Manufacturers everywhere are feeling pressure from inflation due to continued material shortages, rising logistics costs and a red-hot labor market.
Maplewood, Minnesota-based 3M (NYSE:MMM) is no exception, but CEO Mike Roman said his team is seeing results from a tried-and-true solution.
“We continue to navigate global supply chain disruptions, which have been amplified by recent geopolitical unrest,” Roman said on today’s conference call to discuss the company’s first-quarter financial and operating results. “We are doing whatever is necessary to take care of customers, while managing extended lead times and elevated inventory levels. At the same time, we have continued to drive strong pricing to offset inflation.”
3M developed new pricing tools last year and is “rolling out tools that model price realization, leakage and elasticity,” said 3M CFO Monish Patolawala, who also serves as EVP and chief transformation officer.
He put a $215 million price to the year-over-year cost of inflation on raw materials, translating to a headwind of 2.4 percentage points on margin and $0.30 on earnings per share.
“Our actions to continue to drive price to offset inflation; navigate supply chain challenges; and control costs enabled us to expand adjusted margins and earnings 140 basis points and $0.20 per share, respectively,” Patolawala said.
3M got a slow start on pricing last year, he said, going from 0.14% up to 1.4% in the third quarter and 2.6% in the fourth quarter. But 3M kicked off this year with the benefit of those higher prices carrying over and the confidence to push prices higher.
“We more than offset the amount of inflation,” Patolawala said. “If you do the math on a rate basis — not just on a dollar basis — we got 3%-plus-price in the quarter. The team is very focused on looking at the extra inflation that’s coming in. They’re already working on higher price. The goal is to offset the extra inflation that we are seeing with extra price, and so a really good start to the first quarter.”
With little relief from inflation in sight, expect more price increases from 3M throughout the year.
“Looking ahead, while we see raw material and logistics inflation persisting, we will continue to leverage daily management powered by data and data analytics with the expectation of offsetting raw material and logistics inflation through pricing actions in 2022,” Patolawala said.
3M is one of the largest medical product manufacturers in the world, with its health care segment alone ranking at No. 18 on the 2021 Medtech Big 100.