Ladies and gentlemen, thank you for standing by. Welcome to the 3M Third 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, October 25, 2022. I would now like to turn the call over to Bruce Jermeland, Senior Vice President of Investor Relations at 3M.

Thank you, and good morning, everyone, and welcome to our third quarter earnings conference call. With me today are Mike Roman, 3M’s Chairman and Chief Executive Officer; Monish Patolawala, our Chief Financial and Transformation Officer. Mike and Monish will make some formal comments and then we will take your questions. Please note that today’s earnings release and slide presentation accompanying this call are posted on the homepage of our Investor Relations website at 3m.com. Please turn to slide two. Please take a moment to read the forward-looking statement. During today’s conference call, we will be making 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-K lists some of the most important risk factors that could cause actual results to differ from our predictions. Please note throughout today’s presentation, we will be making references to certain non-GAAP financial measures. Reconciliations of the non-GAAP measures can be found in the appendix to these slides and in the attachments to today’s press release. With that, please turn to slide three, and I will now hand the call off to Mike. Mike?

Thank you, Bruce. Good morning, everyone, and thank you for joining us. We continue to execute our strategies to deliver for our customers, position 3M for long-term growth and manage legal matters. Our team posted organic growth of 2% or more than 3%, excluding the impact of the decline in disposable respirator sales, along with adjusted margins of 21.5%, adjusted EPS of $2.69 and $1.4 billion of adjusted free cash flow. While the global economic outlook is softening, our businesses continue to innovate for customers and capitalize on opportunities. Transportation and Electronics posted 3% organic growth, with Safety and Industrial, Consumer and Healthcare, each growing 2%. All business groups delivered margins above 21%, with notable margin expansion in Safety and Industrial, and Transportation and Electronics. Looking geographically, organic growth was led by APAC up 3%, with China up 8%, benefiting from backlog recovery following the COVID-related lockdowns in the second quarter. The Americas were up 2%, with the U.S. flat, against 6% growth in last year’s Q3. Growth in EMEA was flat, as we navigate the ongoing geopolitical unrest across Europe. At the same time, we drove operational improvements to address inflation and supply chain challenges. We are delivering strong pricing, managing costs and reducing inventory backlogs, while maintaining a relentless focus on serving customers. For example, we recently invested in a new shipping consolidation center in South Carolina, which is reducing average cycle times for exports to Asia by one week to two weeks. Some of our actions have impacted near-term margins, but we will continue to do what is necessary to take care of customers. Going forward, we see a significant opportunity to reduce cost of goods sold and working capital as global supply chains improve, which includes leveraging data and data analytics to drive productivity in our…

Thank you, Mike, and I wish you all a very good morning. Please turn to Slide 4. Overall, the 3M team delivered third quarter sales and operating margins that were very much in line with my comments at a conference in mid-September. With some puts and takes, as consumer and consumer electronics demand declined as the quarter progressed, while industrial end markets demand remained steady. Third quarter total sales were $8.6 billion or down 3.6% year-on-year, which included headwinds of 5.1% of $450 million from foreign currency translation and 50 basis points of $50 million from the divestiture of Food Safety, along with the deconsolidation of Aearo Technologies. On an organic basis, third quarter sales increased 2% versus last year. This result includes an anticipated falloff in disposable respirator demand, which negatively impacted organic sales by approximately $130 million or 1.4 percentage points. Excluding this decline, Q3 organic sales growth was 3.4%. On an adjusted basis, third quarter operating income was $1.9 billion, with operating margins of 21.5%, which were up 40 basis points year-on-year and 50 basis points sequentially. Adjusted earnings for the quarter were $2.69 versus $2.58 last year. Turning to the components that impacted third quarter operating margins and earnings year-on-year performance. As you may recall, during our Investor Day this past February, we laid out our operating framework and operating principles that included daily management, data democratization, transparency and accountability. We continue to make progress in the consistency of application of this framework. By embracing these principles, along with taking self-help actions, the team executed well in the quarter as we continue to navigate the fluid and uncertain macro and geopolitical environment. We continue to focus on serving our customers and drive additional actions, including recovering our sales backlog in China from the April and May…

[Operator Instructions] Our first question comes from Scott Davis with Melius Research. You may proceed with your question.

Hi. Good morning, Mike and Monish and Bruce. Thanks for taking my questions.

Good morning.

Hi, Scott.

Good morning.

You guys were pretty clear about the end market outlook and stuff. Can you just take a step backwards and walk around the world, just by region on where things are getting kind of better or worse or where are things coming in a little bit better or worse than expectations. And I guess the onus of the question is that some of the results we have seen so far have been a little bit better in Europe and China than expected that you guys noted some cautious comments there. But I will just stop there and let you guys give some color?

Sure. Scott, maybe I will kind of walk around the regions to give you a little more color than my opening comments highlighted where we are growing in each region. Just start with the Americas, and as you look at it, we saw the strongest growth for us in automotive and areas like electrical markets and our electronics markets and materials solutions. We saw declines in Personal Safety. Monish highlighted the Separation and Purification coming off the comparison to the COVID demand in vaccines and therapeutics. And then we highlighted the softer consumer spending in oral care, both Orthodontics and chairside dentistry. Looking at EMEA, we saw it up slightly this quarter. It was slightly negative in Q2. So slightly up this quarter, strongest growth there in automotive, too. So you are seeing a trend, the strong Q3 for automotive globally. We saw declines in Personal Safety and oral care, coming off COVID for Personal Safety and some of the similar dynamics in oral care. APAC growth, again, led by automotive. Personal Safety was strong in APAC. We saw some strong strength in Industrial portfolios more broadly, something that we saw in the quarter in the Safety and Industrial business ex-Personal Safety had strong growth in the quarter -- organic growth. We saw the decline was in electronics in APAC. We also saw some impact from some of the declines in areas like Transportation Safety. And then in China, the big story was the recovery from the lockdowns in Q2 and then also the declines in display materials and broader electronics as you saw the declines in consumer electronics impacting that. We were -- we did see strength in Personal Safety. We saw strength in automotive. We saw strength in broader Industrial. So, kind of a similar story across the areas, a little different growth dynamics, but similar story. And we -- I would say, we finished the quarter with our Industrial business is showing some strength. We saw continued strength in automotive, the softening in consumer electronics. Those are some of those trends that played out across the world. And then electric procedures starting to see - seeing the same trend improving, but not back to pre-COVID levels in terms of elective procedures. So, again, trends that we are seeing across the different regions.

Okay. That’s super helpful. And then just to be clear, Mike, is price where you want it to be right now, are we kind of at a fairly balanced level or just cost and that’s no longer a major issue?

Yeah. Scott, I -- we talked about that as we have gone through the year. We said at the beginning of the year that we were confident price would help us offset inflation as we came through the year and that’s been the case. So our pricing, as you know, it’s one component of, our value in the marketplace. The other is managing the inflation that we have been seeing globally. And we have been, I think, managing that price against inflation well all year and we are well positioned as we go into the end of the year.

Okay. Super helpful. Best of luck. Thank you, guys.

Yeah. Thanks, Scott.

Thanks, Scott.

Our next question comes from Andrew Obin with Bank of America. You may proceed with your question.

Hi, guys. Good morning.

Good morning.

Hi, Andrew.

Hey. Just a question sort of longer term question for you guys. How are you guys thinking about inflation into 2023? And specifically, you guys no longer disclose pricing, but just trying to understand how are you thinking about the pricing mechanism at 3M? And how are you adapting to what’s happening and do you think we are going to get into a less inflationary environment or from what you are seeing inflation is pretty sticky into next year?

Andrew, it’s a great question. As I mentioned in my opening remarks, we are still early in looking at 2023. What we are seeing is a little moderation in inflation, but it’s not been consistent and persistent. We are seeing inflation is pretty much still broad-based. In areas that we are seeing is logistics has seen some slowdown in the pace of inflation. However, if you look at intermediate finished goods, they are still pretty high and so specialty raw materials. So I would say if you just look at what inflation we had in the third quarter, it was $225 million. In the fourth quarter, we are seeing somewhere between $100 million to $150 million. So there’s a little moderation. I think what time will tell is whether 2023, we are able to see sustained lower prices and I think that would be good for all. So that’s one. To answer your question on pricing, as Mike mentioned in his remarks and mine and even the prior question, we take a very thoughtful approach to pricing. Nearly 70% of our pricing is -- our products are pretty much spec in products. So we take a very thoughtful approach. We look at it region by region. We look at it product by product. And I would say we will have to follow. We follow a very thoughtful approach. We will follow a very thoughtful approach in 2023 also, because no one has seen this historic level of inflation in the recent past. So depending on where that goes, we will play that self out in the market. But at the end of the day, as Mike mentioned, part of our pricing is not just driven by cost, it’s also the value that we drive for our customers.

And just a follow-up question. Sorry.

No. Go ahead.

Okay.

Oh, just a follow-up question, if you look at recent stimulus that has been passed in the U.S., a lot of investment in chipset, a lot of investment on semiconductor, a lot of talk about supply chain for semiconductors, particularly things like upstream like substrate, maybe moving closer to North America. Do you guys need to sort of redo your global electronics supply chain, given what’s happening out there on the regulatory front and stimulus front and just voluntary moves in capacity globally? Thanks.

Yeah. Andrew and we are watching it closely. The Inflation Reduction Act, The Chips Act. They are providing the incentives for manufacturers and others to make investments in other parts of the world, the U.S. -- in the U.S. versus other parts of the world. And I would say, we are assessing the impacts on our customers. You know our model, I mean, we are -- we build capabilities and sufficient resources close to customers around the world. It’s a regional model and it gives us the ability to serve our customers in each region in the world that also helps us be in a position to adapt as supply chain moves and that’s been true for electronics as it’s moved around Asia, in particular. And with these incentives, we expect there will be some changes. We don’t see a significant impact to our business in the near-term, but we do serve global customers in electronics and semiconductor and will adjust as they make changes.

But nothing sort of definitive at this point yet. You are still waiting...

It’s early in the process. There are announcements, there are investments being made and we will stay close to those and we will make adjustments as we go. And if you look at the U.S. in particular, just as a reminder, we are a net exporter out of the U.S. We export $5 billion out of the U.S. So it is a place where we have got a strong manufacturing position and that puts us in a position to adjust as capacity gets invested here.

Thank you.

Our next question comes from Joe Ritchie with Goldman Sachs. You may proceed with your question.

Thanks. Good morning, everyone.

Hi, Joe.

Good morning, Joe.

So I saw that we kept your inflation numbers intact for the year. I am just curious, like, are you starting to see any of your costs like start to subside at all and then if you can maybe start to give us a little bit of color on what you are seeing from a manufacturing perspective and energy costs in Europe and how that’s impacting your business?

Yeah. So, Joe, I would tell you, we are seeing some moderation, as we saw inflation was $225 million in Q3, we are accounting for $100 million to $150 million in Q4. The total at $750 to $850 million has not changed. We are seeing -- inflation, I would say, is still generally broad-based. We are seeing higher inflation in specialty materials, as well as intermediate finished goods. We are seeing a little bit of moderation in logistics. So that’s where we are on inflation. And then on supply chain, I would say, we are also seeing some signs of stabilization, Joe. We are seeing raw material flowing a little better than it has flown in the prior quarters and you can see that’s why the team was also able to deliver decent productivity in Q3. We will have to watch and see whether, one, is the moderation in pricing or raw materials sustained, and secondly, is the flow of material sustained into Q4 and that’s going to determine where we go. And as Mike has said, too, once we see the stabilization of supply chains and moderation of raw materials, we believe that is the best opportunity. We have other than volume to keep driving productivity in our factories and through that margin expansion.

Got it. That’s helpful, Monish. And then I guess my follow-on question would be, obviously, a lot of uncertainty in the market right now as we are heading into 2023. Just maybe talk us through a little bit your recession playbook, how you are preparing yourself for what could be a pretty uncertain year, just any color around that would be helpful?

Sure, Joe. And our model -- our operating model has been strong and shown resiliency in many economic cycles. And it’s been clear throughout COVID, and I would say, the concern -- the current uncertainty in the markets that we are facing and so we will continue to do what we do in those cycles that helps us react to them well and position our performance well and that’s focused on serving our customers, driving productivity, efficiency in our supply chains and our factories and delivering strong cash flow and it keeps us focused on the right actions. And we will stay focused on our end markets, too, where as we have talked about, there’s some different dynamics in each of the end markets, even as we look at the softening global outlook for macro. And so we are prepared to adjust and take actions. That’s our model and it will serve us well as we navigate the uncertainty ahead.

Okay. Thank you, both.

Our next question comes from Chris Snyder with UBS. You may proceed with your question.

Thank you. So I wanted to first ask on the Q4 guide, which puts organic growth largely in line with Q3 levels at the midpoint or exactly at the midpoint despite a slightly larger respirator headwind. Could you just provide some incremental color at the -- for the puts and takes at the segment level as we look into Q4?

Yeah. Sure, Chris. As -- I will just start with recapping again Q4. We will just start by saying, last year’s fourth quarter was our easiest guide or easiest comparison. Number two is, you are right, so disposable respirators is going to be down and that creates a headwind of nearly 180 basis points, and then the exit of Russia is another $70 million, which gives another 80 basis points of pressure. So if you exclude all of that, you would get to a 4% to 6% increase in organic growth on a year-over-year basis. If you look at where the macro is going to be GDP and IPI is in that 2%-ish range for the fourth quarter, auto is going to be up 2% sequentially or nearly 2.5% depending on IHS forecast, approximately 2% up on a year-over-year basis. Elective procedures, which were at 90% in July and moved itself up a little bit in August and September, we believe, will move up a little bit to 90% to 95%, so you will see that uplift. I would say consumer spending continues to be weak. Even in the month of October, we have seen lower consumer spending. I called that out as those trends where the inflation is impacting the consumer, I think, remains through the holiday season, as well as how inventory levels are adjusted by retailers is something that we will have to watch. Consumer electronics continues to be down on a year-over-year basis, a little moderation on improvement on a sequential basis. But again, there, we will have to see where that plays itself out between consumer electronics, as well as then you talk about semiconductor growth continues to be strong. We are continuing to see that in our business on the other side of the electronics business. And then from an Industrial perspective, we have already talked about disposable respirator but the rest of the end market remains pretty strong in SIBG.

Thank you for that. Really helpful. And then the second one just on margins, if we kind of look from Q3, margins were up versus Q2 on slightly lower topline. Is it fair to assume that reflects improving price cost or was there some margin impacts from the portfolio changes during the quarter? And if it does reflect improving price cost, I mean, is the expectation that, that should continue to improve from here even if the cost relief might be a little bit down the road?

Yeah. So, Chris, I would say it’s all. As we look at it and the team has been doing a great job at driving margin expansion. And in Q3, you have seen -- as you said, we continue to see the price cost equation. We have offset or managed our inflation through pricing actions. We have had better yield and efficiency also compared to the second quarter as we saw some stabilization of supply chains. Third, as I called out, we have also the team had a lot of strong spending discipline. We took a lot of self-help measures. We proactively adjusted where we saw end market change, et cetera. So put all that together, we did see 50 basis points of margin expansion. When you think about Q4, if you know that in Q3 we did $8.6 billion in Q4, we are saying $7.9 million to $8.2 million, which is the volume basically gives us the best leverage. So that’s why you do see margin come down. And historically, if you look at 3M also Q3 to Q4, always shows a decline because it is a lower volume quarter for 3M. To answer your question on what happens in the long-term, I would say, Chris, the same as I have said in my prepared remarks, which is there are headwinds that we see, whether it’s macroeconomic environment, FX, the impact of energy cost on, especially in Europe and the geopolitical environment are all headwinds. Similarly, we will have to watch what happens with COVID-related demand, whether it is government policy, whether it is elective procedures or whether it is our own disposable respirator demand. But there are a lot of tailwinds too. We see secular trends that will continue to go up in areas that we add a lot of value to customers, whether it’s auto electrification, sustainability, digitization, just to name a few. Also, when we -- as we see raw materials starting to stabilize a moderate and supply chain starting to stabilize or moderate, we should get a lot more opportunity to drive yield and efficiency, and that’s what Mike said in his prepared remarks, too, that that’s -- other than volume, that’s one of our biggest opportunities to continue to drive margin. So hopefully that answers your question, Chris.

It does. Thank you. Thank you.

Our next question comes from Andrew Kaplowitz with Citigroup. You may proceed with your question.

Hey. Good morning, everyone.

Good morning, Andrew.

Good morning, Andrew.

Mike or Monish, maybe just a little more color into Healthcare, I know you have talked about sales growth being a little lower in Q3, oral care turned down a little bit. It seems like the elective procedures have been stuck a little bit and you talked about them improving in Q4, but the issue just sort of staffing shortage in hospitals. What are you seeing in China over there and how concerned are you about oral care given it does tend to be a little more sensitive to the economy?

Yeah. Andy, there -- you are right. There’s some different dynamics going on than Q2. When you look at elective procedures and oral care versus surgical procedures or medical procedures, it kind of -- I think, in general, it’s on track with what we had said at the beginning of the year that it would get back to around 95% by the end of the year, 95% to 100%, maybe we are slightly below that now. And I think that’s a reflection of what was part of your question. That’s the staffing levels right now. It’s been a bigger impact than obviously COVID hospitalizations have been in the current quarter and then outlook for the rest of the year. So I think that’s holding it back maybe keeping it from being quite at the level that we thought it would be when we started the year. Oral care, we saw strong recovery in procedures there in 2021 and that’s part of the comp that we are looking at year-over-year. The impact this year appears to be consumer discretionary spending. They are electing to spend less in some of those elective procedures in oral care. So that’s had a softening impact and we see those trends continue as we came out of Q3. So I -- a little bit different than maybe where we saw at the beginning of the year, but it’s, generally, we are looking for improvements as we go into Q4 in those medical electric procedures.

I would also just add that the other piece was Biopharma, which had a very strong quarter last year, and we are seeing on a year-on-year lower demand, just driven by the COVID therapeutics that we sold into last year.

Very helpful guys. And then, Monish, maybe you can update us on your work on digitization and I think you have talked in the past about data analytics really helping you in the second half of the year here and especially in 2023. It seems like today, you are talking about you having cost out opportunity. You noticed your Safety and Industrial business margin was up nicely sequentially. So how much of an impact is that coming from digitization or is this that just sort of general execution?

So I would just say the following, Andy, is, as I said in February at our Investor Day, digital can be a multiplier for 3M. And it will take time. We have four pillars. One is digital customer. The other one is digital product. The third one is digital operations. And then the last one is just digital enterprise or enterprise digital. I think the last one is ERP that helps us simplify our business. Digital operation is the place where you are talking about is from a factory perspective. The team has done a lot of work using data and data analytics to improve yield and efficiency in the factories. For example, we were able to create a digital twin for our respirator production during the pandemic, which the team is continuing to use and those models are being used for other parts of our production lines. There’s a lot more we can do in this area in automation and digitization to drive yield and efficiency and especially as supply chains start normalizing. This is an area where we should be able to dig faster into root cause and put into solutions. Similarly, data and data analytics helps us in inventory a lot too, Andy. And despite all the inefficiency that exists currently in the supply chain, the teams have done a nice job of continuing to improve inventory. August to September saw a sequential decline in inventory and so that’s another sign that the teams are looking at data. It allows them actually to visually see where their inventory is so it allows better demand planning. And then if you actually go to digital product and digital customer, both of them, e-commerce continues to be an important area for us of growth. In Safety and -- in the Safety and Industrial business, we bought the assets of a company called LeanTec that allows us to do software for auto body shops, so parts management through software for auto body shops. So that’s starting to take hold and Mike Wale and his team have done a nice job there. And Mike Roman mentioned in his opening remarks, the collaboration we have with Microsoft, where we announced the digital posted note in collaboration with Microsoft. So you are seeing digital play itself out in multiple places. I would say there’s a lot more opportunity for us in the future in this area.

Appreciate it guys.

Thanks.

Our next question comes from Stephen Tusa with JPMorgan Securities. You may proceed with your question.

Hey, guys. Good morning.

Good morning, Steve.

Good morning, Steve.

Can you just give some degree of color on whether you were, like, you don’t have to give details on the price, but like just with the spread positive, neutral, negative this quarter and how do you…

Positive…

… expect that in fourth quarter, it was positive this quarter?

That’s right. And…

Did that accelerate -- and did that accelerate from last quarter?

To the extent where we saw more in areas where we saw more inflation, we were able to offset that with more price. So, overall, I would say, mid-single digits is where we were, Steve, on pricing.

Okay. Got it. That’s great color. And then you guys kind of tweaked down the CapEx number a little bit. I know that number has been kind of growing over the last several years. Are you now kind of cresting on these major projects, and you mentioned, digitization and automation in your -- with the prior question, but how do we think about that heading into 2023, that CapEx number?

Yeah. So, as I said, we are still early planning 2023. But in this case, the guide down, Steve, was just because of where we are with the length of supply chains. We have seen supply chain backlog or the cycle time of these go up anywhere from 12 weeks to 20 weeks depending on the CapEx equipment that we are buying. And so just based on where we are in the quarter, we thought it was prudent to take it down to $175 million to $185 million. But all good projects and the projects that are falling into next year will continue to get completed because they are great projects. I just wish we would have got them done this year, unfortunately, the supply chain just didn’t help us.

Yeah. Okay. Great. Thanks a lot. Appreciate the color.

Thanks.

Yeah.

Our next question comes from Julian Mitchell with Barclays. You may proceed with your question.

Thanks. Good morning. And maybe just the first question around the inventories outlook. So you took down your cash flow conversion guide for the year, even with the CapEx reduction you just discussed. I think also, Monish, you had mentioned inventory is down sort of month-on-month in September. So help us understand kind of where do you think customer inventories and distributor inventories sit right now versus normal and how much kind of destocking lies ahead for your customers and for 3M itself? How quickly should we see that cash flow conversion get back to 100%? Is it sort of late next year or you think next year as a whole, you could be there already?

Yeah. Julian, maybe I will just touch on how we see inventory in the channel and with our customers and it’s maybe just a quick walk around the different business segments. Industrial channel inventories, they look like they are in pretty good shape. We saw, as you saw strong broad-based growth and so well aligned with that. Consumer electronics, the OEMs are working through some inventories as the demand weakens. I think automotive inventories continue to be still relatively low with the demand that they are seeing. Our Healthcare, overall, in line with the demand. We saw some softening, obviously, in oral care and the channels reacting there. So we are seeing some inventory pulled on. The big story and inventory probably is what you have heard from many other companies, the retailers working through their elevated inventory levels and navigating the kind of the shift in consumer spending and the impact there. We are seeing that as we come out of Q3. So that’s kind of the external view. Maybe Monish can talk about kind of how we map it internally.

Yeah. Sure. So, Julian, it’s back to the same comments we made that the global supply chain and raw material environment continues to remain fluid and dynamic. And I think that’s what’s driving the inventory level, even though we did take it down August through September, that’s a start. One, we need to see the supply chain stabilize sustainably. And two is, when you look at where we are at the end of Q3, we don’t see those inventory levels coming down to the level we would have liked in a stable environment and that’s why we felt prudent to get it down to 85% to 95%. The team is continuing to work inventory using data, data analytics, get a better demand planning. At the same time, we also look at better coordination between our demand plans and our supply plans and that’s what the teams are working on. And I think we will continue doing that in the long run. I would say in the long run, there’s no reason why we can’t be at 100% free cash flow conversion, when you look at the cash flow that we generate and the opportunity that we have to continue to drive inventory down using data and data analytics.

Thank you very much. And then just my follow-up would be around, you mentioned earlier some self-help measures, digitization and better data tracking, just wondered in terms of kind of overall operating margins. I think 3M as a whole has been at that sort of 21%, 22% range for four years or five years now. It’s been a couple of years since the last big kind of restructuring announcement in December 2020. Just wondering what the appetite was for maybe another round of that kind of big fixed cost out, particularly as the macro is a little bit softer or are you feeling pretty confident about operating leverage next year?

Yeah. Julian, as I talked about earlier, we are confident in our ability to respond to the changes in the macro and we are always adjusting our businesses to meet the markets and whether it’s near-term or in the future. And so we are going to continue to focus on productivity. That’s a big part of the self-help for us, leveraging some of the capabilities Monish talked about to drive that as supply chains improve and recover, we expect to be able to drive more self-help. And we will continue to stay close to the end markets and the macro and take actions as is needed. We don’t have a big plan to announce today, but we -- our model is to adjust to markets as we go.

Great. Thank you.

Our next question comes from Nigel Coe with Wolfe Research. You may proceed with your question.

Thanks. Good morning and thanks again…

Good morning, Nigel.

Yeah. Hi, guys. So just going back to the exports, I think, you mentioned, Monish, $5 billion, if I am not mistaken. Just wondering, do you exports from the U.S. over indexed to a certain region? I think Latin America might be one, I think, maybe China as well, but any thoughts there in terms of concentrations of markets you are important to? And then in terms of the currency effects, the translation -- the transactional effect of that, are you able to kind of talk through to offset the FX impact?

Yeah. Nigel, just to break down the exports a little bit, it’s net exporting, it’s really based on the capabilities that we have invested in the U.S. And it does serve all of those markets, Europe, Latin America, Asia, China, and so we are -- I wouldn’t say we are over-indexed anywhere. It’s really a strategy of portfolio and where we produce. And while we are regionally capable for our businesses everywhere around the world, a majority of what we sell in each region of the world, we produce in region, there are some parts of our portfolio that we don’t need to have capacity in order to we have the demand for every region, and so we will export out of the U.S. and that -- there is a balance around the world. You will see some over indexing in the electronics manufacturing to Asia and China, of course. But more broadly, it’s balanced across the regions of the world.

And the pricing, are you able to offset the currency effect?

Yeah. So, Nigel, the way most of these work is they go into intermediate into the production of another factory that’s locally manufacturing the product. So you will see that cost increase. The team takes all of that into account when they get their pricing, they factor in the raw material, they factor in FX and then do what they can in that area to offset it. In total, as we have talked about, currently, we see effects of the strong dollar to continue to have a headwind on 2022 earnings, negative 4.5% on revenue and it’s nearly $0.50 on EPS for the year. So we do our best to try to manage it. At the end of the day, we can’t eliminate such a strong dollar and we will see how it plays out in 2023.

All right. I will leave it there. Thank you very much.

Thanks.

Thanks, Nigel.

Our next question comes from Deane Dray with RBC Capital Markets. You may proceed with your question.

Thank you. Good morning, everyone.

Good morning, Deane.

Hi, Deane.

Hey, Mike. I was hoping you could comment or expand your comments on what you have seen in October, especially on the consumer side, you said softer back-to-school setting up for softer holiday. I’d also be interested in hearing, if you see changes in the consumer purchasing in the mix, like more focused on lower price point products and might you lose any share in this mix down?

Yeah. Deane, as we exited Q3, as I touched on, we saw what others are seeing. The retailers are working through elevated inventories. That was a trend we saw impacting. We saw the -- as Monish talked about a softer back-to-school, which was maybe a separate market dynamic. There’s been a shift in consumer spending from what we call hard lines. So where our products are in the categories that they are in, in retail markets and that into other areas like food, for example. And so you are seeing some shifting in consumer spending. That’s part of the trend that we saw coming through Q3 and we see as we come out of the quarter into the rest of the year. And I would say the inflation continues to be driving some of those trends. So that’s really at a high level, that’s what we are watching closely. We are close with our retail partners and watching each of the categories and consumer spending as we see those trends evolve.

Any share change?

No. We -- I think the dynamics that you are seeing in our organic growth in consumer is really about the consumer spending and the end markets. It’s not about share change. We see our maintaining share and in some places gaining share. We see some of the positions that we -- where we have invested coming out of the pandemic and areas in consumer like our home improvement, even though it’s -- we saw some softening demands in home improvement in the U.S. in the third quarter, we see we are well positioned to continue to have strong share in that part of the market.

Thank you.

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, we continue to execute our strategies in a challenging environment, while positioning 3M for the future through investments in growth, productivity and sustainability, along with active portfolio management. We will stay focused on taking care of our customers, driving growth and improving our operational performance. Thank you for joining us.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and we ask that you please disconnect your lines.