2017 second quarter business review• fy 2017 gross share repurchases estimated range of $2.0-3.5b...

1. All Rights Reserved.24 July 2017© 3M

2017 Second Quarter Business Review

July 25, 2017

(Unaudited)


Earnings Conference Calls

Q3: October 24, 2017

Q4: January 25, 2018

December 12, 2017

2018 Outlook Meeting


Forward looking statement

This presentation contains forward-looking information about 3M's financial results and estimates and business prospects that involvesubstantial risks and uncertainties. You can identify these statements by the use of words such as "anticipate," "estimate," "expect," "aim,""project," "intend," "plan," "believe," "will," "should," "could," "target," "forecast" and other words and terms of similar meaning in connectionwith any discussion of future operating or financial performance or business plans or prospects. Among the factors that could cause actualresults to differ materially are the following: (1) worldwide economic, political, and capital markets conditions and other factors beyond theCompany's control, including natural and other disasters or climate change affecting the operations of the Company or its customers andsuppliers; (2) the Company's credit ratings and its cost of capital; (3) competitive conditions and customer preferences; (4) foreign currencyexchange rates and fluctuations in those rates; (5) the timing and market acceptance of new product offerings; (6) the availability and cost ofpurchased components, compounds, raw materials and energy (including oil and natural gas and their derivatives) due to shortages,increased demand or supply interruptions (including those caused by natural and other disasters and other events); (7) the impact ofacquisitions, strategic alliances, divestitures, and other unusual events resulting from portfolio management actions and other evolvingbusiness strategies, and possible organizational restructuring; (8) generating fewer productivity improvements than estimated; (9)unanticipated problems or delays with the phased implementation of a global enterprise resource planning (ERP) system, or securitybreaches and other disruptions to the Company's information technology infrastructure; (10) financial market risks that may affect theCompany’s funding obligations under defined benefit pension and postretirement plans; and (11) legal proceedings, including significantdevelopments that could occur in the legal and regulatory proceedings described in the Company's Annual Report on Form 10-K for the yearended Dec. 31, 2016, and any subsequent quarterly reports on Form 10-Q (the “Reports”). Changes in such assumptions or factors couldproduce significantly different results. A further description of these factors is located in the Reports under "Cautionary Note ConcerningFactors That May Affect Future Results" and "Risk Factors" in Part I, Items 1 and 1A (Annual Report) and in Part I, Item 2 and Part II, Item 1A(Quarterly Reports). The information contained in this presentation is as of the date indicated. The Company assumes no obligation toupdate any forward-looking statements contained in this presentation as a result of new information or future events or developments.


28.0%

Operating margin

+360 bps year-on-year

Organic local-currency growth

+3.5%year-on-year

Refer to 3M’s July 25, 2017 press release for full details; refer to the appendix for discussion of non-GAAP measures

$2.58

GAAP EPS

+24.0% year-on-year

Q2 2017 summary

• Sales of $7.8B, up 1.9% year-on-year

• Operating income of $2.2B, up 17.1%

• Pre-tax gain on divestitures (net of lost operating income) of $451M, or $0.57 per share

• Incremental strategic investments of $178M, or $0.24 per share, to accelerate growth and increase productivity

• Operating margin of 24.3%, excluding impact from divestitures and incremental strategic investments

• Returned $1.2B to shareholders via dividends and gross share repurchases

Free cash flow conversion

85%


Q2 2017 financial performance(year-on-year)

Q2 2016 Q2 2017**

($M) GAAP GAAP Actions Adjusted

Sales $7,662 $7,810 ($71) $7,881

Operating income $1,866 $2,184 $273 $1,911

Strategic investments ($178)

Divestiture impacts* $451

% to sales 24.4% 28.0% 24.3%

Effective tax rate 29.6% 26.0% 25.6% 26.0%

Net income $1,291 $1,583 $203 $1,380

Earnings per share $2.08 $2.58 $0.33 $2.25

% change +24.0% +8.2%

* Represents gains on the sale of the identity management and tolling/ALPR businesses of $461 million or $0.58 per share (inclusive of certain tax benefits from the held-for-sale status of the electronic monitoring business), offset by the lost operating income of the divested businesses of $10 million, or $0.01 per share

** Refer to the appendix for discussion of non-GAAP measures

Impact from Actions

• $71M of lost revenue from businesses divested in the past 12 months

• $178M ($0.24 per share) strategic investments:

• Incremental growth investments of $39M($0.04 per share)

• Portfolio/footprint investments of $139M($0.20 per share)

• $451M pre-tax gain ($0.57 per share) on divestitures (net of divested operating income)


Net sales Organic local-currency growth

Foreign currency translationDivestitures

+1.9%

Q2 2017 sales recap(year-on-year)

Organic local-currency growth:

• U.S. +1.9%

• Asia Pacific +10.0%

• China/Hong Kong +17%

• Japan +8%

• Europe/Middle East/Africa -1.6%

• West Europe -2%

• Latin America/Canada +3.7%

• Canada +3%

• Mexico +8%

• Brazil +6%

Foreign currency translation:

• RMB -4%, Euro -1%, Yen -4%, Real +7%-1.0%

+3.5%volume +3.8%, price -0.3%

-0.6%

€


Q2 2017 P&L

Q2 2016 24.4%

Organic volume/productivity +0.6% 3.8% organic volume growth

Price/raw material +0.1% Raw material benefit net of price

FX -0.5% Net of hedge impact

Pension/OPEB -0.3% Higher year-on-year expense

Q2 2017 subtotal 24.3%

Strategic investments -2.3% Up $178M year-on-year

Divestiture gains +6.0% Primarily identity management

Q2 2017 28.0%

Operating margin of 28.0%, up 360 bps year-on-year

+1.9% year-on-year

$1.6B

Net income

+22.6% year-on-year

48.8%

Gross margin

-170 bps year-on-year

$2.2B

Operating income

+17.1%year-on-year

$7.8B

Net sales


Q2 2017 GAAP EPS

$2.58

Earnings per share

+24.0% year-on-year

Q2 2016 GAAP EPS $2.08

Organic growth/productivity +$0.08Organic growth, raw material benefits, and Business Transformation value realization

FX -$0.05 Pre-tax earnings impact of –$44M

Tax rate* +$0.12 Q2 2017 26.0% vs Q2 2016 29.6%

Shares outstanding/net interest +$0.02 Ave. diluted shares down 1%; US debt increased

Q2 2017 subtotal $2.25 +8.2% year-on-year

Divestiture gains +$0.58 Identity management gain of $0.54

Lost operating earnings** -$0.01 Primarily identity management

Strategic investments -$0.24 Up $178M year-on-year, including tax impacts

Q2 2017 GAAP EPS $2.58 +24.0% year-on-year

* See the appendix for the reconciliation of GAAP amounts to certain measures excluding strategic investments and divestiture gains

** Non-repeating earnings of divestitures: Polymask, prescription eyewear, identity management businesses, along with the sale of certain intellectual property


• Free cash flow of $1.3B, up $378M year-on-year

• Primarily due to lower cash taxes

• FY 2017 free cash flow conversion estimated range of 95-100% vs. 95-105%, previously

• Capital expenditures

• Q2: $302M, similar year-on-year

• FY 2017: estimated range of $1.3-1.5B

• Returned $1.2B to shareholders via dividends and gross share repurchases

• FY 2017 gross share repurchases estimated range of $2.0-3.5B vs. $2.5-4.5B, previously

Dividends

Free cash flow Free cash flow conversion

Refer to 3M’s July 25, 2017 press release for full details; see the appendix for the reconciliation of free cash flow and free cash flow conversion

Gross share repurchases

$1.3B

$701M

85%

$494M

Q2 2017 cash flow



Operating margin

Industrial

+2.5% year-on-year

-15.6% year-on-year

$2.7B +3.8%

$523M

Operating income

19.2%-420 bps year-on-year

• Organic local-currency growth:

• By business: sales growth led by advanced materials, automotive and aerospace solutions, and industrial adhesives and tapes; separation and purification sciences declined

• By area: sales grew 7% in Asia Pacific, 4% in the U.S., 2% in Latin America/Canada, and 1% in EMEA

• Sales were reduced 0.7% by foreign currency translation and 0.6% by divestitures

• Industrial adhesives and tapes delivered strong growth in building and construction market

• Operating margin of 21.5%, adjusting for strategic investments year-on-year

year-on-year


Operating margin

Net sales Organic-local currency growth

Safety & Graphics


• By business: sales increased in personal safety, were flat in commercial solutions, and declined in transportation safety and roofing granules

• By area: sales grew 9% in Asia Pacific, 3% in Latin America/Canada, 2% in the U.S and 1% in EMEA

• Sales were reduced 3.4% by divestitures and 0.7% by foreign currency translation

• Continued to reshape business portfolio:

• Divested non-strategic businesses (identity management, tolling/ALPR)

• Scott Safety acquisition, anticipated close 2H 2017

• Operating margin of 27.1%, adjusting for strategic investments and divestitures year-on-year

-0.9% year-on-year

+102% year-on-year

$1.5B +3.2%

$852M

Operating income

55.1%+28.1 percentage pointsyear-on-year

year-on-year


Operating margin

Organic local-currency growthNet sales

Health Care


• By business: sales grew in drug delivery systems, food safety and medical consumables; oral care was flat

• By area: sales grew 8% in both Latin America/ Canada and Asia Pacific, and 3% in the U.S.; EMEA declined 4%

• Foreign currency translation decreased sales by 0.7%

• Continued strong growth in developing markets, led by China/Hong Kong and Latin America

• Strong growth in health information systems contract pipeline


+1.8% year-on-year

-10.6% year-on-year

$1.4B +2.5%

$412M

Operating income


year-on-year


Operating margin

Organic local-currency growthNet sales

Electronics & Energy


• By business: electronics-related sales were up 15% with growth in both electronics materials solutions, and display materials and systems; energy-related sales declined 3%, with electrical markets flat while telecom declined

• By area: sales grew 16% in Asia Pacific and 1% in Latin America/Canada, while the U.S. was flat; EMEA declined 9%

• Sales were reduced 0.4% by divestitures and 0.5% by foreign currency translation

• Continue to drive increased penetration on OEM platforms in electronics


+7.5% year-on-year

+38.8% year-on-year

$1.2B +8.4%

$301M

Operating income

24.8%+560 bps year-on-year

year-on-year



Operating margin

Consumer


• By business: sales grew in home improvement, home care and consumer health care; stationery and office declined

• By area: sales grew 7% in both Asia Pacific and Latin America/Canada; declined 1% in the U.S. and 5% in EMEA

• Foreign currency translation decreased sales by 0.2%

• Accelerated growth investments driving strong growth in Command™ and Scotch-Brite™ products

• Continued solid 3M point-of-sale performance amongst major retail customers

• Office retail channel inventory reductions continue


+0.5% year-on-year

-30.4% year-on-year

$1.1B +0.7%

$195M

Operating income


year-on-year


GAAP EPS


$4.74

25.5%

Operating margin

+4.0%

70%


Executing our plan … 1H 2017 highlights

year-on-year

+130 bps year-on-year

Growth investments

• Accelerating growth in profitable core markets

Strengthening our portfolio

• Announced Scott Safety acquisition

• Divested identity management, tolling/ALPR, and prescription eyewear businesses

• Announced the sale of electronic monitoring business

Footprint optimization

• Driving efficiency and increasing value for our customers

Business Transformation

• Continue to drive value realization

+14.8% year-on-year

See appendix for reconciliation of FY 2017E free cash flow conversion


GAAP EPS


$8.80–$9.05

20%+

ROIC

+3–5%

95–100%


Updating 2017 planning estimates

• GAAP EPS of $8.80 to $9.05, up 8% to 11%, vs. prior range of $8.70 to $9.05

• Sales growth

• Organic local-currency growth of +3-5% vs. prior range of +2-5%

• Acquisitions, net of divestitures, of approximately -1%

• Foreign currency translation of flat to -1%

• Effective tax rate of 26.0-27.0% vs. 26.0-27.5%, prior

• Estimates exclude pending acquisition of Scott Safety and divestiture of electronic monitoring business

See appendix for reconciliation of FY 2017E free cash flow conversion and ROIC


Q2 2017 sales recap

U.S. APAC EMEA LAC

Organic volume +2.3% +10.7% -2.0% +3.5%

Price -0.4% -0.7% +0.4% +0.2%

Organic local-currency +1.9% +10.0% -1.6% +3.7%

Divestiture -1.4% -0.4% -0.8% -1.3%

FX ---- -1.3% -1.2% +0.1%

Total growth +0.5 +8.3% -3.6% +2.5%


Q2 2017 P&L

($M)Q2

2016Q2

2017 Change

Sales $7,662 $7,810 +1.9%

Gross profit $3,863 $3,803 -1.5%

% to sales 50.5% 48.8% -1.7 pts

SG&A $1,560 $1,607 +3.0%

% to sales 20.4% 20.6% +0.2 pts

R&D & related $437 $473 +8.4%

% to sales 5.7% 6.1% +0.4 pts

Gain on sale of businesses ---- ($461)

% to sales (5.9%) +5.9 pts

Operating income $1,866 $2,184 +17.1%

% to sales 24.4% 28.0% +3.6 pts

Net income $1,291 $1,583 +22.6%

GAAP earnings per share $2.08 $2.58 +24.0%


Business segment information

($M) Net Sales Operating Income

Business groups Q2

2016Q2

2017Q2

2016Q2

2017

Industrial $2,654 $2,720 $620 $523

Safety & Graphics $1,561 $1,547 $421 $852

Health Care $1,414 $1,440 $462 $412

Electronics & Energy $1,129 $1,214 $217 $301

Consumer $1,130 $1,137 $281 $195

Corporate and Unallocated $3 $2 ($84) ($44)

Elimination of Dual Credit ($229) ($250) ($51) ($55)

Total $7,662 $7,810 $1,866 $2,184

Effective first quarter of 2017, 3M realigned a number of its businesses as part of the company’s ongoing effort to improve alignment to markets and customers. Those changes are reflected in the segment reporting data above. Refer to 3M’s July 25, 2017 press release for full details.


* Represents gains on the sale of the identity management and tolling/ALPR businesses of $461 million or $0.58 per share (inclusive of certain tax benefits from the held-for-sale statusof the electronic monitoring business), offset by the lost operating income of the divested businesses of $10 million, or $0.01 per share.** In the preceding table, in addition to reporting financial results in accordance with U.S. GAAP, the company also provides non-GAAP measures that adjust for incremental strategicinvestments and year over year divestiture impacts. These items represent significant charges or credits that impacted the company’s financial results. Operating income, net income,and earnings per share are all measures for which 3M provides the reported GAAP measure and an adjusted measure. The adjusted measures are not in accordance with, nor are theya substitute for, GAAP measures. The company considers these non-GAAP measures in evaluating and managing the company’s operations. The company believes that discussion ofresults adjusted for these items is meaningful to investors as it provides a useful analysis of ongoing underlying operating trends. The determination of these items may not becomparable to similarly titled measures used by other companies.

Reconciliation of GAAP amounts to measures excluding incremental strategic investments and divestiture impacts

Impact from Actions

• $71M of lost revenue from businesses divested in the past 12 months

• $178M ($0.24 per share) strategic investments:

• Incremental growth investments of $39M($0.04 per share)

• Portfolio/footprint investments of $139M($0.20 per share)

• $451M pre-tax gain ($0.57 per share) on divestitures (net of divested operating income)

Q2 2016 Q2 2017**

($M) GAAP GAAP Actions Adjusted

Sales $7,662 $7,810 ($71) $7,881

Operating income $1,866 $2,184 $273 $1,911

Strategic investments ($178)

Divestiture impacts* $451

% to sales 24.4% 28.0% 24.3%

Provision for income taxes $542 $557 $70 $487

Effective tax rate 29.6% 26.0% 25.6% 26.0%

Net income $1,291 $1,583 $203 $1,380

Earnings per share $2.08 $2.58 $0.33 $2.25

% change +24.0% +8.2%


Reconciliation of GAAP amounts to free cash flow conversion

Free cash flow and free cash flow conversion are not defined under U.S. generally accepted accounting principles (GAAP). Therefore, they should not be considered a substitute forincome or cash flow data prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. The Company defines free cash flowas net cash provided by operating activities less purchases of property, plant and equipment. It should not be inferred that the entire free cash flow is available for discretionaryexpenditures. The Company defines free cash flow conversion as free cash flow divided by net income attributable to 3M. The Company believes free cash flow and free cash flowconversion are meaningful to investors as they function as useful measures of performance and the Company uses these measures as an indication of the strength of the Company and itsability to generate cash.

Q2 2017 results:

($M)Q2

2016Q2

2017 Change

Major GAAP cash flow categories:

Operating cash flow $1,285 $1,642 $357

Investing cash flow ($350) $517 $867

Financing cash flow ($602) ($1,705) ($1,103)

Free cash flow (non-GAAP measure):


Purchases of property, plant and equipment ($323) ($302) $21

Free cash flow $962 $1,340 $378

Net income attributable to 3M $1,291 $1,583 $292

Free cash flow conversion 75% 85% +10 pts

Full-year 2017 forecast:

($B)

Year 2017 Planning Estimate


Operating cash flow $6.3 to $7.0

Purchases of property, plant and equipment $1.3 to $1.5

Free cash flow $5.0 to $5.5

Net income attributable to 3M $5.3 to $5.5

Free cash flow conversion 95% to 100%


Reconciliation of GAAP amounts to free cash flow conversion1H 2017 results:

($M)1H

20161H

2017 Change

Major GAAP cash flow categories:


Investing cash flow ($630) $427 $1,057

Financing cash flow ($2,028) ($2,856) ($828)



Purchases of property, plant and equipment ($637) ($589) $48

Free cash flow $1,908 $2,041 $133

Net income attributable to 3M $2,566 $2,906 $340

Free cash flow conversion 74% 70% -4 pts

Free cash flow and free cash flow conversion are not defined under U.S. generally accepted accounting principles (GAAP). Therefore, they should not be considered a substitute forincome or cash flow data prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. The Company defines free cash flowas net cash provided by operating activities less purchases of property, plant and equipment. It should not be inferred that the entire free cash flow is available for discretionaryexpenditures. The Company defines free cash flow conversion as free cash flow divided by net income attributable to 3M. The Company believes free cash flow and free cash flowconversion are meaningful to investors as they function as useful measures of performance and the Company uses these measures as an indication of the strength of the Company and itsability to generate cash.


Reconciliation of GAAP amounts to return on invested capital

Return on Invested Capital (ROIC) is not defined under U.S. generally accepted accounting principles. Therefore, ROIC should not be considered a substitute for other measures prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. The Company defines ROIC as adjusted net income (net income including non-controlling interest plus after-tax interest expense) divided by average invested capital (equity plus debt). The Company believes ROIC is meaningful to investors as it focuses on shareholder value creation.

Full-year 2017 forecast:

($B)

Year 2017 Planning Estimate

Return on invested capital (non-GAAP measure):

Net income including non-controlling interest $5.3 to $5.5

Interest expense (after-tax)* $0.2 to $0.2

Adjusted net income (return) $5.5 to $5.7

Average shareholder’s equity (including non-controlling interest) $11.5 to $12.0

Average short-term and long-term debt $12.5 to $13.5

Average invested capital $24.0 to $25.5

Return on invested capital 20% +

Effective income tax rate used for interest expense* 26% to 27%

2017 second quarter business review• fy 2017 gross share repurchases estimated range of $2.0-3.5b...

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