Q4 2024 3M Co Earnings Call
and many more. Thank you. Thank you.
driven by strong operational execution.
Finally, we delivered free cash flow of $4.9 billion, or 111% conversion, which included net working capital improvement of eight days, and returned $3.8 billion 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 percent.
Earnings per share of $7.60 to $7.90.
representing growth of four to eight percent and free cash flow conversion of approximately hundred percent.
all on an adjusted basis.
We expect this higher growth trajectory to be supported by a focus on commercial excellence, improvement in service levels, and new product launches.
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 billion will be in line with depreciation and amortization.
Let me take a minute to walk through the EPS drivers for 2025 on slide 10.
We expect EPS growth of 4-8% driven by operational performance that is partially offset by non-operational headwinds.
We are confident that our focus on operational excellence will contribute 70 cents to $1 or 10% to 14% to adjusted EPS growth.
We expect non-op Edwins of approximately 40 cents, half from FX due to recent strengthening of the U.S. 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 1.5 billion dollars.
and Anurag Maheshwari.
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 grounds 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 Sylventum spin items with earnings being approximately equal between the two halves.
I want to take a moment to thank the 3M 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 billion.
With that, let's open the call for questions.
Speaker Change: Ladies and gentlemen, if you would like to register a question, please press star 1 on your telephone keypad.
If your question has been answered and you would like to withdraw, please press star 2. If you are using a speakerphone, please lift up your handset before entering your request.
Please limit your participation to one question and one follow-up.
Speaker Change: Our first question comes from the line of Jeff Sprague with Vertical Research. Please proceed with your question.
Thank you. Good morning, Bill and Anurag.
Speaker Change: Hey, just on the top line in particular, so I was wondering if you could give us a sense of to what degree, you know, sort of the operational execution, you know, product development has actually impacted the top line already versus
Speaker Change: you know what you expect to kind of play out in 2025. I'm just thinking some of these product launches and the like came later in the year so perhaps we could start there.
Speaker Change: Good morning, Jeff. Thanks for the question. Yeah, 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.
Speaker Change: You know, but still very early, you know, a lot of the products that we're launching are what we call class three so they're incremental so Year one sales on these products are going to be somewhat light
Speaker Change: and it'll grow over time over the next several years. You know, more importantly, as we grow our NPI launches next year by double digit.
Speaker Change: We shift to more what I call higher octane or class four type products which have more sales capability. You know, we'd likely see more impact on the top line from these launches. It's an important dimension.
Speaker Change: 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. Some of it is...
Speaker Change: shifting some resources around. We added 50 people in Q4 and we moved about another 100 people into R&D development, you know, in the quarter. So we're on the right track. You know, this is a good sign. We've got to see it turn into
Speaker Change: reasonable and substantial margin and income over time, but whatever we've seen in terms of launches is built into the two to three guidance we see next year.
Speaker Change: Great, and then maybe just one for Anurag. A lot of conversation last year, you know, as we're all trying to fine-tune our models on kind of the restructuring versus, you know, stranded costs and the like. Just wonder within that 70 to a dollar, 70 cents to a dollar bridge item, Anurag, if you could give us a little bit of granularity on restructuring investments and stranded costs in particular.
Speaker Change: Good morning, Jeff. Sure, let me do that. And probably what I'll do is I'll break the pieces to the bridge.
Speaker Change: So, at the midpoint of our EPS guidance, we are going 10 to 14 percent, excluding the non-op items.
Speaker Change: which is quite strong relative to the midpoint of organic growth. So there are three 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 million or so.
and Anurag Maheshwari.
Speaker Change: Second is the lower restructuring cost to your specific question. That's about $200 million tailwind into 2025. So that's another $200 million. And finally, the net productivity, that's about $150 million as well. And lots of pieces in that.
The PFAS stranded cost is a negative $100 million.
Speaker Change: We're making some growth investments as well, but offsetting that as oral net productivity through the factories, through our sGNA function as well.
Speaker Change: So you put all the three buckets together, it's about 550 million dollars.
Speaker Change: of Margin Improvement, FX is offsetting about $125 million of that or so.
Speaker Change: So the $425 million is at the midpoint of about 160 basis points of margin expansion. So those are the three big pieces driving the operational growth of 70 cents to a dollar.
Thank you.
Great, thank you for that. I'll pass it on.
and Anurag Maheshwari.
Speaker Change: Our next question comes from the line of Scott Davis with Melius Research. Please proceed with your question.
Thank you. Thank you.
Scott Davis: Hey, good morning. Good morning, guys. And thanks for the shorter presentation, too.
Thank you.
Speaker Change: 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.
Speaker Change: detail on what what exactly does that mean when you talk about a quota pull forward for
As far as trying to drive growth.
Speaker Change: Yeah, so it's a great question. Thank you for that. You know, 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.
Speaker Change: a little while before, you know, growth in the near term is going to come from selling more what we have on the market today. And that's an important dimension to this, which is, you know, just a more aggressiveness in our front-line sales and marketing resources.
Speaker Change: You know, 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.
Speaker Change: you know and are 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 and others across the company are doing is really leaning into this. So what we're trying to push for is
Speaker Change: is making sure that the sales leader, the sales reps out in the field
Speaker Change: They know what they're expected to do in 2025, early in the year. So they're getting out of gates January 1 with their quota, their target, specific things around closed one wins. Typically, that would have been in early April when it rolls out. So a little bit lagged. So that's why Q1 might not have had some momentum.
Speaker Change: 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 six combination pairs that we've done, six or eight.
Speaker Change: you know different distributors so it's small pieces here but in December we saw some pretty good momentum building and I'm pretty optimistic that over this year and next that there's going to be some some benefits for for cross-selling we're working on pricing and reinstituting some price corridors and changing our governance process on pricing so when you step back I think all of this gets back to the original premise was you know we've got to get better at selling what we have today on the marketplace and that's where the back end of 24 and in most of 25 is going to
Speaker Change: come from. Which I think is important to investors to understand that piece. The NPI will come over time, I'm very confident about that, but we've got to get better at selling more what we have on the market today.
Thank you. Thank you.
Makes sense, Bill, and just.
Speaker Change: You know, I think, you know, when you talk about on time and full, it seems very fundamental. But if, in theory, if you had 100% on time and full, would your...
Speaker Change: growth rate be 100 basis points higher, 200 basis points higher? Is there any way to kind of, you know, narrow that down?
Scott Davis: Yes, it's hard to quantify it, Scott, it's a good question, you know, clearly running at 88% is not where we need to be. You know, we're feeling we're running around 93, a little over 93% in consumer, we should be in the high 90s.
Scott Davis: You know, 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. It should be better. The concern really is in SIBG, the safety and industrial business, in the low 80s, you know, we're definitely losing business for sure there. We are, you know, not delivering. When somebody needs something right now and we don't have it available, you know, that is causing them to go someplace else, even though we have a better brand, sometimes a
and Anurag Maheshwari.
Okay. Best of luck. Thank you, guys, and thank you.
Thank you for watching. Please subscribe to my channel.
Speaker Change: Our next question comes from the line of Nigel Coe with Wolf Research. Please proceed with your question.
Thank you.
Thanks. Good morning, everyone.
Who...
Speaker Change: Good morning. Bill, so you sound a little skeptical about the 1.9% IPI forecast, you know, just based on that's where we were this time last year. So I'm just wondering, when you went through the plan process, looking at the bottoms-up kind of projections from the businesses, and then you overlay that with the top-down, what kind of haircuts
Speaker Change: have you taken to that 1.9%? And that brings me on to my next question. Well, the real question, I guess. What have you baked in for pricing in 2025?
Speaker Change: 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?
Speaker Change: So it's a good question. I don't think we're going to deconstruct the, you know, elements of growth between price and volume and share gain and other parts of it. But, you know, but look, you know, we did enter 24, you know, with an expectation that IPI was going to be a bit better and it softened through the year. You know, there was an expectation of auto builds and that softened quite a bit in the back end of the year.
Speaker Change: you know, as we were three months ago, thinking about IPI in 2025, you know, it was higher than we actually are sitting at today. It was on 2.4%. The auto build was, at that point in time, higher expectation for 2025 than we sit here today. So, you know, these indicators, they're just that, they're indicators, you know, 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.
Speaker Change: You know, we feel confident that 2-3% is the right place to be. When you look at a blended macro between IPI and GDP, because we're about 80% weighted to IPI.
Speaker Change: of some of the initiatives we have internally plus what happens in the macro and we'll update the investors accordingly. So right now we feel good about two to 3% is the right place to start in 25.
Speaker Change: Great. Thanks, Bill. And then, Anurag, for you, thanks for the details on the margin bridge. The 150 of net productivity...
Speaker Change: That appears to be mainly the payback on the obstruction actions in 2024. So I'm just wondering, you know, if there's anything from some of the more structural drivers such as, you know, improving OEE, improving footprint, supply chain, etc.
Anurag: Yeah, there is. So let me break up the $150 in a little bit more detail. So first, just on the headwinds over there. So I said it was $100 million of stranded costs.
Anurag: The incremental investments we are making as well, which is about two hundred and twenty five million dollars
Anurag: Some we did in 24, some in 25. It's both a carryover as well as in-year.
Anurag: So you've added the two together, it's about $325-ish, $350 million.
Anurag: Now, offsetting that, you're correct, there is probably $70 million of restructuring benefits, about $280 million, but then to get to the positive $150 million, we're driving about more than $400 million of net productivity.
Speaker Change: and that is coming through again through supply chain, be it procurement, more on the G&A efficiency and a few of the other areas that Bill has spoken about. So overall I would say the productivity driving is 450 million dollars is being offset by all the other line items to get us to 150.
Thank you.
and Anurag Maheshwari.
Okay, that's helpful. Thanks.
and Anurag Maheshwari.
Thank you. Thank you.
Speaker Change: Our next question comes from the line of Andrew Kaplowitz with Citigroup. Please go ahead with your question.
Hey, good morning everyone. Good morning.
Speaker Change: 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, or 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? Yeah, so we did see, you know, I'd say across the industrial part of the portfolio, not respectfully 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
Speaker Change: through the quarter, which I think was very positive. You know, they were a tick higher than they were in Q3.
You know, the order rates were somewhat higher than...
Speaker Change: the growth rate, organic growth rate in the quarter. So there's a bit of backlog that was built.
Speaker Change: you know, into 2025. Those are all good indicators, you know, 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 you know, they're small little indicators. It was pretty broad-based. There was no specific, you know, region or business that was the driver of it. That also is somewhat encouraging. Again, it's, and I contrast that to where we were in
Speaker Change: Q4 of 23 where I think there was a pretty dramatic tail off in orders.
Speaker Change: towards the back end in December, which got the team a little bit shaken in some ways. We did not see that happen here.
Speaker Change: So those are all good indicators which is why when we look at, you know, 2%, 2.1% organic growth in Q4
You know that we feel that that's a good
Speaker Change: floor, if you will, for 2025. But I think it's good news, you know, it's holding steady, you know, and again, it's a reflection of some modestly improvements in the industrial markets. But again, it's kind of early days.
Speaker Change: Anurag, can you give more color into the 25 margin guidance by segment and then also comment on teeny margin in particular in Q4-24 as it seemed a little weak in Q4 versus the other segments.
Anurag: Yeah, so first let me talk about Q4, and then I'll get into 25. So overall, Q4 came in better than expected across, from our expectations, what we gave in the October guide, across all the three segments.
Speaker Change: Yeah, and as I noted in my prepared comments, it's probably 5 cents higher than where a midpoint of a guide was because of volume and productivity, with FX being the big headwind in the quarter, which was unexpected.
Speaker Change: Now, on TEBG, we did expect the margins to be lower in Q4, seasonally, of course, between Q3 and Q4, because of underabsorption as we clear out inventory. So that was a big reason. And if you look between Q3 and Q4,
Speaker Change: You know, sequentially we improved inventory by eight days, so that clearly has an absorption issue.
Speaker Change: Second is we started making growth investments, which we are seeing in the revenue right now. That was a driver for it. And FX, TEBG does have a fair amount of business outside the U.S., so that impacts it as well.
Speaker Change: So you put all these three things together, the margin is lower, it actually came in better than what we expected. So overall, if I look at all the three business groups for 24, the margins came in a little bit better than expected. As we go into 25, we're probably not giving guidance right now, very specific to each of the segments.
Speaker Change: But the 130 to 190 range that we gave in terms of margin expansion, we expect all the three business groups to grow quite a bit.
Speaker Change: The TEBG could be a little bit lighter than the other two because of the PFAS stranded costs a large part of it is in TEBG, but having said that, we expect good margin expansion across all the three business groups.
Thank you.
Very helpful guys. Thank you. Thank you
Thank you.
Thank you. Thank you. Thank you.
Speaker Change: Our next question comes from the line of Julian Mitchell with Barclays. Please proceed with your question.
Thank you.
Julian Mitchell: Hi, good morning. Maybe just the first question, I'm trying to understand the sort of...
Speaker Change: Operating Margin Expansion Framework. So you talked about, I think, Anurag, 450 million of.
Speaker Change: overall productivity improvement in 2025. In the past or recent past let's say Bill you've talked about that sort of 250-260
COGS productivity number as a sort of annual placeholder.
Speaker Change: The kind of delta between that, I'm guessing $450,000 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.
Julian Mitchell: on top of that 35% core leverage placeholder. Sure. So Julian, you're correct. What we have said is on the COGS line, 2% net productivity, which is about $250 million.
Julian Mitchell: The productivity, which I'm talking about, is overall for the company, which also includes SG&A, other parts of the business as well. It also has one quarter of the TSA reimbursement, which overlaps over there too.
So those are the pieces which takes us to 450.
Julian Mitchell: I mean, we provide more on the investor 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&A line to see whatever productivity we can get to offset inflation and other investments that we are making.
and Anurag Maheshwari.
and Anurag.
Speaker Change: 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 170-ish of EPS adjusted in Q1
the first
Speaker Change: Maybe just any very large puts and takes. It seems like organic growth pretty steady year-on-year, but anything you're calling out the sort of Q1 to Q2 delta. Yeah, thanks for the question. So, let me break it up into two parts. One is some discrete items in the first quarter.
Speaker Change: and then second is on the recurring operational performance and non-op impact which you should see through the year.
Speaker Change: on the discrete items, as I mentioned in my prepared comments.
Speaker Change: You did a solventum spin. There were few pieces, but a large part of it was the equity-based compensation, which I called out last year. We accrued it in the second quarter. And this year, as we're returning back to historical trends,
We'll be accruing it in the first quarter.
Speaker Change: This is about a 15 cents headwind in the first quarter, which becomes a tailwind in the second quarter.
Speaker Change: On the operational side, we'll see good flow-through from volume, lower restructuring costs, TSA absorption, all the productivity that we spoke about, which will offset PFAS stranded and mixed headwind, and also all the growth and response. So this should be about 20 to 25 cents of EPS growth in the quarter.
Speaker Change: On the non-op, we have $0.40 for the year, so the first quarter is probably going to be closer to $0.08 to $0.10.
Julian Mitchell: So if you put all these items together, Julian, you've got 20-25 cents of operational EPS growth.
Julian Mitchell: You minus the $0.810 of non-op and the $0.15 of equity-based com, so the earnings are flat to Q1 of last year.
Julian Mitchell: Now, as you move into the second quarter, if we continue the similar trajectory in operating performance
and Anurag Edwin.
Julian Mitchell: It will be 10-15 cents of EPS growth, and then you add back the 15 cents of the equity-based compensation. So the growth in Q2 would be closer to 25-30 cents. So that's the bridge between Q1 and Q2, and then to your math, the first half and second half should be fairly equal in terms of EPS.
Thank you.
That's great. Thank you.
and Anurag Maheshwari.
Thank you.
Speaker Change: Our next question will come from the line of Steve Tusa with JP Morgan. Please proceed with your question.
Hey, good morning. Hey, good morning Steve.
Speaker Change: Can you just talk a little bit about, I'm not sure you mentioned it before, but the price assumption for this year?
Steve Tusa: Now we've not talked about that. I don't think we're going to disaggregate organic growth, and it's it's embedded in the two to three percent I think as we said before in the past, you know We do get price increases the price increases cover material cost inflation and you know I expect it to be in a similar magnitude in 25, but we're not going to sort of you know Get a specific number here today
Speaker Change: And is that a net positive or you're just covering it? No, it'll be a net positive in this year, yeah.
Speaker Change: Okay, and then just one follow-up on the T&E segment in the fourth quarter. Margin was a little bit weaker than we were expecting. Anything in particular going on there in the fourth?
Steve Tusa: No, in fact, as I mentioned earlier, Steve, it's probably a little bit better than expected. Nothing unusual. This is, it's a combination of seasonality as you bring inventory down, some growth investments we made. But as you move into 25, you should see margin expansion again in TBG. TBG was actually our highest margin expansion segment in 24 by going over 220 basis points. So I would say nothing unusual in the fourth quarter, just timing of different things.
Thank you. Thank you. Thank you.
Steve Tusa: And sorry, one more, just on the corporate side, a little bit lower in expense this year.
Steve Tusa: How does that look going forward? Is that a sustainable number in the model going forward into 26, 27, the corporate side? We'll talk about 25 right now first, Steve. On 25, two pieces over there.
Steve Tusa: both equal assets, about $60 million each. One is just a reallocation between corporate and the business group. It's one last quarter of overlap over there because we did it for nine months of the year. So one is just a reallocation and the second is the covering the TSA absorption cost, about $60 million.
So those are the only two pieces of copper.
Great. All right. Thanks a lot. Thank you.
Thank you.
and Anurag Maheshwari.
Speaker Change: Our next question comes from the line of Andrew Obin with Bank of America. Please proceed with your question.
Good morning. How are you? Good, Andrew. Good morning.
Andrew Obin: Yeah, can we just talk about free cash flow, you know, good improvement of free cash flow conversion this year. As we think about next year, you know, this squiggly line, 100% free cash flow conversion.
Speaker Change: What kind of working capital benefit do you have dialed in and what are their offsets in terms of cash flow to keep it at a hundred because you know you do have working capital released.
Speaker Change: program and, you know, I would have expected that you could deliver.
over a hundred quite sustainably for a number of years.
Speaker Change: Yeah, thanks for the question. Yeah, we did very well in 24, as you could see, you know, 111% conversion. Really good on the working capital as well, where we improved the cash conversion cycle by eight days.
Speaker Change: It's early days right now in 2025. The reason we put 100% conversion is, one is CapEx is in line with depreciation. We're gonna need to invest on the growth side as well as sustainability. So CapEx in line with depreciation. On the working capital, two things. As revenue goes up, obviously we're gonna consume more on the receivable side. Well, we're gonna need to offset it by inventory. Our goal is to get to 75 days. We showed good progress in 2024. We'll continue that in 2025.
Speaker Change: Now, 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.
and Anurag Maheshwari.
Speaker Change: It's been consistently declining for a while, you do sound more optimistic, but if you look at these numbers, they seem to be relatively flat for the past four to six.
Quarters.
Any visibility there, you know, when do they turn positive?
Speaker Change: What are you seeing in the channel? What are you seeing at inventory levels at OEMs? I know auto is probably a decent market there, but just
Speaker Change: just more color as to when do you think these businesses could turn. Thank you.
Speaker Change: So, good question. I mean, so both businesses in the year were down low single digits. They're very different. You know, industrial specialties is a grouping of lots of different pieces. Some are growing, some are not.
Overall, it's been declining, but we see that flattening out.
Speaker Change: starting to grow over time. On the abrasive side, we should see a better 2025 than 2024. 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
Speaker Change: instantiations of different abrasive products. It's growing, you know, it's got tremendous, you know, differentiation versus competitors.
Speaker Change: So we feel very positive about that. So we see that getting a little bit better here in 25. Part of it is because of the new products being introduced. So we think it's gonna both turn the corner here in 25.
Speaker Change: But no commitment Q1, Q2, nothing more, nothing specific like that. You know, it's a little bit granular. We'll come out, you know, we 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 know, 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.
Speaker Change: Great, appreciate it. See you in February. Thank you. Thank you.
Thank you.
Speaker Change: Our next question comes from the line of Amit Mehrotra with UBS. Please go ahead with your question.
and Anurag Maheshwari.
Thanks. Morning, everybody.
Speaker Change: Anurag, you know one of the one of the things that obviously stood out to me is the expectation for
Speaker Change: to be well in excess of revenue growth for this year. You obviously provided a.
Very helpful walk around how we get there.
Speaker Change: As we're coming up in kind of late February, we think about the multi-year outlook.
and Anurag Maheshwari.
Expect
you know, a high level of incrementals to be
Speaker Change: sustainable? It doesn't have to be, you know, 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 and I also assume, you know, cash flow is going to grow in excess of earnings growth.
Speaker Change: 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.
Right.
Speaker Change: Good morning Amit, thanks for the question. So, and then yesterday 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, you know, 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.
Speaker Change: On the cash flow side, 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. We feel it's a good path for us to get there. We're executing well towards that.
Speaker Change: And, you know, it's 100% conversion if you look historically at 3M, it's been around there. But going forward, you know, 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.
and Anurag Maheshwari.
Okay, and just maybe a bigger picture question for Bill.
Speaker Change: We'd love to get it. You mentioned earlier about, you know, industrial OTIFs.
Speaker Change: kind of stubbornly in that low 80% level. Obviously, that's a pretty big deal just given the size of that business. Can you talk about maybe when you expect to see more progress on that and talk a little bit about, you know, the manufacturing DC footprint and when you expect to make more progress on that as well? So, look, I may expect more progress on SIBG OTIF in January. You know, we expect it in February. You know, we did not expect the deterioration we saw in November and December.
Speaker Change: Part of it is certain specific issues, quality issues, a couple of specific assets, SIBG.
Speaker Change: You know, one of the things that I've been reminded about by people is it's a much more complicated portfolio. It's about 35% more SKUs in.
Speaker Change: SIBG than TEBG and probably more than double the number that's in CBG. So it's a pretty complicated portfolio. And there's 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 some sequential improvement.
Speaker Change: throughout the year on on SIBG OTIF and I know Chris is depending upon that as Salesforce is depending upon that and more importantly our customers are so you know that that's you know we're on it we're pushing on it it's certainly gotten a lot of attention inside the company and you know the team is pretty laser focused on making those improvements.
Speaker Change: I think you talked about the complexity as well in the network, you know, 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.
Speaker Change: for how they run their four-wall spend. You know, we will also be looking at how we can run this network that we have today more efficiently. And then over time,
Speaker Change: as we really mature the Operating Equipment Efficiency metric, which is a measure of utilization of assets.
Speaker Change: As that gets more mature, you know, then we can start taking on a little more of a holistic look at the overall network, you know, 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.
Thank you. Thank you.
Thank you very much. Appreciate it. You bet.
and Anurag Maheshwari.
Speaker Change: Our next question comes from the line of Nicole DeBlais with Deutsche Bank. Please proceed with your question.
Yeah, thanks guys. Good morning. Good morning, Nicole.
Speaker Change: Maybe just starting with China, I think you're expecting a little bit of a slowdown to mid-single digits in 2025, but definitely, you know, not too shabby. I guess, can you talk a little bit more about what you're seeing on the ground there?
Speaker Change: Yes, so, you know, from a macro perspective, you know, China is expected to slow a little bit, you know, both from the GDP and IPI perspective, but again, it depends on what you believe in those forecasts and those in those numbers. Now, I do think that tariffs could have an effect on what's happening in China, certainly on the export part of of China. So, you know, we're watching it very, very carefully. There's news of the minute, you know, on tariffs for sure. You know, so just stepping back, Nicole, China is about 10% of our revenue globally.
It was up about 10%
Speaker Change: was up about 13% in the first half, it's sort of slowed down in the back. You know, part of it is from electronics, you know, so half of the business is export, and that's been – 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.
Speaker Change: You know, we had quite a bit of activity in December, you know, quite a bit of activity happening here in January. Again, it's, you know, you never know, you know, it could be some pull-aheads, you know, it could be...
Speaker Change: you know, just getting ahead of Chinese New Year, which is end of January. We, you know, we do expect that our business in China will be slower in 2025 than it was in 2024, probably in the low single digit range, what we expect for revenue for 3M in China.
Speaker Change: Got it. That's really helpful. Thank you. And then any update on insurance recoveries? I think you promised us an update each quarter. Thank you.
Speaker Change: So so we've we're making progress on insurance and we're actively engaged in arbitration negotiations in some places litigation with
Speaker Change: insurance carriers for both for PWS and combat arms. You know, in Q4, you know, we recovered about $170 million.
Speaker Change: So, to date, so through last year, was about $340 million, mostly in the combat arms area.
Speaker Change: Again, we're pretty active in pushing this. The legal teams are driving this pretty hard. And as I said last time, I'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.
Thanks so much. See you in February. Thank you.
and Anurag Maheshwari.
Speaker Change: Our next question comes from the line of Joe O'Day with Wells Fargo. Please proceed with your question.
Thank you. Thank you.
Hey, good morning.
Speaker Change: Just wondering if that's going 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 $7.7 billion. 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.
Hey Joe, it's Anurag here.
Speaker Change: So we, as you correctly said, we ended the year at $7.7 billion. It's probably 2x of the working capital requirement for the business.
If you look at 25...
Speaker Change: You know, we said we're going to buy back shares worth $1.5 billion.
Speaker Change: At current dividend rate, we're paying about $1.5, $1.6 in dividends, $3 billion. We got $3 billion to settle on combat arms in PWS as well. So these are the big ones we have for the year, and our plan is to refinance the majority of our debt. So if we put all of that together, we should end $25 at over $6 billion in cash.
Thank you.
and Anurag Maheshwari.
Speaker Change: And then also, Bill, just on industrial production, and what are you watching most closely there, whether it's 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?
Speaker Change: Yeah, 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.
Speaker Change: You know, and we're a little bit heavier weighted in the U.S. and probably Europe and others, you know, after that. So...
Speaker Change: You know, clearly U.S. is an important focus of ours in watching IPI.
Speaker Change: you know the current forecast is it does turn positive from minus 0.3 to plus 0.5 I think is what it was in
Speaker Change: 2025. You know, 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.
Speaker Change: 130 basis points next year. That's a pretty big movement. So, those are the key things that we're looking at, I think, pretty carefully on IPI. It's not industrialized. On auto, you know, look, it's, you know, I'm a little bit concerned about that only because we had some deterioration last year. You know, the auto build forecast for this year is weakening a little bit down 60 basis points. But when you, as I mentioned in my remarks, when you disaggregate that,
U.S. and Europe are down three to four points.
Speaker Change: China's flattened, the rest of Asia's up a little bit. So we have to watch that and look at where our content for vehicle happens to be. Obviously, the team is very focused on gaining share, gaining content, and those automakers that are growing faster. 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.
I appreciate the color. Thank you. You bet, thank you.
Thank you.
Speaker Change: Our last question will come from the line of Dean Dre with RBC Capital Markets. Please proceed with your question.
Thank you. Good morning, everyone.
Good morning, Dean.
Speaker Change: 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.
Speaker Change: I think there's there's art and science here when it comes to innovation.
Speaker Change: be interested in your thoughts. You can't just dump cash at the front door and say, you know, innovate. But, you know, I know you're adding some headcount.
Speaker Change: Are there any other thoughts there, in terms of kind of ramping up innovation, and how do you feel about that long-standing
Speaker Change: Policy at 3M R&D where the senior scientists get 15% of unbudgeted time. Does that still fit into the equation?
and Anurag Maheshwari.
Speaker Change: So 15% of the time is sort of the hallmark of the company, you know, like I sort of joked that, you know, it's 115%, not, not going from 85 to a hundred, but, but, you know, everyone gets their 15%. And I think that's important because it gives people a time to step back and think and ponder, you know, it, I, I mean, I do the same thing. I go into my office and I think about what.
Speaker Change: you know what are the issues upon the company and you know we all have to do that so so I think that's that's a hallmark of the culture of the organization.
Speaker Change: You know, 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.
Speaker Change: you know, the people doing product development, those in the business units.
Speaker Change: You know, those out meeting with the customers themselves, you know, the ideas are there. 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.
Speaker Change: in the processes. And I went through last time a number of pieces of that. We are shifting within our capital budget, more investment to R&D.
for lab equipment, for prototype equipment, to speed up.
you know, the prototyping and scaling up of innovation.
Speaker Change: You know, we are adding resources there. You know, 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, you know, the growth verticals that we really want to focus our investment and time on, you know, I do think that that's going to pay dividends over time. This is something that Wendy and TEBG is going to lay out pretty clearly when we get out to the end of February, we have our investor day. You know, how do we get closer to those, you know, innovation partners?
Speaker Change: 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.
Speaker Change: And I think if you do all of these things, you know, this machine will turn on.
Speaker Change: And again, we saw good progress over the last six months, it's early days, you know, I think we'll have another good year in 25, but ultimately...
Speaker Change: you know this is going to come down to are we 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 the marketplace are better than what the competition you know puts on the marketplace and I think that's the that's the end objective. We have a good start.
and many more. Thank you. Thank you.
Speaker Change: It's great to hear, especially that support of that 15% unbudgeted time.
Speaker Change: 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? Thanks.
and Anurag Maheshwari.
Speaker Change: You know, look, that's something that we're watching very, very carefully. We came down two days year over year. I think it was eight days sequentially in Q4. You know, in SIBG, we saw sort of OTIF come back. So we're watching this very carefully. You know, our intention is to prioritize OTIF over inventory. Frankly, that's what we think is really important. That's a greater lever. You know, that being said, there are opportunities to eliminate.
Speaker Change: the waste if you will in inventory not all the inventory we have is good inventory you know we have a lot that's stuck on the water we have a lot of components in in warehouses and factories you know we have to make sure we have the right inventory that's why I believe
Speaker Change: You know, this is the and, not the or. I believe that we can get to 75 days and over 90% OTIF.
Speaker Change: and I think we can get there, you know. That's our goal, that's what we ought to be shooting for. 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, you know, but that's the objective and again we're going to prioritize OTIF over inventory knowing that we'll get the inventory over time.
Thank you. Thank you.
Very helpful. Thank you.
Thank you. Thank you.
Okay.
Speaker Change: This concludes the question and answer portion of our conference call.
Speaker Change: I will now turn the call back over to Bill Brown for some closing comments.
Speaker Change: Okay, well, thank you. I think I appreciate everyone's time and attention today I know we're running top of the hour here, but I want to thank all the three embers for their continued hard work
in dedication to our customers and our shareholders.
Speaker Change: I look forward to introducing you all, the analysts and investors.
Speaker Change: to the senior leadership team at 3M at our investor day coming up on February 26th in St. Paul. It's going to be brisk. Today is minus 18, so dress warmly. So we look forward to seeing you on the 26th. Thank you very much and have a good day.
Speaker Change: We thank you for your participation and ask that you please disconnect your line at this time.