3M Q4 2024 Earnings Report

Aptiv EPS Results

• Actual EPS: $1.68
• Consensus EPS: $1.66
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: $2.42

Aptiv Revenue Results

• Actual Revenue: $6.01 billion
• Expected Revenue: $5.77 billion
• Beat/Miss: Beat by +$239.61 million
• YoY Revenue Growth: -25.00%

Aptiv Announcement Details

• Quarter: Q4 2024
• Date: 1/21/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, January 21, 2025
• Conference Call Time: 9:00AM ET

Aptiv (NYSE:APTV) engages in design, manufacture, and sale of vehicle components in North America, Europe, Middle East, Africa, the Asia Pacific, South America, and internationally. The company provides electrical, electronic, and safety technology solutions to the automotive and commercial vehicle markets. It operates through two segments, Signal and Power Solutions, and Advanced Safety and User Experience. The Signal and Power Solutions segment designs, manufactures, and assembles vehicle's electrical architecture, including engineered component products, connectors, wiring assemblies and harnesses, cable management products, electrical centers, and hybrid high voltage and safety distribution systems. Its Advanced Safety and User Experience segment provides critical technologies and services for vehicle safety, security, comfort, and convenience, such as sensing and perception systems, electronic control units, multi-domain controllers, vehicle connectivity systems, application software, autonomous driving technologies, and end-to-end DevOps tools. The company was formerly known as Delphi Automotive PLC and changed its name to Aptiv PLC in December 2017. Aptiv PLC was incorporated in 2011 and is based in Dublin, Ireland.

3M Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the 3 ms 4th Quarter Earnings Conference Call.

[Operator]

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 call is being recorded Tuesday, January 21, 2025. I would now like to turn the call over to Chinmay Trivedi, Senior Vice President of Investor Relations and Financial Planning and Analysis at 3 ms.

[Chinmay Trivedi, Senior VP - IR & Finance at 3M Company]

Thank you. Good morning, everyone, and welcome to the Q4 earnings conference call. With me today are Bill Brown, 3 ms's Chief Executive Officer and Anurag Maheshwari, our Chief Financial Officer. Bill and Anurag will make some formal comments, then we will take your questions. Please note that today's earnings release and slide presentation accompanying this call are posted on the homepage of our Investor Relations website at 3m.com.

[Chinmay Trivedi, Senior VP - IR & Finance at 3M Company]

Please turn to Slide 2 and take a moment to read the forward looking statements. During today's conference call, we'll be making certain predictive statements that reflect our current views about 3 ms'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 Q lists some of these most important risk factors that could cause actual results to differ from our predictions. Please note, throughout today's presentation, we'll be making references to certain non GAAP financial measures.

[Chinmay Trivedi, Senior VP - IR & Finance at 3M Company]

Reconciliations of the non GAAP measures can be found in the attachments to today's press release. With that, please turn to Slide 3, and I will hand the call off to Bill. Bill?

[Bill Brown, CEO at 3M Company]

Thank you, Chinmay, and good morning, everyone. Before I start, I'd like to welcome Chinmay to his first earnings call as the Head of Investor Relations. He's been with 3 ms for 3 years, leading the FP and A function and was with GE before joining 3 ms. He's replacing Bruce Jermeland, who retired on January 1st. Bruce led IR for the last 6 years and was with 3 ms for more than 2 decades, and we wish him well in his retirement.

[Bill Brown, CEO at 3M Company]

2024 was a pivotal year for 3 ms. Earlier in the year, we spun off our healthcare business group as Solventum, and we settled 2 significant legal matters. We also substantially completed the largest restructuring program in company history, which focused on reducing complexity and improving margins. These changes weren't easy, but the team has done a terrific job executing the programs, and the results are showing up in our financial performance. This relentless focus on operational execution drove a strong finish to the year.

[Bill Brown, CEO at 3M Company]

4th quarter adjusted earnings per share was $1.68 on 2.1 percent organic revenue growth. The company generated free cash flow of $1,300,000,000 with conversion of 145%. During the quarter, we returned $1,100,000,000 to shareholders via dividends and share repurchases. These results capped a strong year for the company where we delivered $7.30 in adjusted earnings per share at the high end of our guidance and up 21% year over year. Organic sales grew 1.2% and we generated $4,900,000,000 in free cash flow with a conversion rate of 111%.

[Bill Brown, CEO at 3M Company]

Turning to Slide 4. The 4th quarter results reflect our focus on the fundamentals. Each business group drove positive adjusted organic growth, the first time in 9 quarters that all business groups grew together, and it was broad based. 12 of our 16 divisions posted positive growth compared to only 7 in the 1st quarter. One of the fundamentals is commercial execution, and we're beginning to make progress in this area.

[Bill Brown, CEO at 3M Company]

For example, in Safety and Industrial, we launched a campaign to drive cross selling on our channel partners with some encouraging early results. And this year, we pulled forward the quota setting process for our sales force to ensure we get out of the gates quickly, and we instituted standard work for our sales managers and area leaders who support our frontline sales reps. Reinvigorating the innovation engine is critical to sustain this top line momentum. In 2024, we launched 169 new products, up 32% over the prior year. This was above expectations due in part to the rigor and governance we've put in place around new product introductions, but more importantly, to the enthusiasm of the team to get back to innovating for our customers.

[Bill Brown, CEO at 3M Company]

One launch we're particularly excited about is our LCD 2.0 platform program that enables LCD displays for tablets, notebooks and monitors to achieve the brightness and contrast similar to OLED, combining our multilayer optical film technology with our micro replication technology. Another one is our expanded beam optics or EBO connector, which is an optical interconnect designed for data centers that reduces installation time, cleaning and maintenance while delivering exceptional performance. But we're still in the early days of our R and D turnaround effort. NPI is clearly an important metric. And in 2025, we expect to see a double digit increase in the number of launches on top of the higher performance in 'twenty four, but it's just one of several we're tracking.

[Bill Brown, CEO at 3M Company]

Over time, we need to work to shorten the development cycle time to increase launch cadence, focus investment dollars on higher octane programs and see NPI translate into higher sales and margins. Also critical to driving growth is improving service and a key metric for us is on time and full or OTIF. OTIF was 88% for the year, up 3 percentage points versus last year and 8 points versus 2022. Our team has made solid progress, but we have more work to do. While consumer and transportation electronics are now consistently delivering to their customers at over 90% on time, our performance in safety and industrial remains well below expectations in the low 80s.

[Bill Brown, CEO at 3M Company]

It will take a fundamental shift in our approach to raise service levels to where they need to be, and we're doing this by standardizing the demand planning process, using new algorithms to improve forecast accuracy, improving supplier delivery performance and driving consistency and reliability in logistics. These are key elements of our broader operational excellence program, which continues to mature but is still in the early innings. Our goal remains to deliver 2% net productivity through sourcing efficiency, quality improvement, lean manufacturing and asset utilization, which I described last time as operating equipment efficiency or OEE. These efforts are starting to take hold and will support further gross margin expansion toward our goal of high 40s. We also made progress on inventory days, which was down 2 days versus last year and 8 sequentially, ending the year at 94 days.

[Bill Brown, CEO at 3M Company]

This is just a start as our goal is to get to 75 days, freeing up cash for our capital deployment priorities, which include returning cash to shareholders. Last year, we returned $3,800,000,000 to shareholders, dollars 2,000,000,000 in dividends and $1,800,000,000 in share repurchases. Lastly, we continue to assess our portfolio and we have several small actions underway. We'll update you on progress as deals are signed. Moving to guidance on slide 5.

[Bill Brown, CEO at 3M Company]

Our strong finish in the Q4 gives us confidence in our ability to deliver in 2025. For the year, we expect organic sales growth in the range of 2% to 3%, adjusted earnings per share in the range of $7.60 to $7.90 and free cash flow conversion of approximately 100%. Our back to basics approach and focus on our 3 top priorities underpins our ability to deliver on these commitments as the macro recovery continues to be uneven. Currently, IPI is forecasted to be 1.9% in 2025, but as you may recall, the forecast for IPI in 2024, 12 months ago was also about 2%, and we ended the year at about 1%. We'll see how that evolves, but we'll be looking to take advantage of this acceleration as it materializes.

[Bill Brown, CEO at 3M Company]

Other key data points to watch include auto builds, which are expected to be slightly negative but down 3% to 4% in Europe and the U. S. Where we have better penetration and flat in China and up across Asia where our content per vehicle is lower. Consumer electronics is expected to be up low to mid single digits and consumer discretionary spend remains soft, especially in the U. S.

[Bill Brown, CEO at 3M Company]

Where retail sales are expected to be relatively flat. As we navigate the ups and downs of the macro environment, we'll focus as always on what we can control: servicing our customers at higher levels, improving commercial excellence at the customer interface, filling up the innovation pipeline to support future growth and driving productivity and efficiency throughout the organization. We look forward to sharing more details on each of these priorities as well as our medium term outlook during our Investor Day in St. Paul on February 26. You'll hear from our leaders in R and D, supply chain and the business groups about their execution plans that will turn our priorities into results.

[Bill Brown, CEO at 3M Company]

I hope to see you there. With that, I'll turn it over to Anurag to walk through the details of the quarter. Anurag?

[Anurag Maheshwari, CFO & Executive VP at 3M]

Thank you, Bill. Turning to Slide 6. We had a strong finish to the year with Q4 performance coming in better than expected. Total adjusted sales were $5,800,000,000 with organic growth up 2.1%. All three business groups had positive adjusted organic growth in the quarter and performed better than our end markets.

[Anurag Maheshwari, CFO & Executive VP at 3M]

In the Q4, global IPI was up 1.4% year on year and the markets we serve trended in line with expectations. Consumer Electronics remained stable, Automotive OEM builds were flat and consumer retail discretionary spending was soft. Geographically, our growth was led by China, up high single digits, driven by our Electronics business, where we continued to gain share and saw modest front loading from an anticipated change in tariffs. The U. S.

[Anurag Maheshwari, CFO & Executive VP at 3M]

Was up low single digits despite the challenging macro backdrop with growth in Aerospace and General Industrial. And EMEA was down low single digits due to the continued weak environment, including a high single digit decline in auto bills. Adjusted operating margins were 19.7%, down 20 basis points year over year and adjusted EPS was 1.68 dollars or $0.05 better than the midpoint of our guidance. The better performance was driven by $0.09 of volume leverage, higher productivity and lower restructuring charges more than offsetting the unexpected $0.04 headwind from FX due to the significant recent U. S.

[Anurag Maheshwari, CFO & Executive VP at 3M]

Dollar strength. I will provide a quick overview of our growth performance for each business group on Slide 7. Safety and Industrial Organics sales grew for the 3rd consecutive quarter with 2.4% growth in the 4th quarter. This growth was broad based with 6 out of 7 divisions posting positive growth. We saw particularly strong demand for e Bonding in Electronics and Hearing and Body Protection in Personal Safety.

[Anurag Maheshwari, CFO & Executive VP at 3M]

In addition, growth was driven from a large few power grid orders as anticipated in Asia and the U. S. For aluminum high capacity conductors and power cable accessories for data centers. For the year, Safety and Industrial sales were approximately CAD11 1,000,000,000 with organic sales growth of 0.7 percent led by strength in e Bonding, Cable Accessories and Auto Body Repair. Roofing Granules add another year of mid single digit growth as we continue to capitalize on the multi year roof replacement cycle.

[Anurag Maheshwari, CFO & Executive VP at 3M]

Transportation and Electronic adjusted sales were up 2% organically in the 4th quarter. The Consumer Electronics business showed continued strength, growing high single digits driven by solid volumes through the holiday season and continued share gains. Aerospace was again up double digits in the quarter, while the auto OEM business was down mid single digits, reflecting continued weakness in global car and light truck bills. For the year, Transportation and Electronics had adjusted organic growth of 3.4%, driven by Electronics, Aerospace and Auto. Our Electronics sales were up approximately 12% from strong market demand combined with new product introductions and spec wins that drove share gains.

[Anurag Maheshwari, CFO & Executive VP at 3M]

Despite a challenging Q4, our auto OEM business was up 2% versus a 1% decline in auto build rates. And the Aerospace business grew double digits again for the year and 50% over the past 2 years, reflecting our focus on growth portfolios. Finally, the Consumer business returned to growth in the 4th quarter, up 1.2% organically. Home Improvement led the way up low single digits, driven by strength during the holiday season for Command, scotch tape and paint protection products. And for the year, our consumer business was down 1.2% with low single digit growth in home improvement sales, mainly Command, more than offset by lowtomidsingledigit declines in the other divisions.

[Anurag Maheshwari, CFO & Executive VP at 3M]

Let me summarize our full year 2024 financial performance on Slide 8. On the back of strong 4th quarter performance, we finished the year with total adjusted sales of CAD23.6 billion and organic growth up 1.2%. All of our business groups were in line with our guidance and from a geographic perspective, we saw solid organic growth in Asia Pacific, up 4.4 percent driven by consistent strength in our Electronics business. In the U. S, despite IPI being down 0.3%, our business was up 0.7%, driven by electrical markets, aerospace, cable accessories and home improvement.

[Anurag Maheshwari, CFO & Executive VP at 3M]

EMEA was down 1.3% due to the decline in auto builds and the weak industrial and manufacturing environment. Our adjusted operating margins expanded 280 basis points above the high end of our guidance range of 2 50 basis points to 2 75 basis points to 21.4%. This performance was driven by benefits from volume leverage, productivity, Solventum transition service agreement cost reimbursements and restructuring, partially offset by FX and investments to drive growth in the business. We delivered $7.30 of EPS for the year, up 21% and at the high end of our guidance range. Over 80% of our year on year performance was driven by strong operational execution.

[Anurag Maheshwari, CFO & Executive VP at 3M]

Finally, we delivered free cash flow of $4,900,000,000 or 111 percent conversion, which included net working capital improvement of 8 days and returned $3,800,000,000 to shareholders in 2024. Please turn to Slide 9 as we look into our 2025 guidance. As Bill indicated, we expect organic sales growth of 2% to 3%, earnings per share of $7.60 to $7.90 representing growth of 4% to 8% and free cash flow conversion of approximately 100%, all on an adjusted basis. We expect all business groups to grow low single digits, which is in line with or above macro. We expect this higher growth trajectory to be supported by a focus on commercial excellence, improvement in service levels and new product launches.

[Anurag Maheshwari, CFO & Executive VP at 3M]

We have largely moved past product portfolio prioritization headwinds and the small amount that remains is incorporated into our guidance and won't be specifically called out going forward. Our EPS growth is anchored by margin expansion in the range of 130 to 190 basis points, which reflects our relentless focus on operational excellence. Adjusted free cash flow conversion is expected to be approximately 100%, driven by strong operating income growth and a focus on working capital management. Adjusted CapEx of approximately $1,000,000,000 will be in line with depreciation and amortization. Let me take a minute to walk through the EPS drivers for 2025 on Slide 10.

[Anurag Maheshwari, CFO & Executive VP at 3M]

We expect EPS growth of 4% to 8%, driven by operational performance that is partially offset by non operational headwinds. We are confident that our focus on operational excellence will contribute $0.70 to $1 or 10% to 14% to adjusted EPS growth. This growth will come from volume, restructuring and net productivity more than offsetting growth investments and stranded costs. We expect non op headwinds of approximately $0.40 half from FX due to recent strengthening of the U. S.

[Anurag Maheshwari, CFO & Executive VP at 3M]

Dollar and the other half from below the line items including pension expense, net interest and tax partially offset by share buyback. We plan for a gross share repurchase program in 2025 to be approximately $1,500,000,000 Putting all this together, we expect strong operating performance and capital deployment to drive EPS growth. As we think about the cadence through the year, we expect sales and EPS to be split equally between the first and second half, in line with historical trends. Within the first half, we expect Q1 sales growth to be similar to Q4 and earnings will reflect the annual equity grants which last year were deferred to Q2. This will result in Q1 earnings being similar to that of last year and we expect sequential improvement into Q2 as we lap the Sorventum spin items with earnings being approximately equal between the two halves.

[Anurag Maheshwari, CFO & Executive VP at 3M]

I want to take a moment to thank the 3 ms team for the strong finish to the year, and I'm confident in our ability to deliver another strong year in 2025 with growth acceleration, strong margin expansion and return cash to our shareholders in excess of $3,000,000,000 With that, let's open the call for questions.

[Operator]

Our first question comes from the line of Jeff Sprague with Vertical Research. Please proceed with your question.

[Jeffrey Sprague, Managing Partner at Vertical Research Partners]

Thank you. Good morning, Bill and Anurag. Just on the top line in particular, Bill, I was wondering if you could give us a sense of to what degree sort of the operational execution, product development has actually impacted the top line already versus what you expect to kind of play out in 2025? Just thinking of some of these product launches and the like came later in the year. So perhaps we could start there.

[Bill Brown, CEO at 3M Company]

Good morning, Jeff. Thanks for the question. Yes, we were very pleased with the acceleration of new product introductions, as I mentioned in my remarks, came in above expectations, in fact, quite a bit above the expectations, but still very early. A lot of the products that we're launching are what we call Class III, so they're incremental. So year 1 sales on these products are going to be somewhat light and it will grow over time over the next several years.

[Bill Brown, CEO at 3M Company]

More importantly, as we grow our NPI launches next year by double digit, we shift to more, what I call higher octane or Class 4 type products, which have more sales capability, we'd likely see more impact on the top line from these launches. It's an important dimension. I think the team has built momentum. It's part of the governance process. It's a lot of it's the enthusiasm of the team.

[Bill Brown, CEO at 3M Company]

Some of it is shifting some resources around. We added 50 people in Q4 and we moved about another 100 people into R and D Development in the quarter. So we're on the right track. There's a good sign. We've got to see it turn into reasonable and substantial margin and income over time.

[Bill Brown, CEO at 3M Company]

But whatever we've seen in terms of launches is built into the 2 to 3 guidance we see next year.

[Jeffrey Sprague, Managing Partner at Vertical Research Partners]

Great. And then maybe just one for Anurag. A lot of conversation last year as we're all trying to fine tune our models on kind of the restructuring versus stranded costs and the like. Just wonder within that $0.70 to $1 $0.70 to $1 bridge item on a rod, you could give us a little bit of granularity on restructuring investments in stranded costs in particular.

[Anurag Maheshwari, CFO & Executive VP at 3M]

Okay. Good morning, Jeff. Sure. Let me do that. And probably what I'll do is I'll break the pieces to the bridge.

[Anurag Maheshwari, CFO & Executive VP at 3M]

So at the midpoint of our EPS guidance, we are growing 10% to 14%, excluding the non op items, which is quite strong relative to the midpoint of organic growth. So there are 3 factors for that. One of them is sales volume, which creates significant volume leverage as well as incrementals. So at 2.5% volume growth at the midpoint of the guidance and 35% incrementals, that's about $200,000,000 or so. 2nd is the lower restructuring cost to your specific question.

[Anurag Maheshwari, CFO & Executive VP at 3M]

That's about $200,000,000 tailwind into 2025. So that's another $200,000,000 And finally, on the net productivity, that's about $150,000,000 as well. And lots of pieces in that, The PFAS stranded cost is a negative $100,000,000 We're making some growth investments as well, but offsetting that is overall net productivity through the factories, through our SG and A function as well. So you put all the 3 buckets together, it's about $550,000,000 of margin improvement. FX is offsetting about $125,000,000 of that or so.

[Anurag Maheshwari, CFO & Executive VP at 3M]

So the $425,000,000 is at about at the midpoint of 160 basis points of margin expansion. So those are the 3 big pieces driving the operational growth of $0.70 to $1.

[Jeffrey Sprague, Managing Partner at Vertical Research Partners]

Great. Thank you for that. I'll pass it on.

[Operator]

Our next question comes from the line of Scott Davis with Melius Research. Please proceed with your question.

[Scott Davis, CEO & Chairman at Melius Research LLC]

Hey, good morning. Good morning, guys.

[Bill Brown, CEO at 3M Company]

Good morning, Scott.

[Scott Davis, CEO & Chairman at Melius Research LLC]

And thanks for the shorter presentation too. Hey, Bill, you mentioned the quota pull forward. I think you mentioned something about some changes in the sales organization. But if we just back up a little bit, what perhaps you could just frame kind of what you're trying to change with the sales organization and maybe a little bit more detail on what exactly does that mean when you talk about a quota pull forward for as far as trying to drive growth?

[Bill Brown, CEO at 3M Company]

Yes. So it's a great question. Thank you for that. When I laid out the original plan around driving top line growth, the basis is around driving more innovation and that's going to take time and I commented on that a little while before. Growth in the near term is going to come from selling more of what we have on the market today and that's an important dimension to this, which is just a more aggressiveness in our frontline sales and marketing resources.

[Bill Brown, CEO at 3M Company]

They're dealing with right now with not a lot of new things to say to the customers because we haven't been innovating as much. And our on time in full performance out of the factories has not been that great. It's improving, but it has not been that great. So the sales force is challenged in some ways to sell, and I think they've been on their back feet in some ways. And I think what Chris and the team at SIBG and others across the company are doing is really leaning into this.

[Bill Brown, CEO at 3M Company]

So what we're trying to push for is making sure that the sales leaders, the sales reps out in the field, they know what they're expected to do in 2025 early in the year. So that's they're getting out of gates January 1 with their quota, their targets, specific things around closed won wins. Typically that would have been in early April when it rolls out. So a little bit lag. So that's why Q1 might not have had some momentum.

[Bill Brown, CEO at 3M Company]

A little more structure around how the sales managers and area leaders are working in terms of their cadence, reviewing progress with their sales reps, that's quite important. Some of the other dimensions that we're pushing on here is around cross selling. It's a pilot, it's 6 combination pairs that we've done, 6 or 8 different distributors. So it's small pieces here. But in December, we saw some pretty good momentum building.

[Bill Brown, CEO at 3M Company]

And I'm pretty optimistic that over this year and next that there's going to be some benefits for cross selling. We're working on pricing and reinstituting some price corridors and changing our governance process on our pricing. So when you step back, I think all of this gets back to the original premise was, we've got to get better at selling what we have today on the marketplace. And that's where the back end of 'twenty four and then most of 'twenty five is going to come from, which I think is important to investors to understand that piece. The NPI will come over time.

[Bill Brown, CEO at 3M Company]

I'm very confident about that, but we've got to get better at selling more what we have on the market today.

[Scott Davis, CEO & Chairman at Melius Research LLC]

Makes sense, Bill. And just I think when you talk about on time and full, it seems very fundamental. But in theory, if you had 100% on time and full, would your growth rate be 100 basis points higher, 200 basis points higher? Is there any way to kind of narrow that down?

[Bill Brown, CEO at 3M Company]

Yes, it's hard to quantify, Scott. It's a good question. Clearly, running at 88% is not where we need to be. We're feeling we're running around 93%, over 93% in consumer. We should be in the high 90s.

[Bill Brown, CEO at 3M Company]

That's the expectation of some of the big box retailers. So we're getting there. We're doing better there. We're over 90% in the transportation business. That's good.

[Bill Brown, CEO at 3M Company]

It should be better. The concern really is in SIBG, the safety and industrial business in the low 80s. We're definitely losing business for sure there. We are not delivering when somebody needs something right now and we don't have it available. That is causing them to go someplace else, even though we have a better brand, sometimes a better product, an attractive price.

[Bill Brown, CEO at 3M Company]

So it is costing us sales. So I do know that as a fundamental part of driving top line, we've got to get better at exercising the supply chain and making sure we meet our customers' expectations.

[Scott Davis, CEO & Chairman at Melius Research LLC]

Okay. Best of luck. Thank you, guys.

[Operator]

Our next question comes from the line of Nigel Coe with Wolfe Research. Please proceed with your question.

[Nigel Coe, Managing Director at Wolfe Research, LLC]

Thanks. Good morning, everyone.

[Bill Brown, CEO at 3M Company]

Good morning, Nigel.

[Nigel Coe, Managing Director at Wolfe Research, LLC]

Good morning. Bill, you sound a little skeptical about the 1.9% IPI forecast just based on that's where we were this time last year. So I'm just wondering when you went through the plan process, looked at the bottoms up kind of projections from the businesses and then you overlaid that with the top down, what kind of haircuts have you taken to that 1.9 percent? And that brings me on to my next question. Well, the real question, I guess.

[Nigel Coe, Managing Director at Wolfe Research, LLC]

What have you baked in for pricing in 2025? And then just going forward, what is the sort of framework here? Is it IPI plus price? Is it IPI multiplied by some kind of factor plus price? I mean, any way to think about that growth function going forward?

[Bill Brown, CEO at 3M Company]

So it's a good question. I don't think we're going to deconstruct the elements of growth between price and volume and share gain and other parts of it. But look, we did enter 'twenty four with an expectation IPI was going to be a bit better and it softened through the year. There was an expectation of auto builds and that softened quite a bit in the back end of the year. As we were 3 months ago thinking about IPI in 2025, it was higher than we actually are sitting at today, it was on 2.4%.

[Bill Brown, CEO at 3M Company]

The auto build was at that point in time higher expectation for 25% than we sit here today. So these indicators, they're just that, they're indicators and we use them. It's an important dimension, but it's sort of a starting point. Of course, we've done a bottoms up review of our business. We feel confident that 2% to 3% is the right place to be.

[Bill Brown, CEO at 3M Company]

When you look at a blended macro between IPI and GDP, because we're about 80% weighted to IPI, 20% to GDP, it's around 2.1%. So the center point at 2.5 is a little bit above the macro. We know that some of the initiatives we're putting in place around commercial execution, new product development, getting our factories run a bit better. Those are all very important dimensions. But Nigel, again, it's worth 2, 3 weeks into the year.

[Bill Brown, CEO at 3M Company]

We've got a new administration in Washington. There's lots of conversations floating around tariffs. We'll see as the year goes by both progress and traction of some of the initiatives we have internally, plus what happens in the macro and we'll update investors accordingly. So right now we feel good about 2% to 3% is the right place to start in 2025.

[Nigel Coe, Managing Director at Wolfe Research, LLC]

Great. Thanks, Bill. And then Anurag, for you. Thanks for the details on the margin bridge. The $150,000,000 of net productivity, that appears to be mainly the payback on the construction actions in 2024.

[Nigel Coe, Managing Director at Wolfe Research, LLC]

So I'm just wondering if there's anything from some of the more structural drivers such as improving OEE, improving footprint, supply chain, etcetera.

[Anurag Maheshwari, CFO & Executive VP at 3M]

Yes. There is. So let me break up the $150 in a little bit more detail. Yeah. So first, just on the headwinds over there.

[Anurag Maheshwari, CFO & Executive VP at 3M]

So I said it was $100,000,000 of stranded costs. The incremental investments we are making as well, which is about $225,000,000 some we did in 'twenty four, some in 'twenty five. It's about a carryover as well as in year. So you've added 2 together, it's about $325 ish $350,000,000 Now offsetting that, you're correct. There is a probably $70,000,000 of restructuring benefits, about $280,000,000 But then to get to the positive $150,000,000 we're driving about more than $400,000,000 of net productivity.

[Anurag Maheshwari, CFO & Executive VP at 3M]

And that is coming through again through supply chain, be it procurement, more on the G and A efficiency and a few of the other areas that Bill has spoken about. So overall, I would say the productivity driving is $450,000,000 as being offset by all these other line items to get us to $150,000,000

[Operator]

Our next question comes from the line of Andrew Kaplowitz with Citigroup. Please go ahead with your question.

[Andrew Kaplowitz, Managing Director at Citi]

Hey, good morning, everyone.

[Bill Brown, CEO at 3M Company]

Good morning.

[Andrew Kaplowitz, Managing Director at Citi]

Bill, you had mentioned in the conference circuit in December that you saw a bit of an uptick in industrial demand in Q4. Did that continue into January here? Do you think it was just related to pre buy ahead of tariffs? Or could it have been a reflection of maybe some modest recovery in short cycle markets? How would you characterize it?

[Bill Brown, CEO at 3M Company]

Yes. So we did see, I'd say across the industrial part of the portfolio, not referring to the consumer side, but the industrial part of the portfolio, we did see order rates. First of all, they're very steady through the quarter, which I think was very positive. They're a tick higher than they were in Q3. The order rates were somewhat higher than the growth rate, organic growth rate in the quarter.

[Bill Brown, CEO at 3M Company]

So there's a bit of backlog that was built into 2025. Those are all good indicators, but we are a shorter cycle business. So we don't really live off backlog. It's more of a book and ship type business, but there's small little indicators. It was pretty broad based.

[Bill Brown, CEO at 3M Company]

There was no specific region or business that was the driver of it. That also is somewhat encouraging. Again, it's and I contrast it to where we were in Q4 of 'twenty three, where I think there was a pretty dramatic tail off in orders towards the back end of December, which got the team a little bit shaken in some ways. We did not see that happen here. So those are all good indicators, which is why when we look at 2%, 2.1% organic growth in Q4, that we feel that that's a good floor, if you will, for 2025.

[Bill Brown, CEO at 3M Company]

But I think it's good news. It's holding steady. And again, it's a reflection of some modestly improvements in the industrial markets. But again, it's kind of early days.

[Andrew Kaplowitz, Managing Director at Citi]

Helpful. And then Anurag, can you give more color into 'twenty five margin guidance by segment? And then also comment on T and E margin, particularly in Q4, 'twenty four as it seemed a little weak in Q4 versus the other segments?

[Anurag Maheshwari, CFO & Executive VP at 3M]

Yes. So first, let me talk about Q4 and then I'll get into 'twenty five. So overall, Q4 came in better than expected across from our expectations what we gave in the October guide across all the three segments. And as I noted in my prepared comments, it's probably $0.05 higher than where our midpoint of our guide was because of volume and productivity with FX being the big headwind in the quarter, which was unexpected. Now on TEEBG, we did expect the margins to be lower in Q4 seasonally, of course, between Q3 and Q4 because of under absorption as we clear out inventory.

[Anurag Maheshwari, CFO & Executive VP at 3M]

So that was a big reason. And if you look between Q3 and Q4, you know, sequentially, we improved inventory by 8 days. So that clearly has an absorption issue. 2nd is we started making growth investments, which we are seeing in the revenue right now. That was a driver for it.

[Anurag Maheshwari, CFO & Executive VP at 3M]

And FX, if you TBG does have a fair amount of business outside the U. S. So that impacts it as well. So you put all these three things together, the margin is lower. It actually came in better than what we expected.

[Anurag Maheshwari, CFO & Executive VP at 3M]

So overall, if I look at all the 3 business groups for 2024, the margins came in a little bit better than expected. As we go into 2025, we're probably not giving guidance right now very specific to each of the segments. But the 130 to 190 range that we gave in terms of margin expansion, We expect all the 3 business groups to grow quite a bit. The TEBG could be a little bit lighter than the other 2 because they have the PFAS stranded costs, a large part of it is in TEBG. But having said that, we expect good margin expansion across all the 3 business groups.

[Andrew Kaplowitz, Managing Director at Citi]

Very helpful, guys. Thank you.

[Bill Brown, CEO at 3M Company]

Thank you.

[Operator]

Our next question comes from the line of Julian Mitchell with Barclays. Please proceed with your question.

[Julian Mitchell, Equity Research Analyst at Barclays Investment Bank]

Hi, good morning. Maybe just the first question, trying to understand the sort of operating margin expansion framework. So you talked about, I think, anurag €450,000,000 of overall productivity improvement in 2025. In the past or recent past, let's say, Bill, you've talked about that sort of €250,000,000 to COGS productivity number. So as a sort of annual placeholder.

[Julian Mitchell, Equity Research Analyst at Barclays Investment Bank]

So just want to understand the kind of delta between that, I'm guessing 450 is not a medium term placeholder because you have some extra savings this year from the 2023 plan. But maybe just help us understand sort of how to think about productivity on top of that 35% core leverage placeholder?

[Anurag Maheshwari, CFO & Executive VP at 3M]

Sure. So Julian, you're correct. What we have said is on the COGS line, 2% net productivity, which is about $250,000,000 The productivity which I'm talking about is overall for the company, which also includes SG and A, other parts of the business as well. It also has a one quarter of the TSA reimbursement, which overlaps over there, too. Right.

[Anurag Maheshwari, CFO & Executive VP at 3M]

So if you so those are the pieces which takes us to 450. I mean, we'll provide more on the Investor Day in terms of the framework looking forward, but I think our goal is still to get 2% net productivity in COGS and for even on SG and A line to see whatever productivity we can get to offset inflation and other investments that we are making.

[Julian Mitchell, Equity Research Analyst at Barclays Investment Bank]

Thanks a lot. And I'll leave other medium term questions for that event. So maybe just on the very short term Anurag, I think you'd mentioned sort of 1.70 ish of EPS adjusted in Q1. The first half is just under $4 though, I think, based on that 50% comment. So you got a decent sequential step up in the second quarter in EPS.

[Julian Mitchell, Equity Research Analyst at Barclays Investment Bank]

Maybe just any very large puts and takes, it seems like organic growth pretty steady year on year, but anything you're calling out sort of Q1 to Q2 delta?

[Anurag Maheshwari, CFO & Executive VP at 3M]

Yes. Thanks for the question. So let me break it up into 2 parts. 1 is some discrete items in the Q1 and then second is on the recurring operational performance and non op impact, which you should see through the year. On the discrete items, as I mentioned in my prepared comments, due to the Solvintem spin, there were few pieces, but the large part of it was the equity based compensation, which I called out last year.

[Anurag Maheshwari, CFO & Executive VP at 3M]

We accrued in the Q2 and as this year, as we're returning back to historical trends, we'll be accruing it in the Q1. This is about a $0.15 headwind in the Q1, which becomes a tailwind in the Q2. On the operational side, we'll see good flow through from volume, lower restructuring costs, DSA absorption, all the productivity that we spoke about, which will offset PFAS stranded and mix headwind and also all the growth investments. So this should be about $0.20 to $0.25 of EPS growth in the quarter. On the non op, we have $0.40 for the year.

[Anurag Maheshwari, CFO & Executive VP at 3M]

So the Q1 is probably going to be closer to $0.08 to $0.10 So if you put all these items together, Julian, you got $0.20, $0.25 of operational EPS growth, you minus the $0.08.10 of non op and the $0.15 of equity based comp. So the earnings are flat to Q1 of last year. Now as you move into the Q2, if we continue the similar trajectory on operating performance and the non op headwind, it will be $0.10, dollars 0.15 of EPS growth. And then you add back the $0.15 of the equity based compensation. So the growth in Q2 would be closer to $0.25 $0.30 So that's a bridge between Q1 and Q2.

[Anurag Maheshwari, CFO & Executive VP at 3M]

And then to your math, the first half and second half should be fairly equal in terms of EPS.

[Julian Mitchell, Equity Research Analyst at Barclays Investment Bank]

That's great. Thank you.

[Operator]

Our next question will come from the line of Steve Tusa with JPMorgan. Please proceed with your question.

[Stephen Tusa, Managing Director at JP Morgan]

Hi, good morning.

[Bill Brown, CEO at 3M Company]

Hi, good morning, Steve.

[Stephen Tusa, Managing Director at JP Morgan]

Could you

[Stephen Tusa, Managing Director at JP Morgan]

just talk a little about, I'm not sure you mentioned it before, but the price assumption for this year?

[Bill Brown, CEO at 3M Company]

No, we've not talked about that. I don't think we're going to disaggregate organic growth and it's embedded in the 2% to 3%. I think as we said before in the past, we do get price increases, the price increases cover material cost inflation and are expected to be in a similar magnitude in 25%, but we're not going to sort of get that specific number here today.

[Stephen Tusa, Managing Director at JP Morgan]

And is that a net positive or you're just covering it?

[Bill Brown, CEO at 3M Company]

No, it'll be a net positive in this year.

[Stephen Tusa, Managing Director at JP Morgan]

Okay. And then just one follow-up on the T and E segment in the Q4 margin was a little bit weaker than we were expecting. Anything in particular going on there in the 4th?

[Anurag Maheshwari, CFO & Executive VP at 3M]

No. In fact, as I mentioned earlier, Steve, it's probably a little bit better than expected. Nothing unusual. This is a combination of seasonality as you bring inventory down, some growth investments we made. But as you move into 'twenty five, you should see margin expansion again in TPG.

[Anurag Maheshwari, CFO & Executive VP at 3M]

TPG was actually our highest margin expansion segment in 'twenty four by growing over 2 20 basis points. So I would say nothing unusual in the Q4, just timing of different things.

[Stephen Tusa, Managing Director at JP Morgan]

And then sorry, one more, just on the corporate side, a little bit lower in expense this year. How does that look going forward? Is that a sustainable number in the model going forward to the 26, 27, the corporate side?

[Anurag Maheshwari, CFO & Executive VP at 3M]

Yes, we'll talk about 25 right now first, Steve. Just on 25, 2 pieces over there, both equal half. It's about 60,000,000 each. One is just a reallocation between corporate and the business group. So one last quarter of overlap over there because we did it for 9 months of the year.

[Anurag Maheshwari, CFO & Executive VP at 3M]

So one is just a reallocation. And the second is covering the TSA absorption costs, about $60,000,000 So those are the only two pieces of corporate.

[Stephen Tusa, Managing Director at JP Morgan]

Great. All right. Thanks a lot.

[Bill Brown, CEO at 3M Company]

Thank you.

[Operator]

Our next question comes from the line of Andrew Obin with Bank of America. Please proceed with your question.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

Hi, guys. Good morning. How are you?

[Bill Brown, CEO at 3M Company]

Good, Andrew. Good morning.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

Yes. Can we just talk about free cash flow, good improvement in free cash flow conversion this year? As we think about next year, this squiggly line 100 percent free cash flow conversion, What kind of working capital benefit do you have dialed in? And what are their offsets in terms of cash flow or cash flow to keep it at 100 because you do have working capital release program and I would have expected that you could deliver over 100 quite sustainably for a number of years.

[Anurag Maheshwari, CFO & Executive VP at 3M]

Yes. Thanks for the question. Yes, we did very well in 2024 as you could see, 111% conversion, really good on the working capital as well where we improved the cash conversion cycle by 8 days. It's early days right now in 2025. The reason we put 100% conversion is, one is CapEx is in line with depreciation.

[Anurag Maheshwari, CFO & Executive VP at 3M]

We're going to invest on the growth side as well as sustainability. So CapEx in line with depreciation. On the working capital, 2 things. As revenue goes up, obviously, we're going to consume more on the receivable side, but we continue to offset it by inventory. Our goal is to get to 75 days.

[Anurag Maheshwari, CFO & Executive VP at 3M]

We showed good progress in 2024. We'll continue that in 2025. Now, of course, we strive to do better than that. So as the year goes by, if we do better on inventory to offset the DSO impact, there could be more than 100%. But that's the number we're going to start with and move from there.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

Great. And just a question on abrasives and industrial specialties. It seems to be a sort of nice canary in the coal mine short cycle business. It's been consistently declining for a while. You do sound more optimistic.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

But if you look at these numbers, they seem to be relatively flat for the first for the past 4 to 6 quarters. Any visibility there? When do they turn positive? What are you seeing in the channel? What are you seeing at inventory levels at OEMs?

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

I know auto is probably a decent market there, but just more color as to when do you think these businesses could turn? Thank you.

[Bill Brown, CEO at 3M Company]

So good question. I mean, so both businesses in the year were down low single digits. They're very different. Industrial Specialties is a grouping of lots of different pieces. Some are growing, some are not.

[Bill Brown, CEO at 3M Company]

Overall, it's been declining, but we see that flattening out and starting to grow over time. On the abrasive side, we should see a better 25 than 24. Part of it is because of the industrial economy. Part of it is because of the launch of a new product offering called Cubitron 3 that we launched over the last year. It's now moving into a variety of different instantiations of different abrasive products.

[Bill Brown, CEO at 3M Company]

It's growing. It's got tremendous differentiation versus competitors. So we feel very positive about that. So we see that getting a little bit better here in 'twenty five. Part of it is because of the new products being introduced.

[Bill Brown, CEO at 3M Company]

So we think it's going to both turn the corner here in 'twenty five.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

But no commitment Q1, Q2, nothing more nothing specific like that?

[Bill Brown, CEO at 3M Company]

It's a little

[Bill Brown, CEO at 3M Company]

bit granular. We'll come out probably can say more about this at the Investor Day when Chris talks about the individual components of his business, but nothing more today. You asked about the inventory in the channel, that's been pretty normalized. There's not any significant concerns one way or the other about inventory in the industrial channel. So that's not really the big driver here.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

Great. Appreciate it. See you in February. Thank you.

[Bill Brown, CEO at 3M Company]

Thank you.

[Operator]

Our next question comes from the line of Amit Mehrotra with UBS. Please go ahead with your question.

[Amit Mehrotra, Managing Director at UBS Group]

Thanks. Good morning, everybody. Anurag, one of the things that obviously stood out to me is the expectation for profit growth to be well in excess of revenue growth for this year. You obviously provided a very helpful walk around how we get there. But as we're coming up in kind of late February, we think about the multiyear outlook.

[Amit Mehrotra, Managing Director at UBS Group]

Do we expect a high level of incrementals to be sustainable? It doesn't have to be over 100%, but can we expect a higher level of incrementals kind of on a sustainable basis as some of these cost initiatives have legs? And I also assume cash flow is going to grow in excess of earnings growth over the next several years. And if you could just talk about that and I'm trying to square that with a 2025 buyback guide that's a little bit lower than what you kind of exited at from a run rate perspective.

[Anurag Maheshwari, CFO & Executive VP at 3M]

Good morning, Amit. Thanks for the question. So, and then rest of the day, we'll provide a framework as we look out at the medium term as to what's kind of going to drive the sales growth and from the sales, are we going to get gross margin expansion, which is going to flow through to the bottom line. So you're absolutely correct. We will provide that framework as we get into the end of the month in February.

[Anurag Maheshwari, CFO & Executive VP at 3M]

On the cash flow side, it's listen, as growth as we continue to grow, that is going to be a drag on receivables, but we have put an inventory goal out there for 75,000,000 we feel is a good path for us to get there. We're executing well towards that. And it's 100% conversion. If you look historically at 3 ms, it's been around there. But going forward, depending on revenue being the big variable year as well, but on inventory being something we can control, our drive would be to be over 100% conversion.

[Amit Mehrotra, Managing Director at UBS Group]

Yes.

[Amit Mehrotra, Managing Director at UBS Group]

Okay. And just maybe a bigger picture question for Bill. I would love to get it. You mentioned earlier about industrial OTIF kind of stubbornly in that low 80% level. Obviously, that's a pretty big deal just given the size of that business.

[Amit Mehrotra, Managing Director at UBS Group]

Can you talk about maybe when you expect to see more progress on that and talk a little bit about the manufacturing and DC footprint and when you expect to make more progress on that as well?

[Bill Brown, CEO at 3M Company]

So, I mean, look, I may expect more progress on SIBG OTIF in January. We expect it in February. We did not expect the deterioration we saw in November December. Part of it is certain specific issues, equality issues, a couple of specific assets to SIBG. One of the things that I've been reminded about by people is it's a much more complicated portfolio.

[Bill Brown, CEO at 3M Company]

It's about 35% more SKUs in SIBG than TEBG and probably more than double the number that's in CBG. So it's a pretty complicated portfolio. That being and there's been some unique supplier challenges in that business as well. But that being said, we expect that business to be closer to 90% this year, maybe it's towards the end of the year, but we need to be making sequential improvement throughout the year on SIBG OTIF. And I know Chris is depending upon that, his sales force is depending upon it, and more importantly, our customers are.

[Bill Brown, CEO at 3M Company]

So that's we're on it, we're pushing on it. It's certainly gotten a lot of attention inside the company and the team is pretty laser focused on making those improvements. I think you talked about the complexity as well in the network. Look, it's part of a longer term plan in terms of operational excellence. The first part really is making sure that all of our factories have an improvement target, an improvement plan for how they run their 4 wall spend.

[Bill Brown, CEO at 3M Company]

We will also be looking at how we can run this network that we have today more efficiently. And then over time, as we really mature the operating equipment efficiency metric, which is a measure of utilization of assets, As that gets more mature, then we can start taking on a little more of a holistic look at the overall network. But right now, it's really just focused on blocking and tackling inside the factories. And I think we've got a lot of opportunity in front of us to improve in those dimensions.

[Operator]

Our next question comes from the line of Nicole DeBlase with Deutsche Bank. Please proceed with your question.

[Nicole Deblase, Analyst at Deutsche Bank]

Yes. Thanks, guys. Good morning.

[Bill Brown, CEO at 3M Company]

Good morning, Nicole.

[Nicole Deblase, Analyst at Deutsche Bank]

Maybe just starting with China, I think you're expecting a little bit of a slowdown to mid single digits in 2025, but definitely not too shabby. I guess, can you talk a little bit more about what you're seeing on the ground there?

[Bill Brown, CEO at 3M Company]

Yes. So from a macro perspective, China is expected to slow a little bit, both from a GDP and IPI perspective. But again, it depends on what you believe in those forecasts and those numbers. Now I do think that tariffs could have an effect on what's happening in China, certainly on the export part of China. So we're watching it very, very carefully.

[Bill Brown, CEO at 3M Company]

There's news of the minute on tariffs for sure. So just stepping back, Nicole, China is about 10% of our revenue globally. Last year, it was up about 10%, was up about 13% in the first half. It sort of slowed down in the back. Part of it is from electronics.

[Bill Brown, CEO at 3M Company]

When I look at so half the business is export and electronics have been an important driver. But the other half that's really so if you will, China for China, that did grow, was up about 3% last year. So we saw a decent growth on the ground, not quite at macro, but decent growth. We had quite a bit of activity in December, quite a bit of activity happening here in January. Again, it's you never know, it could be some pull aheads, could be just getting ahead of Chinese New Year, which is end of January.

[Bill Brown, CEO at 3M Company]

We do expect that our business in China will be slower in 'twenty five than it was in 2024, probably in the low single digit range is what we expect for revenue for 3 ms in China.

[Nicole Deblase, Analyst at Deutsche Bank]

Got it. That's really helpful. Thanks, Bill. And then any update on insurance recoveries? I think you promised us an update each quarter.

[Nicole Deblase, Analyst at Deutsche Bank]

Thank

[Nicole Deblase, Analyst at Deutsche Bank]

you.

[Bill Brown, CEO at 3M Company]

So we're making progress on insurance and we're actively engaged in arbitration negotiations in some places litigation with insurance carriers for both for PWS and combat arms. In Q4, we recovered about $170,000,000 So to date, so through last year was about $340,000,000 mostly in the combat arms area. Again, we're pretty active in pushing this. The legal teams are driving this pretty hard.

[Bill Brown, CEO at 3M Company]

And as I said last time, we'll say it again, we expect our insurers to honor the commitments they have to us in their policies, and we're going to make sure that they go and do that. So that's kind of where we stand today.

[Nicole Deblase, Analyst at Deutsche Bank]

Thanks so much. See you in February.

[Bill Brown, CEO at 3M Company]

Thank you.

[Operator]

Our next question comes from the line of Joe O'Dea with Wells Fargo. Please proceed with your question.

[Joseph O'Dea, Managing Director at Wells Fargo]

Hi, good morning.

[Bill Brown, CEO at 3M Company]

Good morning, Joe.

[Joseph O'Dea, Managing Director at Wells Fargo]

Just wanted to ask one on cash and just what you think the right amount of cash to carry is. So you ended the year with cash and marketable securities at about $7,700,000,000 Where do you expect to end 2025? And then thinking maybe a little bit farther out, just what you think the right amount of cash to have is, whether that's percent of sales or dollar amount?

[Anurag Maheshwari, CFO & Executive VP at 3M]

Joe, it's Anurag here. So we as you correctly said, we ended the year at $7,700,000,000 It's probably 2x of the working capital requirement for the business. If you look at 25,000,000,000, we said we're going to buy back shares worth $1,500,000,000 At current dividend rate, we're paying about $1,500,000,000 $1,600,000,000 in dividends, dollars 3,000,000,000 we got $3,000,000,000 to settle on combat arms and PWS as well. So these are the big ones we have for the year, and our plan is to refinance majority of our debt. So if you put all of that together, we should end 25 at over $6,000,000,000 in cash.

[Joseph O'Dea, Managing Director at Wells Fargo]

And then also, Bill, just on industrial production and what are you watching most closely there, whether it's a region, whether it's an end market, in terms of how you're thinking about where the best potential sits for this accelerating industrial production that we're kind of all waiting for?

[Bill Brown, CEO at 3M Company]

Yes. So we're looking at all the different pieces. Obviously, we're pretty levered to the manufacturing economy within IPI. So that's an important one. And we're a little bit heavier weighted in U.

[Bill Brown, CEO at 3M Company]

S. And probably Europe and others after that. So clearly, U. S. Is an important focus of ours in watching IPI.

[Bill Brown, CEO at 3M Company]

The current forecast is it does turn positive from minus 0.3 to plus 0.5, I think is what it was in 2025. Europe, we have to watch. We've got a pretty good presence in Europe as well. It's a very big turnaround in Europe from down 60 basis points to up 1 130 basis points next year. That's a pretty big movement.

[Bill Brown, CEO at 3M Company]

So those are the key things that we're looking at, I think, pretty carefully on IPI. It's on the industrial side. On auto, look, it's I'm a little bit concerned about that only because we had some deterioration last year. The auto build forecast for this year is weakened a little bit down 60 basis points. But when you as I mentioned in my remarks, when you disaggregate that, U.

[Bill Brown, CEO at 3M Company]

S. And Europe are down 3 to 4 points. China is flat and the rest of Asia is up a little bit. So we have to watch that and look at where our content per vehicle happens to be. Obviously, the team is very focused on gaining share, gaining content and those automakers that are growing faster.

[Bill Brown, CEO at 3M Company]

That's a very important strategic focus of Wendy and her team. But those are some of the things we're looking at from a macro perspective.

[Joseph O'Dea, Managing Director at Wells Fargo]

I appreciate the color.

[Joseph O'Dea, Managing Director at Wells Fargo]

Thank you.

[Bill Brown, CEO at 3M Company]

You bet. Thank you.

[Operator]

Our last question will come from the line of Deane Dray with RBC Capital Markets. Please proceed with your question.

[Deane Dray, Managing Director at RBC Capital Markets]

Thank you. Good morning, everyone.

[Bill Brown, CEO at 3M Company]

Good morning, Deane.

[Deane Dray, Managing Director at RBC Capital Markets]

Hey, I wanted to circle back on the strategies for reinvigorating new product introductions, but specifically reinvigorating innovation. I know we're going to start off the analyst event at the Technology Center. Just I think there's art and science here when it comes to innovation. I'd just be interested in your thoughts. You can't just dump cash at the front door and say innovate, but I know you're adding some headcount.

[Deane Dray, Managing Director at RBC Capital Markets]

Are there any other thoughts there in terms of kind of ramping up innovation? And how do you feel about that long standing policy at 3 ms R and D where the senior scientists get 15% of unbudgeted time? Does that still fit into the equation?

[Bill Brown, CEO at 3M Company]

Look, so 15% of the time is sort of a hallmark of the company. I sort of joke that it's 115%, not going from 85% to 100%. But everyone's got their 15%. I think that's important because it gives people a time to step back and think and ponder. I mean, I do the same thing.

[Bill Brown, CEO at 3M Company]

I go into my office and I think about what are the issues upon the company and we all have to do that. So I think that's a hallmark of the culture of the organization. Look, I think the first look, it's not a shortage of ideas and concepts for where we can innovate. I think we've got a great list of products as you turn the scientists, the engineers on, the people doing product development, those in the business units, those out meeting with the customers themselves. The ideas are there.

[Bill Brown, CEO at 3M Company]

The pipeline is pretty full. We've got to do more to keep filling it up. But the pipeline has been full. I think it's about just turning on that and unleashing that energy that's in the folks that do the innovation. And so part of it is eliminating some of the bottlenecks in the processes.

[Bill Brown, CEO at 3M Company]

And I went through last time a number of pieces of that. We are shifting within our capital budget more investment to R and D for lab equipment, for prototype equipment to speed up the prototyping and scaling up of innovation. We are adding resources there. I think if you put the right framework in place and you're motivating the teams in the way we are and we're starting to kind of focus people on the growth verticals that we really want to focus our investment and time on. I do think that that's going to pay dividends over time.

[Bill Brown, CEO at 3M Company]

This is something that Wendy at TBG is going to lay out pretty clearly when we get out to the end of February when we have our Investor Day. How do we get closer to those innovation partners so that we're really tied with them very closely so their ideas translate back to us and we're working with them in not a transactional way, but in a strategic way. And I think if you do all of these things, this machine will turn on. And again, we saw good progress over the last 6 months. It's early days.

[Bill Brown, CEO at 3M Company]

I think we'll have another good year in 'twenty five. But ultimately, this is going to come down to are we growing faster than the market, therefore we're gaining share and are we driving margin and margin expansion because the products we're offering in the marketplace are better than what the competition puts on the marketplace and I think that's the end objective. We have a good start.

[Deane Dray, Managing Director at RBC Capital Markets]

That's great to hear, especially that support of that 15% on budgeted time. That's I'm sure a lot of people like hearing that. And then just a second question, quick follow-up on the plan for reducing inventory days. I mean, I know there's an immediate benefit for free cash flow, but is there any pressure on service levels once you start to reduce the level of inventory? And is there any kind of trade off there?

[Deane Dray, Managing Director at RBC Capital Markets]

Thanks.

[Bill Brown, CEO at 3M Company]

Look, that's something that we're watching very, very carefully. We came down 2 days year over year, and I think it was 8 days sequentially in Q4. In SIBG, we saw sort of OTIF come back. So we're watching this very carefully. Our intention is to prioritize OTIF over inventory, frankly.

[Bill Brown, CEO at 3M Company]

That's what we think is really important. That's a greater lever. That being said, there are opportunities to eliminate the waste, if you will, in inventory. Not all the inventory we have is good inventory. We have a lot that's stuck on the water.

[Bill Brown, CEO at 3M Company]

We have a lot of components in warehouses and factories. We have to make sure we have the right inventory. That's why I believe this is the end, not the or I believe that we can get to 75 days in over 90% OTIF, and I think we can get there. That's our goal. That's what we ought to be shooting for.

[Bill Brown, CEO at 3M Company]

It's not going to be linear and we saw in Q4 it wasn't linear. We had better inventory, not as good on OTIF at least in one segment. But that's the objective and again we're going to prioritize OTIF over inventory knowing that we'll get the inventory over time.

[Deane Dray, Managing Director at RBC Capital Markets]

Very helpful. Thank you.

[Operator]

Okay. This concludes the question and answer portion of our conference call. I will now turn the call back over to Bill Brown for some closing comments.

[Bill Brown, CEO at 3M Company]

Okay. Well, thank you. I appreciate everyone's time and attention today. I know we're running top of the hour here, but I want to thank all of the 3 Mers for their continued hard work and dedication to our customers and our shareholders. I look forward to introducing you all, the analysts and investors to the senior leadership team of at 3 ms at our Investor Day coming up on February 26 in St.

[Bill Brown, CEO at 3M Company]

Paul. It's going to be brisk. Today is minus 18. So dress warmly. So we look forward to seeing you on the 26th.

[Bill Brown, CEO at 3M Company]

Thank you very much and have a good day.

Participants

Executives

• Chinmay Trivedi, Senior VP - IR & Finance
• Bill Brown, CEO
• Anurag Maheshwari, CFO & Executive VP

Analysts

• Jeffrey Sprague, Managing Partner at Vertical Research Partners
• Scott Davis, CEO & Chairman at Melius Research LLC
• Nigel Coe, Managing Director at Wolfe Research, LLC
• Andrew Kaplowitz, Managing Director at Citi
• Julian Mitchell, Equity Research Analyst at Barclays Investment Bank
• Stephen Tusa, Managing Director at JP Morgan
• Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch
• Amit Mehrotra, Managing Director at UBS Group
• Nicole Deblase, Analyst at Deutsche Bank
• Joseph O'Dea, Managing Director at Wells Fargo
• Deane Dray, Managing Director at RBC Capital Markets