3M (MMM) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the 3M fourth-quarter earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded Tuesday, January 26, 2016.

I would now like to turn the call over to Matt Ginter, Treasurer and Vice President of Investor Relations at 3M.

Thank you.

Good morning, everyone.

Welcome to our fourth-quarter 2015 business review.

Let me kick off today with a reminder of our upcoming 2016 investor events.

On Tuesday, March 29, we will be hosting an Investor Day at our headquarters in St.

Paul, including a welcome reception the evening before at our new R&D laboratory.

Registration for the event will be sent out later this week.

Also, our upcoming quarterly earnings calls are scheduled for April 26, July 26, and October 25.

On the call today are Inge Thulin, 3M's Chairman, President, and CEO; and Nick Gangestad, our Chief Financial Officer.

Each will make some formal comments, and then we'll take your questions.

As a reminder, today's earnings release and slide presentation are posted on our Investor Relations website at 3M.com.

Please take a moment to read the forward-looking statement on slide 2. 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 1-A 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.

Now please turn to slide 3, and I will hand off to Inge.

Thank you, Matt.

Good morning, everyone, and thank you for joining us.

I will open my remarks with an overview of our fourth quarter, and later in the call I will give you a recap of our full-year performance.

3M finished 2015 with another quarter of disciplined execution in a challenging external environment.

Across our enterprise, we controlled the controllable, while investing in our business and returning cash to our shareholders.

With respect to our earnings per share, we posted GAAP EPS of $1.66, down 8% year over year.

As you recall, in October we announced our corporate restructuring, which was completed in the fourth quarter.

This action resulted in a Q4 pretax charge of $114 million, and will deliver a savings of $130 million in 2016.

Excluding this Q4 charge, we posted earnings per share of $1.80.

Company-wide, organic local currency sales declined 1.1%.

Consistent with our expectations at our December outlook meeting, organic growth was down low single digits in our two industrial-related businesses, namely industrial, and safety and graphics.

Also, as expected, electronics and energy decreased in the high single digits as the consumer electronics market softened.

On the positive side, our two consumer-driven businesses posted strong organic growth in the quarter.

Consumer was up nearly 3% organically, while health care increased almost 5%, its highest growth of the year.

Acquisitions added 1.5 percentage points to our sales, while the stronger US dollar reduced sales by nearly 6%.

In total, Q4 sales were $7.3 billion.

Looking at margins, we delivered another good, broad-based performance in the quarter.

When you exclude restructuring, margins were up 60 basis points to a healthy 22%, with four of our five business groups posting margins greater than 21%.

In the fourth quarter, we posted strong free cash flow, with a robust 182% conversion.

We also continue to invest in our business, while returning nearly $2 billion to our shareholders through dividends and share repurchases.

Overall, we had a solid finish to the year, and now I will turn the call over to Nick, who will give -- go through the details of the quarter.

Nick?

Thank you, Inge, and good morning, everyone.

I'll start by covering sales growth on slide 4.

Organic local currency sales declined 1.1% in the fourth quarter, with volumes down 2.3%, partially offset by selling prices, which were up 1.2%.

Acquisitions net of divestitures added 1.5 percentage points to sales.

This impact includes the acquisitions of Capital Safety, Polypore's separations media business, and Ivera Medical, along with the divestitures of library systems and our license plate converting business in France.

Finally, foreign currency impacts reduced sales by 5.8 percentage points, with notable year-on-year declines in the euro, yen, and Brazilian real.

As a result, in US dollar terms, fourth-quarter worldwide sales declined 5.4% versus last year.

In the United States, organic growth was down slightly, as we experienced weak end-market demand in our industrial-related businesses.

At the same time, our consumer-oriented businesses, health care and consumer, continue to deliver positive organic growth.

Organic growth in Asia-Pacific declined 2.7%.

Three of our five business groups posted positive growth in the region, led by health care and consumer, while electronics and energy declined high single digits.

Within Asia-Pacific, organic growth declined by 3% in both Japan and China/Hong Kong.

Excluding our electronics businesses, Japan was up 3% organically, while China/Hong Kong declined 3%.

Moving to EMEA, organic growth increased 1.1%, with central east Europe up high single digits, west Europe up slightly, and Middle East/Africa down mid-single digits.

Finally, organic growth in Latin America/Canada declined 60 basis points.

Brazil declined 6%, while Mexico continued its trend of strong organic growth, increasing 7%.

Please turn to slide 5 for the fourth-quarter P&L.

Company-wide, fourth-quarter sales were $7.3 billion, with operating income of $1.5 billion.

GAAP operating margins in the quarter were 20.5%, down 1 percentage point year on year.

Excluding restructuring, margins increased 60 basis points to 22.1%, which reflects our ability to execute and effectively control those things within our control.

On the right-hand side of this slide, you'll see the various components of our fourth-quarter margin performance.

Let me comment on the primary drivers impacting margins during the quarter.

Lower raw material costs and higher selling prices contributed 2 percentage points of margin expansion.

Our global sourcing teams continue to capitalize on the impact of lower commodity prices, and are generating additional savings above market.

Foreign currency, net of hedge gains, decreased margins by 30 basis points.

Fourth-quarter strategic investments lowered margins by 40 basis points, primarily driven by portfolio management actions in our renewable energy business.

Similar to past quarters, higher pension and OPEB expense reduced margins by 60 basis points.

Finally, our fourth-quarter pretax restructuring charge of $114 million reduced margins by 160 basis points.

As Inge mentioned, these actions will result in a pretax savings of approximately $130 million in 2016.

Let's now turn to slide 6 for a look at earnings per share.

Fourth-quarter GAAP earnings were $1.66 per share, down 8.3% year on year.

Our restructuring decreased GAAP earnings by $0.14 per share, excluding these costs, earnings were $1.80.

As you see, a number of other factors impact -- also impacted our earnings.

Growth and margin expansion added $0.03 to earnings in the quarter, which includes head winds of $0.05 from pension expense and $0.04 from strategic investments.

Excluding restructuring, our fourth-quarter tax rate was 28.6%, versus 28% in last year's fourth quarter.

This reduced earnings by $0.01 per share.

Foreign currency impacts, net of hedging, reduced pretax earnings by $96 million, or the equivalent of $0.11 per share.

Acquisitions and divestitures increased earnings by $0.02 per share.

Finally, average diluted shares outstanding declined 4% year over year, which added $0.06 to fourth-quarter EPS.

Please turn to slide 7. We delivered strong free cash flow in the fourth quarter, with a conversion rate of 182%.

The primary driver was improved working capital.

Free cash flow was $1.9 billion, up $199 million year-over-year.

For the full year, we posted free cash flow conversion of 103%, similar to 2014.

In 2015, we continue to manage toward a better optimized capital structure.

We added leverage of approximately $4 billion, which helped fund investments in organic growth, acquisitions, and the return of cash to shareholders.

In the fourth quarter, we invested $446 million in CapEx, bringing our full-year investment to just under $1.5 billion.

For 2016, we expect capital expenditures to be in the range of $1.3 billion to $1.5 billion.

Also in the fourth quarter, we returned $1.8 billion to shareholders via dividends and gross share repurchases.

During 2015, we returned nearly $8 billion to shareholders, including cash dividends of $2.6 billion, and growth share repurchases of $5.2 billion.

Now let's review our business group performance, starting with industrial on slide 8. Industrial posted quarterly sales of $2.5 billion.

Organic growth was minus 1.8%, reflecting a slow industrial economy, which impacted our business.

In particular, our advanced materials business declined high single digits, impacted by weak demand in the oil and gas end market.

On a positive note, our automotive OEM business grew high-single digits, as we continue to gain share by increasing 3M's content per vehicle.

This business has consistently grown faster than global car and light truck production levels.

3M purification also posted strong organic growth in the quarter.

The acquisition of Polypore's separations media business, which enhances 3M's core filtration platform, added 1.7 percentage points to industrial sales growth.

Integration activities and financial performance are on track and meeting expectations.

On a geographic basis, industrial's organic growth was positive in EMEA, Latin America/Canada, and Asia-Pacific, while the US declined mid-single digits.

The industrial business delivered operating income of $476 million in the quarter, with operating margins of 19.3%, or 21% excluding restructuring.

In addition, the business is absorbing the Polypore separations media acquisition, which reduced margins by another 50 basis points.

Please turn to slide 9. Fourth-quarter sales in safety and graphics were down 2.5% organically to $1.3 billion.

As a reminder, organic growth in this business was up over 9% in Q4 2014, which included a $30-million impact from ebola-related demand for personal safety products.

Excluding this impact, Q4 sales in our safety and graphics business was flat organically.

Within safety and graphics, our commercial solutions business had another solid quarter, which capped off a strong full-year of mid-single-digit growth.

Acquisitions, net of divestitures, added 4.6 percentage points to sales growth.

As a reminder, in August we acquired capital safety, a leading provider of fall protection equipment.

Integration is on track, and the business is meeting operating income targets.

On a geographic basis, organic growth declined in all regions.

Operating income was $282 million in the quarter, and operating margins increased 1 percentage point to 21.8%, or 22.7% excluding restructuring.

The net impact from acquisitions and divestitures added 150 basis points to safety and graphics' fourth-quarter operating margins.

Please turned to slide 10.

Our health care business generated fourth-quarter sales of $1.4 billion, with organic growth of 4.5%.

Organic growth was broad-based, led by double-digit increases in both health information systems and food safety, with oral care up mid-single digits in the quarter.

The Ivera medical acquisition added 80 basis points to fourth-quarter sales growth, and continues to exceed performance objectives.

Health care grew organically in all geographic areas, led by Asia-Pacific.

This business continues to drive penetration in developing markets, with 8% organic growth in the quarter.

China/Hong Kong was particularly strong, with double-digit organic growth.

Operating income was $444 million, up nearly 3% versus last year's fourth quarter.

Health care's operating margins were 32.1%, up 110 basis points year over year, or up 180 basis points excluding restructuring.

We continue to be pleased with the strong and consistent performance of our health care business, and will continue to invest in this business to drive greater success.

Next, let's cover electronics and energy on slide 11.

Fourth-quarter sales for this business group were $1.2 billion, down 7.7% organically.

On the electronics side, organic sales declined 8%, impacted by weakness in the consumer electronics end market and excess channel inventory.

We expect this softness to continue into the first quarter.

Our energy-related businesses were down 6% organically, as sales declined in renewable energy, telcom, and electrical markets.

On a geographic basis, organic growth was down across all areas.

Operating income for electronics and energy was $200 million, with operating margins of 16.5%, or 17.5% excluding restructuring.

In addition, portfolio management actions in our renewable energy business reduced electronics and energy margins by 2.4%.

For the full year, operating margins were 21.1%, up from 19.9% in 2014.

Our portfolio actions in this business group over the last three years continued to pay off in 2015.

These actions are enabling us to deliver solid margins even in the face of challenging conditions in both electronics and energy end markets.

I'll finish with our consumer business on slide 12.

Fourth-quarter sales in consumer were $1.1 billion.

Organic growth was a solid 2.7%, paced by our home improvement business.

This business continues to win in the market place, with leading brands such as Filtrete filters and Command adhesives.

Stationery and office supplies and home care were also up organically, while organic sales declined in consumer health care.

Fourth-quarter holiday sales were strong, driven by solid demand for our category-leading Scotch and Command-branded products.

Looking at consumer geographically, organic growth was broad-based across all areas, led by the US.

Consumers' operating income was $254 million, with operating margins of 23.1%, or 23.4% excluding restructuring.

That wraps up our review of the fourth-quarter business results.

Please turn to slide 13, and I'll turn it back over to Inge.

Inge?

Thank you, Nick.

With another solid margin and cash-flow performance, our fourth quarter capped off a year of disciplined execution and efficient growth from our global team.

Even in a low-growth environment, we expanded full-year margins nearly a full percentage point, to 23.3%, excluding restructuring.

In 2015, for the second year in a row we posted free cash flow conversion above 100%.

We also delivered a strong return on the invested capital of 22.5%, coming on top of a 22% return in 2014.

Beyond these solid financial results, I view 2015 as a fundamentally important year in terms of 3M's future.

This is because of the investments we made and the actions we took to position our Company for long-term success.

As you see, last year we invested a total of $7 billion in research and development acquisitions and CapEx.

We also made significant progress on our three key levels which represent important value creators for enterprise.

The first is portfolio management, which is all about strengthening and focusing on our portfolio of businesses.

We do this through both acquisitions and divestiture, and also through business consolidation.

Last year we took actions on all fronts.

In health care, as an example, we combined our dental and orthodontic businesses into one single oral care solution business.

Consolidating businesses allow us to allocate resources to our best opportunities, while creating greater customer relevance, scale, productivity, and improved speed.

In 2012, in fact, we have realigned from six sectors to five business groups, and from 40 businesses to 26.

To complement organic growth, we also made three strategic acquisitions in 2015.

This includes capital safety and Polypore's separations media business, which enhanced two of our core technology platforms -- personal safety and filtration.

At the same time, we divested three businesses that no longer fit within our portfolio.

Investing in innovation is our second lever.

Last year we invested $1.8 billion in research and development.

As you have heard me say many times, research and development is the heartbeat of our Company.

It enables us to both invent and manufacture cutting-edge, relevant, and unique products for our customers.

This in turn drives organic growth, which is our primary growth metric, and also supports our premium margins and return on invested capital.

Last year, in addition to investing in technology development, we took action to better connect our scientific capabilities to our customers around the world.

We opened six new customer technical centers, including in West Europe, Middle East/Africa, and Asia/Pacific.

We also opened our new state-of-the-art research laboratory in the United States, which we look forward to showing you at our Investor Day in March.

Our third lever, business transformation, starts and ends with our customers.

It's about transforming our business processes to make it easier and quicker for our customers to do business with us anywhere around the world.

The backbone of business transformation is our new global ERP system.

In 2015, we made good progress, most recently with a successful roll-out in the Nordic countries.

We also announced the creation of three global service centers, which will optimize our delivery of transactional services, and service a broader platform for operational effectiveness into the future.

We expect business transformation to result in $500 million to $700 million in annual operational savings by 2020, and another $0.5-billion reduction in working capital.

That covers all three levers, and I'm very pleased with our progress in all of them.

In addition to work we did on those levers, we made other investments to position 3M for success in both the short and long term.

As we have talked about before, we run our Company with one eye on the microscope and the other eye on the telescope -- in other words, making sure we are positioned for success today and many years into the future.

Let me give you two examples.

First, on the telescope view, we made a significant investment related to our brand equity.

Our 3M brand is strong, and last year we invested in a new brand platform, 3M science applied to life, to make it even stronger.

This will enhance awareness of how 3M uses science to solve problems for our customers, which go back to our vision of improving every Company, every home, and every life.

Next, on the microscope view, we completed a corporate restructuring focused on structural overhead and slower-growing markets, which will help us manage through the current economic realities.

We made all these investments last year while also return $8 billion to our shareholders through dividends and share repurchases.

When I look upon all we accomplished in 2015, it was a fundamentally important year for the future of our enterprise.

As you can see, we are continuing to build an even stronger, more competitive Company that will win in 2016 and beyond.

On slide 14, you will see our planning estimates for this year, which are unchanged from December's outlook meeting.

We estimate earnings per share in the range of $8.10 to $8.45, an increase of 7% to 11% year over year.

Organic growth is expected to be 1% to 3%, with acquisitions adding 1% to sales.

Finally, we expect our free cash flow conversion in the range of 95% to 105%.

With that, I thank you for your attention, and we will now take your questions.

(Operator Instructions)

Our first question comes from the line of Scott Davis of Barclays.

Good morning, guys.

Good morning.

It looks like you were pretty aggressive in restructuring in 4Q.

Can you give us a sense of the pay back, what kind of tailwind in 2016, or what impact on guidance, I suppose?

How much of that restructuring do you think you have to continue to do in 2016, just given the relatively weak macro out there?

Scott, the restructuring that we announced in October throughout the fourth quarter, we executed that almost exactly as we laid out then.

We're for the fourth quarter at $114-million pre-tax charge.

From that we're expecting a $130-million operating income benefit in 2016.

We expect that benefit to be pretty evenly loaded across the four quarters of 2016.

In regards to need for others, based on the outlook we have for the business and for the rest of 2016, we never say never, but we don't -- we're not anticipating anything at this time.

Okay, that's really helpful.

Scott, this is Inge.

We just came off a kick-off for the year under the theme of efficient growth.

I think it's important for us to say that, as Nick said, you never know what you need to take for action.

My view is now with a range of 1 to 3 on the top line, even in the lower range of that, we should be able to prepare ourselves for when the market turns around and starts to grow again.

I would like to have an efficient model that we can deliver now, but also be prepared as we see things start to turn around, hopefully later in the year, but for sure you go into the future couple years.

You're right.

You never know if it's becoming tough for what you need to do, but I think the action we took now, at least I feel that we are prepared to deliver what we are telling you, and also equally important, be ready to go offensive as soon as we see it's coming.

Yes, that makes sense, Inge.

Is part of the go-offensive potential related to M&A?

I mean, you still have plenty of balance sheet space.

I would assume given what's going on in the public markets that private market valuations are coming down a bit.

Would you entertain getting more aggressive with M&A in 2016 if we are in a soft spot that gets tougher?

Well, the primary strategy for us is organic local currency growth, but I think we are willing and open to do things like we did in 2015.

We did a couple of good acquisitions in 2015 in order to build out our platforms, both from a technology perspective, but also be more relevant in the market.

The answer to that is the pipeline is good for all businesses.

Again, it's coming back to the valuation of the asset as we look upon them.

That's helpful.

Okay, good luck, guys.

Thanks, I'll pass it on.

Okay, thank you.

Steven Winoker, Bernstein.

Good morning, Steve.

Good morning, Steve.

Could you talk about the de-stocking impact within that negative 2.3%?

What are you seeing in the channels in sell-in, sell-out, and how much of a factor was that this quarter?

When we look upon the inventory, you can say that consumer-related businesses like health care and consumer, they are on a level that is very good, right, and you see the growth there.

I will say that if you look upon industrial-related businesses, there's maybe a couple of weeks, but not more than two of excess inventory in the channels as we see it.

If you go to consumer electronics, it's a little bit higher.

We estimate that maybe to be like maybe closer to three weeks of excess inventory at this point in time in the channels.

Let's say it's two-plus in industrial-related businesses, and electronic and energy, or consumer electronic, and we don't see any issues at all in the health care and consumer businesses.

That means unless things get worse, you'd expect that to be fully flushed out in this coming -- in the quarter we are in right now, Q1?

I don't know if it -- I think we have to be careful on the industrial-size businesses and consumer electronic.

I don't know if it will be flushed out in this coming quarter, but it should be if end markets come back a little bit.

I will say, it's -- you should think about it in the second quarter.

When we look upon growth rate, and I think Nick said that in consumer electronic and our business, EBG, we say that growth rate Q1 be very similar to Q4 -- maybe slightly worse, but I will say similar.

For the Company, we will compensate that through our consumer and health care businesses, and a little bit more uptick in industrial.

Okay, and on page 5, the productivity and other contribution of 0%, I know that's ex-restructuring down on the bottom.

But maybe just talk through, again?

I think I missed, or I'm not sure why that's only 0%?

Yes, Steve.

That's a function, partially, of a lower-growth environment that we're offsetting inflation that we're seeing there, but it's not enhancing our margin.

It's a tougher and a lower negative-growth environment to be eking out productivity.

Plus we used our levers of restructuring, which we called out separately with the 1.6% impact on the margin.

We executed strongly to adjust the cost structure, but in the end, outside of the restructuring, it had zero impact on our total margin for the quarter.

Well, all the incremental or decremental leverage on the organic volume was that 20 basis -- the 0.2% below that, right?

Right.

This was just purely -- you're just saying you offset the wage inflation.

Is that usually around a couple percent, or is it much lower right now?

Total wage inflation is more in the 2% to 3% range.

Okay.

All right, thanks, guys.

Thank you.

Deane Dray, RBC Capital Markets.

Thank you.

Good morning, everyone.

Good morning.

I wanted to follow up on Scott's question regarding has any of the year-opening market volatility changed your plan to add incremental debt, or any changes in your buy-back strategy for 2016?

Deane, our strategy that we announced in December for incremental leverage and for gross share repurchases that we announced that to be in the $4-billion to $6-billion range, those remain unchanged for us.

That's our plan.

We think it continues to be the good and right plan for us for 2016.

Thanks.

Nick, maybe just walk through -- I know seasonally you have strong fourth-quarter cash conversion.

This seemed even above that.

Was that any working capital improvements?

Then any comments on the hedging program?

How has it played out with regard to expectations against this volatility?

First, Deane, on the free cash flow conversion, you know there's seasonality.

The first quarter of any year is typically our lowest free cash flow conversion, and the fourth quarter of the year is typically our highest free cash flow conversion.

We saw that play out in 2015, and we would expect that to play out in 2016.

In particular, what you're seeing in the fourth quarter, there's a couple things.

One is working capital.

We did a good job managing working capital throughout the fourth quarter.

In addition, the restructuring expenses of $114 million pre-tax, much of that did not yet result in a cash outflow.

That cash outflow will come in the first half of 2016, so we are seeing a little bit of movement between 2015 and 2016 there.

As far as hedging, Deane, we continue to manage our hedging strategy, as I've described in the past, that over the next 12 months, we attempt to hedge approximately 50% of our economic exposure.

Then, in certain developed currencies, we layer on additional hedges on a diminishing scale out into the second and third year.

That's playing out as we planned.

For the total 2015, we had a hedging benefit of $182 million, and if foreign exchange rates stay where they are today, that $182 million will become approximately $160 million for total 2016.

That's $160 million to the good?

$160 million hedge gain.

Got it.

Thank you very much.

Thank you, Deane.

Julian Mitchell, Credit Suisse.

Hi, thank you.

Price cost is another good margin tailwind in Q4.

I just wondered how you were thinking right now about the overall $0.10 to $0.15 raw materials boost in the EPS bridge you gave six weeks ago?

When you gave that guidance, how much of that $0.10 to $0.15 was assumed to come in the first half of this year relative to the second half?

Yes, Julian.

The 200 basis points this quarter, I'll just make a little comment on that before I go on to the 2016.

Of that 200 basis points, 110 basis points of that is coming from raw material commodity price benefits, and another 90 basis points from increases in our selling prices.

When we gave the guidance in December of $0.10 to $0.15 for raw materials, we were basing that on an oil price assumption of $45 to $55 a barrel, and we all know where oil is today, right around $30.

A rough ballpark for us is a $10 movement in oil.

It helps us for an entire year by $0.02 to $0.03.

Our thinking right now is we're right about at the high end of that $0.10 to $0.15.

At the time we guided this in December, we saw virtually all of that benefit coming in the first half of 2016.

We still see it heavily weighted to the first half of 2016, but we can see some of that benefit if oil stays in this range coming into the second half, as well.

Very helpful, thank you.

My second question would just be around electronics and energy, where you talked about portfolio management actions in renewables reducing the margin by 240 points.

Maybe just give -- maybe I missed it in your prepared remarks, but could you give some more color around what's happening there?

As you have seen, we are taking action for quite some time now in order to prepare that business really for the future.

I think we're being successful for that relative to margin expansion and also growth rates.

As I said on the other calls, what I feel very good about is that model now will deliver very solid margins, even in a tough economical environment with slower growth.

We have proven that, so I feel very good about that.

This quarter we took actually a write-off on an asset we had that didn't make sense any longer for us.

We have -- because we had a quarter here where we could do it and the strategic importance of that asset was not there any longer, and I'm very keen to prepare that business for an even stronger future.

It was based on an asset that we took a write-off of.

Thanks.

Lastly, very quickly, organic sales in Q1 overall 3M firm-wide, should we assume it's about the same or a little bit worse from the minus 1% in Q4?

As we said earlier, I will assume be equal to Q4.

Then we will see how it plays out in between the different businesses.

For me it looked like, and for us it looked like health care and consumer will continue with an accelerated growth.

We are very pleased with that, because that's again showing the strength for us in our diverse portfolio.

Also, when you look upon the margins, that is good, right?

There's very good margins in health care, and as you have seen, in consumer really improved the margins the last couple of years, as well.

I will say that electronic and energy is probably the business in consumer electronics specifically that then will be similar to this quarter, maybe slightly down in that segment, specifically.

I would say think about it is as 3M as an enterprise very similar to Q4 in Q1 of this year.

Great, thank you.

Shannon O'Callaghan, UBS.

Good morning, guys.

Good morning, Shannon.

In the health care business, drug delivery was up this quarter.

That's I think been a drag for a while.

Is that now turned around?

What's your view on that piece of the business for 2016?

That business is very much project based, so it will go a little bit up and down, but we will see slightly better growth rate in 2016 versus 2015.

Again, as you recall, this quarter -- you mentioned this quarter shows slight growth versus where it had been the last three quarters in a tougher situation.

Again, based on what we see in the pipeline, we are more positive on that piece of the business for 2016 versus where we were able to deliver in 2015.

Your observation is correct, and I will say your assumption moving forward, we hope that you are correct on that as well.

Okay, thanks.

Then just on Europe, that's something I think last year you were expecting to improve through the year, maybe came a little lower than you thought originally.

What's your updated view on what you're seeing there, and your expectations for Europe?

Anything getting incrementally more encouraging or less encouraging?

Europe for a long time has been a challenge relative to growth rate in the market, right?

We have taken action very much on the efficiency part and the productivity part.

As you saw when you added it together now, there was a growth of Europe/Middle East/Africa, but the three pieces is that Middle East/Africa down, Central East Europe up 8%, and slight up in West Europe.

West Europe, yes slight growth.

I think that would be very dependent on how Germany can come off in 2016.

We have also to think about it that Central East Europe, that growth rate was very much price that came out from our action we took in Russia.

Central East Europe, Middle East/Africa, take that portion of it, generally speaking it's a challenging environment geopolitically that we then have to be careful of.

In West Europe, you see some spots of growth.

But I think the very important thing there is that Germany, the machine of Germany has started to deliver a little bit more growth.

We maybe can see a little bit more then.

But I think we are well prepared in that part of the world due to work that we have done for the last -- I would say maybe the last five years of streamlined organization, taking out structure, big span of control, and lower levels and organization, et cetera, in terms of management.

Still, kept focus on our execution around commercialization, as you have so many different languages, as you know, over there.

You need to be very nimble and fast in execution in each country.

On top of reduce management structures as much is you can.

Okay, great.

Thanks.

Thank you.

Jeffrey Sprague, Vertical Research Partners.

Thank you.

Good morning, everyone.

Good morning, Jeff.

Good morning.

I was wondering if you could come back to price.

Inge, you mentioned that -- what percent of your price is actions that are countering FX, like you mentioned in Russia, I'm sure, versus like-for-like price?

Maybe speak to the ability to get like-to-like price in this environment?

Jeff, I can speak on this both for the quarter and the year.

It's a similar story.

About 75% of our total reported price growth is in direct or indirect response to FX movements, primarily in developing markets.

If you look at our 120 basis points, about three quarters of that directly a result of FX movement.

Our core ability to impact price, excluding FX, has ranged in the 30 to 50 basis points, and we continue to see that range going forward for the Company, that into 2016.

The delta on top of that is -- will be dependent on what happens with FX movements.

But 30 to 50 of core, and then whatever on top of that, that may happen if FX rates move even more than what we laid out in December.

Great.

We should assume the write-off you took is equivalent to that 2.4 points of margin pressure in E&E?

Is that correct?

Yes, Jeff.

That's exactly correct.

Okay.

Finally, could you speak to the actual direct-indirect oil and gas exposures that you do have in industrial and S&S, and how you see that playing into the early part of the year especially?

Okay.

Jeff, to be clear, you said in industrial, and safety and graphics?

Yes, I'm thinking within safety fall prevention and protection gear and things like that, and then obviously in industrial you've got some.

Yes, some of our direct exposure is what we are selling through the personal safety line.

What I'll say to that is as 2015 progressed, we probably didn't see a lot of impact in the first quarter and then that grew for us in 2015 in the second through fourth quarter.

We continue -- we expect that to continue into the first quarter of 2016.

There will still be some negative impact after that from oil and gas, but we think the worst of the comps will be behind us from oil and gas after the first quarter, and then diminishing the rest of the year.

Probably a similar comment for the industrial portion.

We have some of our advanced materials that are impacted -- that go into the oil and gas industry.

Then we also have some exposure in our electronics and energy business.

The comps for that, we think for the first quarter for sure, possibly in the second quarter, we'll still be seeing some challenge there, Jeff.

Jeff, to put a number on it at a total company level, if you took the businesses directly linked to oil and gas, it would be about 3% of our sales.

Just as with the economy, any knock-on effects of a slower oil and gas market clearly are impacting the economy, but the direct exposure to oil and gas would be about 3% for us.

Great.

Thank you for that color, appreciate it.

Nigel Coe, Morgan Stanley.

Good morning, hi.

Just wanted to go back to Nick's comments on price, 30 bps of core price plus whatever the FX movements are.

Obviously you don't have price baked into your 2016 bridge, specifically, but I'm assuming that's part of your organics.

I'm wondering, do you have what, right now, 50 bps of price within the organic bridge?

Nigel, in our guidance the way we set it, we expect 1% to 3% organic, the vast majority of that volume.

30 to 50 basis points of price in that 1% to 3% total organic growth.

That's helpful.

Then just wanted to clarify the impact of acquisitions and disposals on safety and graphics.

Obviously strong margin performance there.

Is the benefit from disposals because the library systems business was so much lower margin, or is there a small gain there, or is it both of those factors?

Nigel, we divested of two businesses in safety and graphics in the fourth quarter -- our library systems, as well as a license plate converting business in France.

The net impact of those two resulted in a small gain accretive to our earnings per share of approximately $0.015.

The rest of the total impact of M&A on safety and graphics is our acquisition of Capital Safety doing a little better than what we had been projecting.

Okay, that's very helpful.

Thank you very much.

Steve Tusa, JPMorgan.

Good morning.

Hi, Steve.

Just looking at the bridge on slide 6, I think inferred trying to understand the seasonality and sequencing, using those buckets.

Probably not a ton of change in tax and foreign exchange.

Those are probably pretty straightforward.

What is the M&A contribution for first quarter, year over year, that you guys expect?

I know there is some noise in those numbers, obviously, with charges and stuff.

What is the M&A contribution in the first quarter year over year?

Steve, for the total year we guided approximately $0.10 benefit.

Our view is that will be quite evenly distributed over the four quarters.

For the first quarter, roughly one quarter of that $0.10 benefit.

That's inclusive of the impact of the most recent portfolio action that we announced a few days ago with a small business in our industrial business.

Okay, got it.

Makes sense.

I guess when I add all these items up, and I'm not really asking for precise guidance here, but you guys are calling for 7% to 12% EPS growth over the course of the year.

Is that -- is every quarter within that range, or with the little bit lighter organic, is that enough to get you below the low end of that range for the first quarter year over year?

Steve --

You're trying to get us in to give quarterly guidance, right?

I'm wanting to calibrate the stuff with the sequencing of what's happening in the year organically.

Steve, we've talked about the organic growth that we are expecting in the first quarter.

That is a quarter that I would expect will be more challenged also from an earnings-per-share growth.

Everything else being equal, there's not one outlier that will compensate for what we've already said about the organic growth in the first quarter.

Right.

Okay, that's what I was getting at.

Great.

One last question just on the balance sheet.

I know in prior years you guys have toggled up the repurchase in some instances.

Are you, given that you're at the end of your most recent five-year plan, should we think about buybacks as pretty much set, or could you toggle that up, like you've done in past years, from your standing 2016 guide at some point?

What's the appetite there?

Our appetite is pretty well reflected by the 4 to 6 guidance that we stated.

I will reiterate our approach is there's a certain amount where we're in the market every day buying, and then there's a portion that we are flexing up and down depending on the relative value we see of 3M stock.

We continue to follow that play book in how we repurchase our shares in 2016.

Great.

Thanks a lot.

Andrew Obin, Bank of America Merrill Lynch.

Good morning, guys.

Hi, Andrew.

Just a question on electronics and energy.

How much visibility forward do you have on this whole smartphone situation, because it's one of the concerns we've been hearing from investors, that being a disproportionate hit on your business?

We have -- as you know, we work on those platforms daily with our customers.

I think that when we have laid out our plan for the year, we have good understanding relative to when new introductions will come and our position on them.

We have a good position, as you know.

We got a hit now, of course, not because of that.

We were spec'd out on most anything just because the market was down.

It's estimated to be down in Q1, as well, as you have seen in media.

I think we will see an uptick coming in the second half of the year, hopefully with orders coming in.

We say in terms of end of second quarter is where we will start to see orders coming in to us for launch later in the year.

Can you help to frame the risk from technological disruption?

Also been getting questions on transition to OLEDs, and how that impacts the business?

I think people remember what happened a decade ago with flat screen TVs, and try to draw a parallel here.

Yes.

Well, we are aware of competition in terms of technologies to LCD, such as OLED, which is the one you referred to.

We have known that for a long time.

That's also one of the reasons why we realigned our organization to form our display materials and system business in early 2014.

There's an integration of those businesses into what I would call display technologies, which is a goal for the future for us to expand into.

We have already products that is going into equipment that they're using all that.

We are not behind in any ways.

We have on every equipment today that they're using OLED, we have multiple applications in them.

There's more to come in that area.

But we have been working on this area for quite some time, and that's part of our model, right?

That's why I would say the strength of 3M through our technology platforms, this is exactly what it is.

I see more opportunities as you go ahead over the longer term as we are working with our customers on it.

Thank you very much.

Thank you.

Andy Kaplowitz, Citi.

Good morning.

Obviously some good margin performance in industrial and safety and graphics despite lower organic growth.

As you go through the year, how much ability do you have to keep margins up, even with the headwinds that you see?

I know you had guided to about 150 basis points of margin improvement for the Company for 3M in 2016 when you had your guidance call.

Is that still what you expect within the guidance?

Yes, Andy.

That 150, that's still a good ball park.

There's a lot of things that are going into that, including our estimate of 1% to 3% organic growth.

Some productivity coming from things such as our business transformation investment, our pension expense, as well as some strategic investments.

All in, we're seeing many of those things play out exactly as we guided in December.

The 150 is still a good number.

Okay, that's helpful.

Your consumer businesses were strong in the quarter.

Maybe they slowed a little bit versus last quarter and year-over-year growth.

Just the resiliency of the consumer right now, it seems like the consumer's still pretty strong, but your view?

Yes, it is very strong.

I think there is a couple of things that is important to think about relative to 3M and our position in the market.

We have -- we are very strong in United States in our consumer business, so we have a stronger and better penetration in United States than we have outside of United States.

That is also then talking to our opportunities as we move ahead to expand more with consumer outside of United States.

If you look upon United States specifically, and you look upon data and facts, which is a key indicator for us relative to potential growth rates, we all know that there is a challenge on IPI as we go into 2016, and the facts there is saying that it's a slower Q1, Q2, maybe Q3, and the Q4, it will pick up again, on IPI year over year.

If you look upon retail sales index, it's actually different.

It's very robust as we go in already to Q1 and Q2 and for the rest of the year.

I would say that our business there is in a good position, and we feel very good about it.

We have very good brands.

We add a lot of value into the channels, and we are managing a lot of categories in that business.

The same goes for health care.

Health care is the same.

Health care for us -- I'm not talking US versus outside of US there.

I'm talking about developed economies versus developing economies.

80% of our portfolio in health care is in developed economies, meaning developing is still a huge opportunity for us, and we are growing very well there, and our margins are very high.

I think that's coming back to, in times like this, where you see some challenges in some economies around the world, if that's in industrial or electronics or even in safety, we have the advantage that we have domestic-driven businesses in consumer and health care that this carries on.

You saw that this quarter.

Again, health care had almost 5% organic local currency, the strongest for the year and with margin expansion.

It's a fantastic business for us.

The same go for consumers.

We feel very good about them, and it's sustainable.

I think that's the important thing.

It is a sustainable business model for us based on world-class product solutions.

Thanks, guys.

Joe Ritchie, Goldman Sachs.

Thanks.

Good morning, guys.

Good morning, Joe.

Two quick questions.

Maybe focus on your industrial business for a second, Inge.

You've had some distributors recently talking about improving short-cycle trends in January, and there's been some greentooths that we're seeing as well out of the semi sector.

I'm just wondering, is there anything across your industrial business today where you're starting to feel better about things incrementally, or is it still -- the trends are still very similar to what we've been feeling over the last six months?

No, I don't -- I would say that there are certain pieces in our business that are doing very well.

I can -- 3M Purification is doing extremely well, had a growth rate in the quarter of 10% and for the full year 8%.

Automotive OEM is doing very well for us, had a growth in the quarter of 7%, and in fact for the whole year is around 7%.

Then I think that some -- where the pressure is yes now I would say general manufacturing.

Then that goes broad-based, right?

I don't -- I will not say short term.

As we are talking here in the next quarter or next five months, I don't see that we will see a big tick up.

I think it will be very similar in Q1 versus Q4.

Some businesses doing very well, automotive OEM and purification doing extremely well.

But we have also to think about it in terms of growth on a global base.

So United States there was pressure this quarter, down 6%, but we were growing in many other cases around the world.

I think that's important to think about in terms of us as a global growth company.

We had organic growth in India, China.

We grew 6% in China.

If you think about that, it's a big market -- second biggest subsidiary for 3M outside of United States, and the second biggest economy in the world.

Still for us, our industrial business in the quarter, 6% growth.

We had 3% growth in Japan, and United States was an issue.

I think we have to balance it out in terms of how we look upon the future here.

We have decided, and we are a global growth company.

I will say that as you go into the year, we should see an uptick coming into the second half of 2016 for industrial.

That's really helpful color, Inge.

Maybe my follow-on for Nick.

Now that the restructuring is done, at least the cost actions have been taken in 4Q, any additional color you can give us on the cadence of the restructuring?

I know it needs -- it's going to be the restructuring benefits.

I know it's supposed to be second-half weighted, but any additional color would be great.

Yes, Joe, the benefits, in fact, will not be second-half weighted.

From a comp standpoint, yes, with the fact the charge all came in the fourth quarter of 2015; but the actual benefits going forward will be quite evenly weighted across the four quarters of 2016.

Oh, great.

That's great color.

Nice job executing this tough environment, guys.

Thanks, Joe.

Laurence Alexander, Jefferies.

Good morning, two quick ones.

Just wanted to flag -- in auto OEM, are you seeing any soft spots around the world?

Secondly, as you look at your share gains, do you see those as sustainable, or is that a pro-cyclical phenomena, that is as end markets improve your pace of share gains slows down?

No, they are sustainable.

If you think about it, you're going to look upon the facts.

We have now for three to four years outgrown the automotive production on a global base.

Our growth is always more robust than the total output of cars produced.

That is indicating that we penetrate and take more application per car.

That is sustainable by definition due to the fact that we provide solutions that is helping automotive industries with technology conversion.

Don't view us as a commodity player that is coming in.

He has to try to replace someone.

For us it's about technology conversion moving you to the next level on your specific retail in order for you to be able to compete in the market place.

That is sustainable by definition, and that's what 3M is all about.

I would not say, today, that I see any differentiation with someone becoming much stronger geographically, some other weaker geographically, in terms of production of cars.

That is were we play, right?

We just sign in and spec in always at the headquarters of companies -- if that's in Germany, Japan, or United States.

Then where the car is produced, that is where we have the teams to put the application in place.

It's a type of development and deployment.

I don't feel there is any differentiation there on a geographical basis.

But our model is sustainable.

Thank you.

Thanks, Laurence.

That concludes the question-and-answer portion of our conference call.

I will now turn the call back over to Inge Thulin for some closing comments.

Thank you.

To wrap up, 2015 was an important year for 3M, as we made investments and took actions to prepare ourselves for the future.

As a result, we are well-positioned to drive efficient growth and create greater value for our shareholders in 2016 and beyond.

I thank you for joining us, and we look forward to seeing you all here in St.

Paul in March.

Have a great day.

Ladies and gentlemen, that does conclude the conference call for today.

We thank you for your participation, and ask that you please disconnect your line.