3M Co Earnings Call Nuggets: Pricing and Inventory Trend, Raw Material Cost
Pricing and Inventory Trend
Steven Winoker – Sanford Bernstein: Could we just maybe start with pricing and inventory trend on the pricing side, you got healthy 1.1% again which is great in more value versus raw materials, but this is also down I guess on the pricing side from last quarter year-on-year. Maybe just talk about the trend and the sustainability what your expectations are both into next quarter and as you see going forward? What’s the ability of the organization to continue to get pricing in the near-term?
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David W. Meline – SVP and CFO: Steve, so if you think about pricing in terms of what we have talked about this year, we indicated in the last call that we thought we would have about a 1% price performance for the calendar year. As we look now at Q3 and into Q4, I think it’s going to be 1% plus, so maybe a little bit above that level. If I look more specifically at, as we trend to the end of the year I think we will have positive price performance in Q4, but it will be a little bit less than what we saw in Q3 and its very consistent with the plan that we had in place which is where we took quite significant price adjustments here late last year and earlier this year. In the current environment we don’t see both on the negative side we are not seeing significant concerted price pressure on the business. So, we are able to be in more of a holding pattern on the context of weaker raw materials. I would say the one exception there which is probably no surprise is we are seeing typical price dynamics in our electronics businesses specifically in optical systems where we will probably see double digit price declines on the year which is pretty typical in how we plan the business.
Steven Winoker – Sanford Bernstein: On the inventory…
Inge G. Thulin – Chairman, President and CEO: I will make a comment on inventory. Now as we are three quarters into the year and we and all of our customers went into a year which we knew will be uncertain. I think everyone have really focused on the inventories and the turns, but both ourselves and our customers. So, as we said on the last call, it is managed very well. So, we don’t see it as an issue by definition. I think the inventories generally speaking are very well in line with demand. I think we saw a little bit of uptick relative to TV sets whereas as you maybe recall, last quarter, we said it was seven weeks. It’s slightly higher, but not much, but I think that’s the only thing we have seen and then I will say in the retail side, they also manage it very tight. So, when we look upon back-to-school, this year, it was okay. It was not great, but that’s indicating for us that they are managing the channel very well. So, as we see today broad-based everywhere it looked like maybe due to the fact that everyone went into this year with a view of uncertainty is managed very, very tightly. So, we have not seen a change from last quarter by definition.
Steven Winoker – Sanford Bernstein: Inge, could you maybe comment, on the segment realignment, we haven’t heard much in a way of cost repositioning as a result of the realignment. What is your view on the implications on the cost side?
Inge G. Thulin – Chairman, President and CEO: Well, this was done in order to serve the customers better and make sure that we can accelerate growth. So, I think that’s the starting point to make sure that is the primary objective. So, our focus here was to make sure we get more aligned with our customers and the market, create, I would say speed in between what we call customer inspired innovation right back to our laboratories and back out again, so we can commercialize faster. So, I think that’s the prime thing for us to be able to do and that is where we focus now. Now, by definition, we should see which is billed into our overall aggressive model some productivity improvement, but I hope that we should be able to reinvest that in order to get the growth rate up a little bit higher than we see it today. So, I will say that we will be efficient in the organization hopefully with less internal meeting, more external meeting, but use the resources in order to make sure we align with customers, so we can get these things going. As I said in my opening, I received multiple, very positive response from very big global OEMs that really can see this as a benefit for them and us in the way we work. So that’s how I will look upon it and as you know, we are driving our model constantly in terms of improved productivity and efficiency. So, the prime objective here was to be offensive and make sure we align better with the customers and the market.
Raw Material Cost
Ajay Kejriwal – FBR Capital Markets: So, maybe just continuing on that pricing question, sounds like it still will be positive in 4Q, could you maybe comment on raws, so it looks like that pricing raw spread was nice positive 3Q, how should we be thinking about that spread into the fourth quarter?
David W. Meline – SVP and CFO: So, if you look at raw material cost, you’re right. We did see actually what we expect to be the best year-over-year comparison here in Q3 for the year which was over a 2% decline in raw material cost, and right now what I’m looking for, for the full year is around 2% including continued positive performance in Q4. Although we are starting to get into a period now by Q4 where some of the trends in raw material price declines were already starting to be apparent last year. So we are starting to get into a year-over-year comp issue but nonetheless we think that we will continue to see good performance on that side.
Ajay Kejriwal – FBR Capital Markets: Then on your margin guide, the low end kind of implies 4Q margins will be flattish year-on-year and you have been seeing nice improvement last couple of quarters. Sounds like you will continue to manage costs and pricing raw materials will be a positive. So how should we think about that low end, is that just being conservative or is there any of the segments that we should be thinking about?
David W. Meline – SVP and CFO: So, if you look at the balance of the year in the guidance, basically I think it would be fair say you would align the low end revenue guidance with the low end margin. We don’t see any particular notable change in terms of the trends of the business sectors other than the fact that seasonally we always have slower sales in the fourth quarter and lower margins. But no particular trend to note other than the fact that we have seen what we believe will be the bottom in the electronic cycle as we’ve been calling for through the level frankly through the last five quarters. So we will see some continued positive trend on the electronics space although that’s frankly more of a comps issue right now than necessarily seeing the kind of strength that we had originally foreseen in that recovery.
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