Bill Brown
Chief Executive Officer at 3M
Thank you, Bruce, and good morning, everyone. First, I'd like to take a moment and welcome Anurag to his first 3M earnings call. Anurag recently joined 3M in early September after serving as CFO of Otis. I've had the pleasure of working with Anurag off and on over the past 20 years, and look forward to his leadership and partnership as 3M's CFO.
Earlier today, we reported strong third quarter results with non-GAAP earnings per share of $1.98, up 18% on 1% organic revenue growth. Our overall company margins increased 140 basis points to 23%, and free cash flow was $1.5 billion, with conversion of 141%. And we returned $1.1 billion to shareholders during the quarter via dividends and share repurchases.
These results extend our strong 2024 operating performance, with non-GAAP earnings per share over the first three quarters up 30% on 1% organic revenue growth. As a result of the team's strong operational performance and disciplined capital deployment, we raised the bottom end of our full year earnings guidance by $0.20 to a range of $7.20 to $7.30 versus a prior range of $7 to $7.30 per share.
During our Q2 earnings call, I described our top three priorities, number one, driving sustained top line organic growth through both reinvigorating innovation and improving commercial excellence; two, improving operational performance across the enterprise; and three, effectively deploying capital.
As I mentioned in July, getting more productivity out of our R&D investments is going to take some time, but we're beginning to make progress on both R&D effectiveness and efficiency. A lot of our recent efforts have focused on the basic blocking and tackling and improving the fundamentals of our R&D and commercialization processes. For example, we've taken actions to improve enterprise-wide visibility on specific investments in our product development pipeline. And we're driving new rigor and discipline into product launch calendars and raising accountability for post-launch sales performance.
We're fast-tracking projects for low-risk product line extensions, eliminating non-value-added activity from our engineers' workload by offloading or outsourcing administrative tasks and increasing pipeline velocity through efforts as simple as reducing the time to set up an SKU, from 100 days on average last year to about 60 days this year. And to address bottlenecks and drive productivity in the product development process, we're shifting capital spending within our existing budget to fund upgrades of R&D facilities to allow us to scale rapidly from lab to pilot to manufacturing.
And finally, we're shifting about 100 people within R&D to focus on new product development, including those who are rolling off PFAS-related projects and adding more than 50 new engineers in the fourth quarter to high-priority focus areas such as specialty materials and films for the automotive, aerospace, electronics and semiconductor markets.
After a decade long slide in new product introductions, we bottomed out and are starting to turn the corner with new product launches expected to be up about 10% this year, with a further acceleration next year. I recognize these are only initial steps on a long journey toward bending the organic growth curve. And in the meantime, we have to improve how we execute at the customer interface.
We're working through the details of how we staff, train and incentivize our sales force, price our products, leverage our distribution network and capture cross-sell opportunities, and we'll share those details as they evolve. But one area where we've seen continued progress is delivering on on-time in-full, or OTIF, to our customers. I know we've lost business and have paid fines due to poor delivery performance, and I'm encouraged by the steady improvement we're making, ending Q3 at 89% OTIF, up 5 points since the beginning of the year and 10 points above Q4 of 2022.
As we push harder on OTIF, we're getting more visibility on the weak links in the value chain, from the performance in our factories to our suppliers and to our logistics providers. In our factories, we're looking harder at the reliability of our assets and our capacity to surge. And we've now implemented a common metric to measure operating equipment efficiency, or OEE, across the major assets in our 38 largest facilities. Utilization on these machines going back to the beginning of the year averages around 50%, well short of best-in-class companies, and pointing to opportunities to free up capacity to better respond to quick turn orders by optimizing changeovers and improving maintenance practices.
When it comes to our suppliers and contract manufacturers, we're implementing more rigorous standards and expectations for on-time performance, which has been running in the low-60% range for the past few years and is now in the low-70s. A common theme in all of these discussions is the need for significantly higher demand visibility and forecast accuracy, which has been running in the mid-60% range, 10 points to 15 points below expectation and well below best-in-class companies.
We recently kicked off a project to redesign our forecasting process, and we're in the early stages of a 15 week sprint to test and tune our demand plan for two large divisions using different analytical tools. Initial results through the new model show a lot of promise in improving forecast accuracy, which will allow us to level load our factories, reduce inventory throughout the value chain and improve on-time delivery to customers.
As I mentioned in July, this is a back-to-basics focus on fundamental approach that lays the groundwork for a more holistic look at network complexity. While we've closed facilities in the past and have a few more in flight today, gaining maturity in our OEE metric will allow us to take a fresh look at consolidation opportunities at both the site and the work cell level over time.
A critical enabler of our opex agenda is the depth and capacity of our operations leadership team, and we continue to onboard new talent, particularly in the areas of quality, materials planning and continuous improvement. These efforts are all part of a broad operational transformation at 3M, the foundation of which is a safety-first culture. While our injury rate has improved versus last year, it's not where we want it to be. Earlier this month, we launched a company-wide campaign called journey to zero that engages every employee in our drive towards an injury-free workplace.
Turning to capital deployment. Through nine months, we've generated $3.5 billion of adjusted free cash flow with conversion of 102%, after investing $1.7 billion in R&D and capex. We've returned $2.7 billion to shareholders, including share repurchases of $1.1 billion.
Our balance sheet remains strong, and we're actively reviewing our portfolio with a few small businesses now in the early stages of a sale process. So overall, we're making progress on the three priorities that I've laid out, and I'm encouraged by the energy and desire of our team to win by delivering for our customers and creating value for our shareholders.
With that, let me turn it over to Anurag to provide more details on the quarter and our updated guidance. Anurag?
