3M Company (MMM) Earnings Call Transcript & Summary

Great. Thank you. Good morning. I'm Colin McGranahan. I'm the Director of Research at Bernstein. I'd like to welcome you to the fireside chat with 3M. I would like to cover a few housekeeping items upfront. As a virtual SDC and early on in the conference this morning, much of this is probably still fairly new to many of you. If you are having any issues, please do reach out to your Bernstein salesperson or to Bernstein corporate marketing. The contact info is on the SDC website. But first, for interactive Q&A, we'll be using Pigeonhole. There's a link on the left side of your screen to access Pigeonhole. When you click on that link, it will open up a new window in your browser. The video will continue in your prior browser window. And you can submit your own questions in the box at the top, and you can also vote on questions that have already been submitted by pressing the up triangle next to any question. So please go ahead and click on that link now. Now what all of you don't know is that I can see the number of participants in Pigeonhole, and I know that no one clicked on that link. So I'll say again, please go ahead and click on that link now. And also please go ahead and start submitting your questions to 3M right away. We want to make sure to focus the conversation on what interests you. Second, we're working with our partner, Procensus to do live polling of investor reviews for each company at the SDC. There's another link on your screen to access Procensus. They're on the left part of your screen. At the conclusion of today's fireside chat, I'd ask you to take a few minutes to complete a poll on your views of 3M. You'll have access to the investor community sentiment as soon as you've completed that poll. Finally, it is my pleasure to introduce 3M and Mike Roman. We're thrilled to have 3M back at the SDC again this year. It's the 11th year running. And with me today is Mike Roman, 3M's Chairman and CEO. Mike became Chairman of the Board in May of 2019 and Chief Executive Officer in July of 2018. In prior roles, he served as Chief Operating Officer, he led 3M's largest business group and he was the company's Chief Strategist. Throughout his 30-year career at 3M, he's lived and led businesses around the world, including United States, Europe and Asia. And Mike joined 3M way back in 1988 as a senior design engineer. Mike, it is a real pleasure having you back at the SDC again this year.

Well, thank you, Colin, and it is great to be back at SDC, and pleasure to be with you today. I thought maybe I'd make a few opening remarks about how we're managing through this unprecedented time of COVID-19 and really start with something that's been front and center for us, and that's our admiration and appreciation for all of the brave nurses, doctors and first responders out there. It's -- and they're doing an incredible job for us on the front lines. I'm also very proud of the way 3M has stepped up to help in the fight with COVID-19. And that includes especially our employees that are part of our manufacturing and supply team and distribution operations around the world. There continue to be -- critical manufacturing needs for our customers and their ability to serve those customers, including those first responders and health care workers. It has been just a testament to 3M -- and what they have done in the middle of this. I thought I'd also share with you what we are focused on as we manage through this. And it's really 3 priorities that we've had with us since the beginning of the outbreak of the pandemic. The first is -- our first priority is focusing on the safety of our employees, making sure that those employees that are in the factories can operate safely. We have protocols in place to do that. And we have guidelines around the world to help our employees to manage through this situation. The second is fighting the pandemic from every angle, and that includes all that we're doing to support those health care workers and first responders. And then the third priority is continuing to manage our businesses, the business continuity to serve our customers more broadly, to really deliver for our shareholders as we work through the challenges and the uncertainty of this COVID environment and to lead out as the economies reopen and recover. So with that, Colin, I'll turn it over to you and look forward to the dialogue and the Q&A.

Super. Thank you, Mike. Now I'm sure we're going to spend quite a bit of time on the current macro environment, which is very unprecedented in COVID. But now this is the Strategic Decisions Conference. I think it's always helpful to start with a little bit of the big picture. So before we get into the extraordinary times we're living in, could you maybe just spend a few minutes on how you're thinking about 3M and especially the 4 key priorities about portfolio, transformation, innovation and people and culture? And maybe a little bit on -- is the emphasis on any of those changing as you think about the COVID world and the post-COVID world?

Yes. As you highlight, Colin, those are our 4 strategic priorities. Those are part of the value model that is 3M. The value model is what it is that makes us unique among companies. It's what we do that differentiate performance for customers and shareholders alike. And it starts with our vision. Those priorities are really the way we aspire to deliver on our vision long term, helping to advance every company, helping to enhance every home, helping to improve every life. And we leverage our fundamental strengths as a company, our technology, our 51 technology platforms, the intellectual property that's behind those, the way we can combine those for customers. It's our manufacturing capabilities. And about 1/3 of our intellectual property is in our manufacturing base around the world. And our global reach and brands are fundamental to being able to provide differentiated value. To keep that relevant, to keep that value model and the values that it's built upon, to keep all that relevant and creating value in the future, we have to be executing strategic priorities. And the 4 that you highlighted are the 4 that are my priorities. When you look at what I do, even in the middle of COVID, I focus on those 4 priorities, actively managing our portfolio, using that view to prioritize where we invest organically, to think about where we acquire, to leverage those fundamental strengths I just highlighted and to manage our portfolio for maximum value, thinking about what do we do with -- and how we manage our businesses that we have as part of our portfolio, all to -- and including divesting businesses as we just recently announced with our drug delivery business. Our transformation -- the second priority, this has been something that we've been investing in for a number of years. It started and focused on deployment of a new ERP and the ecosystem around that. We announced last year realignment of our businesses around the go-to-market models that are taking that innovation to markets around the world. It's also now about what we are doing to take advantage of those transformation capabilities we have in place to digitize 3M. We've put in place an enterprise operations organization, end-to-end connection of our manufacturing supply chains and customer operations. We launched that as we moved through the end of 2019. It has been a tailwind for us in the middle of the time of COVID. Our ability to respond and respond quickly, drive productivity, has been part of delivering strong results. So transformation continues to be a focus for us. Innovation is at the heart of what we do to differentiate ourselves with our customers. It enables us to deliver value as we go through COVID. It keeps us focused on the long term and how we will lead out of COVID. So taking advantage of innovating new priority growth platforms that we've talked about, identifying priorities for organic growth, all part of that innovation priority, continues to stay front and center. And none of it goes anywhere without attracting top talent around the world. And then building a culture that -- and continue to advance a culture that they can take advantage of and do their best. And so these 4 areas -- and differentiating between them is each of them are critical and they are very much linked and continue to take that value model forward. So I would say you look at what I do even in the middle of COVID, I -- you will see all 4 of those priorities front and center for me.

Thank you, Mike. Now we're chatting beforehand about what an extraordinary time it is. And from a macro perspective, it's probably unprecedented in terms of shutting down the world. And I know in an environment like this, there's such limited visibility. You've pulled guidance, but you are providing monthly sales updates. But 3M, given the fact that you have exposure to so many different end markets from consumer to health care, to industrial, you're probably closer to what's happening in the global economy than most -- or almost any other company. So what are you seeing currently? What's improving? What's stabilizing? What's still deteriorating?

Yes. I think it's -- we are close to the customers. And that's one of the strengths of our model. It's one of the ways that we successfully manage through this kind of situation and lead out of it the other side. So we stay close to those customers. I think we have a pretty clear view near term of what our customers are facing. That said, there's a lot of uncertainty of how economies will reopen and how they'll recover, but I can give you a few highlights. We saw clearly coming through March into April, we saw a significant strengthening of certain end markets, and we saw slowdowns in a number of end markets. The strengthening, no surprise, personal protective equipment, front and center. We also saw strong demand in home improvement. We saw strong demand in retail cleaning products. We saw strong demand in fluid safety and biopharma filtration, where we're supporting the development of production of therapeutics and vaccines. And so all those things that are front and center in COVID, we saw strong demand and we've been running our factories 24/7 to support that demand. We also saw -- on the other side of it, we saw a significant slowdown in our oral care business, a big deceleration around the world as elective procedures, in general, especially in dental, were just -- they were part of the closing of the economy and the work from home, work from where you are kinds of guidelines that were put in place. We saw also, I would say, a slowdown in our stationery and office supply businesses. We saw a slowdown in automotive. Broadly, we saw a slowdown in general industrial. You see that in our -- in the sales updates that we've been giving. We -- in our earnings call just a few weeks ago, we talked about what we were seeing through the first 3 weeks of April and then we -- while we suspended our guidance for the year, we did commit to coming out with a monthly update on our organic sales growth. And we just published that here in May for the April results, pretty much in line with what we signaled at the earnings call. We have suddenly been -- we were looking at down mid-teens globally. We ended up down 12% globally as an enterprise. Same businesses that I talked about showing strength and weaknesses as part of that, a little better overall but pretty much in line with what we laid out. So we are, as we come into May, I would say it was trending with what we had seen at the earnings call in the slowdown. And if you look geographically, we did see the deceleration in both the Americas and Europe, and we talked about the earnings call play through April numbers. We saw negative mid-single-digit growth in Asia, Japan, notably in that range. And we saw some improvements in China. We saw positive growth in China as they start to get on the other side of the economic challenges from COVID. So pretty much in line with what we shared at the earnings call, but an update -- and we'll continue to update. When we get the main numbers, we'll update it in June as well.

Yes, that's helpful. I think that transparency is really appreciated by investors. And you talked about oral care and the fact that preventive dental was just shut down. Obviously, the shape and the character of this economy and the downturn is different than anything we've seen, right? It's not a normal recession where you kind of inch your way in and then it bottoms and you hopefully climb your way out. Thinking about your portfolio, which of the businesses, as you think about short-cycle businesses and long-cycle businesses, which do you think will come back more quickly and you have the most optimism in terms of a bounce back? And what do you think could be the longer cycle, more U-shaped kind of recovery?

Yes, it will really depend on how the economy reopens, which segments of the economy starts to see recovery and reopening taking place. And for example, there have been now procedures and reopening around elective procedures in health care and medical solutions. We saw a slowdown as we came through the end of first quarter into the second quarter. We see signs that, that's going to start to come back as we move forward. Dental, there's been the reopening of dental offices using new procedures themselves around PPE, and we expect them to start to see some demand come back, although projecting how fast that demand will come back is not easy to do right now. There's still a lot of uncertainty out there. What happens -- how will consumers behave, what will the demand be even as you have reopening, what will be -- what will happen to automotive, for example. You saw a big decline in automotive build rates as we went through the first quarter and second quarter. How will that come back? What will be the car buying behaviors around the world that will drive a demand for build rates? And how do you see that recovery playing through the demand for additional manufacturing automobiles? So it's early. And part of the reason we withdrew our guidance is it's difficult to look through that and see a fluid curve. There's multiple scenarios. We continue to manage and monitor multiple scenarios and stay very close to it and ready to act as we go. And that includes managing our cost and our cash flow and capital expenditures, for example, but also being ready to meet increases in demand, being ready to step into it. So that enterprise operations capability that I highlighted earlier, that agility is really serving us well. Our cycle times are that much faster, and we need them in the middle of this uncertainty and being ready to act. So it's yet to be seen how each of those segments will reopen, and we'll be ready to act as they do.

That's great. And geographically, you mentioned total global sales were down 12%. I think the Americas sales were down 17% versus EMEA, was only down 12%, which maybe was a little bit surprising to me. What's driving the steeper decline in the Americas? Is that business mix? Is that end market exposure? Is that just the timing of when things -- when it did lock down?

Well, I think it's -- we saw a little bit of that kind of lead lag in March even. Europe started to slow down before the Americas did, and the Americas decelerated as we came out of March. So there was a little bit of coming down in the Americas. We do and we projected that the Americas would be a little more -- so we'll see a greater decline as we came into April, and that's played out that way. And I think it is reflective of what you said. It's a mix of businesses, what the market dynamics are here, how the economies have closed down and how they're now reopening or starting to think about reopening and step into that. So I think it's just a reflection of the timing of the -- where the markets were as they close down and they're starting to reopen and also the mix of businesses that we have in each part of the world.

Okay. And we talked about how unprecedented -- normally, that recession, you kind of inch your way in. Instead, we shut things down. And I know you're very flexible with the global operating model even more so than in the past. But with such an abrupt shutdown, I would expect that inventory levels are fairly inflated, and you're probably not alone in that. So how are you thinking about how long it will take to get to a more comfortable level of inventory and how you're thinking about what you need to do to get there?

Yes. I mean there's really always 2 parts to the inventory question. There's our inventory that we have on our supply chain inside of 3M and then there's the inventory in the channel that has an impact on demand and the sell-in into the channel relative to the sell-out to the end users coming to the channel. So I would say as we came through first quarter, we saw the demand slow down. We managed our inventory. We adjusted our production plans. We did build inventory slightly. We typically build a little bit of inventory in the first quarter against seasonal demand that we expected in the year, but this was really just reacting to the slowdown. We do expect to take inventory down for the year. It's part of our plan. We expect to taking days inventory outstanding down. It's really taking advantage of that capability -- that transformation capability that we've put in place. So we still expect to do that. We have that as a part of our -- how we manage our cash flow as we go through the year, what we do to manage our working capital, an important piece of that. So we would -- do expect to be able to manage that stepping forward. Even in the face of this uncertainty, we're adjusting. One of the strengths of having vertically integrated manufacturing is we can adjust it and our ability to do that quickly has been a testament to how we manage the crisis so far. And we'll do that -- we'll use that to manage inventory down as we go through the year. In the channel, the channel has reacted as we've gone. Their -- that uncertainty has everybody conservative, and I would say the channel inventories are balanced against what we saw in April, the kinds of organic growth that we saw in April. And if there's a further decline, you would see a reaction there, and they would take additional inventory out. If there was a recovery and you saw that, there will be a restocking or at least a demand for additional inventory into that channel. So I think that's fairly well balanced, maybe with a few exceptions that are -- we're hit with a fast shutdown in oral care. It's a good example where we saw such a significant slowdown very quickly. They're adjusting. But that usually happens very quickly. Within just a couple of months, things start to adjust the inventory in the channel group.

Yes. Clearly, and your -- as you think about the channel inventory plus your inventory, to some degree, that creates the longer-cycle businesses. So even though we are clearly starting to see reopening economies -- obviously, you saw it in Asia first. Europe is starting to open up here in the U.S. I think I'm sitting in one of the places probably latest to get going and anxious to get up. But as the economy starts to reopen, will you lag because of that channel inventory? Or do you think April marked the low point in terms of sales declines for 3M?

Well, as any recovery out of a slowdown, whether it's a recession or a V shape or a [ sue ] shape, you would expect us to see restocking demand as growth comes back. Now if it comes back slowly, step by step, you wouldn't see that as an impact because it'll be able to just spread out over a longer period of time. And so I think it's -- we would actually -- part of the reasons we lead out of slowdowns and recessions is there's -- we stay close to customers, we continue to drive our organic strategy, we create new business opportunities, new penetration, new share. But we also think -- we think we have the advantage of the restocking as the supply chains increase demand as they grow back out of this. So I think it would be something we would see that, even in a slower one, it just would be spread out over time in a slower recovery.

Okay. Great. Let's switch gears a little bit to China. So historically, China had been a very high-growth market for 3M. I think in 2019, you saw cement market weakness and struggled a little bit with organic growth there. Bigger picture, ex COVID, ex the pandemic, what do you think is the right growth rate for China relative to rest of the world for 3M?

Well, maybe just to frame it with 3M in China, we entered China in 1984 as the first wholly owned multinational in China, and we have grown up with that economy. We have -- our model is to build capabilities regionally around the world, close to customers and to build our business as the economies grow. We did that in China. We invested in manufacturing in China for customers in China, not to export out of China. And we've built up capabilities to serve that marketplace. And a large majority of what we sell in China is what we produced in China for that marketplace. So it's a -- it still does represent a growth opportunity for us. Even as you saw the numbers in April, we're seeing growth. As we came into the year, we had said low to mid-single digits growth for China, and it was a little bit of caution around the automotive, how the automotive industry will recover. Now things have changed quite a bit with COVID. But it's -- I think our model of the strategy for China and really, that's a global model for 3M, has positioned us well for what the market does as it recovers and how China evolves in the market and its reopening of the economy.

Well, you kind of anticipated my next question and will ask you there on how China evolves. And the #1 question on Pigeonhole right now in terms of the votes is, do you think 3M's strategy with relation to China will need to be adjusted going forward? And let me add my own flavor to that in terms of thinking specifically about -- will trade tensions become much more significant? And how could the U.S.-China relationship change and cause changes in how 3M plays there?

Well, I think it's -- that model that I talked about, it has positioned us well with the marketplace that is China. The growth of the segments and -- whether it's industrial segments, electronics, if it's health care or consumer businesses, we have a capability in China to grow with that economy. Now as the global supply chains change, as customers move where they manufacture, those are things that we see in the world today. We see customers move their manufacturing around the world. And we -- that regional model serves us well. We invest close to customers. We follow them where they move. So our strategy has served us well. It's never been more clear that it's been a strong strategy for us, including our regional capabilities we have in the U.S. When other companies moved their production, they offshored it from the U.S., we never left. We stayed in the U.S. We continued to manufacture nearly everything we sell in the U.S. in factories in the U.S. And the model that I talked about in China is true even on a larger scale in the U.S. We are -- there's one place where we are larger exporters out of the U.S. Given the history of our capabilities here, we do have -- we do export out of the U.S. But in general, that regional strategy serves us well to adjust as our supply chain moves around the world. They don't move in a week. As they move over time, as electronics moves, as other industries would move around the world, we would adjust with that model and serve them regionally and close to the customer.

That's great. So let me ask a pointy question then. How is -- how would you, and how would 3M think about incremental investment in China today knowing what you know about the relationship with the U.S. versus pre COVID or, let's say, a year ago, if any change, in terms of the incremental investment strategy?

Well, I think the uncertainty that we're talking about in the middle of COVID, the incremental investment is you have caution around that. We are -- we have stepped into some incremental investment, but it's in pretty clear areas of opportunity. Personal protective equipment is a good example. We're in the middle of this demand, trying to ramp up capacity we stepped into. But in general, we've pulled back on our CapEx. We've slowed down, delayed some of our capital investments really in the face of the slowing growth in demand, but also really on the uncertainty that we see and how those markets will recover. So I think it's a little more cautious time for incremental investment. That said, we stay focused on those strategies for the long term that I talked about. Organic investment is one of those, being poised and ready to step into opportunities with our customers and our market segments, wherever they are around the world. So we'll look at China that way as well. How do we view the market opportunity, the segments? It's not an enterprise broad-based strategy. It's going to be a strategy for specific markets and customer segments in the regions of the world, including the U.S. and China as that are front and center in the middle of COVID.

That's super helpful. 3M has been a little bit different in keeping U.S. manufacturing focused on the U.S. end markets and U.S. customers and China really investing to serve the China market. But clearly, there is a lot of discussion around how manufacturing may be shifting coming out of this. You talk to a lot of CEOs, and you're one of the largest, most important global companies out there. How do you think about that? Do you think there will be a change in terms of domestic -- more domestic manufacturing and industrial companies for domestic consumption in the U.S.?

Well, that's certainly a discussion that's going on right now is, what does it mean? And you look at the readiness to fight the pandemic from all angles, as I talked about. We have a strategy. We had -- coming out of SARS and H1N1, we invested in capacity to be ready for the next pandemic and to have idle capacity in personal protective equipment and have it regionally capable so that we could serve the demands around the world. And we came into this year, we were running at about 50 million N95 respirators a month in production as we started the year. By the end of February, we were up to 100 million per month, turning on that idle capacity around the world. And the U.S. was a good example. We went from 16 million to 20 million in January to 35 million by the end of February. And then we've added capacity to get to 50 million in June. So we've been ramping up capacity in the face of that. And it's not a, I would say, a shift of our supply chain, but it's certainly meeting the demand. And as you look at what is the -- what's going to be the outcome of COVID? Does it fundamentally change how people think about preparing for pandemics? Does it fundamentally shift how people think about security of supply? If those lead to a model like 3M where you're investing regionally, then we -- as they are often our customers, we would be ready to supply regionally as well. So I think it's a big discussion. It's not yet clear how it's going to play out. There are certainly a lot of discussion around the health care supply chain and where that's looking. As an example, for sure, we are stepping up our capacity and our capabilities in the U.S. to support this pandemic and be ready to support it with that same excess capacity strategy in the future as well.

That's great. Well, you, again, are anticipating my next question. I wanted to dig a little bit more into the -- into what 3M's doing on respirators and you talked a bit about the capacity. And it's incredibly impressive to be able to go from where you were to the surge, and I think you were producing at 500 million annually. You're up to 1.1 billion and then on track for 2 billion by the end of the year. So if my math is right, respirators were something like 2% of global sales pre COVID and on track to be 8% by the end of the year. How much of that is really sustainable demand? And if so, will it become one of the more important single product categories that 3M has?

Well, it's always been a very important business for us. Personal safety and broadly is -- disposable respirators, N95s are part of that personal safety business. It's been a priority for us in organic growth. It's been a priority for us in acquisitions. We made a couple of acquisitions in that business and all safety and self-contained breathing apparatus. So it is definitely a priority. It's a place where our innovation makes a difference. And N95 respirators, we are in that because our innovation, our technologies can make a difference in the performance of those products. It sets standards for performance in N95 capabilities. And our innovation, there's opportunities for innovation, not only in the product, but also in how we manufacture and being able to scale up quickly is one example of that. And we have, as you highlighted, we've been increasing our revenue in that category with our turning on of the idle capacity in the first quarter, adding capacity in the second quarter and now we are building capacity to double again as we get late in the year. So we -- I think we highlighted, we were about $100 million of additional revenue in the first quarter, maybe $200 million as we go through second quarter. By the time we get to end of the year, we're looking at about doubling of that disposal respirator business with that added capacity and the demand that we expect to see from that. So it has been a big fundamental shift for us in that disposal respirator business, but it's part of what is clearly a priority business for us long term, personal safety and personal protective equipment broadly.

Yes. And clearly, 3M has played a really important role and -- during this pandemic in terms of getting that PPE to the right people who needed it and save lives. So my next question is probably not particularly appropriate, but how good of a business is the N95 respirator business? Is it -- you have innovation, you have a great brand, but can that support premium pricing? What are the margins like in that business? And what do you think the competitive dynamic will be as people are adding a lot of capacity around the world?

Well, I think it's going to be a more competitive environment over time. It's getting a lot of focus. But I go back to what I just -- why is personal safety a priority business for us. It's an attractive marketplace. So it's a place that we expect to see opportunities for growth. It's a place that we can leverage our fundamental strengths. Our technology -- our broad-based technology, it's not just one technology, it's multiple technologies, our ability to leverage our manufacturing capabilities. We create competitive advantages in the value we can deliver from innovation and the value we can deliver from our manufacturing capabilities. And firstly, the protective equipment and disposable respirators have been that kind of business. So it is an attractive return for us. It's an attractive business for us. As we continue to invest in innovation, I think it represents that it's an important part of our portfolio. Now it's going to become more competitive. There'll be -- there's a lot of innovation going on in the space. I like markets that have high levels of innovation. I like our opportunities there. I like the opportunities that customers really demand. Their critical needs become even more challenging, and that is an opportunity for us to create more differentiated value. So I think it's -- we will continue to be a leader and drive innovation in the things we see as attractive not only today, but going forward, even in the face of a lot of interest and focus.

That's great. In Q2, you announced $350 million to $400 million of cost reductions as you saw sales come down. What areas are you focusing on? How much of that can come out permanently versus more temporary like reduced travel? And are you thinking differently about your overall cost reduction? I know that's a big part of what the transformation is. But big sudden cost reduction, how much of that can stick? How much of that is temporary? And how are you thinking about that in the bigger picture?

Well, the transformation part of that is maybe where I'll start. It is part of creating a more competitive 3M. It's not a project to deploy a new ERP anymore, although that is still part of what we do in transformation. It's taking full advantage of those capabilities, creating a competitive advantage, driving operational improvement, driving productivity, driving efficiency and effectiveness of the 3M model. And that has been shown front and center in our operations as we come through 2020 in the middle of COVID. What we've done to take advantage of the transformation capabilities, how we brought together our manufacturing supply chain and customer operations under a new operating model is driving not only cycle times but improvements in working capital and our performance, in general, for our customers. Our service to our customers is improving every month as we come through 2020. So it's -- I think those -- that is going to continue to drive productivity and performance improvements for us longer term. The cost savings that you highlighted in Q2 that we talked about in the earnings call, that was really responding to the slowdown and the changes in the marketplace that we saw. And it isn't a one-size-fits-all kind of change in cost, although there -- it does -- we did drive cost savings across the company as we manage the uncertainty and the slowdown broadly. That said, we've had a bigger focus in the businesses that have seen a more significant slowdown. So there's a differentiation on where we're taking cost savings. Most of that is really managing through COVID. Some of it will have a little longer tail. Travel is a good example. We don't expect, even as economies to reopen in the middle of the work from home, that we will see travel tick back up certainly as maybe in other areas, we would in, say, advertising or marketing areas. So I would say this is a reaction to the market. It's a way for us to manage through these times, and we will take advantage of those productivity improvements that we will drive with the transformation, enterprise operations and our new operating model to really continue to make gains as we go forward.

That's great. Want to make sure I'm getting to the questions on Pigeonhole. The second most voted question, Mike, I think you'll enjoy immensely. What has been the biggest change at 3M during your 30-year career? And how has that changed, shaped the future of business?

Well, it's so many changes in -- so 30 years. If you think about who 3M was 30 years ago, the portfolio is dramatically different. We are in new areas, new innovation, continuing to drive innovation. It's hard not to see that when you step back, even as a 3Mer. The markets -- the innovation that we've brought to the world, whether it's in health care and new areas of capabilities and enhanced wound care or health information systems. If it's in our transportation, electronics, what we've done in the electronics industry to innovate for consumer electronics and now areas like data centers and semiconductor fabrication. It's really -- first and foremost, you see it in our products and our customers. I really have also been really impressed with what we've done to transform 3M. And we talked a lot about it over the last 5, 7 years, but it's been a longer journey than that. We have continued to drive disruptive technology into our factories. We use greater and greater digital capabilities in our businesses. Now with the transformation of deploying new capabilities of our ERP and ecosystem, we're accelerating that. But it's amazing to see how much more agile 3M is and how we've been able to create a competitive edge, not just catch up to other companies but position ourselves to be a leader in that space. So it's been a company of incredible innovation and a broad portfolio of global capabilities that is now creating a lot of new capabilities with that transformation behind it. And something -- and I'm kind of walking through our priorities because they reflect a lot of these big changes over 30 years. We were always a company known for being at the leadership in culture, 15% time, encouraging our people to use 15% of their time on projects of their own choosing; leading to an innovative spirit and culture in 3M; making great progress around inclusion; globally building a place people want to be part of. People wanted to be part of 3M. And now, adding to that, it's -- I think it's just reinforced how important that priority is. So I'm really proud of how our brand continues to be so strong and attracting people to 3M. So it's not so much a change, but maybe a continuation and even an acceleration of the qualities that have built a culture that is attractive to people, the next generation of the 3Mers that want to join this one.

That's great. And actually, keying off of that, Mike, in the institutional investor world, ESG has become an issue that investors are paying a lot more attention to. Clearly, this has been part of 3M's culture for a long time. But how are you thinking about corporate responsibility at 3M today? What do you -- how do you quantify the risk factors that you see in both ESG? And maybe to the degree that you can because it's come up on Pigeonhole, talk about the PFAS liability within there.

Sure. Yes, and it's important. It's part of -- both part of the same topic. When I started here, part of that culture that is 3M is a deep value around sustainability. And it's been decades. Pollution prevention pays as a manufacturer, reducing waste, preventing pollution at the source, taking down our use of greenhouse gases. Since 2002, we've reduced by more than 60% our greenhouse gas emissions. So it's fundamental to who we are. And it's been a culture of the company, that's been a grassroots part of our innovation to drive sustainability solutions. And we really have now, I think, stepped into a leadership role in where we want to go aspirationally around that. And we have a frame for that. We have science for -- circular science for climate and science community as our aspiration for where we go forward. And it's what's enabled us to have strong SASB index scores as a company, all of that coming together. Science for circular is about eliminating waste. We have now -- core manufacturer, we have more than 200 manufacturing plants around the world. 30% of those are zero-landfill waste. So we are on a journey to eliminate as a manufacturer landfill waste from our operations. We have science for climate, which is, as I said, reducing greenhouse gas emissions, but it's also reducing our footprint in the environment. And it's -- air, water, waste is part of that. And water around PFAS is an important focus as well. And then PFAS -- excuse me, science for community is around promoting STEM education, and it's also bringing a proactive approach to meeting the expectations of our stakeholders that are in the communities that we operate in as a manufacturer around the world. And PFAS is a good example of that. We have stepped up with guiding principles around how we manage PFAS, navigating and managing these historical chemistries that we exited more than 15 years ago. And that is really around science-based and contributing to the understanding and really broad-based understanding, both in governments as well as an independent research organization supporting that. It's about providing for corporate responsibility, like we are doing, where we manufacture and dispose of PFAS chemistries historically. We've stepped in and we are working with those communities and we're mediating and managing that proactively. And then it's providing transparency. And really, it's a lot of uncertainty around how PFAS and how all of this will unfold. But trying to stay in front of it and being transparent with our stakeholders broadly, but our investors in particular, sharing with you the progress, what we're doing, where we're focused, litigation and how that's playing out, how we're working with the EPA, how we're working with the state-level organizations to really manage this proactively as we move ahead. So it's -- that value of sustainability is important to our employees that we are living that value and that we continue to be a leader. So we have PFAS as a challenge out there. At the same time, we will be a leader in sustainability, ESG and meeting the expectations of our stakeholders broadly.

That's great. Next most voted question on Pigeonhole, do you see the opportunity for more M&A as smaller businesses struggle through the economic recovery? Which areas would be of greatest focus?

Well, we continue to stay active in our view of acquisition opportunities, and we stepped into what we have talked about in our acquisition strategy, which is bringing in attractive markets that can leverage the fundamental strengths. We stepped into that in 2019 with the acquisition of Acelity and also M*Modal in our health care business. And that was a great example of the way we look at the strategy, more attractive markets and where we can leverage our fundamental strengths of our capabilities. It's really created, integrated an entity that's greater than the sum of its parts. So as we come into 2020, we are focused on Acelity, first and foremost, as the largest acquisition we've made to date, ensuring that we're successful in integrating that business and taking full advantage of that combined capability. We continue to be active. We look at acquisitions. We set out a capital allocation strategy and plan for this year, where, again, organic investment, first priority, R&D, CapEx. Dividend as our second priority. And then in flexible capital, we continue to prefer M&A, although we signal, don't expect a large acquisition as we prioritize Acelity in 2020. COVID has many dynamics to it. But thinking about that, we're still focused on that capital allocation strategy of taking our net-debt-to-EBITDA leverage down as we go through the year, and we'll continue to make progress on that even as we work through this year. And so that means while we're active, we are targeting a large acquisition in the near term.

Great. And just one quick follow-up on capital allocation. I think 3M has increased its dividend for each of the last 61 years. But these are extraordinary times. How are you thinking about the dividend? And obviously, you have suspended share repurchases. What are the indicators you are looking at to resume share repurchasing? And do you think it will be at a different tempo given some of the rhetoric around that in this downturn?

Well, as I highlighted, our capital allocation priorities, I laid those out. In flexible capital, M&A is the priority over share repurchases. We suspended that in March as we got into the middle of COVID and the uncertainty around that as we were looking at managing through and prioritizing cash flow as we go through the year. I would -- I also talked about in the earnings call that we are committed to dividend as a high priority. We're paying dividend for over 100 years and we increased it for 62 years, and the Board approved an increase with the dividend here in Q2 as well. So it's -- that continue to manage on cash flow and a strong balance sheet, commitment to dividend. We will come back with guidance as we have better clarity around how we expect to move ahead with the rest of the capital allocation and especially the flexible capital.

Great. We're running up against the end of our time. We ask a unifying question at the SDC. So it's the same question we ask every single company and then we compare the answers across industries. So I'm going to read verbatim the unifying question this year. As you think through and beyond the pandemic, how do you expect your priorities to shift, especially as they relate to cutting costs or increasing levels of investment?

Well, I think it's -- a lot of what we've been talking about is, our portfolio strategies drive us to the most attractive opportunities for organic investments, M&A and managing that portfolio. Thinking about market attractiveness, where we can leverage our fundamental strengths, our innovation and our technology, our manufacturing capabilities. As we move through COVID, there will be market dynamics that create opportunities for us. It's a little challenging to see the new normal from here. There's a lot of uncertainty still as how this will unfold. But I -- as I talked about, we are -- we stay close to customers, we focus on execution for customers in the middle of COVID. It enables us to be ready to take advantage of those opportunities in those markets. And we, through our portfolio management and our innovation strategy, we are poised to step into and invest in those opportunities that we see emerging. So it's something that -- I think there'll be opportunities that emerge as a result of COVID and we'll be ready to step in them.

That's fantastic. Okay. I'm just going to wrap up. I would like to remind all of the participants that there is a link on the left side of your screen to the Procensus poll. If you could please go ahead, click that link, the poll will take all of probably 60 seconds to maybe 2 minutes tops, and then you'll get results back throughout the conference as well. Mike, such a pleasure having you again. Thank you and thank you to 3M for all that the firm has done, the company has done throughout this pandemic. Truly set a leadership example. I don't know if there's any closing thoughts or comments you wanted to make?

No. I just would say I'm very proud of the way 3M have stepped up in the middle of COVID, to help quite the pandemic but also to deliver as we go for our customers and our shareholders. It's been very impressive to me in the middle of this challenge, and it will be, what is at the foundation of leading forward and leading out of COVID as economies recover around the world. So thank you, Colin, for the chance to be with you today. I really appreciate being part of SDC each year and look forward to 2021.

Good. Thank you and good luck with the rest of the crisis.

All right. Thanks.