Some of those are seeing some, you know, market trends that are not as strong a growth patterns, but they are great areas for innovation and long-term growth trends that we participate in. Then we're investing in new platforms in emerging areas like climate technology, industrial automation, and the next generation of electronics. So you saw that come through our results. We increased our full year guidance for Adjusted EPS and for our cash flow conversion range. We talked about our growth. We had been saying our guidance for growth -3% to flat for organic growth. We have been talking about being lower, towards the lower end of that range, and we updated our guidance today; we'll be at the low end of that range, approximately -3%.
The second of our priorities is successfully spinning out our healthcare business, and we're making good progress there. We named the CEO and the Chair for the new company. We also, subsequent to the Q3 earnings, we announced the CFO for the new company. So we've got the leadership on board moving forward with that, with the progress towards, you know, completing the spin in the first half of 2024. And then a big focus for us is managing risk and uncertainty proactively and effectively managing the litigation in front of us. We had two settlements that we announced over the summer. Combat Arms, which is a settlement agreement that was announced in August. The parties, the courts overseeing the settlement, we're all working towards full implementation of this.
Currently, we've received more than 30,000 releases from the Combat Arms earplug claimants. We've resolved all the adverse weather verdicts, and we're moving forward with the process to pay the settlement to the early releases by the end of the year. The registration process for claimants continues, and we expect that to be, anticipate that to be completed by late March in next year. Just maybe a few words on the public water supplier settlement. We remain focused on supporting this agreement. We're working through that, again, with all parties and the courts. We're... You know, we have a settlement that will benefit the vast majority of public water suppliers in the US. This is a broad class to resolve the PFAS remediation for those class members.
A final approval hearing is set for February 2, 2024. We've got a December 11 opt-out deadline, another step in the process, but through that process, through the steps that follow, we'll be working towards that final approval in February. And then I would just say we expect to continue to build momentum. We're delivering strong performance and building momentum off of the execution of these priorities, and as we exit the year, we expect to be stronger, leaner, and more focused as we go into next year. So maybe that's a good frame up for the discussion here, Nigel. I'll turn it back to you.
Mike, you've touched on pretty much every question I had, so, thanks for doing everything in, you know, five minutes that I planned to spend half an hour talking about. But, you talked about, maybe just touch on the updates on the sales guides, so the low end of the range. Maybe any color you can provide in terms of what you're seeing out there, and maybe what's driving us towards the low end of that range.
Yeah, you know, we talked about what we thought we'd see in Q4 at the Q3 earnings call, and so now two months in, I would say it's trending in line with what we expected, what we laid out. And just, you know, a couple of market indicators. Consumer retail demand continues to remain soft in our categories, the hard line goods, something that we've seen all year. We saw, you know, in the first half of the year, considerable focus on reducing inventory by the retailers themselves. That's more stable now as we come into the quarter, but it's the retail demand in that category continues to be soft. Electronics, the end market is stabilizing really year over year. We're paying attention to the seasonal holiday demands and watching that closely.
Our industrial customers, maybe notably, have been bringing down inventory levels as they have a cautious outlook and also as supply chains perform better, they're reducing their safety stock. They're looking at better supply, so they're able to take advantage of that. Healthcare is generally stable. We're seeing maybe a little bit of destocking in the biopharma channel. They've had significant inventory coming off the peak demands in the pandemic. And so it's, you know, as we go through the quarter, pretty much in line with expectations, the way we laid it out previously.
Okay. Okay.
Hey, Nigel, just to clarify for everyone, the -3% is exactly what we said in our October earnings call. So there's no change to that. We are gonna be at the low end of the full year expected range of flat to -3%.
Right.
Yeah.
As Mike highlighted, Q4 is trending right in line with two months in, right in line with where we thought we'd be.
Yeah, that's correct.
Okay, okay,
I just want to make sure that's clear for everyone.
Very, very clear. No, that's... Thanks, Bruce, for clarifying that. Just, I just want to double-click on the industrial inventories, because that's obviously a big topic of concern, I think, for some folks out there. So, any visibility, Mike, in terms of where we are in that process of industrial inventory correction?
Yeah, I would say it's not at the same level. Certainly, Nigel, is what we saw in the retail channel as they were trying to adjust for the change in demand and the shift to consumer spending from one category. I think the sellout continues to be, you know, in line with expectations. This is really taking advantage of improving supply chains. It's... Yeah, we're all doing that. We're putting a focus on our working capital, and that's an important part of it, having, you know, more reliable supply of raw materials, being able to run our production plans according to plan, not having to interrupt those. Those are, everyone's taking advantage of that. Safety stocks can come down. You don't have that variability in supply.
So I think it's really more of that playing out, and, you know, that's been kind of a you know, incremental process that's been playing out over the last number of months, and probably will continue. So it's not a... I think there's caution, so there's no... no focus on building inventory in the channel, but it's a, you know, matter of taking advantage of improving supply chain.
Okay, that's very clear. And then one more. I promise this is the last question on inventory. So biopharma, it just feels like we've been clear in inventory for the longest time, and I know it's not a big business for 3M, but again, any thoughts on when we might see the turn in biopharma?
Yeah, we were looking at it playing out through this year. I think you're seeing some of the demand in the end markets not where expected. So, you know, and you see that related to COVID products. That was part of it. So we're, you know, we're looking at, you know, 2024 right now, so we don't have an update for you yet, but I would say we expected it to play out through the second half. It's something that we, you know, continues to play out in the fourth quarter. We'll update you on where we think we sit as we get into 2024.
Okay. That's, that's very clear. You mentioned supply chain, and, maybe just talk about, you know, with, you know, what, what happened during COVID, some of the supply chain, shock that we saw. Has 3M used, this sort of intervening period to, to realign supply chain? I'm just curious, you know, if some of this, you know, reshoring that we're seeing, if that's an opportunity for maybe 3M to procure more, you know, chips over the medium term from the U.S. or, I mean, any thoughts there?
Yeah. Supply chain's been an important focus. Our manufacturing capabilities, our supply chain, being able to, you know, serve our customers globally has always been a strength of the company. In early 2020, right before the pandemic, we realigned the company to a global business-led model, and importantly, we went to a global supply chain model, leveraging those strengths. And as we've come out of the pandemic, we put a big focus on executing that well, driving more agility through our supply chain. And it's really, for us, it's a global supply chain executed regionally. We build our manufacturing capacity close to customers to serve those customers. The majority of what we sell in Europe, we make in Europe. Certainly, a majority of what we sell in the US, we make in the US, and same for Asia, China, and other regions of the world.
The U.S., we actually are a significant exporter, given our history of building capacity here. We don't replicate every production capability around the world. So we're a significant exporter out of the U.S. But the rest of the world, you know, building that capability close to customers. So we're there as customers adjust their supply chains. As we've seen electronic supply chain move around Asia, we have had regional capabilities to be able to serve that, and we'll continue to adjust. Well, we haven't seen dramatic reshoring in terms of volume and capacity at this point in our supply chains, but there are certainly plans out there. You see it in the, you know, semiconductors, you see it in other areas to reshore. So we're in a good position to be able to manage that.
It's where, at the same time, we're simplifying our supply chain to better serve, to better align with each of our go-to-market models, our retail model, our healthcare model, our B2B industrial model, our OEM direct model that we serve automotive electronics customers through. So I would say we continue to see our efforts on improving that supply chain, driving improved operational execution. I called out productivity and yields; we're – that's partly raw material supplies getting more stable. It's a big part of it, what we're doing to execute better across our supply chain. So a leaner overall supply chain, the restructuring actions that we took in the first quarter were, you know, part of really supporting that longer-term plan to just drive this global, leaner supply chain structure.
We're making good progress, well positioned for customers as they change their supply chains around the world.
Okay, that's great. I want to touch on restructuring, the restructuring program. You've got a, a pretty meaningful, program in, in, you know, underway right now, $800 million at the midpoint. You know, sometimes when you're doing these large restructuring programs, it's, it's difficult to get it done expeditiously. So I'm just curious, you know, how you're progressing with that, that program.
Yeah. We continued to remain on track, I would say, for what we announced at the beginning of the year. We talked about $700 million-$900 million, about half of that in 2023. We'll actually go into 2025 to complete all of the restructuring, but we're on track for what we had talked about. We've got, we've called out—we've been calling it out quarterly to kind of give everyone an update on how we're progressing with that. And so for Q4, we called out charges of $70 million-$120 million. We've talked about benefits of $145 million-$195 million. We're on track for that. And these are, reminder, these are actions that we announced in Q1, and they were pretty significant.
6,000 jobs that overall for the company is about reducing costs at the center of the company, reducing layers of management across the company. I would say, taking a focus on a structure at the center of the company in line with the spin of healthcare. And also, a big part of it was simplifying our supply chain. So about a third of that focus was on really a bottoms-up, what do we do to make our supply chain... You know, more efficient, more streamlined across plan, source, make, deliver? And then there was a streamlining of the go-to-market models. We went to that business group-led model that I talked about. We learned as we've executed that coming out of the pandemic, and so we took advantage of that to streamline that as well. And then, importantly, we made some other changes.
We decided to prioritize markets around the world a little differently. And in twenty-seven countries to date, we have changed our model to partnering with local distributors, and so we've really streamlined that part of our global business. It's about a little less than 5% of our revenue, but it's an important focus for us as we think about that restructuring. So I'm confident that we'll deliver what we committed to deliver, and we'll update you, as I said, as we get into 2024.
This total program, this takes care of the stranded costs from the healthcare spin, so there's not another program on the back end of that?
... Well, there's, you know, we called it out as addressing about half of what you would expect from stranded costs, this restructuring that would, that was, you know, there's especially reducing costs at the center of the corporation. We will manage additional stranded costs as we go through the TSAs, as we go through the TSMAs. We've got, we've got that part of the, you know, supporting the spin successfully, so we will address that over time as, as we execute those.
So if I take the—I mean, this is basic math, which is kind of what I'm good at. But, you know, if I take the midpoint of your 4Q cost savings and multiply that by four, then add in a little bit, maybe on top of that for 2024, I mean, it seems like you've got maybe $700 million plus of analyzed cost savings in 2024. Is there anything that's wrong with that analysis? So anything that goes against this? Because it does look like you've got a significant margin tailwind coming through in 2024. And again, I'm not asking for 2024 guidance here, but it just seems like you've got a big margin tailwind coming through.
Yeah, Nigel, there's other factors that go into how we're gonna talk about margin for 2024, and certainly the restructuring actions are important, and following through on executing those are important. Driving the performance of our supply chain, the way I talked about growth, is really important. So again, we're working on our 2024 plan. We'll come back at our Q4 earnings call with more details and a better answer for your question.
Okay. Yeah. I'll ask the same question in January.
Yeah.
Nigel, just a quick item. You know, relative to the total savings we had laid out, there is some expected investment in those savings. For example, the 27 countries Mike talked about. As we take those markets from a locally run unserved market to more of a distribution market, there's investments we got to make relative to, for example, some IT capability, as we transition the business model serving those countries. So those investments will be coming in 2024. So that's why as you think about the cadence of the restructuring and the benefits, there are some investments that we got to make as we go into 2024, relative to some of the changes that we're making.
Okay. Thanks, Bruce. And then just maybe one more on, you know, maybe slightly different focus on margins, but productivity. I'm thinking about factory productivity, which took a big hit during the supply chain sort of, you know, shocks that we had. Where are we right now, you know, where are we tracking right now in terms of factory productivity relative to perhaps where we were in 2019?
Yeah, it's a really important focus, as I said, and what we're doing to execute the priorities that are in front of us. And we've been driving improvements, and it's showing up in the operating margin, the adjusted operating margin. I talked about that focus on productivity. So we are driving improvements, and those improvements are coming from, as like I said, more reliable supply of raw materials, but importantly, from what we are doing. We're investing in productivity through greater automation. We're leveraging data and analytics to drive better visibility of our opportunity and very clear view of where we can drive productivity, and importantly, with productivity, improving yields through our production lines. And so making very good progress.
It's, we expect it to be part of the momentum that we're gonna carry into 2024, and we'll continue to build on that.
Okay, great. Thanks, Mike. You mentioned we touched on the two settlements in your open remarks. I think you talked about so the deadline for the opt-outs is next week for the public water settlement. Any color you can give us in terms of, you know, how... I don't know if you can talk about, you know, how that's been tracking, but, you know, the confidence in sort of achieving the right level of, you know, sort of non-opt-outs, I guess.
Yeah, it's something, you know, we're engaged with, you know, as a part of the process. So December eleventh, deadline for opt-outs. There are other steps that go around that process. Really, what I would encourage everyone is to focus on getting to the final agreements dates for the February second final agreement date. That's the focus at this point, because there are steps in the process, and we'll update as it, you know, as appropriate, as we go through this. But December eleventh, important step in the process. More steps to follow as we focus on getting to that February second final approval.
Great. And then there's a lot of questions around, you know, those, you know, public water utilities that aren't part of the settlement or choose to opt out. Do they have the option to pursue their own legal claims against 3M, or are they somewhat bound by the agreement?
Yeah, that it'll depend on, you know, the specific claimant situation. But they, if somebody opts out, they would have the ability to, you know, pursue other paths. That's part of the. It's a, you know, it's a class settlement. You have to opt. You know, you opt out at your choosing, but that's part of what they'll consider. There's also, just as a reminder, we have been working through objections from claimants as they work through an understanding of the process. So that's an important part of what we're doing, is working through helping to make sure we're answering questions, understanding, and continue to help people make, help the claimants understand the value of the settlement and the path that it represents, you know, the...
And again, all parties, the plaintiffs, committee, the court, 3M, we're all aligned on this is the right settlement to take forward. So we'll continue to work with claimants around that.
Okay, thanks, Mike. And then on the Combat Arms, I think you mentioned 30,000 opt-ins at this point. Just out of interest, I mean, is that a good number at this stage of the process? Are you pleased with that number? Because obviously, the threshold for this one is a little bit higher.
... And remember, we, you know, we have multiple steps that we've talked about. We had the bellwether verdicts, which we resolved and paid the settlement on the bellwether verdicts. The next step was these early participation as well as the wave cases, and both of those are in the process of. The wave cases are a series of cases that were set up for trial, and that was part of a step in the settlements, and we continue to make progress on both those. I called out the early expedited payment settlements that we're talking about because of the numbers that we're seeing, that, you know, that's something that we anticipate paying by the end of the year. So that's the reason I called it out.
That's a $250 million settlement fund that we would expect to pay by the end of the year. We'll continue to progress there. You know, it's March, where we get to the final, you know, the final, dates for the, the number of participants that are finalized, as well as the getting to the levels that are called out in the settlement for, the next set of payments. So again, focusing on from the bellwether verdicts to the wave cases to the early releases and expecting to continue to make progress towards that March, final, final date.
Great. Moving on to the healthcare spin. You've said the first half of 2024. Maybe talk about where we are in the process with the SEC, the sort of the private filing process for the SEC, any steps, major steps that we should be monitoring, for that spin, and then we'll go from there.
Yeah, Nigel, I would say we're working towards the first half close that we've talked about. It's subject to conditions disclosed in our SEC filings. What I can tell you about our progress, aside from that, is that we continue to advance the preparation in the business. We're preparing our systems, we're refining the strategy. I talked about building the team. We also are adding the other leadership positions. We expect to file a Form 10 a couple of months ahead of the spin, so that'll be something you can look for as we move forward. We are operating right now with dual systems to be able to prepare for that. So we're making good progress in the separation, you know, separation preparation.
The leadership of the company is in place, making good progress with the team. We announced the new name for the business, Solventum, and so that energizes, in particular, the employees that will be part of that spin. It makes it a little more real that they're heading towards that. So it's. I think we're getting good energy from the team and again, making good progress on each of those steps. And we'll update you through our filings and as we, you know, as we execute some of those steps in the process, like the Form 10.
Great, thank you. And there's obviously a lot of regulatory approvals required, you know, with, you know, for Solventum as a standalone company. You're confident that you can get those in time for this first half spin out?
Yeah, the team's been working, you know, since the day we announced in July of 2022. They've been working through all the changes that are required, the system changes, as I said, running, you know, parallel systems, standing up the legal entities and working all the regulatory filings. So we continue to make progress and we, you know, we're on track for that first half of 2024 close.
Okay, great. Just a reminder, we're, you know, within 10 minutes of the close here. So any questions for the folks in the audience, please feel free to log those. Maybe think about the 3M RemainCo ex healthcare. You know, you've had this growth algorithm, this global IP, you know, how should we think about, you know, the strategic growth drivers going forward, and, you know, how do we think about the growth algorithm for 3M RemainCo?
Yeah, you know, I talked about in my opening comments too, Nigel, we're investing in areas of strong demand. Market—you know, market trends that are strong, global trends that can leverage our materials science and innovation capabilities. And these trends, never has been a more exciting time for materials science innovation. We're focused on investing in those large, attractive end markets where we see these kinds of trends. So we've been talking about prioritizing in attractive core markets that we have: safety, home improvement, consumer electronics, as I talked about. These are, these are large, significant commercial portfolios for us that leverage the materials science innovation in, in, in really important market trends. And then we've got new platforms in emerging areas like climate technology, industrial automation, next generation electronics. You know, these are how we invest for growth.
We expect to refresh our portfolio and revenue over every five years as a part of our innovation. Our innovation enables growth for us as a company. It also importantly shows up in our margins and cash flow. Leaders in innovation in their markets, in their industries, they typically lead in margins and performance because it represents the value, the differentiated value that you're providing for your customers. And then for us, as a vertically integrated manufacturer and leveraging certainly a lot of intellectual property in our manufacturing capabilities, we also expect to be able to leverage this to drive good, strong gross margins as well as strong cash flow. And those are the hallmarks of really our growth strategy is invest in innovation in attractive markets where we can leverage our differentiated capabilities.
Working customers in, I mean, our model is we're invested in being close to our customers with our engineering capabilities. Majority of our revenue is specified by our customers, so you can see that strong relationship with something that's differentiated. So it's continues to be our focus, and we expect to be able to leverage that, to drive that kind of value creation across growth, margin, and cash.
Okay, great. And then I do want to come back to kind of growth in the R&D and commercialization around that. But does healthcare really mark the final chapter of the portfolio realignment, or do you think there could still be some work to do beyond the healthcare spend?
Nigel, I, you know, I always talk about it this way: portfolio is a continuous process for us. It, it really is a part of our growth strategy, complements what we do in innovation. It's important for us in multiple dimensions. The first is helping us prioritize where we invest organically, looking at where we can have the best advantage from our differentiated capabilities, most attractive markets. It's about identifying acquisitions that, that can put us into new market areas, leverage the strengths of 3M in a greater than the sum of parts, kind of integration. And then it's about really maximizing value for shareholders. This is—portfolio is ensuring that our innovation delivers on that, that focus that I just talked about, and also delivers value for—the most value for shareholders. And so we'll, we'll take actions as we've, as we've talked about.
We sometimes it means operating our businesses differently. Often, it has meant divesting, spinning out parts of the company where an owner that could provide value, and it was greater value for our shareholders. And so, healthcare is certainly the biggest example of that. We, you know, a year... just prior to, well, just a little over a year ago, we completed the separation of food safety, which was a, you know, a materials science-based business in 3M, generating good growth and margins. But we recognized we could create more value with that by separating it and combining it with Neogen, and it's been a very successful combination for that business.
We'll continue to evaluate, actively manage our portfolio to ensure that we're driving our organic investments in the right place, but importantly, also operating our portfolio and managing our portfolio up to and including divestitures, to really deliver value for our shareholders.
Great. Thanks, Mike. You mentioned acquisitions there, and obviously, we haven't seen too many acquisitions in the last, you know, several years. Does the visibility of getting these two settlements, you know, signed off in court approval, does that give you more confidence to deploy capital into acquisitions?
Well, Nigel, our company has a strong balance sheet, as you know, and it's, you know, for 3M going forward, as we spend on healthcare, that balance sheet will get even stronger. So, you know, we are positioned to continue to execute our capital allocation priorities. The first is continuing to invest organically, R&D, CapEx. It's also about prioritizing a dividend as returning value to shareholders. And then M&A is an important way to create value. So we continue to, you know, continue to execute on those priorities. You know, M&A in, you know, the last year in particular, we've been very focused and have tremendous amount of resource going into successfully spinning off healthcare.
So that is the priority number one right now, but going forward, we will continue to look at M&A as an important way to create value and leverage our capabilities, our differentiated capabilities.
Okay, great. The R&D pipeline, investing in R&D, obviously, that's the, the biggest priority, investing in products. Is 6% R&D still, you know, R&D as a portion of sales, is that still the right level of R&D for 3M going forward? Could it, could it increase? Is there room for optimization of that R&D?
Yeah. I, I would say, first of all, we, when we look at our allocation of capital into R&D, we're looking at it across our businesses and our products, and we look at where do we believe we drive the greatest performance? Where can we, you know, drive investments either in adding capabilities for customers that are existing or driving new opportunities or even new entire businesses? So we're, we're always looking at where we see the strongest return on, on our investments, organic investments, R&D in particular. And so we've been investing R&D at, you know, between 5%-6% of sales. It, it reflects all of the things that we're doing to drive that, that model that I talked about across the business. It's not uniform, so you would... You know, when you look at R&D as a % of sales across the company, it's not uniform.
In our consumer business, for example, it leverages the invention of the broader company into retail channels, and so that's an area where we can take advantage of a multiplier there. Healthcare has historically been a higher than average investment area for us as we saw the opportunities for growth and innovation. So we'll continue to look at it that way. We're gonna look at how each business can take advantage of investment in R&D. In the end, it's gonna be an outcome of how we look at our portfolio and how we look at corporate priorities more broadly. So it's a we continue to see the opportunity to, as I talked about earlier, drive that growth and value and refresh our portfolio, but we're gonna do that based on a portfolio view of the company.
Then my final question is really around coming back to the margin question. It seems that you've got a lot of margin momentum going into next year, and, you know, is there any reason why, you know, 3M or Main Co's margins can't exceed where they've been in the past? I mean, obviously, you know, the hallmark of 3M has been very high quality, very high margin companies, but is there any reason why we can't get to, you know, a 50% gross margin for 3M and Main Co?
Yeah, it's an important focus, as we've been talking about here today, Nigel. It's... You know, we are driving a number of areas of focus in that execution in our supply chains, end-to-end, in particular, you know, driving productivity, as we talked about, driving improvements in yield, really driving end-to-end efficiency of our supply chain. All of that can contribute to strong gross margins. So we, you know, we have been making progress as we come through this year. We're building momentum. We have the restructuring actions that are part of that. Those, as I've called out, the restructuring actions that are part of our gross margin, kind of, you know, cost structure. And then we, you know, the biggest way for us, and the most important and impactful way is growth. Leveraging growth as we move forward. Bruce talked about it.
We'll continue to leverage that opportunity to invest in additional areas for growth and value creation, but that will be part of it. So I—we are certainly focused on continuing that momentum as we go into 2024. Again, we'll come back with a more complete view of how we're looking at the year as we get into Q4 earnings call.
Great. Well, Mike, that's all my questions, so I'll hand it back to you for any closing remarks you have.
No, Nigel, I would just say, you know, thanks for the opportunity to spend some time with you today. You know, this is, I would say, we feel good about the progress we've made in 2023. We're building momentum. Those priorities that I talked about, they continue to be our focus. We're gonna stay focused on that as we work to close out a strong 2023. We'll be back to talk about 2024 in January.
Right. Well, Mike, thanks is all mine. Happy holidays. Good luck with closing out the year, and I guess we'll catch up in January.
Thanks, Nigel.
Thanks, Mike. Thanks, Bruce.
Yeah, thanks, Nigel.