3M Company (MMM) Earnings Call Transcript & Summary

Welcome to the first afternoon session in New York. And with us, we have 3M. We have Monish Patolawala, 3M's CFO. And we have Bruce Jermeland, who runs the IR effort at 3M. Gentlemen, thank you so much for joining us. I think the plan is -- Monish has some prepared remarks, which I think are going to be short. Then I have a set of questions that I want to ask the company. But I would encourage everybody listening in, please feel free to type in questions on Veracast, and I will be very, very happy to incorporate them. And you can also IB me or Fitz, our special Citi sales guy. And once again, I'm very, very happy to incorporate your questions into our discussions. And with that, Monish, take it away. Thank you very much for being here.

Andrew, good afternoon, and good afternoon to everybody, and thank you so much for having us. I got a few short remarks, and then we'll take it to Q&A. 2020 was an unprecedented year as we prioritized protecting our employees, fighting the pandemic from all angles and delivering for our customers and shareholders. We believe we finished 2020 strong. We are continuing to execute well. We are still innovating for our customers and fighting the pandemic from every angle. As you know, our improved end market visibility gave us the confidence to provide 2021 guidance. While we still remain cautious not knowing how the impact of the pandemic, the pace and success of the vaccine rollout in the global economy and the end markets will evolve this year. We are prioritizing capital to our greatest market opportunities, delivering for our customers, driving commercial intensity, improving operating rigor, while continuing to enhance our daily management routines, working to leverage data and data analytics and continuing to streamline the organization. We expect to deliver strong performance this year, organic growth of 3% to 6%, with improved earnings, margin expansion and robust free cash flow with a continued strong capital structure and financial flexibility. You also know that our announcement in February, we are stepping up our commitment and leadership in ESG. Last month, we announced significant initiatives to improve air and water quality and we have also issued our first diversity, equity and inclusion report. To wrap this up, we are well positioned for 2021 and beyond and over the long-term as we are focused on growing at or above the macro, delivering consistent improvement in margins, along with robust cash flow while prioritizing investments to our best opportunities and maintaining capital discipline and a strong capital structure. So with that, Andrew, I'll turn it back again to you, and thank you so much for having us today.

Monish, thank you so much once again. So let's jump into macro. What is your latest view on global recovery? And specifically, what data points have been the biggest positive surprises and disappointments? And part 2 of the question, how will the cycle, you think, be different or similar relative to prior recoveries? And which business excites you the most going into the cycle?

I think they're both great questions, Andrew, that we as a team debate often. First off, I'll just start with your second question, is our belief is that the recovery of this -- of the pandemic versus prior is so different because this one is a human health crisis. When we think about end markets, based on what I earlier said, we felt good about end market visibility to give a range of 3% to 6%. And I -- what I'll do, Andrew, is I'll just walk through the different segments. I'll start with Safety and Industrial segment, which we said would be up mid-single digits. To underwrite that, we are looking at continued growth in industrial activity. ITI, even as of right now is mid-single digits. And so we feel confident about that as well as strong respirator demand for the whole of the year. TEBG, or transportation and electronics, we had a range of LSD to HSD, a low single digits to high, that had the highest variation. The Transportation and Electronics business has 2 big sectors, auto and electronics, both of them if you look at the history of 3M has had the biggest variation from an end market perspective. Plus what we are seeing is that there is a co-mingling of electronics and auto and that industry is starting to come together, as evidenced by the fact that right now, with the semiconductor shortage that is in the world, it is impacting production levels at auto OEMs. The other piece that the transportation and electronics business also has and end markets that we are watching are the recovery in oil and gas, IV infrastructure, return to work, because we have a commercial cleaning business and outdoor signage. But again, as of right now, we feel the LSD to HSD range is fair. Health care, I think, is the biggest division that will get impacted on what happens with the containment of COVID, what happens with the vaccine rollout, because it has a big impact on elective procedures and a big impact on oral care procedures, as well as continued demand for respirators from our front-line -- that get distributed to our frontline workers. In Health Care, our range was LSD to MSD of low single digits to mid-single digits. And in consumer, we had also said low single digits to mid-single digits. And there, we are seeing continued growth in a couple of areas: Home improvement, home filtration and home cleaning. We will -- we are hopeful also that as the return to work happens, schools go back into session, offices -- people go back into offices that the stationery and office supply division will also continue to show growth in 2021. So when you put all that in the mixture and as of right now, we believe that 3% to 6% organic range or 5% to 8% including foreign currency is a good range to be met.

And I guess just any data points in terms of positive surprises or disappointments so far that you can share. And maybe I'll add to it. One theme that we've been getting is that, and frankly, I have not been sort of thinking about it, but the near-term impact of the stimulus. I think several companies brought up the fact that the impact of stimulus was not in their -- they have sort of base macro assumptions, but there's a lot more to stimulus than just discretionary income. I also think, specifically for 3M, it's interesting. I have not thought about it, but I had reasons to think about it. I was sort of scrolling through Twitter and Reddit. And a lot of sort of stuff about sort of dental, people sort of using stimulus check actually to sort of do dental stuff that was delayed both because of COVID, but also because this is sort of where the discretionary spending is going. So how should we think about stimulus in 3M and just going back sort of biggest positive surprise, biggest negative surprises you've seen so far?

Yes. That's, again, great stuff, Andrew. I'll start with just the Health Care division. When we ended fourth quarter, we went in, we thought we were at approximately 85% of pre-pandemic levels when it came to elective surgeries. We actually saw that dip in January to close to 70% of pre-pandemic levels of elective surgeries. But now that there's more optimism, the vaccine is rolling out, we are starting to see that growth again. But it's still below pre-pandemic level. So we're still in that 80% to 85% as of right now. And the hope is that by the end of 2021, we'll be back to 100% of pre-pandemic levels when it comes to electives. On the industrial activity, I would say, no major surprises. We are continuing to see good, strong industrial activity. But customers are still being pretty cautious when it comes to placing orders or inventory restocking. Transportation and electronics, I already mentioned, one of the issues that we are seeing, surprise, which is the impact on auto production. In fact, we have seen some of the data that has publicly come out over the last few days that the first quarter is going to see lower auto builds than was originally planned. There's a hope that this recovers by the second half of 2021. And then it may spill into 2022. But we'll see what happens with auto production. And then on the consumer side, we are continuing to see good strong growth for the 3 areas: home filtration, home improvement, as well as home care. And I think that's a positive sign. To answer your question specifically on stimulus, I would say that's an area that, on the consumer side, depending on what people do with that money, do they make their homes look better, do they go in and buying more cleaning supplies will definitely have an impact. And then to your point on oral care or any of these procedures, that the company -- that the money is spent on will definitely have a positive impact in those areas.

Got you. So maybe the other sort of big picture. I know you and Mike have spent a lot of time talking about it, realignment of business model. So how have in your operational model and realignment around channels and regions transformed the business model? I know we've sort of tried over the years to spend a lot of time to sort of think how 3M was organized and because of the product matrix, it's not necessarily as easy to figure out from the outside. But can you elaborate how 3M has run differently today? And what opportunities the new business model offers? And then part 2, I'll ask about margins, but maybe we'll focus on that.

Sure. So the announced -- so this was, I would say, this was done before my time, but it was the next step in transformation that got announced some time in 2019 that went live early in 2020, and unfortunately, the pandemic hit right at that point. The big change that was made was the company organized itself into 4 market-facing business units. The 4 units are: Safety and industrial; Transportation and Electronics; Health Care; and Consumer. The Safety and Industrial business is a much more distributor, market-facing model; the Transportation and Electronics is a spec-in business; the Health Care, as the name suggests, it serves the health care industry; and Consumer, as the name suggests, is again, partners with big retailers for the end consumer. While they did those 4 units, they created a, what I call a horizontal pipe called enterprise operations, which where customer operations, manufacturing operations and supply chain operations are all put under this one pipe to help deliver to the 4 business units that were created. We also created a government affairs organization to continue to promote the brand of the company. How these business units are run, Andrew, is they have full ownership of the strategy. They decide what innovation they want to go after, at the same time, the capital allocation. So our hope is, as these models, and as you know, all these changes for a company take a little bit of time, but the benefits we are starting to see are real already. So for example, through this whole process, we were able to identify roles that were redundant, roles that we felt could simplify the organization. As a result of that, you saw we announced restructuring charge that got -- would get taken over the fourth quarter of 2020 and the remaining in 2021, which generates nearly $200 million to $250 million of annualized savings for the future. The second benefit is having enterprise operations managing the overall supply chain allows us to use data and data analytics that will help us, first, serve the customer better; but secondly, also help us in yield and efficiency improvement as well as working capital. And most importantly, the business units are now single customer-facing units. It's easier now to reach the customer. It's easier to understand the trends that the customers are seeing. It's easier for us to go solve pain points for customers, which will allow us longer growth. And the hope is that we will now have a much more empowered organization because the path to the customer has become shorter. But I'll be faking it if I told you everything is working perfect, Andrew. We are starting to see the benefits. We are working through it. The teams are committed to making it work. And I know this is going to be a big a factor for us to continue to grow at or above macro, consistent margin and strong cash over the long run.

So just a follow-up question to what you guys -- so as an outsider, right? I mean, I think what -- the big debate on 3M is -- well, not outsider anymore, but not a sort of a lifelong 3Mer, what was your assessment when you came in, in terms of sort of the key headwinds and tailwinds to margins and having been at 3M now, and you are in charge of implementing all these things, what do you see are the -- same question, what are the key headwinds and tailwinds to 3M's margins in this cycle? And this is not -- I'm not asking you in terms of the next 12 month's forecast, this is more 3, 5, even 10-year view, if you care.

Yes. So I think it's a great point. I give Mike all the credit to go to this new business model. It was a big change for 3M. As I said, it was done before me joining. I would say that's a tailwind. The reason it's a tailwind is because it created a shorter path to the customer. It's all the other reasons I already talked about. I would say, when I look at opportunities where we can do more on margin, one was clearly having a simpler organizational structure, streamlining our operations. As I said, we have taken a charge on that. But we are never done on that, Andrew. There's always more we can do in that area of continuing to streamline our organization, making sure we have the lightest SG&A that is possible to continue to deliver for our customers. The second piece where I see we can do a lot more is in the area of yield and efficiency. So having more standard work, using data and data analytics, going to the holy grail of daily management, are all areas that in the long run, I feel 3M can definitely benefit from and, as a result of that, continue to drive cost of operations down. And then also the piece that we don't talk about many a times is this also helps from a working capital perspective, the right level of inventory, making sure that our payables, we are benchmarking ourselves always to best-in-class. One of the things we have been doing, Andrew and, like all large companies, we are very proud of the culture, 3M is very proud of its history and culture. But we are starting to ask the question, and we use the word embrace the red: What's not working? What can we do different? What's the best-in-class? Find that best-in-class entitlement model because that mindset will allow us to continue driving the margin expansion that we want to see.

Yes. I don't think embrace the red means 3M red.

It's both, right? It's a pun on both, actually.

So the next question, and it's very interesting. It's like I have this like funny book from 1980, was published, the Inflation Beater's Investment Guidance, just sort of talks about how different companies did through the inflationary cycle in the '70s, and 3M was actually highlighted in that. But just a short question and a longer question. So the short question, what is the impact of raw material inflation on the company? And how should 3M net price cost play out in 2021? And the second longer-term question is, I guess, in the 1970s, 3M actually was one of the big winners of the inflationary cycle because, I would argue that what people underestimate about 3M, is just the structural pricing power that the company has. So usually I ask it as a question, I definitely have a very strong view on it. So has anything changed, right? I mean, I know it's been 50 years, but I know that 3M, sort of pricing power and market position, is literally one of your biggest assets. So just to reassure -- please reassure me that it's intact. So the first question is, short term? And the second question is sort of longer term, how should we think about 3M and inflation?

Sounds good. So I'll do the short-term first, Andrew. When we came into the year with our guide that we gave for the year, we had talked about inflation in 3 areas: raw material, labor and logistics. And we had said it's approximately a $0.10 headwind for the year. As we have gone through the last few months and the weather in the U.S. in the last few weeks haven't helped this, we're actually seeing much more inflation in all categories, especially in raw material and logistics. When we look at raw materials, there are 4 or 5 big raw materials we track: Polypropylene, ethylene, linerboard, Fluroxypyr. And we're seeing a lot of inflation in polypropylene and ethylene. Same thing on logistics, we are seeing tremendous inflation, whether it is air inflation, whether it is truck inflation. So our current view, and it's an extremely fluid environment, but our current view is that, that headwind is nearly 2x of what we saw coming into the year. But at the same time, we are also working and actively working with our suppliers to see what we can do to reduce prices, working with our customers on price increases. At the same time, working on improving the yields in our factories so as to dampen the impact of inflation. It's a very fluid environment. It's changing every day. So as the year progresses on both cost as well as on price, we'll definitely keep you posted. To answer your longer question, I've only been here 9 months, but I've also read a lot about the history of 3M. And 3M has had a great history of innovation and adding value to its customers. And that's why it has been able to go get price increase of 30 to 50 basis points, excluding electronics for a number of years and at the same time, enjoying premium margins. So I would say in the long term, that's one thing that won't change is we'll continue to add value to our customers, we'll continue our strong tradition of innovation.

So the next question, also a longer-term question, sort of post-COVID strategy. How has 3M, if 3M has changed its growth priorities in the aftermath of COVID, what are the big lessons learned post-COVID? And broadly speaking, what are the main R&D priorities over the next 3 to 5 years? And just as we look at that, what is -- what excites you the most because it's another sort of aspect of 3M strategy, people always look for the next exciting thing.

So the good thing, Andrew, is we continue to invest through the pandemic. So we have continued to invest in both growth, the productivity and ESG through the pandemic. Areas that as we have reflected over the pandemic, and I also have Bruce add on to this as we go through my answer was, we stepped back and said, what are the areas that we believe end markets have changed or customer behavior is going to change? So one is personal safety. People are still concerned about their personal safety: The masks, respirators and area that 3M has strength. Another one is people are now more familiar with the quality of air in their homes. So home filtration is another area that we believe is a growth vector. And with the strong brand that we have in filtrate, we feel we can be successful. The third is health care in general. And when you take health care, I would break it out in 2. One is just active wound management, so the Acelity acquisition that we did; as well as the wound portfolio that we have. And as you start seeing the disease state in the world, we believe that's an area that continues to grow and where 3M's material science capability and global reach can help. Similarly, when you think about biopharma filtration, the products that we make, the filters we make and the growth of biologics over the next 2 years, we believe that's a growth vector. Then I'd say digital. Digital is such a big buzzword that is used, but I'll break that out into three. One is e-commerce. As we have seen customer demands changing or buying patterns changing, where they're doing a lot more in e-commerce, we're spending the right amount of money. We will spend the right amount of money on content creation, so we can take advantage of that channel. But we also play heavily in the semiconductor manufacturing space and we also have space in the data centers. And our belief is, because of the pandemic, years and years of digital transformation has happened in 1 year. And as a result, there's tremendous need for compute power. And we believe that end market will keep growing. And then the last piece of it is auto electrification. As you know, 3M has had a long history of partnering with auto companies and adding a lot of value and innovation to cars as we go into electrification. The material science capabilities that we have in lightweighting, thermal management with batteries, our display technologies and acoustics, I think are all areas that we are excited about and that we believe that 3M can add a lot of value. And through some of the transformation work we've done, some of the structural changes we are doing, it's basically giving us the oxygen, Andrew, to go invest in these growth areas that exist. Bruce, anything else you would add to what I said?

Andrew, one of the things worth mentioning is we have to scale up the pace of respiratory production very, very quickly last year. Certainly, as we came into the pandemic, we had about half of our global capacity that was sitting idle. But throughout 2020, we also invested, along with public-private partnerships, in scaling up our ability to help respond to the pandemic. So we're applying those lessons learned to future CapEx projects and trying to increase the pace at which we're deploying those projects. The other thing I think is important though, as we went through 2020, is external partnerships. So you saw we had external partnerships with Ford and Cummings, on respiratory and trying to help scale up respiratory around powered air supply respirators. Then working with governments all around the world, not just here in the U.S., but really trying to respond to the pandemic. And as you think about going forward, the importance of having readiness programs in place around public private partnerships. So those would be the other couple of things I'd highlight as operationally and then also the importance around having strong external partnerships.

Thank you. So maybe another thing we can touch on is it's -- China recovery, right, because very profitable business. You guys were there first. I believe you have the first roof in China, what is it, 1983, if I'm not incorrect. And how is recovery in China different in this cycle? What are the new opportunities for 3M as China shifts CapEx to more value-added technology, like semis, health care? And one of the things -- consumer has never taken off in China. Can you sort of do something with that? And then on top of it, there is sort of the foundation of the China business. What's happening with the automotive? We probably can spend an hour talking about it, but you have mix shift between Chinese OEM and Western OEMs, you have the rise of EVs. As I said, we can probably -- look, I've been to China spend days, like literally talking with you guys about China. But just like 2, 3 minutes on what's happening there in terms of various sort of vectors as you've described it.

Sure. So China is a big market for us, Andrew. It's nearly 10% of our revenue. We have had a long history in China. We are proud of what we've accomplished in China. There's a lot more, as always, we can do there. For us, if you look at 2020, overall, China grew at 3% for 3M. The third and fourth quarter was definitely much higher. We grew nearly 13% in the fourth quarter. China growth in 2021 continues to be strong. Areas, I would say, as you mentioned, if you look at our business units, most of the business units were up. Health care was down in 2020, but that's because of the pandemic, the amount of elective surgeries were much lower versus 2019. You're right that there's a lot more opportunity. Consumer is an area that with all the investments we're doing, with the investments we're doing in e-commerce, our hope is that we continue to grow in China. Filtration has been a big piece. And then auto OEMs, the EVs, it's important for us to be on the local, global OEMs, and we have had quite a few wins, continue growing from China.

I think, Bruce, I think we lost you back there.

That will continue to remain a big market for us.

Got you. I think we're lost there for a second. But if you can hear us, I'll ask a follow-up question, we'll see if this works. One of the things, it's like, do you think 3M brand was enhanced in China? Do you think it was an opportunity, right, because your masks were so visible and brand association between 3M and quality was so visible through COVID. Do you think there is a way for 3M to monetize this sort of this brand equity and goodwill that you've developed over the past 12 months?

Andrew, I'm struggling. I don't know if the link is at my end or it's at your end. But I think I heard the question. The question is respirators. Is that right?

No. We'll go to that. The question is your brand in China, given all the sort of coverage you got with respirators. It looks like we're finally actually back being in sync, yes.

Yes.

Maybe not.

It's breaking out, I think. Sorry, there's a bad connection. So I keep hearing every alternate word. I can dial in from an audio line. But I'm sorry, the question you said is the brand back to where it should be with what we did with the respirators in 2020.

That's right. And benefits you got from what you've done with respirators, right.

Yes, I think so. I think the company has done an amazing job managing the pandemic at all levels in the rest of the world. So I'm very proud of all the work that the 3Mers have done.

Maybe, Bruce, maybe Monish can dial in on a line, and I'll ask the next question. I'll ask -- you'll answer the next question. Monish can redial in. Maybe that's a better way of taking care of it. So I'll let Bruce answer this question, Monish, perhaps can dial in. So N95 respirators, how should we think about the N95 respirator production volumes and other COVID-related PPE in second half '21 and into '22. How long do you expect the respirator tailwind to last? And what happens to capacity, right? I know that I'm going to store a lot more respirators at home after this, and I did have some going into this. But just maybe you can talk about how do you transition to post-COVID on N95s, and other, sort of, and other components?

Yes, sure, Andrew. As we came into 2020, we had roughly about $600 million of revenue from N95 respirators in 2019. As we went through 2020, we increased our capacity roughly about 4x our output, about 4x throughout 2020. And so that we exit the year at about a $2.5 billion -- or 2.5 billion unit run rate. In 2020, we produced and distributed about 2 billion respirators globally across the world. So as we start 2021 right now, we continue to see the demand across the entire PPE end market is greater than the entire industry's ability to supply. So for 2021 right now, we still see very strong demand. As we get out into 2022, 2023, I think we'll have to see. As we came into the year, about half of our global capacity in 2020, was essentially sitting idle. And what we had done over the past couple of decades, was as we saw what we call these ex-factory events come along like H1N1 or Avian bird flu, SARS, tsunami, or the unfortunate event of wildfires around the world, we had invested in additional capacity. So -- and that additional capacity allowed us to double our output within weeks early last year. So if the end market demand declines, we will do like we've done in the past, we'll idle that capacity to be there and ready for the next unfortunate event that would take place around the world. But as we see it right now, Andrew, we still see the very strong demand. The other thing we don't know at the end of the day is will consumer, us as individuals, will our behaviors change as we're out and about in everyday life. In many Asian cultures, people wear respiratory protection when they're out in their everyday life, will that change in other areas of the world. So it's certainly possible that the entire end market actually has expanded. Ultimately, how big is the guide, we'll have to see.

Got you. Monish are you back?

I think I'm back, let's see if it stays.

Okay. So maybe the next question, consumer business, just, a, how is consumer business just strategically exiting COVID and what can 3M do to strategically operationally enhance the value of this business in the long run?

Yes. I think that's a great question, Andrew. On the consumer side, as I said, the business had a decent growth in 2020. We grew around 4% in total. You can see the growth that we had in the third and fourth quarter. We saw a tremendous growth in a couple of our areas, home improvement, home filtration as well as home care. The station and office supplies division, of course, was impacted by people not going to work. We have, I would say, strategically invested money both on new product and work in production. We have also invested money in more advertising and merchandising that helps us continue to play in this space and continue to be a strong player in this space. E-commerce was a big change in buying pattern for a lot of consumers. We've had tremendous growth on our e-commerce platform. We have a good partnership with most of the big retailers in this topic. We believe that the continued investment in that area, with the right content creation, using data and data analytics, can help us continue to grow in that e-commerce space. But it also help us grow in the rest of the space. So to summarize, we believe that with the innovation that we've made, the investments we are making in home filtration, with our Filtrete brand, increasing capacity, adding more advertising and merchandising to make sure people know the products we sell, as well as using data and data analytics, we believe that we will continue to drive the strong position that we have in this space.

And 2 questions. Do you feel this is the question I was trying to ask, I think, China, but probably applies overall to consumer. You got a lot of sort of free advertising on your brand for all the wrong reasons, but it's there. Are you seeing any benefits on the consumer side from better consumer recognition of the 3M brand? So that's part 1 of the question. Part 2 of the question is sort of related. But on e-commerce, what kind of changes do you need to make to, sort of, internal supply chains and warehousing to deal with the e-commerce channel better, right? Because it is a different business model. I've seen over the years sort of the steps you've taken. Do you need to do a lot more to sort of align consumer better with the new e-commerce channel?

Yes. I think 2 great questions. So definitely, listen, the brand has got -- is very positive with all the work the company has done in fighting the pandemic. But I would also say our own other brands that are sub-brands underneath 3M, whether it's ScotchBlue, Scotch-Brite, Scotch Tape, Meguiar's, are all category leaders by themselves. And so I would say, as consumer demand was strong in these areas, we are the category leader. So that's kind of the first brand you think of when you go and buy the product. I would say on e-commerce, a couple of things we have to keep doing. As this market evolves more to an online model, content creation becomes a very important piece, not just on the supply chain side, but the front end, so that consumers can actually see and feel the product without having to go physically to a store to see it. So that's an area we are going to continue to invest in. The other piece you brought up, Andrew, on supply chain, stocking models, warehousing, who does the last mile? Is it one of the retailers who do the last mile? Do we do the last mile? I think all of that will evolve over time. But what is clear is data and data analytics will become a huge piece of this whole journey because you can then determine what inventory level you need there and at what cycle time, consumers need it so we can deliver that. So that's the evolving part. And I think the team spent -- has invested enough amount of money. There's always more we can do in this space, and we are continuing to build a platform here that will help us take all the data that we get and help us predict better where our stocking levels should be and what should be the stocking level, so forth.

And the last question, I have the CFO here, so capital allocation question. So what are the company's capital allocation priorities for the next 2, 3 years? What is the right target leverage range, payout ratio? And finally, how would the rating agencies look at potential PFAS liabilities? And how does it fit into sort of your long-term capital planning?

Sure. So I would just start with capital allocation. Number one, I would say, 3M's hallmark has been strong cash flow, good and conservative capital allocation structure. When I think about the 4 priorities, number one is organic. I just believe, Andrew, the more we can invest organically, that's the best use of capital to get the best return. The second is dividend. Dividend has been a big piece for our shareholders. We have increased dividend for the 63rd year in a row. The third is M&A. When we look at M&A, we look at targets that are complementary to 3M, that can add more value to 3M. But at the same time, can 3M add value to their target through using its manufacturing capabilities, its global brand, its global presence. What I would say in that area, we are always actively talking, and we always have an active pipeline with people. I would just not expect an acquisition the size of Acelity in the near term. And then the last one of that is share buyback, which is the last capital allocation priority. When I think about the debt leverage ratio, you've seen the company has done a great job in generating cash in 2020. We generated $6.7 billion of cash. We reduced net debt by approximately $4 billion. Our net debt-to-EBITDA leverage was at more than 2.3 in 2019, came down to 1.5 in 2020. And our goal is to continue to have a strong balance sheet, and we are ready to move in either direction from that 1.5, depending on what the environment is and depending on the opportunity that exists. As regards to rating agencies, Andrew, I can't comment on how the rating agencies think about PFAS. But just like -- we are blessed to have a great relationship with analysts like you on the buy side and on the sell side. We have a great relationship with our rating agencies, and we are in constant dialogue with them as they see the need and talk about the future of the business and the exciting opportunities that exist for 3M.

Well, I am very glad that you made time for us today. It's always a pleasure. And thank you so much for joining us. And everyone, if you have questions, feel free to reach out to me or you feel free to reach out to 3M team, you know where to find them. Thank you so much for joining us, Monish, Bruce. Hope to see you soon in-person.

Thanks for having us, Andrew, and I wish everyone, hopefully, everyone stays safe. So thanks again. Wish you have a great day.

Thank you, gentlemen.