Monish Patolawala
Chief Financial and Transformation Officer at 3M
Thank you, Mike. And I wish you all a very good morning. Please turn to Slide 5. 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 remained 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 was 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 costs increased approximately $110 million 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-on0year, 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 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 exercised 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 healthcare 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 U.S., which was down high single digits. All businesses declined organically as consumers pulled back on discretionary spending and retailers aggressively took actions to reduce their inventories, particularly in the U.S.
Looking ahead, we anticipate those trends to continue at least through the first half of 2023. Consumer's 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 9.
