3M Company (NYSE:MMM) Q4 2022 Earnings Call Transcript

3M Company (NYSE:MMM) Q4 2022 Earnings Call Transcript January 24, 2023

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the 3M Fourth Quarter Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded, Tuesday, January 24, 2023. I would now like to turn the call over to Bruce Jermeland, Senior Vice President of Investor Relations at 3M.

Bruce Jermeland: Thank you, and good morning, everyone, and welcome to our Fourth Quarter Earnings Conference Call. With me today are Mike Roman, 3M’s Chairman and Chief Executive Officer; and Monish Patolawala, our Chief Financial and Transformation Officer. Mike and Monish will make some formal comments, then we’ll take your questions. Please note that today’s earnings release and slide presentation accompanying this call are posted on the home page of our Investor Relations website at 3m.com. Please turn to slide 2. Please take a moment to read the forward-looking statement. During today’s conference call, we’ll be making certain predictive statements that reflect our current views about 3M’s future performance and financial results.

These statements are based on certain 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 predictions. Please turn to slide 3. Please note throughout today’s presentation, we’ll be making references to certain non-GAAP financial measures. Reconciliations of the non-GAAP measures can be found in the attachments to today’s press release. Before I hand the call over to Mike, I would like to take a moment and highlight of financial reporting change we are making starting here in Q1 2023. As we announced in our press release on December 20th, we’ll be exiting PFAS manufacturing by the end of 2025.

As a result, we have decided to provide additional disclosure by expanding the scope of our non-GAAP measurement adjustments to include the exit of PFAS manufacturing. For 2022, we have treated the Q4 PFAS manufacturing exit cost as a special item in arriving at results adjusted for special items. However, beginning in 2023, we will expand the existing adjustment for special items to also adjust for the sales and estimate of income and associated activity of PFAS manufacturing. Therefore, our outlook for 2023 reflects this adjustment. Today’s press release, press release attachments and slide presentation provide information regarding our 2022 performance on our existing Q4 2022 non-GAAP basis, along with some comparative information on the new 2023 outlook basis.

We will be providing a Form 8-K during the first quarter to reflect additional effects of this change in our non-GAAP measures and changes in segment reporting. We remain committed to providing strong transparency in reporting our financial performance. And of course, we are always here to address your questions. With that, please turn to slide four and I’ll now hand the call off to Mike. Mike?

Mike Roman: Thank you, Bruce. Good morning, everyone, and thank you for joining us. We continue to focus on delivering for our customers and shareholders in a challenging economic environment with slowing growth, inflation and supply chain disruptions. We posted organic growth of 0.4% versus our expectation of 1% to 3%, along with adjusted margins of 19% and adjusted earnings of $2.28 per share. The slower-than-expected growth was due to rapid declines in consumer-facing markets, such as consumer electronics and retail, a dynamic that accelerated in December, as consumers sharply cut discretionary spending and retailers adjusted inventory levels. We also saw a significant slowing in China due to COVID-related disruptions, along with moderating demand across industrial markets.

As demand weakened, we took actions to adjust manufacturing output and control costs, which enabled us to deliver a $250 million inventory improvement. In addition to actions taken in the second half of last year, today, we announced restructuring in our manufacturing operations, as we expect the demand trends that we saw in December to extend through the first half of 2023. I will discuss this more later in the call. With supply chain stabilizing, we are focused on improving manufacturing operations and driving working capital. These are our most significant opportunities to improve margins and cash flow. As we navigate the external environment, we continue to position 3M for the future by investing in growth, productivity and sustainability.

I will recap 2022 and our outlook for 2023 after Monish takes you through the quarter. Monish?

Monish Patolawala: Thank you, Mike, and I wish you all a very good morning. Please turn to slide five. As you will recall, we highlighted negative trends in our consumer retail and electronics-related businesses in late November. As the fourth quarter progressed, those trends accelerated. We also experienced significant slowing in China as COVID-related impacts resulted in a 17% decline in organic sales in December and down 8% for the quarter. Health Care continued to be challenged in its recovery to pre-pandemic levels, given labor shortages and hospital budgets being under pressure, while industrial end markets mostly remain steady. Fourth quarter total sales were $8.1 billion or down 6.2% year-on-year, which included headwinds from foreign currency translation of minus 5% or $400 million, which is better than the minus 7% we had expected.

We also experienced a 1.6% decline from divestitures, or nearly $140 million, largely from the third quarter divestiture of food safety, along with the deconsolidation of Aearo Technologies. On an organic basis, fourth quarter sales increased 0.4% versus last year. This result included an anticipated falloff in disposable respirator demand and the exit of our operations in Russia. These two items, combined, negatively impacted organic sales growth by approximately $230 million or 2.6 percentage points. Excluding this decline, Q4 organic sales growth was 3%. On an adjusted basis, fourth quarter operating income was $1.5 billion, with operating margins of 19.1%. Adjusted earnings for the quarter were $2.28 versus $2.45 last year. Turning to the components that impacted fourth quarter operating margins and earnings year-on-year performance.

We took a number of actions to navigate the fluid and slowing macroeconomic environment, including managing selling prices to address inflationary pressures, reducing manufacturing output, maintaining strong spending discipline and taking additional restructuring actions to streamline the organization and adjust to slowing end market demand. These actions delivered an underlying benefit to operating margins of 110 basis points and $0.19 to earnings. This helped more than offset headwinds from the sales decline in disposable respirators and Russia exit, which negatively impacted operating margins by 70 basis points and earnings by $0.15 per share. Inflation continues to impact raw material, logistics and energy costs. These pressures remain persistent and are broad-based.

In Q4, raw material cost increased approximately in or a negative impact of 1.4 percentage points to operating margins and $0.16 to earnings. As mentioned, foreign currency translation was a negative 5% impact to total sales. This resulted in a headwind of $0.10 to earnings per share, however, was a benefit of 10 basis points to margins. Divestitures, primarily Food Safety, along with the deconsolidation of Aearo Technologies, resulted in a year-over-year headwind of $0.04 to earnings per share in the quarter. Finally, other financial items increased earnings by a net $0.09 per share year-over-year driven by lower share count, partially offset by a higher tax rate. Please turn to Slide 6. Fourth quarter adjusted free cash flow was $1.7 billion, up 3% year-on-year, with conversion of 131%, up 18 percentage points versus last year’s Q4.

During the quarter, we aggressively adjusted manufacturing production levels to end market trends, which drove a sequential reduction in inventory levels by $250 million. For the full year, adjusted free cash flow was $4.7 billion with adjusted free cash flow conversion of 82%. Capital expenditures were $506 million in the quarter and $1.75 billion for the year, or up 9% year-on-year as we continue to invest in growth, productivity and sustainability. Looking to 2023, we expect capital expenditures in the range of $1.5 billion to $1.8 billion, which includes approximately $200 million of investment in water stewardship related to our exit of PFAS manufacturing. During the quarter, we returned $1.4 billion to shareholders through the combination of cash dividends of $820 million and share repurchases of $540 million.

For the year, we returned $4.8 billion to shareholders, including $3.4 billion in dividends and $1.5 billion in share repurchases. In addition, we reduced our outstanding share count by 16 million shares via an exchange offer associated with the Food Safety divestiture. Having a strong balance sheet and capital structure remains a priority for 3M, because of the flexibility it provides. Net debt at the end of Q4 stood at $12 billion, down 4% year-on-year with net debt-to-EBITDA at 1.4 times. Please turn to slide 8 for our business group performance. I will start with our Safety and Industrial business, which posted sales of $2.7 billion or up 1.3% organically. This result included a year-on-year headwind of approximately $165 million due to the ongoing decline in demand for disposable respirators.

Excluding disposable respirators, Safety and Industrial grew Q4 organic sales by 7.5%. Our Personal Safety business declined mid-single digits organically, primarily due to the decline in disposable respirator demand. Turning to the rest of Safety and Industrial. Organic growth was led by low double-digit increases in electrical markets, automotive aftermarket and abrasives. Industrial adhesives and tapes and closure and masking systems both declined low single digits. Operationally, the Safety and Industrial stream drove strong execution during the fourth quarter. Adjusted operating income was $611 million, or up 9% versus last year. Adjusted operating margins were 22.4%, up 2.7 percentage points as the team managed inflation with price actions, drove yield and efficiency and exercise strong spending discipline, while also investing in the business.

Moving to Transportation and Electronics, which posted sales of $2.1 billion, or up 1.4% organically. Our auto OEM business increased mid-teens versus a 2% increase in global car and light truck builds. We continue to gain penetration on new automotive platforms, while also benefiting from a favorable comparison due to last year’s Q4 channel inventory drawdown. Our electronics business declined 10% organically as it continued to be impacted by the significant end market weakness particularly for smartphones, tablets and TVs. Turning to the rest of Transportation and Electronics. Advanced materials grew organically low double digits, while both commercial solutions and transportation safety increased low single digits. Transportation and Electronics delivered $366 million in adjusted operating income, down 3% year-on-year.

Adjusted operating margins were 17.8%, up 60 basis points versus Q4 last year. The team was able to more than offset manufacturing productivity headwinds and inflationary pressures with ongoing benefits from pricing, along with strong spending discipline and restructuring actions, while investing in the business. Looking at our Healthcare business, Q4 sales were $2 billion, with organic growth of 1.9% versus last year. Sales in our medical solutions business declined low single digits organically. Fourth quarter elective health care procedure volumes were approximately 90% of pre-COVID levels as nurse labor shortages and strained hospital budgets continue to impact the pace of recovery. Oral care was up low single digits despite decreased consumer spending on discretionary items.

And finally, separation and purification organic sales increased high single digits while Health Information Systems was up mid-single digits. Health Care’s fourth quarter operating income was $421 million, down 18% year-on-year. Operating margins were 20.6%, down 2.9 percentage points, with adjusted EBITDA margins of nearly 29%. Year-on-year operating margins were impacted by manufacturing productivity headwinds, increased raw materials and logistics costs, along with investments in the business. These headwinds were partially offset by pricing actions along with the strong spending discipline. Lastly, our consumer business posted fourth quarter sales of $1.2 billion. Organic sales declined 5.7% year-on-year with particular weakness in the US, which was down high single digits.

All businesses declined organically as consumers pull back on discretionary spending and retailers aggressively took actions to reduce their inventories, particularly in the US. Looking ahead, we anticipate those trends to continue at least through the first half of 2023. Consumers fourth quarter operating income was $224 million, down 24% compared to last year, with operating margins of 17.9%, down 3.3 percentage points year-on-year. This year-on-year decline in operating margins was driven by increased end market weakness, higher raw materials and logistics and outsourced hard goods manufacturing costs, manufacturing productivity headwinds, along with investments in the business. These headwinds were partially offset by selling price actions and strong spending discipline.

I’ll now turn it back over to Mike for a recap of our full year 2022 performance. Please turn to slide nine.

Mike Roman: Thank you, Monish. 2022 was a pivotal year for 3M. Throughout the year, we took decisive actions that are foundational to our future and at the same time, maintained our focus on our customers. We addressed inflation through selling price actions and proactively managed cost as demand softened throughout the year. To address supply chain disruptions, we did what was necessary to serve customers and reduce cycle times, including opening a new distribution center on the East Coast. We navigated COVID-related lockdowns in China. We reached agreement with the Flemish government to restart operations in Zwijndrecht and exited our Russia business. As always, we put 3M science to work to solve customer needs across our market-leading businesses.

In Safety and Industrial, our new robotic paint repair system received multiple prestigious honors, as we continue to drive innovation in automotive manufacturing, an area we led in for more than 100 years. In Consumer, we launched Scotch cushion lock, a sustainable alternative to plastic wrap, which was recognized by Fast Company as one of its world-changing ideas. In Health Care, we advanced our leadership in wound care, which includes our negative pressure wound therapies, becoming the first solution of its kind to surpass 2,000 peer-reviewed studies. In Transportation and Electronics, we introduced new thermal barrier films to improve performance of electric car batteries, one element of our $0.5 billion automotive electrification platform, which delivered 30% organic growth in 2022.

Company-wide, for the total year, we delivered organic growth of 1%, or 3% excluding the impact of disposable respirators and our Russia exit. We posted adjusted EPS of $10.10, along with adjusted free cash flow of $4.7 billion with an adjusted conversion rate of 82%. We strengthened our balance sheet and reduced net debt by $0.5 billion, ending 2022 with a net debt-to-EBITDA ratio of 1.4. This enabled us to invest in the business and returned $4.8 billion to shareholders through dividends and share repurchases. At the same time, we took actions to position us for the long-term. We divested our Food Safety business, receiving $1 billion and reducing our outstanding share count by 16 million. We continue to progress in our health care spin-off, which will create two world-class public companies better positioned to drive growth and value creation.

With respect to combat arms litigation, as last week’s report from the Chapter 11 co-mediators indicated, 3M continues to support Aearo Technologies in this ongoing confidential mediation process. We continue to address PFAS litigation by defending ourselves in court or negotiating resolutions as appropriate. We also announced we will exit all PFAS manufacturing by the end of 2025. Our decision is based on careful consideration of the external landscape, including regulatory trends and changing stakeholder expectations. We simplified and streamlined our supply chain organization and advanced our digital strategies to better serve customers. We followed through on our sustainability commitments. We are ahead of schedule installing state-of-the-art filtration technologies and factories around the world.

We now have capabilities up and running at all three of our largest water using sites in the US and in centric . We supported employee health, safety and well-being, including new flexible work arrangements and factory investments and we advanced diversity, equity and inclusion, with each of our business groups now executing initiatives. The steps we took in 2022 and the steps we are continuing to take in 2023, position us well as we look toward the future. Please turn to Slide 11. We expect market and macroeconomic challenges to persist in 2023. Based on this outlook, we expect organic growth of minus 3% to flat, along with adjusted EPS of $8.50 to $9, and adjusted free cash flow conversion of 90% to 100%. Our expectations reflect the slowing in demand we are seeing as we start 2023.

Supply chains are improving. However, we still see headwinds from material availability and inflation, albeit at a lower level. We are not satisfied with our progress or performance. We are taking additional actions, building on the actions taken in the second half of 2022 to reduce cost structure and inventory. We have implemented strict control of hiring and discretionary spending. Today, we announced that we will reduce approximately 2,500 global manufacturing roles, a necessary decision to further align with adjusted production volumes. In addition to the actions we are taking to respond to the macroeconomic environment, we are taking a deeper look at everything we do as we prepare for the Health Care spend. As we move through the year, we will take additional actions to improve supply chain performance, drive simplification and bring us even closer to our customers.

At the same time, we win in the market because we stay close to customers and continue to invest in innovation even in the most difficult times. We will continue to invest in growth opportunities in our businesses, aligned to global trends that take best advantage of our innovation. Automotive electrification, industrial automation, biopharma processing and home improvement are just a few examples of large, fast-growing markets where we are investing and where 3M innovation can make a difference. We will continue to prepare for the spin-off of our Health Care business, which presents a tremendous value creation opportunity while at the same time, preparing 3M for future success. We will work to resolve litigation we face following through on the actions we initiated in 2022.

Underpinning all of our work will be the strengths of 3M, our people, our industry-leading innovation, our advanced manufacturing, our global capabilities and our iconic brands. I am confident in our future as we exit 2023, we will be a stronger, leaner and more focused 3M. Monish will now cover the details of our outlook. Monish?

Monish Patolawala: Thank you, Mike. Please turn to slide 12. The macroeconomic environment remains very fluid and uncertain. For 2023, we anticipate that GDP and IPI will continue to moderate with both currently estimated to be around 1.5% or about half of 2022 levels. Therefore, against this backdrop, we feel it prudent to set our expectations to reflect this reality. As Mike mentioned, we estimate our full year adjusted organic sales growth to be in the range of minus 3% to flat. This includes selling prices up low single digits. Therefore, organic volumes are expected to be down low to mid-single digits for the year. This range also includes an estimated two percentage point headwind from the ongoing decline in disposable respirator demand, along with the impact of our exit from Russia.

We currently expect our disposable respirator demand to be down to pre-pandemic levels. As the strength of the US dollar carries into 2023, we estimate a foreign currency translation impact to sales of minus 1% to minus 2%. And divestitures that were completed in 2022 will be a headwind to sales of nearly one percentage point. Adjusted earnings are expected to be in the range of $8.50 to $9 per share. This range includes a combined earnings headwind of $0.55 to $0.80 per share year-on-year from the following three items. First, the expected sales decline of disposable respirators and exit of Russia will be an impact of minus $0.30 to minus $0.45. Second, foreign currency will be a headwind of minus $0.10 to $0.20; and third, divestiture impacts would be a minus $0.15.

In addition, the 2022 carryover impact of higher raw material and logistics costs, combined with energy inflation, creates a year-on-year headwind of approximately $150 million to $250 million or roughly $0.20 to $0.35 to EPS. And finally, non-operating items are estimated to be an impact to earnings per share of flat to minus $0.10. This range includes a year-on-year increase in non-operating pension expense of $125 million. A full year adjusted tax rate in the range of 18% to 19% and a lower year-on-year outstanding share count. While there are a number of headwinds to earnings in 2023, ultimately, our full year performance will be driven by organic sales volumes, sustained progress in global supply chains and raw material availability, and our ability to drive improvements and reduce costs in our manufacturing and supply chain operations.

Finally, full year adjusted free cash flow conversion is forecasted to be in the range of 90% to 100%. This range includes the continued healing of global supply chain, expected improvements in working capital performance, particularly inventory reductions and full year capital expenditures of $1.5 billion to $1.8 billion, which includes approximately $200 million of investment in water stewardship related to our exit of PFAS manufacturing. Please turn to slide 13. Looking at our expected performance by business. We see Safety and Industrial organic sales growth to be down low single digits in 2023. This includes an estimated decline in disposable respirator sales of $450 million to $550 million or a negative impact of approximately four percentage points as the business returns to pre-pandemic levels.

Demand across industrial end markets is moderating as customers remain cautious. Our Safety and Industrial team will also be monitoring the recovery of industrial production activity in China as we start the year. Adjusted organic sales growth for Transportation and Electronics, excluding the impact of the exit of PFAS manufacturing is forecasted to be down mid-single digits to flat organically. Looking across end markets, automotive unit volume production is currently forecasted to be up nearly 4% year-on-year. We also expect automotive electrification trends to remain strong as we leverage our technologies and develop new innovative solutions for our automotive OEM customers. Electronics, however, is expected to be down significantly due to weak end market demand for TVs, tablets and smartphones, along with the ongoing impact of display technology shifting to OLED from LCD.

Healthcare’s organic sales growth is anticipated to be up low to mid-single digits versus 2022. We expect gradual improvement in healthcare elective procedure volume as nurse labor shortages and strain hospital budgets continue to impact global healthcare systems. In oral care, we will be monitoring consumer discretionary spending and its impact on patient visits, including orthodontic care. The Healthcare team continues to create differentiated value and deliver strong margins for the attractive end markets we serve. And finally, organic sales in consumer are estimated to be down low single digits to flat as US consumers remain cautious and retailers continue to aggressively reduce the excess inventory levels. Despite these near-term challenges, the consumer team remains focused on leveraging our iconic brands and accelerating new products in 2023.

Please turn to slide 14. Before we go to Q&A, I want to walk through how we are seeing the first quarter. First, three weeks into January, we are seeing continued slowing in organic sales volume as we start the year. This slow start is driven by the same weakening end market trends that impacted the finish to 2022. We expect soft consumer discretionary spending, along with retailer destocking to continue into the first quarter. Sales of electronic devices are forecasted to be down between 10% and 30% sequentially in the first quarter, while semiconductor end markets and automotive builds are down mid-single digits sequentially. Health care and oral care elective procedure volumes are expected to be at the same levels as Q4. And as we have noted, industrial end markets are mixed.

And we anticipate the ongoing COVID-related challenges to continue in China and the geopolitical situation in EMEA to persist. Therefore, taking all of these items into consideration, we estimate Q1 total adjusted sales in the range of $7.2 billion to $7.6 billion versus $8.5 billion adjusted for the exit of PFAS manufacturing or down 10% to 15% year-on-year. This anticipated year-on-year decline includes headwinds of 3 to 4 percentage points from disposable respirator sales declines and Russia exit, 3 to 4 percentage points from foreign currency translation, and 1 percentage point impact from divestitures. Taking these factors into account, we expect Q1 organic sales to be down low single digits to mid-single digits. From an EPS perspective, we estimate that first quarter adjusted earnings per share will be in the range of $1.25 to $1.65.

This range is impacted by the continued slowing of organic sales volumes, a pre-tax restructuring charge of $75 million to $100 million or $0.10 to $0.15 per share, a tax rate of approximately 19%, along with normal Q1 items. As you can see, the first quarter presents a tough start to the year. We will have our most challenging year-on-year comps related to the declining disposable respirator demand and our exit of Russia. Ultimately, organic volume trends will be the biggest factor in determining how the quarter will turn out. 2023 is an important year as we work on progressing our strategies, including preparing for the spin off health care, improving our manufacturing and supply chain operations, and taking actions to further streamline the organization.

We are focused on creating the shortest path to the customer and providing innovative solutions to their most challenging problems. We will remain nimble and take appropriate actions as we respond to changing market dynamics. And we will continue to invest in growth, productivity and sustainability to ensure the long-term success of our enterprise. To wrap up, I continue to be bullish on our long-term trends. The large and attractive end markets we serve provide exciting opportunities for the future of 3M. We are not satisfied with our performance and the expected start this year. We are working to aggressively address our operating performance in this challenging environment. We expect organic sales volumes will improve as consumer retail and consumer electronic markets stabilize.

China works through its COVID-related challenges and as our year-on-year comps ease. We also expect supply chains to continue to heal and raw materials and logistic cost headwinds to abate. Therefore, we anticipate improvements in organic growth, operating margins, earnings and cash flow as we progress through the year. As you’ve heard me say before, there is always more we can do and we will do to improve our performance. I want to thank our customers and suppliers for their partnerships and the 3M employees for their hard work and dedication as they continue delivering for our customers. That concludes my remarks. We will now take your questions.

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Q&A Session

Operator: Our first question comes from Scott Davis with Melius Research. You may proceed with your question.

Scott Davis: Hi, good morning everybody.

Mike Roman: Good morning Scott.

Monish Patolawala: Good morning, Scott.

Scott Davis: I was hoping you could walk us through, just perhaps logistically or opportunistically, how you exit PFAS. It’s so integrated with your with your product line, your manufacturing systems. Can you sell some facilities? Can you extract some value, or is it — or do you just have to close — lock up the facility and walk away? And how does that work logistically?

Mike Roman: Yeah, Scott. So maybe I’ll take you back to the announcement of the exit. We said we’ll exit all PFAS manufacturing by the end of 2025. We also said we would work to discontinue use of PFAS in our products broadly across the company. That’s both in our products, but also in the manufacturing of our products. And I think your question is really on our manufacturing part of that. And we said we will meet contractual commitments that we have to our customers, and we’re working closely with them to manage that as we make this transition. But ultimately, also, I talked about that we are not planning and won’t sell the businesses and that we will plan to shut them down as we work through the transition as we get to the end of that — end of 2025.

Monish Patolawala: Scott, just also a reminder, as we disclosed, we said we would take — the exit cost of this will be in the range $1.3 billion to $2.3 billion. And we took a fourth quarter charge of $800 million, that’s included in that range of $1.3 billion to $2.3 billion.

Scott Davis: Okay. That’s helpful. And then you talked about doing some further restructuring, perhaps help us understand the scope or scale, or at least are you talking about — I think you mentioned 2,500 people. But are the rooftops and meaningful cost out that you see in this plan?

Mike Roman: Yeah, Scott. So the announcement we made today was 2,500 jobs in manufacturing, really is responding to the volume that we see, the outlook for the volume. And that’s — we’re putting a focus on supply chain. We see an opportunity to continue to streamline our supply chain. We hope to take advantage of some of the tailwinds or supply chain heel, as Monish talked about. We’re taking actions ourselves, and we’re looking at what additional actions we can take there. And we’re looking deeper in the company as well as we work to prepare for the healthcare spend, we’ve been looking at 3M ParentCo as well. And how do we simplify, streamline and put our position ourselves closer to customers. So it’s really looking deeper and broader. And I think taking actions, proactively taking actions against the outlook we have for our markets.

Scott Davis: All right. Thank you. I’ll pass it on guys. Appreciate it.

Mike Roman: Yeah. See you, Scott.

Operator: Our next question comes from Andrew Kaplowitz with Citi. You may proceed with your question.

Andrew Kaplowitz: Hey, good morning, everyone.

Mike Roman: Hey, Andy.

Monish Patolawala: Good morning, Andy.

Andrew Kaplowitz: Mike and Monish, you mentioned that industrial end markets are moderating, customers are cautious. I think for instance, you mentioned industrial adhesives and cases down in Q4. Has there been a material change from conversations that you’ve had previously with industrial customers, or is this just gradual moderation? And then is the regional weakness that you’re seeing in China just a function of COVID interruption and more consumer base versus end demand related? And how do you think that pans out in 2023?