3M Company (MMM) Earnings Call Transcript & Summary

Okay. We're kicking off day 2 of the JPMorgan 2021 Industrials Virtual Conference. Again, unfortunately, but maybe next year, we'll all be back in person. We're very happy to start today with 3M, and we have CEO, Mike Roman; and CFO, Monish Patolawala; as well as Bruce Jermeland, who may chime in every once in a while. [Operator Instructions] But for now, I'm going to turn it over to Mike to kick it off with a few intro comments, and then I'll be back to host the fireside chat. Mike, thanks for joining us, and here you go.

Okay. Thanks, Steve, and good morning. It's good to be with everyone today. I'll open with a few remarks just to set up the conversation. 2020 was an unprecedented year. We have all labeled it that. We focused on 3 priorities: protecting our employees; fighting the pandemic from every angle; and continuing to deliver for customers and shareholders. And with that focus, we finished 2020 strong. We continue to execute well, innovate for customers, and we did do much to fight the pandemic. As we came into 2021, improved end market visibility gave us the confidence to provide guidance. And while we remain cautious, really not knowing yet how the impact of the pandemic and the pace and success of the vaccine is going to roll out and hit the global economy, we know end markets will evolve. We expect to deliver strong performance for the year, organic growth of 3% to 6%, improved earnings, margin expansion and robust free cash flow. And that's all in a foundation of continued strong capital structure and financial flexibility. We are also stepping up our leadership in ESG. And last month, you may have seen we announced significant initiatives to improve air and water quality. We also issued our first-ever global diversity, equity and inclusion report. So maybe to wrap up the start here, we are well positioned for 2021 and beyond. Over the long term, we are focused on growing at or above the macro, delivering consistent improvement in our margins, along with robust cash flow. We'll do that by prioritizing investments in our best opportunities, maintaining capital discipline and a strong capital structure. With that, I'll turn it back over to you, Steve, for questions that you might have for either myself or Monish. Thank you.

Great. Can you just maybe give us a bit of an update on what's happening kind of quarter-to-date, in particular, kind of the short-cycle businesses, the industrial electronics businesses, 3M yesterday -- sorry, DuPont yesterday talked about auto and electronics still going pretty well. But obviously, there's been some supply constraint news out of semis that's hurt auto and, in addition, some logistics concerns out there. Anything out there that you're seeing in those more industrial short-cycle businesses that you wanted to call out?

Yes. Steve, I think you characterized some of the things we're seeing in those end markets. As I said in my opening remarks, so we're confident in our ability to deliver in 2021. And as we come in, we still see a pretty fluid and uncertain environment. Having said that, we haven't seen really big surprises so far. March is an important month for us in Q1 and especially as we start to lap into the start of the bigger impact of the pandemic globally in 2020. I would say how we start to pull forward with the vaccines and the economic improvement, we would talk about even -- before coming on about how is the recovery going to continue. Are we going to see continued growth and outlook in the economy? That's a big driver. Now relative to transportation and electronics, which you're talking about, we're seeing some constraints in the semiconductor supply chain. It's impacting global automotive. The build rates have been rolled down as -- from where we thought we would be as we entered into the year. We're seeing that connection between electronics and automotive ever more impactful. Industrial markets, they're continuing to move forward. I would say our channel partners remain cautious given the uncertainty around the pandemic. Our respirator sales in our industrial -- our Safety and Industrial business continue to be very strong. And I would say the other area that we watch closely, you didn't ask about outside of transportation, electronics and industrial, is in Health Care. And seeing and watching closely the impact of elective procedures on our businesses, in particular, we saw a little bit of a dip as we started the year with the pandemic cases increasing coming out of the holiday, but those are starting to recover. So I would say, in general, kind of the way we had seen the year, so no surprises at this point.

And what was -- just remind me of what you guys had said on kind of first quarter organic. I mean, had you guys talked about where you're going to start the year? I don't think that there was a -- you're still kind of lapping the easy comps to come, obviously. How do you guys kind of see the first quarter organic playing out?

Yes. I would say, other than the way I just characterized the general outlook, we didn't specify anything for first quarter. We talked about the total year as we looked through our end markets at 3% to 6%, but not really looking at first quarter. No, I would say, as I said, in March, you're going to see the lapping of the pandemic, and that will be an important month.

Right, right. And you guys kind of go in early or going early to that. When you think about the range for T&E, I know it's wide, what are kind of the puts and takes from low end to high end on that segment?

Well, as you've seen throughout the pandemic, the demand for electronics has been a strong driver of end markets. And we saw strength in semiconductor manufacturing, factory automation, data centers, automotive through -- as it strengthened in the second half of the year. These are all spaces that we saw taking advantage of the digital world, the fast-evolving digital world. Our wider range, when you look at transportation and electronics, and this year, it's notable, and we're talking about it, it's something we've had in other -- in years past as well. It's really -- reflects the 2 markets, transportation, electronics, where we've seen the greatest degree of variability historically. And then you see those increasing interdependence of electronics and automotive. So it's really that variability. And I think the constraint on the semiconductor chips is reflecting some of that interdependence and the impact it can have. We also have, in this business, end markets that we face into, like oil and gas and highway infrastructure. So as we started the year, those are areas that -- a little less visibility on exactly how those are going to play out in 2021. So that variability was really what led to that wider range.

And then just inventories, I guess, at your customers, it seems like most are lean to normal at this stage of the game. There was maybe a little bit of a restock in the second half of the year. How do you feel about kind of the channel inventories for the products? You guys are -- you guys rely on distribution quite a bit. So what do you see there?

Yes. And globally, as we came into the year, Steve, I think we saw, I would say, pretty balanced inventory in the channel. Now that said, where there was some caution like industrial channels, they're a little tighter. I think the -- as you saw recovery in automotive and electronics, you saw a little tighter inventory in the channels. And then that's been exacerbated with the weather and the chip shortages. So there are some dynamics playing out here. I think the winter storms in the U.S., that's a supply challenge as we work through the first quarter. And that's hitting the U.S., something that we're working through even as we go through March. So -- but in general, I think that aside from the caution on the outlook for the economy, the channel inventory is fairly well balanced. I -- there are some end markets where we saw a slowdown, a big significant slowdown in 2020. And I would say those are other areas where we haven't seen a snapback and channel inventory balance for where we were in 2020, but not necessarily increasing ahead of outlook for the year, still cautious looking at the impact from pandemic in 2021.

On inflation, another kind of hot topic along with supply constraints these days, oil is obviously up. How do we think in about kind of the price/cost spread for you, you guys? Any impact there, Mike or Monish, on that part of the bridge, whether it's price or cost, either one?

Yes. So when we started the year, Steve, we had started experiencing 3 kinds of inflation: raw material, labor and logistics. And I would say it's increased due to the winter storm, and that trends of inflation continue. The good thing for 3M is we don't buy any big one material that just is only inflationary. There are 4 or 5 that are important for 3M. Polypropylene, ethylene, linerboard, fluorspar are all items that we track. We are seeing inflation in polypropylene and ethylene on the raw materials side. We are also seeing logistics pressure, and that's further exasperated by the storm that happened last week. And so logistics cost continues to be extremely tight. And the labor market is still pretty tight on the manufacturing place. So when we had come in, we had a guide at that time of somewhere around $0.00 to $0.10. We think that's going to be 2x of where that is based on what we are seeing right now. But also 3M has had a history of getting good price, and that is partly driven by the value that we add to our customers and, of course, the innovation that we bring to the market. So right now, we are working on pricing, but we are also working on yield to make sure we can offset as much as we can of this increased pressure. Our feeling is, in the long run, Steve, these things will play itself out, and the markets, I think, will stabilize. But in the short run, we are seeing much more inflation coming into -- coming in than we thought we would.

And is that logistics inflation included in that number? Or is that more of a raw material in your bridge? Is it all inflation? Or is it just raws? I thought it was...

No, it's all inflation, Steve. It's all inflation. So it's logistics, labor and raw material.

Got it. But that -- does that change the guide? I mean -- or is that something that you're planning on offsetting? And is there a timing mismatch, where the first half is going to be tougher and then you'll get some price and the second half should be better? How do we think [ about ] context to guide? I mean, it's only $0.10, but it's still $0.10.

Yes, it's still $0.10. It's a lot. But no, I think you're right, there is a timing mismatch. That's definitely going to happen, which is one. But I think secondly, as I mentioned, we are going after price increase, and we are trying to improve yields. So we'll see how the year plays out, and we'll adjust as required. So -- but there will be definitely -- step number one, there will be a timing mismatch. But we'll see how the year plays out.

Just to kind of wrap it around on the bridge. The -- can you just describe what you see on any updates on kind of the restructuring numbers for this year? And then what does '22 look like? And then we'll kind of step back higher level and talk a bit more strategically about things.

Sure. Just for everybody's recap. So in the fourth quarter, we announced a pretty big restructuring charge of -- annual charge of $250 million to $300 million with annualized benefits of $200 million to $250 million. The charge was basically driven around the simplification of the operating model that Mike had announced early in 2019 that got executed early in 2020. There are 2 pieces. So in the -- so there were 2 charges to it. Fourth quarter, we took a charge of $137 million, $140 million, give or take, as a part of this overall number. So we'll take the balance in the second quarter. Second -- mainly in the second half, you may see a little bit happen in 2021 in the first half, but most of the balance, which is $110 million to $160 million, you should see in 2021. The benefits which were annualized of $200 million, $250 million had a benefit of $75 million to $100 million in 2021. We see that playing itself out right now that we should be able to get there. But we also had the other actions that were taken prior to the fourth quarter. All of them had a benefit of $100 million coming into 2021, and that continues to stay. So you should see the benefit of the carryover actions in 2022. Of course, what's going to determine it is what's the size of the charge in 2021, mainly second half and, therefore, what's the benefits. Our goal also, as we do these restructurings, as Mike had announced when we took the charge, was it creates the oxygen for us to invest in our business. There are multiple areas that we believe we can continue to invest. And I would say, Steve, we're going to continue investing in growth, productivity and also ESG to continue our stewardship around air and water. So that's our goal right now.

Right. And I guess, for '22, I mean, those charges roll off and savings roll on? Or how do we think about kind of the bridge in '22? Because that should be a nice support if we're kind of at the end of this, but maybe there's -- every year, there's charges. I don't -- I'm not 100% clear on that.

So I would say, Steve, in the spirit of continuous improvement, our goal is to continue to tighten our operating model, simplify how it goes and continue to drive SG&A reduction over the next few years that we have said. I would say, mathematically, that roll off should happen. You should get the benefits. But as I said, our goal is to create the oxygen that we can use to invest in our business to continue higher growth as well as ESG. And so that -- it'll play out -- '22 will play out based on how much we invest.

Does that growth investment come through R&D? Where would we -- Mike, where would you place some of those investments? Where do we kind of see that come through?

Yes. So even as we went through 2020, Steve, we continue to invest in these growth areas. I would say, all 3 categories that Monish talked about, growth, productivity, sustainability, we're stepping forward even in the middle of the pandemic around that. There were some clear opportunities in 2020. Personal safety and what we were doing as part of fighting the pandemic, a key area for us to invest in. Our home improvement opportunity, that was a marketplace that we saw strong demand throughout the year. So we are investing CapEx, in particular, in that area to ramp up additional capacity. The digital-first world, everybody talked about the trends that accelerated in 2020. Digital-first world put a big increase in demand as we've seen on semiconductor fabrication data centers. These are all areas, growth segments that we've identified, we've been investing in. We continue to step into that as we went through 2020. Those are priorities as we come into 2021 as well. And as elective procedures come back, Health Care is still a priority for us. It's -- Steve, it's a place that we see attractive growth and opportunity for us. And so that, combined with our priority growth platforms that we've talked about, those -- and some of those are right in the middle of those markets that I just highlighted, those are getting the priority. Monish talked about the focus that we have on productivity. We're driving some of our CapEx investments into improving our operations, driving a more efficient model. And then we've talked about how we're stepping up in ESG. So I think that's -- we really are visibly stepping into these areas, even as we went through '20 and now into '21 even more so.

How much of your CapEx is kind of going into ESG-related investments? Or is that -- am I looking at that the wrong way?

Well, we talked about $1 billion going into the announcement we made on carbon neutral and water use and water quality. And that's over the longer run. But it's -- and it's about split, half CapEx, half OpEx when you think about that $1 billion investment. It's a little more front-end loaded. It really is around this idea that -- and this was the thing that I'm most excited about. We're driving up, bending up the curve. So while we're talking about carbon neutral by 2050, we're going to take it down 50% by 2030 and 60% or 80% by 2040. So we're stepping and bending the curve, and same on water. So that's where you see a little more of the CapEx and even OpEx loaded at the front end. It's driving that implementation. We talked about having all of our new state-of-the-art water filtration technologies online by the end of 2023. That's -- that investment is going to take place in just the next couple of 3 years. So that's the way I'd ask you to think about it.

On those -- yes, go ahead.

Sorry, just in the guide that we had already given at the beginning of the year with that CapEx number, $100 million of the CapEx for ESG, we had already put in the guide when we gave you the range of $1.8 billion to $2 billion on CapEx.

Okay. Got it. Those growth platforms, I think it's like $1.6 billion in combined revenues or something like that. I think it grew like high single-digit in 2020. Can you just -- a lot of -- there's so many times at 3M where you have thousands of SKUs, and it's very hard for people to kind of put their fingers on what they're really kind of investing in here. And I think that $1.6 billion in revenue is an interesting thing to pull out and look at. Can you just walk through what a couple of those are? And which are the most kind of exciting ones sizable enough to kind of move the needle? And what do you expect on a growth rate basis for those -- for that kind of collection revenues going forward -- for that portfolio going forward?

Yes. And you said it, Steve, we saw high single-digit growth in 2020. We expect double-digit growth as we move forward on that, that priority growth platform, that $1.6 billion that you talked about. I've highlighted a number of areas that are really front and center of priority growth platforms, where we're building new platforms for business growth more broadly. Air quality is one of them, and that's played into this home improvement. Our Filtrete brand filters that we're seeing the trend that was there before COVID accelerate. People are really focused on indoor air quality. So that's something where air quality innovation can build out a broader platform. We see strong growth in that platform. We -- at biopharma filtration, very important in the development and manufacturing of vaccines and therapeutics. One of our priority growth platforms, accelerated growth in 2020, continue to see an opportunity there. That's a strong driver. Automotive electrification now over $300 million in stand-alone revenue of that $1.6 million, growing strong through the second half of 2020. We're starting to see strong penetration, spec-in wins. It's an area that we continue to see a priority for future growth. We -- I would say, on the other side of it, there's a couple of businesses that were more related to industrial production. They had slower growth or no growth in 2020. So our structural adhesives, while we continue to win in the marketplace, it was a challenged year for industrial marketplace and general manufacturing. Same with our precision engineered abrasives. So those are a couple of examples. Still very important, we think, strong growth opportunities and high priorities -- priority growth platforms. But it's -- 2021 is certainly impacted those end markets.

When you think about that exposure to EVs, are you including anything that's kind of like going in and around battery? And also, are there different types of adhesives that are being used for an EV versus an internal combustion engine auto, but it's not necessarily electrical, if you will? I mean, how are you defining that revenue base when you talk about automotive electrification? I mean, DuPont, for example, gives numbers [ $170 ] for an ICE and [ $320 ] for an EV, but they include everything that goes into that, not just kind of the electronics side. How do you guys define your kind of $300 million base?

Yes. We've talked about how -- the difference between an internal combustion engine and the EV and the opportunity for some of our materials in the -- we built a diverse portfolio in ICE platforms. And we're seeing increased electronics there. That's actually driving increased penetration opportunities for us as you increase the number of displays and electronics on all automotive platforms. So that's part of it. As you look at EV, the battery and thermal management materials to really part of the assembly process and the long-term durability of the battery pack, those are opportunities. There's another area that we've been in, in the ICE platforms. It's our acoustic insulation solutions, lightweight acoustic insulation solution, even more important in EV vehicles where you've got different requirements around the ability to keep the automobiles quiet. So it's -- I think it's -- those are some of the examples. We see, in general, an increased opportunity set for our material solutions in EV. We haven't been a big player in the ICE powertrain, for example. We see more opportunities in electric vehicle powertrain. And that electronics penetration, that's a trend that's going to continue. The percentage of the building materials that will be electronics in all vehicles is increasing -- continues to increase.

And I guess, is there a content number kind of per unit that you guys have brought together across the portfolio where we can say, hey, they have this on the ICE and have this on the on the EV platform? I mean, is there any way to kind of think about that, call it, opportunity?

We haven't broken it down yet, Steve. It's something that we'll continue to look at it. I think it's early in the EV kind of platforms. We are highlighting spec-in wins as we go. I think that's one of the ways you can start to see where we're developing content. And over time, we'll get a clear view of how we see that, how we see that evolving. So we haven't broken it down though, ICE this and EV that. Now I would remind you, it's a fast-changing environment, too. Again, that electronics that just the display technology alone and what's happening in the automobiles is tremendous innovation. So that is creating new opportunities, I would say, every model.

For sure. On the Health Care side, what are some of the more -- other than maybe the biopharma filtration, what are some of the more exciting products there and growth drivers that you see going forward, whether it's out of Acelity or some of the other areas?

Yes. Well, Acelity has been a big priority for us, as you know, and very successful in integrating that into 3M, and that team is doing extremely well. Now COVID had impact on elective procedures that hit Acelity as well. So we saw that, and we're -- and as I said on the top of the interview, it's something we're watching as we go into 2021. That will be critical to driving our growth there. But it's -- advanced wound care is a priority. We invested in Acelity. We have invested organically in that space. This is an important area for us to continue to grow. Our Health Information Systems business, another area that we invested in an acquisition, M*Modal. And in 2019, it's also an area we see strong growth. It's -- it will benefit as the elective procedures and hospitals get back to normal and their capital budgets move back to normal. Those are all things that we see as part of improving outlook for 2021. As we start the year, one of the interesting areas is oral care has been strong. Elective procedures, we didn't see quite the drop-off in elective procedures, not back to 2019 end of year levels yet but holding a little more stable. So that's an area -- it's been challenged in terms of market growth in the recent years, but we're seeing -- we saw strong growth in that as we came through Q4. So that's another part of Health Care. It's got some growth. It's one of our priority growth drivers in that as we look at digital oral care. But it's starting off with a little better elective procedures outlook.

What about Consumer? And I know there's the DIY side of that, but what's -- it seems kind of stable. What's -- what are some of the more exciting areas of consumers?

Well, consumer spending held up very well as we went through the end of last year and got stronger. And DIY was a big, big part of the growth that we drove. And it was, as we talked about, air quality and Filtrete brand filters. It was a broader platforms. Our broader array of products, our Command adhesives and even our painting products, those were all part of driving that growth. We also saw strong growth in 2020 in our home care business, as people put a bigger focus on, clearly, cleaning and disinfecting their homes, something that was, I would say, a trend that was there even before the pandemic accelerated. It's something that we see as being a growth driver as we start 2021. So I would say the other side of it, the office channel was challenged in 2020. Our stationery and office supply business saw the impact of people working remotely and not in the office. And that is -- that's something that we'll be looking at as people return to work, how does that impact and change the outlook for growth in that business. But you can see the DIY and home care driving the growth in the Consumer business.

What's your commercial...

If you don't mind, if I may add, one of the other trends on Consumer is, we believe this trend is here to stay, is e-commerce. So we are a category leader in most of the areas that we sell in the areas Mike mentioned. And we have seen tremendous growth in e-commerce, and that's another area that we continue to invest in because we believe that trend is here to stay for the long run.

And can you give some color around that? Just numbers-wise, how fast that channel is growing? And what your -- how much sales are going through now? What's the -- what are just some high-level stats on that front?

Yes. So I would still say it's not material in the overall grand scheme of things from a dollar perspective. But single -- I would say, mid-single digits is where I would look at it from that lens as well as it's grown more than double digits in the whole of 2020 despite the pandemic. So we have seen consumer behavior shifting to buying more online. But at the same time, the retailers have continued to have strong growth, and we have strong presence there. So it's helped us there, too.

Right, right. And then just on the filtration side, how much -- do you guys have any exposure to commercial markets on that front?

Our primary focus has been residential. And it's -- the commercial market, as we went through 2020, that's an area that, I would say, people are more interested in. It hasn't been a space that has that -- have that kind of focus. So it certainly looks like a place where innovation could make a difference. Historically, the focus on indoor air quality, from a commercial sense, has been in residential for the kinds of technologies that we bring with our Filtrete brand. So when I talk about the growth in air quality and the priority growth platform is really focused, the bigger part of the opportunity near-term is residential. It's focused more broadly on what can we do to innovate in air quality. That's the idea behind the priority growth platform, where else can we go. And as commercial presents opportunities, that will be a space that we look at.

Right. When we think about the portfolio, are we more likely to see more acquisitions like Acelity? Or are we kind of in a portfolio? Are we still in kind of maybe the late innings of portfolio management, where you can look to monetize some assets at these pretty high prices?

Well, see, portfolio management is a priority for us on an ongoing basis. It's a continuous process. And it's really 3 aspects of it, and we use it to drive this. It's prioritizing our organic investments. So if you look at driving that growth at or above macro, that comes from our innovation and creating new opportunities, new penetration, new business opportunities from that innovation. It also comes from choosing markets that are more attractive, higher growth rate, a better leverage of 3M's strengths, our fundamental strengths, the synergies across 3M. So we are always using and looking at how do we shift organically in our portfolio. Then we're looking at where do we add acquisitions that complement that. And that is prioritizing more attractive markets like we did with Acelity and M*Modal, where attractive growth opportunities in Health Care. And Acelity, largest acquisition at that point to date that it's -- was the priority all through last year, get that integrated successfully, let's build on that. And that continues as we come into the year and see the elective procedures come back. That's still top priority focus. We have, I would say, an active pipeline looking at where can we complement in those more attractive markets, our organic growth, and we'll continue to look at that. Still near term, we're not looking at a large acquisition like Acelity near term. So I would keep that out in front of us. And then on the other side, we are looking at our portfolio on how do we really optimize, maximize value for our shareholders by being in the portfolio we're in, and we'll make changes. We change our -- how we operate businesses, and we divest businesses, like we did last year with drug delivery and the year before in our telecommunications business. We'll continue to move forward. And with our innovation model, we are always and continuously driving this portfolio management approach. It's the way we'll continue to leverage the most from our innovation and continue to succeed on the growth side.

Are there businesses that are easier or harder to sell given the degree of integration with the rest of the businesses? Obviously, the Health Care IT business was not necessarily related to abrasives and adhesives and perhaps some of the 3M table of elements crisscrosses each other. Are -- is Dental one of those things that is one of those standouts that is not integrated from an R&D perspective with others? Are there any others out there that you would highlight maybe on that front that are being able to kind of be carved out?

Yes. I would say, core to how we look at portfolios is how well do our businesses leverage the fundamental strengths of 3M. So that's a level of utilizing the broad technology platforms' manufacturing capabilities. I would say the divestitures we've executed to this point, and we've done multiple sizable businesses that are -- have been core to 3M for a long time. We've been very successful at carving those out and delivering on the plan that we have with the new ownership. And so it's -- I think it's something we are -- it's one of the things that I've highlighted around portfolio of management. Why we continue to build confidence in our ability to execute this for greater value is that we have the capabilities. We've demonstrated the ability to acquire and integrate businesses successfully and also divest -- carve out and divest businesses successfully. So it is something that is always part of the strategy is how will we do that, what will it take, how integrated are those businesses into the technologies and other parts of 3M. But it's something that we have a lot of confidence we can continue to do. So it gets us back to we look at where can we create the greatest value. That's part of that calculation, but it's not a -- it hasn't been a barrier to us executing any of those strategies.

Is Dental one of those businesses that is highly integrated with the core 3M technologies?

Well, it certainly leverages some of the technologies that we have in adhesives and our materials in general. So it's -- that's an important part of that portfolio. It's -- and it's benefited from that, and we benefited as a company from that. But it's -- again, I -- if you look at the businesses that we've divested, large and small over the last several years, some of them have been fairly integrated as well. You can manage that. We can manage that as part of that process. So I'm confident that where -- when we identify a better value creation opportunity or a better, more natural owner for a business and that's the best way to create value, that we'll be able to execute that.

And is there anything on the -- either ratings or debt covenants that prohibit you from going -- shrinking the asset base at a certain level? Anything on that front?

Monish, you want to...

I know DuPont had some issues when they were working around some of the assets they were selling. And anything on that front that prohibit you guys from doing something significant?

I would just -- first, I would just start, Steve, with saying cash, cash management, having a strong balance sheet has always been a hallmark of 3M. We're going to keep driving that. You can see we have also reduced our net debt-to-EBITDA leverage ratio from greater than 2 to 1.5 by the time we ended the year, and we're going to continue down that path of strengthening our balance sheet because that's what we have always done. We also -- this model also generates a lot of free cash flow, and that we have demonstrated even down -- through the downturn of pandemic. The team has done a nice job of managing working capital. As far as I know, and again, I'm not that long in the role, there is nothing that prevents us at the end of the day. It depends, of course, on the size of what we do from a divestiture perspective. But more importantly, what Mike mentioned is we look at portfolio management as a way to say, are we going to -- can we add the greatest value? Is it leveraging our 3M strengths? And when we believe there's a better owner of that asset somewhere else, we won't shy away from doing the right portfolio action as required.

Got it. Mike, on PFAS, what are we looking at for the next kind of milepost? And what are the implications of the Biden administration, saying this is a -- labeling it as a hazardous substance? What kind of is the next -- after that, the next kind of domino on this front?

Yes, Steve. And just as a reminder, we look at PFAS. We're proactively managing this. And we stay focused on 3 principles: sound science; leading with corporate responsibility; and transparency. And so talking about it, updating you as part of that focus on transparency. And when you talk about the President Biden's administration, we continue to work with the EPA and, I would say, the state authorities to follow through on our commitments to compliance and environmental stewardship and how we manage our manufacturing operations, part of what we've done in proactive management to commit to taking on. We also have come out and supported the EPA management plan, which they've been continuing to work on, which is looking at federal regulation which will help us really have a more consistent approach, won't end up with a patchwork of state standards that can be confusing and difficult to manage for everybody as we go forward. So having that President Biden's administration approach to the EPA leading this that we do support that and continue to, I would say, at this point, watch for the progress that's going to come from that. And then as I said in my opening, we're accelerating our commitment to sustainability. That's part of our proactive management. That includes how we manage PFAS and how we work with communities and governments to advance our environmental stewardship. If you look at it, we've now invested more than $200 million towards PFAS remediation, including testing and the work that we've done around our factories where we historically manufactured PFAS. And so it's a -- continues to be a focus for us. And then regarding litigation, the pandemic really impacted the cases that we thought might come in 2020. There's a bellwether trials in Michigan that had been scheduled for March, are now rescheduled for October. So that's one of the next milepost. We don't yet have the next scheduled action for the multi-district litigation in federal court in South Carolina that we'll update as soon as we learn more there. And just as a reminder, we always put our latest information on our website and in our quarterly Q and K filings.

And I guess, would it be -- you're saying it will be preferable to kind of have the federal government kind of consolidate all of this?

Well, having a federal management plan for this -- so what the EPA rolled out, including a maximum contamination limit, and they're looking at, as you highlighted, at this hazardous designation. Having one federal approach to that, that it would be preferable to having a number of different approaches at the state level. So -- and in general, we've been very supportive of their approach.

The number I hear thrown around out there is like in the like $40 billion range. That seems very high to me. Is that like in the realm of possibility something that big?

Well, at this point, we're managing against what I just described. There's still a lot to develop here. And just -- until we see more of the progress on the EPA and regulatory side, until we see more progress on the litigation side, it's just premature to be looking at any answer there.

Yes. And then one last one, Monish, when you look at this business, what should be really the core operating leverage here? Margins have been kind of stuck in the low 20s. You mentioned restructuring but offset by investments. What do you see as kind of the underlying leverage? And where can kind of margins get to in your mind over time? Can there be a sustained move towards the mid-20s someday here for this company?

So I'll just say, Steve, a couple of things. You brought up a few of the investment side. Historically, the company has had a leverage in the ratio of 30% to 40%. Based on all the virtual gembas that have done, I think that range is very fair. The question is how much you invest. The opportunity, as I look at it from 3M, is we are in our early stages of using data and data analytics to continue to drive margin expansion. I think as we get better at daily management, starting to use the data that we get, there's more we can do on yield and efficiency. There's more that we can do on streamlining our organization structure, making the company more nimbler. There's more we can do even on the growth side by interpreting signals better, getting closer to customers. So in general, I would say the 30% to 40% leverage is fair. We're going to keep driving this journey because I think in the long run, our aim is grow that or about macro sustainable margin expansion and strong cash. And based on everything I've seen in the last 7 months, I think there's an opportunity to keep moving down that path.

Okay. I think we're out of time. Guys, thank you very much for the 40 minutes here. Hope you have a good day, and we'll chat in April.

Thanks, Steve. Great to be with you.

Thanks, Steve.

Yes.