Q3 2024 3M Co Earnings Call
Voders.
I've had the pleasure of working with Onerog often on over the past 20 years and look forward to his leadership and partnership as 3M CFO.
Earlier today, we reported strong third quarter results that with non-gap 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 shareholder during the quarter, the dividends and share
These results extend our strong 2024 operating performance with non-gap 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 discipline capital deployment.
We raised the bottom end of our full year earnings guidance by 20 cents to arrange a $7.20 to $7.30. First is a prior range of $7.70 to $7.30 per share.
During our Q2 earnings call, I described our top three priorities. Number one, driving sustained top line organic growth, who both reinvigorating innovation and improving commercial excellence.
2, improving operation of 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 a 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-valuated 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 a hundred 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 Salesforce, price, our products, leverage our distribution network and capture cross cell 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 OTF 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% out of 5 points since the beginning of the year, and 10 points above Q4 of 2022.
As we push harder on O-tiff, we're getting more visibility on the weak links in the value chain, from the performance and 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 percent, well-shorted best-in-class companies, and putting 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 have been running in the mid 60% range, 10 to 15 points below expectation, and well below best in class companies.
We recently kicked off a project to redesign our forecasting process and when 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 for the new model show a lot of promise in improving forecast accuracy, which will allow us to level out 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 OE 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 op-ax agenda is the depth and capacity of our operations leadership team. Then 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 the capital deployment through nine months, we've generated $3.5 billion of adjusted free cash flow with conversion of 102 percent after investing $1.7 billion in R&D and CapEx.
We've returned $2.7 billion to shareholders, including sharing purchases 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 it encouraged by the energy and desire of our team to win, by delivering for our customers, and creating value for our shareholders.
Speaker Change: With that, let me turn it over to Anara to provide more details on the quarter and our updated guidance. Anara?
Anara: Thank you, Bill. Starting with overall company third quarter performance on slide four. Total adjusted sales were $6.1 billion with organic growth up 1% or up 2% excluding geographic prioritization and product portfolio initiatives.
Anara: These results reflect end-market trends that will largely in line with expectations, including mixed industrial markets, strong growth in electronics, a decline in automotive, OEM Bill rates, and continued softness in consumer retail discretionary spending.
Anara: Locing geographically, adjusted organic growth was led by Asia-Pacific up mid-Single Digits driven by a electronic business.
Anara: The U.S. was flat with strength and home improvement and commercial branding and transportation offset by a tough comp in personal safety as self-contained breathing apparatus benefited from significant supply recovery last year.
Anara: and EMEA was down low single digits due to the decline in global car and light truck bills.
Anara: adjusted operating margins expanded 140 basis points to 23 percent driven by benefits from improved organic growth, continued productivity and restructuring.
Anara: This strong operating performance, along with benefits from below the line items, resulted in adjusted EPS of $1.98, up 18% or 30 cents.
Anara: Turning to revenue by business group on Slight 5.
Anara: Safety and Industrial Sales were $2.8 billion with organic growth of 0.9%.
Anara: The growth was primarily driven by the industrial adhesives and tapes division, which are particular strength in bonding solutions for electronic devices.
Anara: In addition, we saw growth in roofing granules and electrical markets, while the balance of the divisions was down slightly due to ongoing market softness and unfavorable prior to your country.
Anara: Transportation and the electronics adjusted sales were $1.9 billion, up 2% organically.
Anara: Our electronics business deliver high single-digit organic growth as consumer electronics, OEM customers, ramp production volumes ahead of the upcoming holiday season.
Anara: Automotive and Aerospace Division organic growth was down mid-single digits in the third quarter. The auto-OEM business declined in line with global car and light truck bills while Aerospace delivered strong growth driven by bonding in acoustic solutions.
Anara: Today, our total author, William Business, was up 4% versus a 2% decline in global car and light truck bill rates.
Anara: We continue to gain penetration with Adhesives, tapes, display flames and electronic materials on multiple new auto OEM platforms.
Anara: Looking at the rest of the transportation electronics
Anara: Edwance Materials grew high-single digits with strong glass bubble demand for light-weighting applications in transportation and oil and gas markets.
Anara: Commercial Branding and Transportation was up low single digits driven by demand for graphics and pavement markings.
Anara: Finally, the consumer business sales will $1.3 billion.
Anara: Organic sales declined 0.7% which included a 2.3 percentage point headwind from portfolio prioritization.
Anara: Home Improvement delivered mid-single-digit growth driven by new products in a command portfolio introduced for the back-to-school and holiday seasons.
Anara: The remaining divisions within the consumer business decline due to portfolio prioritization actions as well as retail customers continuing to be price sensitive and value-focused.
Anara: Through the course of the year, the consumer business has improved and we expect the trend to continue in the fourth quarter.
Anara: turning to slide six.
Anara: As mentioned, on an adjusted basis, we delivered Q3 operating margins of 23%, up 140 basis points, and earnings per share of $1.98 or an increase of 30 cents.
Anara: Operational performance including organic growth along with ongoing benefits from productivity and restructuring contributed 160 basis points to margins, while foreign currency was a headwind of 20 basis points.
Anara: These items combined with acquisition and investor chain packs contributed 14 cents to earnings.
Anara: The remaining 16 cents of EPS growth was driven by last year's high tax comp along with benefits from net interest and a lower share count.
Anara: Turning to cash, we generated solid adjusted free cash flow of $1.5 billion in the quarter driven by strong income generation and positive working capital flows while continuing to invest capital to support growth and sustainability.
Anara: Conversion for the quarter was 141%.
Anara: Overall, we have had very strong year-to-date operating performance. We have expanded margin 380 basis points, grew EPS by 30% on 1% organic growth and generated $3.5 billion of free cash flow with conversion of 102%.
Anara: Based on this performance, we're updating a full year 2020 for guidance on slide 7.
Anara: We expect a full year adjusted organic growth to be approximately 1% with business group estimates unchanged, with safety and industrial flat to up low single digits.
Anara: Transportation and the electronics up low single digits and consumer down low single digits.
Anara: Folvia adjusted operating margins are expected to be up 250 to 275 basis points, versus the prior range of 225 to 275 driven by continued momentum from productivity.
Anara: The operational benefit combined with lower net interest expense and share count gives us confidence to raise the lower end of our EPS guidance by 20 cents to a range of $7.20 to $7.30
Anara: Finally, our expectation is that we will continue to deliver robust cash flow with strong working capital performance in the fourth quarter.
Anara: With you today conversion at 102%, we expect that the adjusted free cash flow conversion performance will be 100% plus for the full year.
Speaker Change: Before we turn to Q&A, I want to take a moment to thank the 3M team for the warm welcome. I'm excited for the opportunity ahead of us and look forward to working with the team as we execute the priorities bill as laid out.
Anara: with that, let's open the call for questions.
Speaker Change: Thank you. Ladies and gentlemen, if you would like to register a question, please press star one on your telephone keypad. If your question has been answered and you would like to withdraw, please press star two. If you are using a speaker phone, please lift up your handset before entering your request. Please let me your participation to one question and one follow up. If you would like to register a question, please press star one on your phone.
Speaker Change: Our first question comes from Scott Davis of Mealius Research.
Scott Davis: Hey, good morning, everybody. Bill Nannaragan, Bruce, Maurice Patolawala, and that congrats to all on a good start here.
Scott Davis: Guys, I want to talk a little bit about this operational transformation. It seems like a pretty heavy lift, but obviously you're making some progress. But last quarter, you spent some time on supply chain, not as in prepared remarks, not as much this quarter. How um...
Speaker Change: How big of an opportunity is that kind of step two or step three down the road and counting getting the supply chain, re-oriented and how big of an opportunity you think that is Bill, now you've had a little bit more time in the seat.
Speaker Change: So Scott, and thanks for the question. Look, we continue to make good progress across all of the elements in our operations, in our cost of good souls, 13 billion, a piece of it, a big piece of it is supply chain. So obviously that is a high degree of focus. You know, we're looking to drive 2% net productivity, so 2% net of inflation across all those elements, including in supply chain. We have about 25,000 direct suppliers, including 4,000 contract manufacturers. Our teams are working hard to consolidate that. We've had drive performance, and we continue to do a good job on this. I think we're at the front end of what I would say to be a long journey. I think we get a lot of value out of basic negotiations. I think we have a lot more opportunity, you know, as we think more about value. [inaudible]
Speaker Change: Engineering and our product that's a relatively small component of our overall supply savings.
Speaker Change: So the teams are working, I think, very, very hard on this. Again, as they step back across all the 13 billion.
Speaker Change: , you know, if you drive and get two percent net, you know, you're talking to 650 million dollars, more or less, of, you know, 250 million, 260 million dollars worth of net productivity, you know, there's a lot of value there that we can capture year over year. I spent a little time in my preparing remarks talking about one of the key levers because I think it's both a growth and an operations lever and it's delivering on time in full. And we're getting a doing very well job, very good job in our factories. The team is performing well, but it's pointing out some opportunities to drive better supplier performance, and we're really, really focused on that. We've seen some improvements over the last year, but I think a lot more to do in terms of driving the full value chain performance improvement, including with our supply base.
Scott Davis: And it's helpful. And Bill, you talked a little bit about needing to change the incentive structure a little bit. Do you think you'll have a new incentive structure and complan in place for 2025? And what does that really mean? Does that mean kind of increasing the variable component? Can you really dialed in kind of to where you want it this quickly?
Speaker Change: So good questions guys, I think before we get to the con plan, I think what's going to be more important for us is to make sure we have very clear objectives.
Speaker Change: across the management team, deep in these organizations, so we all understand what we're accountable to achieve, to share owners into one another. I think that's step one. And I do think we have an opportunity to get a little more crisp on our objective setting process, but of course, the back end of that is comp plans. I think you will see some adjustments in our 25 comp plan. We are out speaking with shareholders about that based on the results we had earlier this year in our AGM. But yeah, we'll continue to look at our comp plans not just at executives, but as it flows into the organization. And importantly, with our between five and six thousand sales people out there, we'll continue to look at, do we have the right incentive structure to drive the right behaviors across the full.
Speaker Change: 10,000 plus people in the company. So there's going to be changes that we made. We'll talk more about that as they come to fruition in the coming months.
Speaker Change: Okay, thank you Bill. Thank you. Thank you sir.
O'connor: O'Connor, now to Andrew Oben with Bank of America.
Andrew Oben: I guess good morning. I'll ask two questions. Follow-up on Scott's questions. Just Bill, what do you've used on centralization inside 3M? I know Mike pushed for a lot of centralization, which was a departure from what his predecessor Inga Suleen has done, which ran the company in very, very decentralized way. So just would love to hear how your operating philosophy has evolved. Since you joined the company, that's part one. And part two, we're just getting a lot of questions on insurance recovery related to PFAS and combat arms, particularly given the news out of carrier where they indicated that perhaps they could indicate.
Speaker Change: They could recover insurance in excess of their cost, these are public statements. So any sort of publicly available updates on where you are in the process on insurance recovery would be helpful. Thanks so much. Congratulations on a good quarter. Great. Thank you. Thanks for the questions. I mean, first of all, I think about two and a half years ago, Mike did. Thank you.
Speaker Change: Consolidate all of our factories and supply exchange under a common leader under Peter Givins, I think it was the right thing to do.
Speaker Change: It allows us to look across 110 plus specialized factories and you know close to 180 and 100 distribution centers and really look at performance performance metrics how they compare with one another. It's a network. They float together. So artificially separating them that by a business group or by geography did not make a lot of sense so you'll get the power of the whole by looking at all of the operations together. So if you call it centralization, I call that global coordination. I do think that was the right step and it was smart to do that and we're reaping the benefits of that. And I think going forward, you know, the value will be able to get out of operations is because of that, that operational, that organizational change. So, so I think it was the right step. I think.
Speaker Change: to move to globally coordinating business units, depending upon the business, some we run globally, some we run regionally, but all within those three broad business groups, I also think that was good. There'll probably be some adjustments in how we structure the BGs over time, perhaps within within the three business groups, you know, there's certain geographies that stand out that we're really focusing heavily on and we want to put a little more attention on, but, but generally I think the mic was taken the right steps, and particularly in the supply chain. So that's on that piece on sort of your point of centralization on insurance recoveries, just quickly you'll see this in the queue in Q3 we've covered $54 million in insurance recoveries between.
Speaker Change: King, Combat Arms, and Public Water Supplyers, Year-to-Date, it's over $175 million. Recovery efforts continue. I know it's top of mind given what other folks are talking about. We're active in arbitration and litigation with multiple insurers. We intend to ramp up our recovery efforts in the coming days and weeks. [inaudible]
Speaker Change: and we do expect our insurance to honor the policy obligations to us in full. The difference with others is our liability that we sell it for is quite a bit higher than our total insurance values. So it's a little bit different than others, but we're ramping up our efforts and we're starting to recover and we'll recover more over time. We'll update investors each quarter and through our QAs as we recover more on insurance. We'll see you in a few minutes.
Speaker Change: Thank you very much, you've been.
Speaker Change: We'll go next now to Nigel Coe with Wolf Research.
Nigel Coe: Thank you for the update, it's a really helpful. On that insurance point, I want to keep maybe clarify what the total coverage would be from a point of perspective and understand your work on.
Nigel Coe: Rappen of the recovery is there. But my first question is really around the two points of net productivity. You've got a lot of initiatives in play here. You've got supply chain nationalization, Otis, Target improvements, OEE improvements and a lot of other things as well. Any sense on what's more important here? You know, is the supply chain driving the bulk of that two points in the next two points? Two or three years? I mean, any sense there? And do we need some heavy left restructuring to achieve those targets?
Speaker Change: Thank you for the question, Nigel. I don't think I can say much more on the insurance recoverers or how much we're getting. I mean, other than what we've captured to date. So I think we'll update you on that as we go. We expect that to ramp a bit better. But look, when I step back, I mean, look at 13 billion dollars with the cost of goods, half of that is going to be roughly is supply change. So you'd expect the bigger parts of our productivity is going to come out of supply chain. We have seen restructuring benefits flow through on our factories. That is also a factor. We continue you to drive lean activities on our factories and you're seeing you with the benefits of lean production, lean operations across our factory network. We're seeing benefits in our transportation.
Speaker Change: Foundation Costs and Logistics Expenses running through our distribution centers. You know, last time I spoke quite a bit about the amount of waste we generated in our company. It's where you lost everyone to characterize it. It's 5% of cost to do it. So it's quite substantial. You know, we are getting at that. You're not going to get big, big dollars every year. You get it in tens of millions in chunks over time. You know, but we're at it. We're running Kaiser events continuously to go get it. You know, we more than double the number of Kaiser events this year over lash and expect that to continue going into next year. You know, so all of these pieces, you know, we'll drive that net productivity. You know, the teams are at it. We're pushing hard. You know, I would say stepping back. The biggest part is going to come out of the biggest part of cost space, which is supply chain.
Speaker Change: Okay, that's helpful. And then maybe Anorag, congratulations on the new role. Just wanted to maybe get a bit more color on 4Q, especially, you know, looks like Montsen Organic Growth, they're very much on trend but...
Speaker Change: Looks like the 4K Martians coming in about 2.5% of the high end.
Speaker Change: Kavikus, just want to make sure that's the right math and any below-line color will be helpful.
Speaker Change: Great. Thanks a lot, Nigel. I thank you, cowardice. The Q4 margin is a pretty much in line with what we expected.
Speaker Change: Sequentially Q4 has been lighter than Q3 margins by about three hundred three hundred and fifty basis points due to sustainability which runs late into lower sequential revenue of about two hundred million dollars. Low under absorption of the factories due to shutdowns, inventory management and timing of costs and investments. So we're all it's pretty much in line with what we expected. But if you kind of take a step back, we raised the bottom end of the guide by 20 cents of the midpoint by 10 cents. And that is largely because of the focus and productivity.
Speaker Change: Sing good, good, really good progress on that plus the share benefits of share repo and the higher cash flow generation, which is leading to higher interest income or lower net interest expense. So putting all of that together, making progress across all these areas and a Q4 pretty much in line.
Speaker Change: We'll go next now to Jeff Sprayg with Vertical Research Partners.
Jeff Sprayg: Hey, thanks. Good morning, everyone, and I'm bored on a rug. I just wanted to come back a little bit in the neighborhood of some of these earlier questions, predominantly just wanted to get a sense of the fact, you know, we're kind of at the tail end of the prior restructuring. I think you did 165 million and spending in the first half and had something like one 10 to go in the second half. So I'm trying to get a sense of that is still on track. Thank you for your time.
Speaker Change: and then Bill of these very numerous and granular things that you're laying out here. Are we seeing much benefit from that in 2024? Or is this really sort of laying the groundwork for 2025 and a lot of the margin expansion in 2024? Or is this really going to take place in 2024?
Speaker Change: is really the underlying prior restructuring plan.
Speaker Change: Hey Jeff, that's good questions. I mean, first on the restructuring, we are on track. Your numbers are all right, 165 in the front half and you know about 110 or so in the back half to the guidance, so 275 for the year. That's that's about where we're at. There's a little bit more that'll tail into next year. You know, the complete the program, you know, and yeah, some of the gross margin and net margin improvements this year coming from restructuring, you know, they're coming from a lot of productivity programs that have been in flight. Some are ramping up and have more focus and effort in last five or six months. That's about that's about that's about that's about that's
Speaker Change: But a lot of these things are going to be realized over time. This is a football metaphor. It's a couple of yards and a pile of dust in lots of ways to get the ground game going on operations excellence. It's a multi-quarter multi-year journey. So the way I look at this, I think we're still Jeff in the early innings of becoming operationally excellent. And I think the bulk of the opportunities are ahead of us. [inaudible]
Speaker Change: which is why I think as I look out the next one, two, three years, you know, we should continue to see margin growth coming out of a lot of what's happening across our factory network.
Speaker Change: There's a lot of levers to pull, there's no big winners, no big hitters here that drive a big one time or a particular quarter, but it's getting better at all of these things, every quarter, quarter after quarter, and then extending that sort of philosophy on operational lessons across the rest of the enterprise. There's no reason why being good and reducing waste and improving throughput doesn't extend to how we run R&D, how you run a legal function, HR function, finance. And I think when you do it, you look across the whole enterprise, you really start to become a much better company. And I think between now and then we've got a lot of room to go and a lot of opportunity ahead of us.
Speaker Change: Great, understood, and then now...
Speaker Change: Just thinking about kind of the capital deployment question, you know, you stepped up on buyback a bit in the quarter, you know, in spite of writing a sizable liability check.
Speaker Change: You know, how should we think about just managing, you know, kind of the outflow of cash on, you know, repo and or dividend against the backdrop of, you know, sort of the schedule of liability payments? I mean, maybe it's kind of a question about, you know, what's the...
Speaker Change: Comfort level on minimum cash or something like that as you're operating going forward. So I'll start in this, you have been able to turn on the on-rog is the new CFO to offer his thoughts because I know he's been putting a lot of time on this. [inaudible]
Speaker Change: But yeah, I mean, we did step up here in Q3 on repurchases, you know, it's at about $700 million, you know, it's $1.1 billion a year to date. You know, look, we're generating good cash flow. We don't see, you know, on a horizon going out to the next year, you'll big liability payments that aren't already on our balance sheet. So we've got an opportunity to deploy capital. I think we were smart in doing that here in Q3, you know, we've got capacity. We ended Q3 with pretty hefty cash balance. You know, our leverage ratios remain pretty attractive. We've got an open authorization from the board. So, so look, we took advantage of that here in the third quarter. We've got more capacity to do more and, you know, so, so I feel pretty good about where we stand today. But maybe on a rug as the new CFO can comment on his.
Speaker Change: Patolawala,
Patolawala: Sure. I really believe that our capital structure is actually solid from a cash balance, leverage, cash flow generation, an optionality perspective, which allows the optimal capital deployment and allocation. As Bill mentioned, we have a very hefty good cash balance. We ended per quarter at $7.3 billion, which is more than 2X of the working capital requirements of the business. We are now at the end of the year. We are now at the end of the year. We are now at the end of the year.
Patolawala: On leverage, it was a net leverage of 0.8x at the end of the third quarter, and more importantly, maintaining a strong investment, great rating, with ratings of A3 or A-minus. And as you've seen through the quarter, in the course of the year, the cash for generation has been robust. For the first nine months, we generated three and a half billion dollars of cash for, and that's after investing a billion seven on R&D and CapEx.
Patolawala: And we do expect in years to come, the cap as earnings grow, we make progress in working capital, especially in the area of inventory. This will increase our cash flow and keep the conversion higher than 100%. Also, we have optionality in terms of the 19.9% stake in solventum and any other future portfolio reshaping we do. So putting all of that together, it's a strong capital structure, we have optionality, flexibility to invest in the business to drive growth. And also to return capital to shareholders. So that's an active discussion we're having and we probably come more about it, talk more about it over the next few months.
Speaker Change: for next now 2 Gillian Mitchell with Art Please.
Gillian Mitchell: Thanks, good morning and welcome, Anna Ragh. Maybe Bill, a lot of very good color on the some specific sort of tools around driving operational excellence, but maybe trying to tie it together. I think at a conference forum about six weeks ago or so you talked about getting gross margins for three minutes at the high forties right now, you're sort of 42-ish or so rate including some charges. So, is the right way to think about the medium term maybe sort of four or five hundred points of gross margin uplift on the sort of total enterprise level and then operating expense.
Speaker Change: Inclusive of Estonia and R&D, that sort of staying relatively stable in the low 20s as a share of sales as you sort of squeeze out more efficiency and returns from the R&D.
Speaker Change: Yeah, it's a good question and we are running kind of in the low to mid 40s right now, and grows margin of 43, 44% range plus or minus
Speaker Change: There are points in time in the past where we were high 40s. That's excluding healthcare. So in our, the way we have our business structure today, it's certainly achievable. As I laid out the math there and earlier in this conversation, $13 billion worth of cost of goods, if we do 2% net productivity, it's...
Speaker Change: and more or less $260 million if we did it every year. It's sort of a point, a year of gross margin. Of course, there's a lot of dynamics here. You've got mix happening in the business. If a new product's coming in, you know, we've got to kind of as next year, middle of next year, as we exit PFAS manufacturing. You have some under absorbed cost within those factories. We've got to take take care of, you know, eventually, so momentum is going to move some of their production away or in the TSAs will run down. We've got absorb that. So there's going to be lots of puts in take. So it won't be a linear journey. Over the next number of years, a growing gross margin, but, but I do see that that's at the big focus of ours. We've got to be really pushing that hard to drive gross margin improvement over time. You know, our R&D level is about 434.4%.
Speaker Change: Anderson, I mean, it could drift up, could drift down a little bit into 10th of basis point. It's not in, or 10th of basis point. It's not, you know, a big mover, you know, SGNet could see some, some leverage over time just based on, on volume. But I think the bigger driver in the future is going to be coming out of gross margin. And I remind you, I'm focusing on growth and margin expansion for sure working the paddles across both of them. But, but as I step back, driving growth is also a margin driver because of a high drop through we get on incremental volume. So, so that's kind of the way I see the future playing itself. I don't, I don't think today I'll get much more specific. You know, we'll lay this out a little bit more clearly to investors turn the quarter in 25 and come back and hope.
Speaker Change: Houston, Investor Day, Tours Yand of February, I think we'll have a little more clarity and laying this out a lot more clearly to investors at that point, but anyway, that's that's the math as I see it today at Julian.
Speaker Change: That's helpful. Thank you. Just circling back on your top line comment just there. So you're moving it about sort of a point of organic growth.
Speaker Change: through the second half year on year. Just wondered how you're looking at the overall sort of demand environment in the next year and when we think about the netting off of NPI's picking up.
Speaker Change: Versus your pruning efforts, you know, about a hundred points this year, how are we thinking about the net of those two items over the next 12 months?
Speaker Change: Well look, 1% organic this year, is it what we should be aspiring to? Again, it's the middle of the range we set, you know, a couple of months ago, you know, it's traveling in any order of where the market happens to be, IPI is running around 1.1%, it's 1.2% for the year, steps up a little bit going into next year, you know, GDP's in the 2.5% to 0.7% range. Again, that's kind of in the little theme line next year. So it's low single digits, and I think overall, you know, we're performing kind of in line with that, including auto build, semis, electronics, all this consumer, all that together, you know, trending in line. I look at NPI, and as that matures, you know, early good signals, up 10% on numbers of launches.
Speaker Change: This year over last, we see that rate accelerating in 25, but stepping back, we're still in order of magnitude less than we were at the peak days in terms of how many products we've launched in the marketplace. So we've got to get that R&D engine moving again. That is going to be essential to improving on our growth rate and starting to hit and then outgrow the market. That'll start to bear fruit into next year, maybe the end of next year, it into 26. Next year, we're going to have to get that R&D engine moving again. This year, we're going to get that R&D engine moving again. This year, we're going to get that R&D engine moving again.
Speaker Change: And that's why it took a lot of care last time and earlier to say we've got to get better at selling what we have on the market today which means which means we've got to work our sales force and all those pieces of it, you know, do we have right, do we have gaps in our sales force coverage, do we have the right incentive structures, the right training, the right people in the field, the right distributors, are we pricing correctly, do we have cross sell opportunities, all of these things will drive growth and I think we've got to pull all those levers and it's why I came back earlier on in this kind of conversation, I really, you know, double down on OTIF because we are losing business that we're not delivering it on time in full to customers. We know it, we see it every single day. So that is the nearest term lever we can pull is getting better on on time in full.
Speaker Change: and it is a step back and you put all that stuff together and turn the quarter into twenty-five. We should see better growth. That would be my expectation, but it's not going to happen overnight. These efforts do take some time and we'll lay this out a lot more clearly to investors as we turn the quarter into twenty-five.
Speaker Change: Bogunak's now to Nicole DeBlaze with Deutsche Bank.
Nicole DeBlaze: Yeah, thanks for coming, guys. Good morning.
Nicole DeBlaze: Maybe just a little bit more on some of the portfolio review comments you made at the beginning, Bill. I guess any thoughts on like what types of businesses could be considered non-core, and if there's anything chunky coming, or if these are all kind of like smaller divisions or businesses that you're looking at.
Speaker Change: Yeah, Nicole, thanks for the question. Look, I mentioned last time I did it very purposely that we're going to take a fresh dispassion, look at the portfolio you would expect I would do coming into this new company, but you know, let me step back. I mean the lens.
Speaker Change: that I'm looking through is a strategic lens at the moment to think about the portfolio and it's really on where we can leverage technology and innovation to differentiate to win at the customer interface.
Speaker Change: When it came to 3M, it's very clear to me, very clear to all those 60,000 people that have been here, that technology is what differentiates 3M. People join the company because of innovation. So I'm really looking through a lens of, can we leverage investments in the capability that we have in material science and technology to make something different versus competitors and solve a need that others can't? And that's the lens that I'm really looking at here. So we have a few businesses that are small, if and when we transact on them, you won't notice it in the overall report. There are a couple of points of revenue, so it's relatively small. But it's a start, it's the things that I thought were near term and the ones that we could take into account.
Speaker Change: of the Energy of Today, but our evaluation continues. You know, again, as I turn next year, we come up in front of investors, you know, I'm expecting that. I'll be standing there talking about a matrix which has something looking like what parts of our portfolio, you know, perhaps don't fit to us over time. And at the same time, it's not for today, but looking at, well, what other things, you know, do belong with us that aren't currently owned by 3N. So it's a pretty holistic assessment. We're in the very, very early days, Nicole. But the couple of deals that we're pushing on right now, early stages, but it's the direction we want to head in over time.
Nicole DeBlaze: Okay, got it. That's clear. Thanks Bill. And then maybe just on the business trends. What did you guys see in China in the quarter and any thoughts on, you know, 3M's ability to benefit from stimulus activity happening there?
Nicole DeBlaze: So China for us is a pretty good size market. It's about 10% of our sales. You're to date we're up we're up about 11% more or less a little bit higher than that in the first half. A lot of driven by automotive, you know, up mid single digits here in in the third quarter, you know, pretty much in line with I think where the market is in China. So we feel pretty good about about what what's happening there. Again, a lot of it's driven by by automotive. Roughly half of what we do in China is for export, export out of the country and roughly half space within China and both are performing reasonably well. You know, we'll see as we get into next year, you know, the outlook for the overall economy, you know, we can read with
Nicole DeBlaze: where the GDP happens to be forecast for next year, but there's a lot of stimulus activity, a lot of conversations around geopolitical issues, we'll see as we turn the corner where China is going to be, but we're bullish on the economy there, we're bullish on our team there are ability to compete. We have more than 5,000 people on the ground, seven factories, and I think we have a good ability to be a strong participant over time in China. Hey, Nicole, just to clarify, Nicole just to quickly clarify. The strength has been an electronics in China, not automotive, all in we're up about 11% year to date, X Electronics, we're up roughly about 3% organically.
Nicole DeBlaze: and is open to my amused.
Speaker Change: Sorry, didn't come through very clearly clearly. Can you hear me now? Yeah, we hear you. Sorry about that. Anirac, thanks for congratulations and looking forward to working with you here. Just wanted to delve into price a little bit more. And it's algorithm of productivity and gross margin. Where does price plan to that? And are you expecting to get back to that kind of a positive margin price cost spread going forward?
Speaker Change: So let's see, that's a good question. I mean, this year we are seeing positive price.
Speaker Change: It's about half our organic growth, more or less, you know, plus or minus 5% are thereabouts. We are covering material inflation, you know, this year it we're back to where we were kind of pre pandemic level is a little bit higher than that in during pandemic because you know obviously inflation was. [inaudible]
Speaker Change: Spiking Air, but as I step back on this, we should get pricing too, as we drive new product introductions and bring differentiated products into the marketplace, we do expect that. I see it in two pieces, I think one is we have an opportunity to get better at more surgical pricing, so pricing to volume generated. I made a comment last time that we've got some opportunities to tie volume rebates, discounts, et cetera, to price and that's something that we're working very, very hard on, as well as tightening down on what we call gross to net, you know, in all the pieces between that, volume discounts, market development funds, rebates.
Speaker Change: and those kinds of things. They can be quite substantial. I think we just have a better opportunity to get pricing, but as I look forward to it next year, we should continue to be able to cover at least the material cost inflation on our price. Just to add to that, Steve, as Bill mentioned, the price should cover costs and inflation for us, inflation on the cost going forward. The one way to think about the margin expansion moving forward, clearly, volume is the biggest driver for us in terms of operating leverage that we have. And the net productivity that we are driving, so volume and net productivity should be the critical margin expansion drivers.
Speaker Change: and that you view the practice courses separate from that productivity. I would assume. Yes, correct.
Speaker Change: in the bridge. So then I'm just wondering if you're if you've got all these kind of like good guys going your way and assuming like the economy you know doesn't like go to hell, what is the like R&D flat you you should get FGNA leverage you're talking about this productivity price cost is not a headwind like what what what is the headwind to to margins going forward? Like what's the negative? So the negative is essentially inflation that we will see. Over there, which is a wage inflation moving forward, but besides that you shouldn't see any more of course FX is there which we don't know which way that could move, but if you look at all margin even for the year right it's basically four pieces.
Speaker Change: It's a quarter of a volume, a quarter of the restructuring cost that which came down lower compared to last year, it's a quarter of the TSA reimbursement and a quarter of net productivity. If you're going to next year, there'll be a little bit lower on the restructuring cost charges, but again, it's going to be more volume and it's going to be more on the productivity side with the biggest headwind being on inflation and potentially effects, depends which way it goes. Now, let's see what's going to happen next year.
Speaker Change: I'm sorry, one last one. How much is labor as a percent of your cost again?
Speaker Change: Labor as a percent of our cost is close to 10 billion dollars, 8-2-10 billion dollars, yeah.
Speaker Change: 8-8-10 billion dollars, okay. All right, thanks a lot.
Speaker Change: Winnock's now to Annie Capowitz and City.
Speaker Change: Good morning, everyone. Good morning.
Speaker Change: I think you talked about that it's getting a bit better, could you elaborate on what you were seeing there? I think that business tends to be first and first out in historical cycles and I know you're focused on pricing in that segment, maybe that segment could be the most competitive in terms of pricing, can you make the pricing improvement you need in that segment?
Speaker Change: So on consumer, we're down about 3% in the first half, down about 70 basis points in the third quarter, but keep my name.
Speaker Change: Two and 30 basis points of headwind associate it with. [inaudible]
Speaker Change: and some of the portfolio prioritization efforts that the team is working on. And if you go back, you want the Q2 to Q3 and then head into Q4 is becoming the less negative in terms of organic growth. And it's trending to perhaps be positive in the fourth quarter, for the full year, down low single digits.
Speaker Change: You know, for the overall, it's both a usac business, a usac retail business, so usac retail sales
Speaker Change: He was down about 50 basis points, you know, for the year down about 80 basis points. So it's sort of trending in that in the line with where you set retail sales happened to be.
Speaker Change: You know, when you look at the parts of the portfolio and the quarter, we had pretty good growth in our command strips, home improvement, but command strip business, you know, that was up as partly due to some new product introductions in that space, in that they're performing pretty well there. The other parts of the portfolio were a bit weaker, we're flat to down, so they offset the positive trend and home improvement, but we see, we see good improvement trends going into the fourth quarter all depends upon what happens in holiday season as we get. Through the next couple of months, but the trend line is is moving up in terms of its organic row three.
Speaker Change: and Bill, maybe just stepping back, he's taught a lot about growth through an invasion, but how are you pushing the rammers to focus their innovation on maybe what I would call the right markets because it strikes me that they're just if you big global markets that are driving growth right now.
Speaker Change: So yeah, we're spending a lot of time thinking about where we spend our precious billion dollars in R&D for sure and making sure it's going after the right areas as part of our overall governance process and how we're developing our strategic plan. So more to come on that, but it's certainly part of the lens and the calculus that we're looking at and where we're spending the investing our R&D dollars.
Speaker Change: Thanks.
Speaker Change: Wynax now to Brett Lindsay with Mizzuhosa Curities.
Speaker Change: Hi, good morning all and welcome on Run.
Brett Lindsay: Just wanted to come back to the rationalization effort. So I think it was a point of drag in the corner, a point for the year, perhaps just isolating rationalization and leaving out some of the new product launches and other growth.
Speaker Change: should we be thinking about another point of headwind next year as you continue the simplification efforts or is it something less as we proceed and advance forward here.
Speaker Change: No, Brett, it shouldn't, it shouldn't be declined substantially going into next year. I mean, we'll lap the year so there'll be a little bit of drag on effect for things that happen in the course of 24. But, you know, we shouldn't see significant headwind from portfolio or geographic prioritization going into next year. And, you know, intention, you know, an honor, I haven't talked about this, but our intention would likely be to not speak so much about that in our 25 results. You know, it's something that really people do company do. Just at a normal of practice as you continue to look at your portfolio, you know, and you add some things, you take some things out, you replace things. And, you know, I would expect to go into next year, be less part of our conversation than this year.
Speaker Change: All right, makes sense. And then just a follow up on MPI and the launching of the new products 10% growth next year. Just wanted to better understand the associated costs and where those those introductions are aimed at the segment level should be be thinking of a commensurate level of R&D step up or are you able to achieve this with repurposing the spending base? No, so it's within the existing spending bases. We go into 25. We'll come back and talk more about where we see R&D. But you know, a couple of things are happening. One is just it's a shift within where we spend our R&D. You know, really comes in kind of three buckets. I mean, it's about a third that goes into corporate research, longer term horizon things, you know, basic technologies. There's kind of a third that's, you know, at incremental.
Speaker Change: Align Extensions, New Product Introductions, there's a third that's going after cost reduction, PFAS fixes, all those kinds of things. So there's going to be some shift that's going on between those pieces. That middle bucket, you'll used to be around 40% to drop below 30. You know, that piece is coming back up, it's now above, now around third, on 32, 33%. But that middle bucket on new product, new product line extensions is where we're shifting money to drive new product introductions to be clear, the number of new product introductions this year in 24 is up 10% over last year. We expect that that 10% will accelerate, you know, in 2025 through those pieces, I guess I just mentioned a couple of minutes.
Speaker Change: The largest part of our investment in new product introductions is going to be mostly in our, you know, safety and industrial business and transportation electronics business. There is some that goes into the consumer business. You'll see more going into next year and see more introductions coming out of new product investment, but the lines part of is really in those other two businesses and that's where a lot of the launches that I talked about a minute ago are occurring. We'll share more information as we get into next year. Not just the numbers, but where we're investing, what verticals we're investing, where we're going to prioritize our spend in the future and why, why we think we can win and we'll lay that out very clearly with investors as we get into February .
Speaker Change: Ray, congrats on the performance. Thank you.
Speaker Change: We'll go next now to Joe O'Day with Wells Fargo Securities.
Joe O'Day: Hi, good morning. Feel wondering if you can elaborate a little bit more on the operating equipment efficiency comments you made and when you talked about 50% utilization, well short of best in class, just in terms of any.
Joe O'Day: Clarification of what kind of best in class would look like as well as what your targets are over call it the next 6 or 12 months there.
Speaker Change: Sure, yeah, look, operating equipment efficiency is really to fundamental metric, you know, companies that do mean you factoring have implemented this over many, many years. It's a relatively new concept, we have 38 large factories, it's about 75% of our volume.
Speaker Change: You know, in about 140, about 80% of the assets that are in those factories, we implemented OEE. I mean, you can implement it, but that's actually build it into the way the machine runs. You know, take some time to do that. So it's not a manual process actually built into the way, you know, the machine runs and look if it's running 50%. You know, the reality is we should be running best in class companies are in 80% range or north of that. So we're well short of that. So the implication of this is, is that first off, what's driving that under utilization? Is it a lot of changeovers because that's on a vital capacity? Is it poor maintenance practices when the machine is down? Is it volume or capacity? But it's sort of fundamental to figuring out how do you-
Speaker Change: and how you handle surge volume and longer term, once that metric gets matured, and we can talk about a more holistic look at our network and the complexity we have in our network. It all allows us to say, well, where can we consolidate?
Speaker Change: Cites or cells or assets in our factories based on utilization it happens to be out there. It's also more than theoretically possible. You were spending capital for capacity expansion, yet we're running 50% utilization on certain assets. So longer term, we should also be looking at this as a way to make sure we're spending capital in the right place. So it's really fundamental. We're started. You know, we've got a metric measure for where we've been year to date, and it'll mature as we get into 25% by probably 80% done by as you get to second quarter of next year, but it's a fundamental way of looking at how you're performing. And I'm really proud of what the team has done in the last couple of months to drive that into our factories.
Speaker Change: And then also just one that's gone electronics demand trends. I think commented that organically up high single digits. So earlier in the year, some some spec until when, but it seems like you're still growing at a good clip as you move later into the year. And so any color there, whether you know what you're seeing is trending with the market. If you're seeing any sort of share gain or taking advantage of pricing opportunities out there with the electronics growth. Yeah. So electronics was up pretty good year to date in the quarter. We did have some spec in wins. I think we're going at slightly higher than the market. We're watching, we're watching pretty click carefully. What happens in the holiday trends here and what happens in the fourth quarter going into next year. So.
Speaker Change: So we're pretty pleased with where we've been so far. It comes from a lot of the sophisticated films that we've created that are going into variety of electronic devices. They're very sophisticated things, multi-layer optical films, optical heases, things that allow LCDs to look like OLEDs in terms of screen performance gives you privacy and other things that you can then extend into the larger screens and larger displays in cars. That's why we drive our auto e-business. So it's a pretty important technology. It's allowing us to perform well in electronics as a whole. So we like to trends. We're watching what happens in the holiday season and we'll...
Speaker Change: We'll see what happens going into next year. So, doing pretty well actually in semiconductors as well. It's, you know, we're growing way above the market. You know, that's been a pretty important trend for us this year. We're doing pretty well in data centers, not a big part of our business at the moment, but pretty pleased with that, but specific to electronics out growing the market is because of the spec and wins in technology we have. We'll see what happens next year.
Speaker Change: and I appreciate it. Thank you.
Speaker Change: A next question comes from line of Joe Richie Goldman Sachs, please.
Speaker Change: University with your question.
Speaker Change: Thanks for that. Good morning everyone and welcome on rock.
Joe Richie: Bill, I think you mentioned earlier that you were honing in on, you know, redesigning your forecasting and demanding across to take two of your businesses.
Speaker Change: I'm just curious, what are some initial thoughts on improvements you think you can make and then why not focus a little bit more holistically across the entire portfolio at this point? Well, this will eventually go across the entire portfolio, but we are sitting there where we're not delivering to where we want to be on time and full to customers. We're proud of where it's gotten to, but it's not where it needs to be. [inaudible] I'm just curious, I'm just curious, I'm just curious,
Speaker Change: So we've got, we're not delivering on time yet, we're sitting on 100 days of inventory, you know, at the same time. And so how do you fix this? And we're looking at the assets and our factories, you know, on average, and the ones we're measuring at running at roughly 50% utilization across the largest ones. And you run that calculus, there's something wrong in this whole value chain. And I go back to suppliers, suppliers delivering on time, in full to us, we're running in the low 60s now in the low 70s. But there's a range at an average, so it's below 50 to up to 80%. And what's happening is it's just how you manage the flow through that through that supply chain, you know, it starts with the front end of it, it starts with the demand signal. So what
Speaker Change: What are we using to tell the factory what to produce at a skew level, and then how does it translate based on stock on hand to what you tell the suppliers to do based on their OTIF performance, the lead time on logistics. This whole chain has to work incredibly smoothly because it's very complicated. So it really comes back to this fundamental of what is what is that forecast demand signal in the reality is as we dug into it in a couple of divisions where we struggled with on time in full. So our forecast accuracy is not very good. So there are analytical tools that are available that we are starting to look at. It takes some time to implement them. You've got to data cleanse, you've got to look at what are the right parameters, you have to be building into the model. Is there a problem?
Speaker Change: Manual Overlay or not based on unique circumstances having for a skew. You know, that whole process has to run well and if your forecast accuracy is not good, you cannot run your factory very well, your inventory will be high, your suppliers won't perform, your logistics providers won't be available. So it has to run like a like a smooth running clock and you know, it's clear we have opportunity to do better here. As we refine the model, you know, yeah, we'll roll that out to the rest of the business as appropriate. But this is really looking at two big divisions where we need it, you know, really high degree of focus early on. So so it'll roll out over time as we get success here.
Speaker Change: Yeah, that's super helpful, Bill, and in detail. I'm curious. Do you think that by February , you'll have some kind of sense for what type of opportunity this presents for the organization? Yeah, you know, we'll certainly know by February , you know, the results are the couple of divisions. We're in their big division at like small pieces. You know, but we can estimate from that we could probably estimate what is going to happen as we roll it out to other divisions. So yeah, we can sort of lay out a lot more where I think you want to go, which is it's nice to talk about forecast accuracy, but tell me a little bit about how it's going to affect, you know, delivery performance, cost performance, inventory level. And I think we can kind of connect the dots on this, you know, as we get get further mature on this particular area, Joe.
Speaker Change: Okay, great, thank you, you back.
Speaker Change: Our next question comes from the line of Chris Snyder of Morgan Stanley, please proceed with your question.
Chris Snyder: Thanks for, forget me in here. You know, Bill on the last call, you talked about how you believe the business should be growing in excess of GDP. And I think to a prior question you talked about, you know, better growth maybe into the back half of 25 and into 26. So, you know, is that just simply a function of the investments that you guys are making and innovation is going to allow you to start out growing the end market and it just takes time or is there also an assumption that maybe the consumer just the served end markets get better into the back half of 25 as we kind of see that pick up and grow. [inaudible]
Speaker Change: Chris, our crystal ball is not going to be any better than what the various prognosticators out there are looking at in terms of what happens with the industrial production GDP, consumer behavior. I look back at the end of last year for what was predicted on IPI this year, and I think it was predicted 1.7, that 1.2, so I'm not sure these indicators are all that powerful to predict what might happen in the marker, the macro year out or year and a half out. Look, first off, we've got to grow at the market, and I think we're doing a good job with doing that this year at about 1%. As I said last time, and I think at your conference, the 1% is not what we want to be, they actually grow that and be performing better. Without putting a timeframe on it, it comes in these two levers. First of all, there's one.
Speaker Change: We've got to get this R&D machine running. As I mentioned then, I'll say it again today, that's going to take time. You know, our dwellstime or our development cycle is as a year or more on developing and commercializing, watching a new product. So there's a timeframe that that's going to take to turn that piece around. You know, but there's some initiatives that we've got to get at today and that's that's a lot more aggressive this at the customer interface selling, pricing, these other things, which has a near term effect. When you put all that stuff together is a growing GDP or more than that, we'll describe that more over time. I want to sort of walk before I run here and that's kind of where I'm standing as we speak today, Chris.
Speaker Change: Three quarters, consistently one percent, as Bill said, will give more color, as time goes by over there, you know, to Steve's question earlier, we said, you know, we can grow operating margin at a pretty healthy clip given all the levers we have. As we go into next year, as you're aware, we do have certain headwinds from higher pension expense, lower interest income. Of course, we mitigate that through share rep which is, but that's a 30 cents headwind that we see from below the line items. But if I kind of look at what's be a driving in terms of all the discussion we just had around the factory. The supply chain, looking at the indirect cost and all the productivity along with that along with the tailwind, we can see the reduction in restructuring charges. It gives us confidence to expand operating margins next year while driving, driving top line growth.
Speaker Change: I'll give you more special details next year.
Speaker Change: I appreciate that. And if I could just follow up on maybe some of the portfolio pruning, you know, is it fair to assume that whatever business the company decides to leave, you know, they will get paid for it? I, you know, not no more organic exits, or at least nothing, you know, very sizable in terms of organic exit. I understand maybe certain skews or product lines can come and go. Thank you.
Speaker Change: Yeah, look, I think...
Speaker Change: There's going to be over time natural portfolio pruning in terms of SKUs. As you bring new products on, it may obsolete other things that need to go out. That's a normal part of business, and that should all be absorbed within your normal organic growth contributions that we should be growing at the market for. So that is, as you just pointed out, Chris, that distinct from selling your business, which we would look at, that's the inter-organic exit. We'll look hard at cash effects, delusion effects, all those pieces, we'll make sure we get paid more value for that business and we would have assumed today within 3M. But I think your question was really on organic. And as I turn next year, like I said, I think we'll.
Speaker Change: I'm probably talking less about kind of the portfolio shifting that going on outside the company on skews and geographies and things like that.
Speaker Change: I appreciate that. Thank you. You bet.
Speaker Change: and our last question comes from the line of Dean Dre of RBC Capital Markets. Please proceed with your questions.
Dean Dre: Thank you, good morning everyone, thanks for fitting me in and welcome to honor rug.
Dean Dre: Bill, this came up in the local paper, but the interesting here are your thoughts and the challenges you're facing both operationally and culturally to get the three M employees back to the office you all have been.
Bill Nannaragan: Fully Remote for longer than most companies, and I know you've been out some initiatives, but would love to hear something color there. Well, so look, I mean, it's, you know, we need to grow our business. We need to innovate, you know, part of that, we need to solve problems for customers. I do think that you problem solve, innovate, you know, better in person. You know, we're going to maintain flexibility in our workforce. What we've done is for our largest sites that are most senior people, we've asked those individuals to be on the site, wherever they would report on Tuesday through Thursday with some flexibility on Monday and Friday. You know, this is an opportunity for us to, you know, continue to build our culture, build our relationships.
Bill Nannaragan: Problem Solve as a team, and I think it's the right step. I know a lot of our customers have moved in this direction in the past maintaining some flexibility in our workforce is really important to me. It's important to our employees and we're allowing that, but it gives us an opportunity to be able to look across the table from one another and really dig in and problem solve in a better way than I think you can over teams or zoom or some other format like that. So that's why we're leaning at a little bit more on bringing people back at our larger sites, including here at 3M Center.
Speaker Change: and then just a last question, a lot of discussion today about new product, interdoctions, efficiencies in R&D.
Speaker Change: Will you be bringing back the new product vitality index? Is that one of the measures I dream had at one time but then went away from it? What's your thought there? No, I'm happy to talk about it I know there was reasons why we pulled away from it We don't want to get that to be oversold or built into a comp metric or whatever but the reality is it's an important metric you know because we've got to get that to be oversold or built into a new product vitality index
Speaker Change: We pulled back from introducing new products to the marketplace. We know that I talked at some detail as to how many NPIs have come down over time and where we're at last year, going up 10% this year. The net effect of that is our product portfolio in the marketplace is aging for sure. Our NPVI on a five-year basis is running just over double, did just 10-11%. We used to be 25-30. For the more super-innovative companies in that range, I'm not going to say when we get back there, but it's one that's on my mind. We need to have more fresh offerings on the marketplace. So, we ought to be better than low double-digit in terms of vitality index.
Speaker Change: I think it's important, but I don't want to overuse it, you know, with investors or here with employees, you know, because there's lots of other metrics, all the other measures that drives are we becoming effective at driving innovation in the company. That just happens to be one of them.
Speaker Change: Thank you, you guys.
Speaker Change: Thank you, ladies and gentlemen, this does conclude today's conference call, we thank you for your participation and ask that you please disconnect your line at this time.