2017 Third Quarter Business Review...Tax rate +$0.01 Q3 2017 28.3% vs Q3 2016 28.5% Shares...

1. All Rights Reserved.30 October 2017© 3M

2017 Third Quarter Business Review

October 24, 2017

(Unaudited)


Earnings Conference Calls

Q4: January 25, 2018

December 12, 2017

8:00 a.m. - 12:00 p.m. EST

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.


25.0%

Operating margin

+30 bps year-on-year

Organic local-currency growth

+6.6%year-on-year

Refer to 3M’s October 24, 2017 press release for full details; refer to the appendix for discussion of non-GAAP measures

$2.33

GAAP EPS

+8.4% year-on-year

Q3 2017 summary

• Sales of $8.2B, up 6.0% year-on-year

• Organic sales growth in all business groups and geographic areas

• Operating income of $2.0B, up 7.2%

• Incremental strategic investments of $48M, or $0.06 per share, to accelerate growth and increase productivity

• Operating margin of 25.6%, excluding impact from incremental strategic investments

• Returned $1.1B to shareholders via dividends and gross share repurchases

Free cash flow conversion

100%


Building for the future

• Portfolio Management

• Closed acquisition of Scott Safety, a premier safety solutions company (October)

• Completed sale of electronic monitoring business (October)

• Investing in Innovation

• Sustainable, long-term growth in high-value market spaces

• Business Transformation

• West Europe ERP deployments nearly complete

• Began initial deployments in the U.S.


Net sales Organic local-currency growth

Foreign currency translationDivestitures

+6.0%

Q3 2017 sales recap(year-on-year)

Organic local-currency growth:

• U.S. +3.6%

• Asia Pacific +12.8%

• China/Hong Kong +23%

• Japan +5%

• Europe/Middle East/Africa +4.0%

• West Europe +3%

• Latin America/Canada +5.3%

• Canada +14%

• Mexico +5%

• Brazil 0%

Foreign currency translation:

• RMB 0%, Euro +6%, Yen -8%, Real +2%-1.2%

+6.6%volume +6.6%, price 0.0%

+0.6%

€


Q3 2017 P&L

Q3 2016 24.7%

Organic volume/productivity +0.9% 6.6% organic volume growth

Acquisitions/divestitures* +0.4% Impact from divested businesses

Price/raw material +0.3% Raw material benefit, net of price

FX -0.4% Net of hedge impact

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

Q3 2017 subtotal 25.6%

Strategic investments -0.6% Up $48M year-on-year

Q3 2017 25.0%

Operating margin of 25.0%, up 30 bps year-on-year

+6.0% year-on-year

$1.4B

Net income

+7.5% year-on-year

50.6%

Gross margin

+50 bps year-on-year

$2.0B

Operating income

+7.2%year-on-year

$8.2B

Net sales

* Net operating loss from divested businesses : Polymask, prescription eyewear, tolling/ALPR, identity management businesses and sale of certain intellectual property


Q3 2017 GAAP EPS

$2.33

Earnings per share

+8.4% year-on-year

Q3 2016 GAAP EPS $2.15

Organic growth/productivity +$0.23Organic growth, raw material benefits, and Business Transformation value realization

Acquisitions/divestitures* +$0.01 Impact from divested businesses

FX -$0.03 Pre-tax earnings impact of -$29M

Tax rate +$0.01 Q3 2017 28.3% vs Q3 2016 28.5%

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

Q3 2017 subtotal $2.39

Strategic investments -$0.06 Up $48M year-on-year

Q3 2017 GAAP EPS $2.33 +8.4% year-on-year

*Non-repeating earnings impact from divestitures: Polymask, prescription eyewear, tolling/ALPR, identity management businesses and sale of certain intellectual property


• Free cash flow of $1.4B, down 9% year-on-year

• FY 2017 free cash flow conversion estimated range of 95-100%

• Capital expenditures

• Q3: $325M, down $22M versus last year

• FY 2017: estimated at approximately $1.4B

• Returned $1.1B to shareholders via dividends and gross share repurchases

• FY 2017 gross share repurchases estimated range of $2.0-2.5B

Dividends

Free cash flow Free cash flow conversion

Refer to 3M’s October 24, 2017 press release for full details; see the appendix for the reconciliation of free cash flow and free cash flow conversion

Gross share repurchases

$1.4B

$701M

100%

$380M

Q3 2017 cash flow



Operating margin

Industrial

+6.2% year-on-year

+3.1% year-on-year

$2.8B +6.1%

$614M

Operating income

22.2%-70 bps year-on-year

• Organic local-currency growth:

• By business: sales grew in all businesses led by advanced materials, industrial adhesives and tapes, and separation and purification

• By area: sales grew 9% in Asia Pacific, 6% in Latin America/Canada, 5% in both EMEA and the U.S.

• Foreign currency translation increased sales 0.7% and divestitures reduced sales by 0.6%

• Continued strong penetration on auto OEM platforms particularly attachment, light weighting and acoustic products and solutions

• Operating margin of 22.6%, adjusting for strategic investments year-on-year

year-on-year


Operating margin


Safety & Graphics


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

• By area: sales grew 11% in Asia Pacific, 8% in EMEA, 4% in Latin America/Canada, and 3% in the U.S.

• Foreign currency translation increased sales by 0.8% and divestitures reduced sales by 4.9%

• Enhanced portfolio via acquisition of Scott Safety (closed 10/4/17), a premier safety solutions company; divested electronic monitoring (closed 10/3/17)


+1.9% year-on-year

+10.5% year-on-year

$1.5B +6.0%

$410M

Operating income

26.8%+200 bps year-on-year

year-on-year


Operating margin

Organic local-currency growthNet sales

Health Care


• By business: sales grew in all businesses led by drug delivery systems, food safety, medical consumables, and oral care

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

• Foreign currency translation increased sales by 0.8%

• Double-digit growth in developing markets led by China/Hong Kong and Latin America


+7.7% year-on-year

+9.3% year-on-year

$1.5B +6.9%

$471M

Operating income


year-on-year


Operating margin

Organic local-currency growthNet sales

Electronics & Energy


• By business: electronics-related sales were up 18% with growth in both electronics materials solutions, and display materials and systems; energy-related sales increased 2%

• By area: sales grew 20% in Asia Pacific, 6% in Latin America/Canada, 1% in EMEA; U.S. declined 2%

• Foreign currency translation was flat year on year and divestitures reduced sales by 0.1%

• Increased penetration on OEM platforms including semiconductor, electronic assembly, data center and automotive electrification


+13.1% year-on-year

+29.9% year-on-year

$1.4B +13.2%

$394M

Operating income


year-on-year



Operating margin

Consumer


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

• By area: sales grew 7% in Asia Pacific, 3% in Latin America/Canada, 1% in the U.S.; EMEA declined 2%

• Foreign currency translation increased sales by 0.3%

• Solid back-to-school season driven by strong demand for Command™ and Post-it® products

• Strong growth in ScotchBlue™ and Filtrete® products and solutions


+2.2% year-on-year

-3.2% year-on-year

$1.2B +1.9%

$307M

Operating income

24.8%-140 bps year-on-year

year-on-year


Fourth quarter 2017 planning items

• Electronic monitoring divestiture

• Gain on sale: +$0.12 per share

• Scott Safety acquisition

• Income, net of acquisition- and integration-related costs: -$0.08 per share

• Debt tender offer

• Increased interest expense: -$0.11 per share

• Strategic investments

• Continued growth, footprint, and portfolio investments: -$0.06 to -$0.10 per share

Note: Above items included in updated 2017 GAAP EPS guidance on slide 16 and in the third-quarter 2017 earnings press release


GAAP EPS

Free cash flow conversion

$9.00–$9.10

20%+

ROIC

+4–5%

95–100%

Organic local-currency growth

Updating 2017 planning estimates

• GAAP EPS of $9.00 to $9.10, up 10% to 12% year-on-year, vs. prior range of $8.80 to $9.05

• Sales growth

• Organic local-currency growth of +4-5% vs. prior range of +3-5%

• Acquisitions, net of divestitures, approximately -0.5%

• Foreign currency translation approximately flat

• Effective tax rate of 26.0-27.0%

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


Q3 2017 sales recap

U.S. APAC EMEA LAC

Organic volume +3.8% +13.4% +3.3% +4.4%

Price -0.2% -0.6% +0.7% +0.9%

Organic local-currency +3.6% +12.8% +4.0% +5.3%

Divestiture -1.6% -0.5% -0.8% -2.1%

FX ---- -1.5% +4.2% +2.4%

Total growth +2.0% +10.8% +7.4% +5.6%


Q3 2017 P&L

($M)Q3

2016Q3

2017 Change

Sales $7,709 $8,172 +6.0%

Gross profit $3,862 $4,127 +6.9%

% to sales 50.1% 50.6% +0.5 pts

SG&A $1,531 $1,623 +6.1%

% to sales 19.9% 19.9% ----

R&D & related $427 $463 +8.3%

% to sales 5.5% 5.7% +0.2 pts

Operating income $1,904 $2,041 +7.2%

% to sales 24.7% 25.0% +0.3 pts

Net income $1,329 $1,429 +7.5%

GAAP earnings per share $2.15 $2.33 +8.4%


Business segment information

($M) Net Sales Operating Income

Business groups Q3

2016Q3

2017Q3

2016Q3

2017

Industrial $2,603 $2,764 $595 $614

Safety & Graphics $1,500 $1,529 $372 $410

Health Care $1,371 $1,476 $431 $471

Electronics & Energy $1,250 $1,414 $304 $394

Consumer $1,210 $1,236 $317 $307

Corporate and Unallocated $2 $1 ($65) ($100)

Elimination of Dual Credit ($227) ($248) ($50) ($55)

Total $7,709 $8,172 $1,904 $2,041

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 October 24, 2017 press release for full details.


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.

Q3 2017 results:

($M)Q3

2016Q3

2017 Change

Major GAAP cash flow categories:

Operating cash flow $1,908 $1,750 ($158)

Investing cash flow ($543) ($781) ($238)

Financing cash flow ($752) ($843) ($91)

Free cash flow (non-GAAP measure):


Purchases of property, plant and equipment ($347) ($325) $22

Free cash flow $1,561 $1,425 ($136)

Net income attributable to 3M $1,329 $1,429 $100

Free cash flow conversion 117% 100% -17 pts

Full-year 2017 forecast:

($B)

Year 2017 Planning Estimate


Operating cash flow $6.3 to $7.0

Purchases of property, plant and equipment ~$1.4

Free cash flow $4.9 to $5.6

Net income attributable to 3M $5.5 to $5.6

Free cash flow conversion 95% to 100%


Reconciliation of GAAP amounts to free cash flow conversionYear-to-date 2017 results:

($M)YTD2016

YTD2017 Change

Major GAAP cash flow categories:


Investing cash flow ($1,173) ($354) $819

Financing cash flow ($2,780) ($3,699) ($919)



Purchases of property, plant and equipment ($984) ($914) $70

Free cash flow $3,469 $3,466 ($3)

Net income attributable to 3M $3,895 $4,335 $440

Free cash flow conversion 89% 80% -9 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 $5.5 to $5.6

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

Adjusted net income (return) $5.7 to $5.8

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 Third Quarter Business Review...Tax rate +$0.01 Q3 2017 28.3% vs Q3 2016 28.5% Shares...

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