3M Company (MMM) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to the 3M Investor Update Conference Call. [Operator Instructions] As a reminder, this call is being recorded Wednesday, November 4, 2026. I would now like to turn the call over to Chinmay Trivedi, Senior Vice President of Investor Relations and Financial Planning and Analysis at 3M.

7 Good morning, everyone. Thank you for joining us today. Yesterday, we announced that we have reached a settlement to resolve the personal injury claims at the center of the Aqueous Film-forming Foam Multi-district Litigation or the AFFF MDL that is pending in the federal court in South Carolina. On today's call, we will highlight the key terms of the agreement and its financial implications. The 8-K we file includes the settlement agreement itself, and I direct you to that filing for the specific terms of the agreement. Please note that associated with the settlement will be reflected as a special item when arriving at 3M's adjusted results. Please also note that there is no change to our financial guidance for the full year 2026 and the framework for 2027 that was previously provided on October 28, 2026. With me today are Bill Brown, our Chairman and Chief Executive Officer; Kevin Rhodes, our Chief Legal Affairs Officer; and Anurag Maheshwari, our Chief Financial Officer. Bill, Kevin and Anurag make some formal comments, then we will take your questions on topics exclusively referenced in today's call. I would request that you limit your question to 1 per participant to keep the call timely and efficient. The press release and the slide presentation accompanying this call are posted a homepage of our Investor Relations website at 3m.com. Before we begin, please take a moment to read the forward-looking statement. During today's call, we will make predictive statements that reflect our current views about 3M's future performance and financial results. These statements are based on assumptions and expectations of future events that are subject to risks and uncertainties. Item 1A of our most recent Form 10-K lists some of the most important risk factors that could cause actual results to differ from our expectations. With that, please turn to Slide 3, and I'll turn it over to Bill. Bill?

Thank you, Chinmay, and good morning, everyone. Let me start by framing where we are in our PFAS litigation docket. There are 3 broad areas that have been the most active. The first is the public water suppliers, the subject of our 2023 settlement. The second is the state attorneys general cases, which we continue to manage. Last year, we announced our settlement with the State of New Jersey that was approved by the court earlier this year. And the third is personal injury. The subject of the agreement we announced yesterday. This settlement represents a significant milestone in addressing the personal injury litigation and more broadly, another significant step forward in managing 3M's legacy PFAS matters. We set out to accomplish 3 goals in getting to a resolution. One, achieve a total dollar amount and payment schedule consistent with our cash generation capacity and capital allocation priorities and commitments; two, obtain broad risk mitigation in the personal injury docket, and three, have the MDL Court defer consideration of further proceedings as to 3M for a period of time, which we expect the court will do as part of this settlement. With this agreement, we accomplished all 3 goals. The process over the past year positioned us to resolve the core of the personal injury docket on terms we view as favorable. Over the course of this year, the MDL court followed a process to require the filing and vetting of claims to establish whether each of the plaintiffs was entitled to litigate in the MDL. We have previously noted that according to official court records approximately 15,250 cases are pending in the MDL and we have stated that many of those have multiple plaintiffs. Following the vetting process, we now estimate that approximately 115,000 to 120,000 plaintiffs will be able to participate in this settlement. This agreement addresses a material risk for the company and is supported by the plaintiffs Leadership Committee and the AFFF MDO cohort. And as Kevin will explain in a moment, it provides a framework for addressing both existing and future personal injury claims. Importantly, we structured $7.35 billion nominal commitment to be made over 9 years with significant payments not beginning until 2028. We will take a pretax charge of $5.8 billion, representing the present value of future payments, which will exclude it from our non-GAAP results. These cash flows are in line with our other known obligations, allowing us to continue investing in the growth of the company, consent with our broader capital allocation priorities. Going forward, we back the AFFF proceedings to take into account the significant work 3M is to resolve both the PWS claims and the personal injury claims. And we anticipate the MDL court to issue an order deferring consideration of further seatings as to 3M while we implement the settlement. Finally, let me put this announcement in context. Resolving this major piece of our past docket allows the team to bring even greater focus to our enterprise priorities and commitments to our employees, customers and shareholders. This settlement is consistent with our commitments to drive long-term shareholder value that we made at our 2025 Investor Day, our guidance for the remainder of 2026 and our framework leading into 2027. To walk through the specifics of the agreement and how it mitigates material risk to 3M, let me turn it over to Kevin.

Thank you, Bill. Please turn to Slide 4. This settlement is designed to meaningfully reduce 3M's current and future risk. Agreement does in 3 primary ways. One, the vast majority of personal injuries are eligible to participate. Two, it includes financial incentives to drive plant participation; and three, it addresses the risk of remaining and future claims. First, the vast majority of personal injury plaintiffs are eligible for this settlement. As Bill noted, we have completed the court order vetting process, about 40,000 claims and dismissed without prejudice. We expect about 115,000 to 120,000 plaintiffs inside and outside the MDF to be eligible to participate in the settlement. That is the vast majority of current personal injury plaintiffs. Importantly, eligible claims include all 6 health endpoints that have been the focus of the litigation. Participating plaintiffs will sign broad releases of their claims and potential claims. Second, the agreement is structured to drive broad participation by setting plaintiff participation thresholds with certain payments triggered upon reaching those thresholds. One threshold applies across all eligible plaintiffs and a separate 1 applies to certain higher-risk claim types. As shown in the appendix, about $6.27 billion of the total settlement amount will be paid annually from 2028 to 2033 once those participation thresholds are met. If the eligible plaintiff participation percentage falls short of those thresholds, 3M has right to walk away from the agreement, although we do not expect that to happen. I will note that this agreement includes no admission ability. so if the thresholds are not met, 3M remains ready to continue defending itself in the litigate. 2 additional payments within the overall settlement amount of $125 million each will be paid in 2029 and 2030 if participation reaches even higher levels. Finally, the agreement and the order we anticipate the MDL court will enter address remaining risks from plaintiffs who elect to continue to litigate and for personal injury claims inside and outside the MDL through several measures. First, we expect the court order will set forth evidentiary and timing requirements in the MDL for personal plaintiffs who don't settle and for future plaintiffs. Also 2 additional payments of up to $50 million each in 2031 and 2032 also within the overall set amount contingent on our future docket. Finally, the agreement established as a reserve fund of $680 million, not fully paid until 2034. Together revisions are designed to provide a framework for addressing both existing and future personal injury claims. Over the coming months, we will work with the parties and the MDL Court to establish the settlement administration process notify claimants and confirm their participation. We will provide further details in our SEC filings as appropriate, and I refer you to our 8-K for the specific terms of the settlement agreement. With that, let me hand it to Anurag to cover the financial aspects of the agreement.

Thank you, Kevin. Turning to Slide 5. We believe the strength and financial terms of the agreement maintain our capital demand flexibility. The agreement provides for a total nominal value of $7.35 billion with payments spread over 9 years. We will take a pretax charge of $5.8 billion representing the present value of future payments and consistent with our recent practice, the charge will be excluded from our non-GAAP results. Additional detail will be included in our SEC filings. The settlement, including the amounts and timing of the payments is structured to align with 3M's other known obligations and, at the same time, preserve optionality for other capital priorities. As shown in the appendix, the series of payments will start with $50 million in 2026 with no payment in 2027, and the remaining payments are spread across 2028 to 2034, with roughly 20% of the total falling in the final 2 years, 2033 and 2034. The combined cash payments to meet public water suppliers, combat arms, New Jersey and personal injury settlement obligations step down every year from 2027 to 2034. and by the end of 2034, we will have paid down all of Combat arms, personal injury and virtually all of PWS. While the payments stepped down, we believe our free cash flow expected to be $4.8 billion in 2026, will grow with earnings as we continue to execute on our strategic priorities. The growing cash flow, combined with the ability to monetize our 15% stake in Solventum, future insurance recoveries and access to capital markets give us confidence in meeting the obligations under this agreement and while executing on our priorities. Overall, we believe that this is a well structured event that takes meaningful risk off the table and preserves our capital allocation flexibility to drive shareholder value. With that, I'll open it up for questions.

[Operator Instructions] Our first question comes from the line of Jeff Sprague with Vertical Research.

Congrats on getting this done. I just wanted to come back to the cash flows associated with this, perhaps for Anurag. You did mention insurance recoveries. Would this be inside kind of the existing insurance you were using for PWS and liabilities. And secondly, you are taking a pretax charge and talking about this pretax NPV, but is this a tax-deductible expense event for you? .

On tax, yes, consistent with the prior settlements, we expect the settlement payments to be tax deductible as they are made. The disclosed settlement value of $5.8 billion isn't it on a pretax basis and does not reflect the anticipated tax benefit. And on the insurance recoveries, yes, it will be part of the overall insurance recoveries as well.

Our next question comes from the line of Amit Mehrotra with UBS.

Maybe just talk about what's left? I mean, we have public water in New Jersey, obviously, was a big one. This is a very big development as well. But I think you still have about 30 state AG offices. Just help us think about the magnitude of how you think about that liability in the context of everything else? And just, Anurag, related to sort of the big share repurchase authorization or re-up of that does what happened in the last 24 hours in terms of the announcement sort of change your approach to -- or the company's or the Board's approach to return capital to shareholders sort of in the near medium term?

Thanks, Amit. Look, as we've described many times before, the 3 broad areas that are most active in the PFAS docket, the first of which was the U.S. public water suppliers subject of the 2023 settlement, as I noted in my prepared remarks, and we continue to manage out in the PWS settlement. The second is around the AG cases. Most are within the MDL. There are others outside of the MDL like the state of New Jersey, which we've resolved, and we continue to manage those. And of course, the third is the PI cases that's the subject of yesterday's announcement. There's other matters that we regularly up investors on through our SEC filings, lots of actions around some of the former PFAS manufacturing sites prior to us exiting PFAS manufacturing at the end of last year. International matter continue to track and report in our SEC filings. They all move on their own individual time line -- and for all the other cases that are out there, I would just refer you to what's in the SEC filings. And I'll turn it over to Anurag for the other part. .

Okay. Thanks, Bill. Amit, as I mentioned in my prepared comments, we will follow a balanced capital deployment strategy, very consistent with the Investor Day framework we laid out in February of last year. The first part is to focus to focus for us is to invest in the business to generate strong free cash flow. Our guidance for the year after funding over $2 billion of R&D and CapEx is to generate $4.8 billion of free cash flow, and we expect this to grow with earnings. This, combined with our cash in hand of over $5 billion or almost 2x of what's required to run the business, monetizable assets such as Solventum stake and a healthy balance sheet allow us to meet these obligations and at the same time, keep flexibility for future capital deployment priorities, which include dividends, M&A and share buyback. So I would say overall, the increase in authorization just reinforces our commitment to fulfill deployment priorities, and there's no change to our overall framework.

Our next question comes from the line of Julian Mitchell with JPMorgan.

This is [indiscernible] for Julian. And congrats on the resolution. So my first question is, as the peak cash outflow year for the combined liabilities of PWS personal injury and combat arms in 2027 and then it steps down from there. But just can you calibrate us on what that number is of the cash outflows from the liability payments? And then as a follow-up, just can you calibrate us on what this news means for the near and medium-term balance sheet leverage?