okay and then maybe just a question for Mike. We've seen it from several others; obviously you're an integrated material science company. But could you talk about any potential pruning, as you look forward? And if that's a lever, that 3M still has available to pull?

Yes. And, John, you're talking about portfolio when you ask the question. Correct.

Yes. Not like, obviously, your models integrated. But are there things still around the edges or maybe even a little bit chunkier in terms of pruning that you would consider?

Well, I would say we continue, and even through 2020, in the middle of COVID, we continue to actively manage our portfolio and we focus on three priorities, when we think about that. One is prioritizing where we invest organically, so the 5.5% to 6% on R&D is not everywhere the same, we are prioritizing where we're making investments, you'll see that in capital investments as well. So we use portfolio to dry that first and foremost, that's our priority in our capital allocation. Then we look at complimentary acquisitions. And Acelity as Monish talked earlier, that's a great example of that strategy. And we're focused on Acelity. We continue to be active and looking at M&A. We're focused on Acelity as we come into 2021. And then we do have a, I would say, a rigorous approach to optimizing value in each of our businesses. And this includes what we might do to change the model, or if there's a better owner or more value to be created, we would this would include divestitures, as we've done, as we did with our drug delivery business in 2020. So it's an ongoing process. We continue to assess it. When we see an opportunity to increase value, we'll take action as we have.

Our next question comes from the line of Andy Kaplowitz from Citigroup.

Good morning, guys. Mike, you seem relatively confident in ongoing recovering and in the past, you've said that you don't really see the recovery as a restocking. So maybe give us some more color into where you think inventory is pulling both the channel and at 3M at this point.

Yes. Andy, I would say we're seeing what you're hearing and probably seeing more broadly, and that starts with the second half of 2020, where more I would say the channels across our various markets began to stabilize, as we went through the second half into the end of the year. And so if you look at our four go-to-market models, they each have a little different dynamic, the safety and industrial business. Our channel partners remained cautious there, you're seeing continued demand for us in safety and personal protective equipment. We saw some improvement in our industrial adhesives and tapes business as we went through Q4. Other businesses are still seeing end market declines. And so we're not seeing material restocking in those safety or industrial channels globally. Transportation, electronics, they're pretty much in balance with demand, there's some tight supply and Monish mentioned supply chain things that we're watching everybody's watching around semiconductor and that does relate to the strong demand in their end markets. Health care generally steady as the end markets have now adjusted to the changes in areas like elective procedures in the middle of COVID. There's Q4 we kind of saw a resurgence of COVID cases impact that but pretty steady as we come into the year. And consumer is I would say mixed, we see high demand in home improvement that continues. That's lower-than-normal levels in that channel. And we see really elevated levels still in office and retail as you seen the slowdown because of the work remotely kind of economy that we're in. So it's a little mixed, in general, we're not seeing a strong restocking as we come into the year.

Mike, that's helpful then a follow up would be on sort of respirator side. I might have missed this but I think you mentioned 350 basis points of tailwind in Q4. A little higher than you had guided; are you still increasing capacity in respirators and then these other areas that you've experienced pandemic tailwind? And then what kind of line of sight do you have as you - if you do - if you are increasing capacity, I mean, it seems like respirator demand can last well into 2022 at this point.

Andy, we did bring online in the US, we talked a lot about this as we went through the year, capital that we invested in and capital that we invested in a public private partnership with DOD. And that is all online, we did realize some improved productivity on those lines, we've been working even as we bring on new capital to drive greater throughputs and yields and rates and we had some improvement from that. We did, as we got through Q4 get to full capacity and full run rates. And so that's $2.5 billion run rate that I talked about, we're going to - we will continue to strive to improve on that as we go through the year. We are - we still see strong demand around the world where we will continue to do everything we can to meet that demand. And we're at like I said, at full capacity of the new lines. And we can, will incrementally add to that as we go through the year.

Our last question comes from the line of Nicole DeBlase from Deutsche Bank.

Yes, thanks for squeezing me in. Good morning, guys. I just wanted to talk a little bit about the first quarter if there's any color you guys can give. I know we've gone back to kind of the normal annual cadence. But given that things are still kind of crazy with respect to COVID. Not a ton of visibility, kind of the mix between what you're seeing on the industrial side versus PPE. Is there any way you can kind of frame for us? Either what you're seeing in January or thoughts around the organic outlook for the first quarter?

Sure, Nicole, it's a question that we keep asking ourselves and try to get as much visibility as we can. As you correctly stated, there's a lot of uncertainty right now in the world. As we saw end markets starting to stabilize, and our visibility got better, we started an annual guidance of 3% to 6%. And I think as the world recovers, we should be able to get there, we are confident that innovation that we are doing should help us get to solid growth and grow that are about macro in the long run. When you think about 1Q, one of the things that we have seen over the last six months that I've at least been here and longer for these teams are some of the historical trends have just not played themselves out. So December didn't slow down, as historically has been. With that said, I don't think January has started off very weak. But the things that we are watching are where does hospitalization go? What happens to elective procedures both in the hospital and the oral care space? So we're pretty cautious in that and seeing what we're seeing right now. On the industrial side, making sure that industrial activity continues, our customers continue to buy inventory will be the second piece that we got to watch. Third, as I've mentioned on the auto side, and on the electronic side, where both of them are starting to combine together, how does the supply chains play itself out and what the volume of auto production is going to be? And then the last one to think about is from a consumer perspective, we had an extremely strong consumer growth. You saw we grew nearly 10% with a very strong holiday season. The question is does that strength continue in retail when do schools reopen? Also, just a reminder, from a tactical basis, we are hitting that point where we start lapping year-over-year pandemic demand. So 3M had nearly $100 million of disposable respirator sales last year 1Q, 2020. Again driven by the pandemic so we are lapping that. And then on the income side to think through, Nicole, what is the volume going to look like? And I mentioned we're quite cautious on what we're seeing. And then just on the tactical side, what else we're going to invest, how fast we're going to invest in each of the quarters in the areas Mike mentioned. And then from a year - quarter-over-quarter sequential basis as we reset variable compensation for the first quarter as well as we start stepping into advertising merchandising investments, we will have an impact. So hopefully I gave you the things we are looking at Nicole as we're thinking about the quarter.

Yes, that's perfect. And just one follow up the outlook for free cash flow. Can you guys just talk about what you see with respect to networking capital and the opportunity to reduce factory inventories 3M in 2021?

Yes, so I would say, Nicole, improving velocity working capital turnover, whichever terminology you want to use is one of our priorities. There is a good opportunity there. You've seen the team has done a really nice job from Q2 highs of where the inventory was as a percent of sales or even if you look at days on hand, to bring it down in Q3, and Q4. The work that the team is doing with data, data analytics, but also putting enterprise operations and supply chain together is an area that I would say is an opportunity for us in 2021 and beyond to keep improving inventory velocity. And we are committed to doing that and we'll keep driving that.

That concludes the question-and-answer portion of our conference call. I will now turn the call back over to Mike Roman for some closing comments.

To wrap up, in Q4 and throughout 2020, our team executed well and continue to fight the pandemic from every angle, while building for the future and advancing our values. As we look ahead, we will apply 3M science to capitalize on global market trends and prioritize investments in growth, productivity and sustainability. We enter 2021 well positioned to generate greater value for our customers and shareholders and deliver a strong performance. Thank you for joining us.