Q4 2024 EchoStar Corp Earnings Call
So let me take you through one example. This is about Meguiar's $300 million. This is focused on the car aficionado, the car enthusiast. And what you will see on the screen is in-house capability.
on how we do this, running at the speed of retail, tying in from the fantastic part of that our labs develop and our marketing teams together, all the way to bringing it to life.
So, you need to make sure that the bottle is appealing, that the handle is appealing, that you're able to turn it into great images, create excitement in social media, take it to the trade shows and the events that you're in, post it and make sure that you're reposting as well and engaging with the brand.
demonstrating the value of the product.
and making sure that the consumers are liking it and that you do it over and over and over again.
So what you saw in the video represents 3,000 digital assets.
Earning Meguiar's the number one in auto appearance landscape. That's the award that you see on the bottom right hand side of the page.
It also shows half a million one-on-one connections that we have in the U.S. with our car enthusiasts.
So.
Last strategy. So I already told you about, you know, having fantastic products.
How do you tell the story about those fantastic products through our consumers? Our third strategy is how do you make that successful for our partners and our retail partners around the world?
Speaker Change: So you heard from Peter, you know, 95% service is our goal for us. We actually want to be a little bit north of that 95, 98 would be fantastic.
Speaker Change: That's part of the partnership that's going to drive that 95 plus percent as we engage our relationship with our retailers as well.
Speaker Change: And as they trust us more because they know that we can deliver on time and full, all the time, everywhere, for everything, we will be able to regain and expand our shelf presence. So, last example, I'll give you Scotch Brite.
Speaker Change: So Scotch Brite is our 800 million dollar brand, is our most global brand.
Speaker Change: The reason why it's most global as well is because the uses are more common than most of our other brands.
Speaker Change: Everybody has dishes to wash and we have been able to adjust the portfolios to different parts of the world, which is what you see a little bit on the screen.
Speaker Change: So all the way in the bottom, what do you see as social media for India?
Speaker Change: And what we do there, as I said, is having the great product. This is talking about having that brand activation that I mentioned before. And all the way to the right-hand side is how do you make it available in all the retail outlets where, in this case, the Indian market will buy in.
Speaker Change: So we have, this is a traditional trade market picture in India.
Speaker Change: The packaging, we adjust the type of sponges that they need based on the type of food that is eaten in these different parts of the world.
Speaker Change: And we make sure that we partner with our retail partners to when we are promoting and where we're having the communication all the way to the right-hand side. That's a Brazilian ad.
Speaker Change: We have the end cap in the supermarket that has that display and that consistency between the value proposition of the product, the brand image that we want to project, and the activation of the promotion and the value that the customers are getting.
So in a nutshell...
Speaker Change: I know this is potentially not very exciting, performing at MACRO. There is a long way to go. Certainly, that is not our ambition.
Speaker Change: We have to create the space so that that space that is created through operational improvements can be fueled into our three growth strategies.
Speaker Change: Number two is putting money behind those fantastic products to make sure that everybody knows about what we do and number three is how do we Strengthen those partnerships to make sure that our products are displayed everywhere all the time
Speaker Change: So with that, thank you for your attention, and I will pass it on now to Anurag, who will take us through financials.
Thank you, Corina, and good morning, everyone.
Anurag: which are, first, driving profitable growth, driving top line combined with productivity, margin expansion.
Anurag: Second, ensure we deliver robust free cash flow generation. Strong earnings will lead to strong cash flow combined with working capital and capital expenditure efficiencies.
Anurag: These four financial priorities will enable consistent value creation for years to come as we operationalize the performance through the 3M Excellence Program, our management operating system, ensuring that we execute against all these priorities.
So first, 2024 was a pivotal year for us.
Anurag: The spin-off of Solventum, substantially completing the large restructuring program we had, the renewed focus on productivity and working capital initiatives, helped us return to top-line growth.
Anurag: Ensuring that we expanded margins by 280 basis points, which is higher than the guidance that we had given, the top end of the guidance. EPS growth of 21% and returning 3.8 billion dollars cash back to the shareholders.
Anurag: So, on the back of a strong momentum in 24 and the focus on the strategic priorities, we do believe that we have a very solid medium-term outlook.
that will accelerate growth.
continue to expand margins.
Anurag: First, just on 2025, I wanted to reiterate the guidance that we gave in January across all the four metrics, organic sales growth, operating margin, EPS, and free cash flow.
Now moving on to 26 and 27.
Anurag: We will outperform macro, and I will define what we call macro in a bit, but we'll accelerate the outperformance versus macro.
Anurag: and accelerating EPS growth from 4% to 8% which is the guidance for this year to high single digit in 2026 and 2027 and converting free cash more than 100%. I will go into each one of these buckets in subsequent pages.
So first, starting with the top line.
Macro, given our business mix.
Anurag: Our macro for us is a blend of IPI and GDP. It's 80% IPI and 20% GDP. Last year, at this time of last year, we thought that the macro was gonna grow at over 2% or IPI over 2%. We ended up at 1.1% with a blended macro at 1.4 for us. This year, we expect macro to be at 2%.
Anurag: And what we've assumed in our medium-term outlook is that macro will be lying in line of 2025, which is at 2% growth.
Anurag: We do expect to accelerate our growth versus the macro and deliver a billion dollars of revenue, cumulative revenue, over the medium term above the macro of 2% over the next three years.
Anurag: and this will come half from innovation and half from commercial excellence.
Anurag: We heard John talk about the investments we are making, the focus on priority verticals, areas that we are looking at to improve our cycle time, cut down the value added time. All of these will help us generate good revenue going forward.
Anurag: The Right Processes and Your Pricing So That We Can Generate Volume.
Anurag: A lot of opportunities there, investing in A&M, which Karina spoke about, and that's also very critical, and co-inventing with them, which Wendy spoke about.
Anurag: and last is to ensure that we do serve them very well so we can improve our retention. So you put all of these together, we're fairly confident that we will be able to generate growth. We're making very good progress across all these fundamental initiatives and should see the growth accelerating over the next couple of years.
Anurag: Operating Margin, we expect a 360 basis points improvement from 21.4% to 25%.
Anurag: 300 basis points of that will come from gross margin, 60 basis points will be GNA efficiency partially offset by the investments that we are making in R&D and sales.
Anurag: On both cross-margin and GNA, clearly there is going to be productivity initiators, which is going to help us on the margin expansion, as well as we'll be able to mitigate all the stranded costs.
Anurag: The strata cost, just to ground everyone, we have said that we're going to have $100 million in 2025 from PFAS.
Anurag: which would go up to $200 million or increment $100 million in 2026. And in 2027, as some of our TSAs with solventum wind down, there'll be another $100 million of stranded costs then. So through the three years, a $300 million stranded cost.
Anurag: But we're very confident that volume and productivity will not only help us offset these dramatic costs and fund growth investments, but result in expansion in the medium term and beyond.
Speaker Change: You know, we heard Peter talk about how complex our supply chain is and the tons of opportunities for margin expansion over there. They essentially come across four buckets.
First is internal manufacturing. We have about 110 plants.
Speaker Change: Costing us about five and a half billion dollars a year.
Speaker Change: Peter and the team are already looking at areas to streamline the processes. He gave the example on OEE, on automation, and the Kaizen events. A combination of all of this will help us drive $300 million reduction over the medium-term.
If you look at direct material and external manufacturing,
Unknown Speaker 0 on cost of quality.
Speaker Change: You know, we thought it was $615 million. It's actually closer to $715 million, or 6% of Cox. The best in class is about 3%. Through the medium term, the next three years, we should be able to reduce that by about $175 million, which will take us close to 4.5% with more runway to take it further down beyond the three years.
Last is Logistics.
Logistics.
Speaker Change: is about 1.8 billion dollars for us. Again, everyone's heard about the Command Strip example, the complicated network we have. That may take a little bit of time before we're able to bring that down, but in the short term, in terms of looking at the mode of transport between air, sea, and ground, looking at how we're filling the containers full versus less, as well as driving automation, there's a lot of opportunities over there.
Speaker Change: So if you look across the four buckets, we are very confident of driving over the next three years a billion dollars of reduction net of
Speaker Change: material inflation, wage inflation, and stranded costs, and also ensure that we have a good track going forward, not only for the three years, we are going to be investing about $250 million or about $80 million every year.
Speaker Change: Where these investments are going to go, first is around talent, we need to make sure we get the right talent and we also train them very well.
Speaker Change: Secondly, is about the quality improvements, which is very important, the tools that we put in place over there.
Speaker Change: Supplier Qualification or Customer Qualification as we move our suppliers. So this, we have put a placeholder right now for the $250 million, $80 million a year. We'll look at it, we'll meter it, because this is not only to drive the improvement or reduction over the next three years, but take us to the high 40% cross-margin goal that we have beyond the three years as well.
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Speaker Change: on growth investments and GNA efficiency. So today, between GNA sales and R&D, we spent about $5.2 billion.
Speaker Change: A lot of good work has been done on the GNA over the past few years to bring it down. It's about $2 billion for us today, roughly, slightly over $2 billion. There's still more opportunities going forward.
Firstly, if you look at IT.
Speaker Change: We spent close to a billion dollars. That number has come down over the past few years.
Speaker Change: But the team is looking at application rationalization, infrastructure optimization, looking at how we are going with external providers, and a bunch of other activities and tools to see what we can do to kind of optimize and drive that.
Speaker Change: Second is indirect expense. As we streamline, as we pull, change the operating structure a little bit, we have more visibility now on the external spend that we have.
Speaker Change: And the external spend is to external subcontractors, it's travel, it's real estate, it's other places and what we can do over there to drive it down.
Third is...
End-to-end processes.
Speaker Change: If you look across the organization, be it on order to cash, source to pay, a few others, and the way we are serving our customers, our suppliers, and the way we are internally doing our work around that, and by driving technology, driving AI through that, I think there's a lot of opportunities for us to streamline the process. This will not only bring down the cost, but it's also going to improve the customer satisfaction, turnaround time, and lead time. So it's a combination of all of these.
Speaker Change: and Steve M Now what we want to talk about on the GNA or we these opportunities in terms of perfecting the whole product market. Steve
Steve M: As we are doing that, we are going to invest in the top line of the organization, which is in R&D and sales. Starting with R&D, we saw 1,000 NPI launches over the next three years.
Steve M: which means that by 27 it's going to be much more than double of what we did last year.
Steve M: Clearly, you know, we're going to free up capacity by reducing the non-value-add time, improving productivity, repurposing some into the NPI function as well, but we also have to go out and hire engineers to make sure that we deliver that, a few hundred of them. So that's baked into this number.
Steve M: On sales, we have to ensure that we go out, we get the right salespeople, we have the right coverage. Wendy spoke about making sure on the priority articles we're covering our customers well. We need to make investments over there on advertising and merchandising as well.
So there you'll see some investments of ours go through.
But overall, we will do this in a metered manner.
Steve M: We will see how the macro is progressing, we'll see how volume growth is coming in, and we'll make sure that these investments will pay us good returns as we move along. So very confident on the GNA, and we'll make sure that on the selling and R&D, we are investing while we are looking at what's happening in the future.
Unknown Speaker
Okay, now moving to cash.
Okay.
Steve M: We've done very well in cash last year. We plan to deliver robust cash flow generation and conversion of approximately 100% or more each year over the medium term from strong operating income growth, working capital efficiency and capex.
Steve M: So just first, just looking at on the working capital side.
Steve M: Again, significant opportunity to reduce inventory that Peter spoke about while ensuring that we maintain good service with our customers.
Steve M: And we believe work can go hand in hand. Our goal in the future is to release it in 75 days. Over the next three years, we're going to reduce it from 94 to low 80s. Each day of reduction is worth about $35 million to us, and that's going to help on the conversion side.
Steve M: Second, on CapEx, the first thing on capital expenditure is what we've done is we've tightened the process.
starting with Threshold.
Steve M: The approval for Bill used to be $10 million. That has now come down to $2.5 million of approval. So we've looked at what all the thresholds over there are. We've tightened the process in terms of the business cases.
Steve M: the rigor, the reviews behind that, and where the CAPEX is going in.
Steve M: We have put a placeholder of a billion dollars for the next three years, with the mix shifting more towards growth and productivity, growth to drive the top line, and productivity for all the cost reduction initiatives that we have primarily around the supply chain side.
Steve M: So, we have to make sure that we deliver on the growth and the productivity, so we put in a billion dollars. But still, it's going to be slightly less than our depreciation and amortization put together. So, between strong earning growth…
Steve M: Working Capital Efficiency and a little bit on the CAPEX side, we are confident of delivering more than 100% free cash flow conversion in the medium term.
Steve M: We do believe we have significant flexibility to deploy capital. If you look on the left-hand side, I'm just starting with the sources of cash, we ended last year with $7.7 billion of cash in our balance sheet. We need slightly more than $3 billion for working capital, so that means we have got roughly about $4.5 billion of excess cash.
Steve M: My guidance for this year is 100% conversion on free cash flow. That's about $4.2 billion. You drive that with earnings growth plus a little bit of conversion opportunities, you'll get to between $13.5 and $14 billion of free cash.
Speaker Change: Bill spoke about $10 billion coming back to the shareholders. If we continue growing our dividends at the rate of our earnings growth, it's a high 30 payout right now. It's about $5 billion.
Speaker Change: Sharebuyback, another $5 billion plus, so you're talking about $10 plus billion over there.
Speaker Change: We will continue to pay down on public water supply and combat arms, our legal settlement commitment. By the end of the medium term, 2027, we will be done with 70% of our payment for both of these. So that, if you have the two of them, it's $18.5 billion.
Speaker Change: So I spoke about the sources being close to 21, year 18 and a half.
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Speaker Change: As Bill mentioned, the new performance mandate is relentless focus on execution and constancy of purpose.
and as part of the Operationalizing the 3M Excellence Program.
Speaker Change: Our management operating system, we've got to ensure that we are consistently performing across all our priorities, be it on innovation, cost productivity, commercial excellence, and cash flow generation. And we're going to do it across each one of them. I'll give you an example. Let's take NPR. We spoke a lot about that today.
It's now one set of KPIs.
Speaker Change: and targets which is deployed across the company, the health of the pipeline, the launches, the financials. Second is one source of truth with standard tools and processes to track the resource allocation, status of the launch, sales.
Speaker Change: Third is the operating cadence, depending upon the program, daily, weekly, monthly, quarterly, to ensure that we're delivering on the KPIs we set ourselves.
Speaker Change: And then continuous improvement as we measure it against the business cases, how we did, and what is it that we can do better. So this is really embedded into the system, into the company, and this is how we're going to drive and help us meet our medium term goals.
Speaker Change: of outperforming the macro, getting to 25% operating income by 2027, high single-digit EPS growth in 2026 and 27, and more than 100% free cashflow conversion.
Speaker Change: So overall, I believe we have a solid foundation and actionable strategy, including a renewed focus on operational excellence to accelerate momentum and performance in the medium term. And I'm excited to work with the team in executing towards it and giving all of you regular updates as we make progress towards that.
Speaker Change: Thank you. With that, we'll take a short break and be back at 1125 for Q&A.
Thank you.
Thanks for watching!!
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Speaker Change: The program will resume in five minutes. Please take your seats.
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Speaker Change: Thank you and welcome back to the Q&A session here. We'll take the next 30 minutes taking your questions and the team here will will answer that and at the end of which I'll invite Bill to give us his closing remarks. So if you have a question, just raise your hand. I'll just look around and she's out. Jeff, why don't we start with you?
Speaker Change: Yeah, just press the push to talk and then come through.
Unknown Speaker 08.01.21 Transcription by CastingWords Transcription by CastingWords
Speaker Change: My question, I guess, I have two, but if I could just start with one. You know, when you look at the capital deployment slide that we saw here, obviously there is a fair amount of flexibility, particularly when you look, when you get past, you know, the next three years on the liabilities. Right. I think there's five billion in the next nine years. So it's almost.
Speaker Change: really drops off the radar screen. But the essence of my question is there's some particular threshold.
Speaker Change: in terms of maybe settling unknown issues and or getting more visibility on insurance recoveries that you would feel is kind of a necessary trigger to perhaps be more aggressive on capital deployment whether it's more share or purchase or on the M&A side.
Speaker Change: So I think it's a good question. You know you why we just produced our K about two three weeks ago And we give a pretty extensive update on what's happening on the liability side You know the the things that we went for three and a half hours But actually talking about it by the way
Speaker Change: But you know, you read it, it's very extensive. You know, the thing that's on our radar screen clearly is going to be the personal injury cases that are happening in the MDL there.
Speaker Change: They're going to go, they're trying to narrow it down into one or two disease states. That'll be a trial probably in October period. But the judge is trying to push that pretty hard.
Speaker Change: And watching out, we're in the middle of that, there's a lot of work that's happening behind the scenes. So that's certainly on our radar screen.
Speaker Change: You know, then you have the AG cases, most of which are in the MDL. Most of the AG cases are sitting there. There's a few that are outside of the MDL.
Speaker Change: The one that's clearest to the vote is New Jersey. It's going to trial in May. So as you read in the K, we are in mediation today on New Jersey. Beyond that, Vermont is outside of the MDL. That's in August.
Speaker Change: That's a trial-ready date, so that could actually get lagged beyond that. Then you have a bunch of things happening internationally that are one-off. They tend to be focused on the facilities that we have in Europe, and that'll likely be elongated sometime probably after October. So all of these things are on our radar screen. You know, you saw Anurag put the chart up there, talking about $8.5 billion of payment on...
Speaker Change: You know, we have some opportunity between now and then to really think about what these liabilities may be, what obligations we may have to actually afford, and then what we could do with capital deployment beyond that. But look, if there's an opportunity to step up on repurchases, you know, that's something that we'll do, but it's a little bit further out than what we're talking about today.
Next three years of your models will get to.
Speaker Change: I think that was quite important. So, so there'll be probably I think it's a, I think it's a 10% up or down multiplier, you know, that that changes the payout range. And on the TSR, I think it's on the top or bottom quartile plus or minus 20%.
Speaker Change: So bottom quartile minus 20%, top quartile performance versus, on a TSR basis versus the S&P industrials, it's a 20% payout in the upper end.
Julian.
Julian: Thanks very much. Maybe just a question on the top line growth outlook. So I think the it's about 3% kind of company wide organic growth for 26 and 27 versus 2% market growth or macro growth.
Julian: But I guess what I was trying to clarify was the two non-consumer business groups, you know, it looks like they're leading that growth of sort of three plus.
Julian: I think for that segment. So I was just trying to understand is the sort of 3% growth of SIBG and TBG
Julian: above their market growth rates or sort of in line with their own growth rates? Because it looked as if, you know, when I looked at the SIBG, you had, I think, half a dozen different TAMs and growth rates laid out there. Those look like kind of three-ish percent already.
Speaker Change: And to EBG, I think we talked about outperforming the macro. And for as Chris had mentioned, macrovim is effectively IPI. IPI is around 2% this year. You know, Alderock is sort of holding it flat the next couple of years. And we'll see how that evolves. We do expect to outperform that. And you know, as you talked about around 3 and.
Speaker Change: 26 and 27, that's sort of in the right zip code in terms of organic growth. By the time we get to 27, it's about 100 basis points above the macro. You know, but it depends on the performance happening in both on the commercial excellence and new product introductions. You know, we wouldn't have put the targets out there today if we didn't think we could actually get there.
Speaker Change: You know, I'm pretty optimistic about the opportunities on the commercial excellence side. You know, I think Chris went through it in a fair amount of detail as to what's behind that. You know, I think that's been eye opening to the entire team. You know, this is a material science, innovation driven company.
Speaker Change: I'm not sure we've actually been the customer-focused, customer-backed, innovation-driven company we want to be, but we've got an opportunity to be better on the commercial side, for sure.
Speaker Change: The footprint optimization, you know, you have 200 distribution centers and plants combined.
Speaker Change: How much rationalization of that is embedded in the 25% operating margin goal?
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Speaker Change: And I think those are foundational. You can't think about what you might do with the network and how you can consolidate
Speaker Change: sites or assets within a site, unless you have a really good foundation of how things are made today, what's your utilization today. You know, it's foundational, but getting that information is lots of opportunities for us in the next couple years to do that.
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Speaker Change: I would say 110 factories and 88 distribution centers is probably a few more than we necessarily need. But that's something that's a little bit beyond what we're talking about today.
Speaker Change: Maybe Andrew, and then we'll go left-side. As we think about R&D right, and sort of making R&D more efficient, it seems it would make sense to sort of dial it down
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Speaker Change: So, in your schedule, when do you sort of think this process rocks its course, right? When you sort of do the right kind of R&D, and, you know, the R&D organization actually sees that this is the more efficient R&D. So, you know, the question is, when should we see an R&D model?
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Unknown Speaker 08.02.2010 Transcription by https://otter.ai
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Gary Schanman: Our math and our modeling that we put together today does support that.
Gary Schanman: You know, that being said, there are opportunities to do all the things that John talked about. That's not going to be over one year or two. It's a multi year journey. So, you know, we'll look at how the progress you're making on
Gary Schanman: increasing capacity and throughput to that factory, and then decide what other ideas are coming through the pipeline, and which we want to need to fund with incremental dollars. And I think it's a math exercise we go through every every framework.
that it sort of has to get more efficient.
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Gary Schanman: I think it's in parallel. I think it's in parallel. You know, that's what we're focused on right now. But look, I think, you know, we talked a lot about a thousand new product launches in the next three years. You know, Wendy had mentioned about working on the funnel, making sure the right number of ideas in the funnel. That's really important. It was great. It was great for us to launch 169 last year. We had a really great Q4, a really great December. You know, the fact is a lot of things got pulled forward. So we have to make sure we've got our funnel continued to kind of our pipeline.
Speaker Change: you know, keep filling up. And that's that's what the team is focused on right now. So, um, you know, that's kind of how we're thinking about right now, Andrew. I don't know if Anurag or John even wants to comment on this.
Speaker Change: No, I would just only add that the team right now is really working on efficiency and taking out, eliminating waste, reducing, improving the value-added work that's actually been done. That's the focus of the team right now and where we're starting.
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Speaker Change: I understand there's a lot of uncertainty. But is there a scenario where we could do something?
Yes.
Speaker Change: Unknown Speaker Yeah, there was a follow up question, Jeff asked the same one, I didn't answer it properly. But yeah, we collected was about 340 last year. And that's really the front end, we really just got started last year. So there'll be more in 25, more in 26. We haven't quantified the total value of the insurance policies against what we're going after. We're going after it, I think, very aggressively, both through litigation and arbitration, it's ongoing. So there's a reason that was a placeholder on that chart.
Maybe take one, Steve, yeah.
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Speaker Change: Hit it and just hold it here. We have to hold it?
Speaker Change: Unknown Speaker ... high single digit earnings growth is really like not that spectacular. Once you kind of absorb what you need to absorb in the next couple years, you have high forties, gross margins, you know, you're talking about getting this.
Speaker Change: Flywheel, I'll use the term flywheel, getting that going from a revenue perspective. I mean, can we think about this going forward as kind of like, you know, maybe a 3-5%, 3-5% grower with a, you know, drop through of north of 40%?
Speaker Change: Beyond 27, once you kind of absorb what you need to absorb.
Speaker Change: It's part of the risk of giving, you know, what we think are relatively aggressive targets, they always get stretched a bit more. By the way, that's what I do internally. I'm with you on this one.
Speaker Change: Let me start on the first one, just sort of the macro. It's still very early in the year, only a month after we gave our orange release, and you know the macro numbers haven't really moved.
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Speaker Change: You know, auto is still negative, but maybe a little less negative. The data I saw was retail a little bit better than we thought.
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Speaker Change: villain that we could do still double digit. So things are moving around a little bit but it's not material.
In terms of how we see the year.
you know, around what's happening in trade.
Speaker Change: You know, it's depending upon what happens in the next week. I think March 5th is when the 30-day pause with Mexico and Canada expires. So what does the president do beyond that? What's he going to do in Europe? What's he going to do with China beyond the 10% in effect?
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Speaker Change: A lot of questions on tariffs, and that's going to bleed through somehow. And we're watching it very carefully. There's just a lot of uncertainty. But as we sit here today, that's why we reiterate our guidance today. We haven't seen macro, at least for us, changing since we talked just a couple of months ago.
Speaker Change: I'll give you a little bit more color on your longer-term question as well. So, Steve, as you said, it's high single-digit growth in 2027. You know, Julian earlier said that implies to about 3% growth in 2027.
Speaker Change: So, just breaking down into different pieces, every point of revenue growth is about $215 million. You take the increments of that to the bottom line, $85, $87 million, about 12, 13 cents of EPS.
Speaker Change: The two things, one is debt and tax. As we know, the interest rate environment is still fairly high. This year, we have about $1.8 billion of debt coming due, which we factor into our guidance. And for 2026-2027, it's another $2.2 billion.
Speaker Change: And the next year is below 2% currently, 27 is a little bit above 2%, but today's rates are around 4-5%, so clearly that's going to be a headwind if rates stay where they are as we go into 26-27. And we've also assumed tax to be around 20%, which is what we have this year.
Speaker Change: So we'll see these two things but yes if you know first is obviously we have to get to what we said but if you can accelerate volume growth interest rates plays out over the next couple of years there could be opportunities to do more.
Speaker Change: Sorry, I guess I was just saying steady state longer term beyond that with a high 40s gross margin. Can you convert this? Can you drop through something north of 40% on the go forward, you know, revenue growth beyond 27? Would that be kind of the thoughts around the model? If you run the map, all else being equal, if Wallingbrook continues to accelerate, the gross margin goes up the same clip.
Speaker Change: Right, you will get to, you will get to that. Yeah, I think, yeah, you'll get to that. Yeah.
One more here, maybe Nigel.
Speaker Change: Maybe just a follow on to that. So I think you're 27 gross margin targets 46%. So in that range, so you said high 40. So let's say 49%, you know, finance round numbers.
Speaker Change: So it implies you've got maybe some runway to 100 base points per annum beyond 27, so maybe just asking Steve's question in a slightly different way. And just on top of that, when you think about the 100 base points per annum of enterprise margin expansion in 2027, are all three segments tasked with that kind of margin expansion or does it vary across the three?
Speaker Change: And we haven't really given any sort of color. We haven't given details, but just think of the margin expansion that we have and what all the businesses spoke about. There will be margin expansion across all three segments for us to get there. The rates could vary depending upon different things, but it would imply that.
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Speaker Change: And that runway, sorry, the runway, gross margins, high 40s, does that imply 100 basis points beyond 27? It implies growth beyond 27 for sure, yes. Is it 100 basis points? We'll come to that the next investor day. You know, but it's going to grow beyond that, yeah, for sure.
Come back here, Scott.
Speaker Change: Bill, can you drill down a little bit more on price, because...
Speaker Change: When you think about IP 2%, I mean, these are these are pretty low numbers below CPI and PPI, right? So
Speaker Change: Historically, price has kind of been a 0 to 1% for 3M, but there's some mixed shift stuff in there that's a little hard to kind of measure. But how do you think about what good looks like in price?
Speaker Change: So that's moderated a little bit. This year it's in that range, you know, in the range between zero and one percent. Most of our pricing is going to come out of Chris's business in SIPG.