Q1 2025 3M Co Earnings Call
Welcome to the <unk> first quarter earnings conference call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time. If you do have a question. Please press star one on your telephone keypad. As a reminder, this call is being recorded Tuesday April 22025.
Speaker Change: I would now like to turn the call over to Chin Maitre Baby Senior Vice President of Investor Relations and financial planning and analysis at three of them.
Speaker Change: Thank you good morning, everyone and welcome to our first quarter earnings Conference call.
Speaker Change: With me today are Bill Brown, <unk>, Chairman, and Chief Executive Officer, and I'm wrong behavior for the Chief Financial Officer.
Speaker Change: Building on that I will make some formal comments then we will take your questions.
Speaker Change: Please note that today's earnings release and slide presentation accompanying this call are posted on the homepage of our Investor Relations website at <unk> Dot com.
Speaker Change: Please turn to slide two and take a moment to read the forward looking statements.
Speaker Change: During today's conference call, we will be making certain predictive statements that reflect our current views about <unk> future performance and financial results.
Speaker Change: These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties.
Speaker Change: Item <unk> of our most recent Form 10-K lists some of these most important risk factors that could cause actual results to differ from our predictions.
Speaker Change: Please note throughout today's presentation, we'll be making references to certain non-GAAP financial measures.
Speaker Change: Reconciliations of the non-GAAP measures can be found in the attachments to today's press release.
Speaker Change: With that please turn to slide three and I will hand, the call off to Bill Bill.
Bill: Thank you chip and good morning, everyone. We.
Bill: We had a strong start to the year with first quarter adjusted earnings per share of $1 88 up.
Bill: 10% versus last year and above expectations.
Bill: Organic sales growth was one 5% with all business groups posting positive growth.
Bill: Operating margins increased 220 basis points year over year through productivity and cost controls, while we continued to invest in growth initiatives.
Bill: And free cash flow was solid at about <unk> $5 billion as we benefited from strong earnings working capital improvements and disciplined capital expenditures.
Bill: These results were achieved during a dynamic macro environment and demonstrate the performance culture, that's starting to take hold at three a M.
Bill: The urgency and operating rhythm that team exhibited along with around the clock interactions with customers and suppliers drove a strong finish to the quarter and I'm really proud of the resilience and persistence of all three <unk>.
Bill: We are exercising a new commercial excellence muscle with a much tighter alignment across our supply chain and we are institutionalizing. The March op tempo to execute at that pace in every month of the quarter and every week of the month.
but at about $0.5 billion as we benefit it from strong earnings, working capital improvements and discipline capital expenditures.
These results were achieved during a dynamic macro-environment and demonstrate the performance culture that's starting to take hold at 3M
Bill: In this environment. It is critical for us to focus on what we control and remain deliberate in executing on the three priorities we discussed at our recent Investor day.
The urgency and operating rhythm the team exhibited, along with the round the clock interactions with customers and suppliers, Joe is strong finish to the quarter, and I'm really proud of the resilience and persistence of all three embers.
Bill: Driving sustained top line organic growth improving operational performance across the enterprise and effectively deploying capital.
We're exercising a new commercial excellence muscle with a much tighter alignment across the supply chain and we're institutionalizing the March opt-empo to execute at that pace in every month of the quarter and every week of the month.
Bill: Central to top line growth is increasing the cadence of new product launches.
Bill: In Q1, we launched 62, new products up about 60% year on year on top of a 32% increase in 2024, and we achieved more than 70% on time launch attainment up from 56% a year ago.
In this environment, it's critical for us to focus on what we control and remain deliberate and executing on the three priorities we discussed at our recent investor day.
Bill: Our new product pipeline health continues to improve and we're on track to launch 215, new products. This year and 1000 over the next three years.
driving sustained top-line organic growth, improving operational performance across the enterprise, and effectively deploying capital.
Bill: We bottomed out and turned the corner on five year, new product sales with Q1 up 3% and tracking well towards the target of growing sales from products launched in the past five years by more than 15% by year end.
Central The Top Line Growth is increasing the cadence of new product launches. Thank you.
In Q1, we launched 62 new products, up about 60% year on year, on top of a 32% increase in 2024, and we achieved more than 70% on-time launch attainment, up from 56% a year ago.
Bill: The pace of innovation is accelerating at three am and our teams are operating with greater urgency and focus than ever before.
Bill: A few notable new products introduced in Q1 includes Scotch Blue Pro sharp painters tape with edge lock technology for sharper lines and less paint bleed through a.
Our new product pipeline health continues to improve and we're on track to launch 215 new products this year and 1000 over the next three years.
We've bottomed out and turned the corner on five-year new product sales, with Q1 up 3% and tracking well toward the target of growing sales from products launched in the past five years by more than 15% by year-end.
Our low sparkle optical film with enhanced brightness for the mainstream notebook market.
Bill: And a new solid state drive connector for the datacenter market.
Bill: We're making progress on our commercial excellence objectives with standardized operating rhythms improved target setting and performance measurement and tighter pricing governance.
The pace of innovation is accelerating at 3M and our teams are operating with greater urgency and focus than ever before.
Bill: We tripled the number of structured sales manager and sales rep reviews in the first quarter and completed more than 100 joint business plans with our largest customers to align on growth opportunities and capture plans.
A few notable new products introduced in Q1 include Scotch Blue Pro Shark Painter's Tape with edgelock technology for sharper lines and less paint bleed through, a low sparkle optical film with enhanced brightness for the mainstream notebook market, and a new solid state drive connector for the data center market.
Bill: One area of particular focus is cross selling.
Bill: We now have more than $40 million of opportunities in our pipeline across 23 product pairs tracking well against the $100 million and 50 per goal through 2027 that Chris described at Investor Day.
We're making progress on our commercial excellence objectives with standardized operating rhythms, improved target setting, and performance measurement, and tighter pricing governance.
Bill: And finally, we are laser focused on customer retention and reducing churn and we've begun deployment of a predictive analytics tool to flag at risk accounts to proactively address the primary drivers of customer attrition.
We triple the number of structured sales manager and sales rep reviews in the first quarter and complete it more than 100 joint business plans with our largest customers to align on growth opportunities and capture plans. [inaudible]
These initiatives are foundational to building a more commercially driven customer focused company.
One area of particular focus is cross-selling. We now have more than $40 million of opportunities in our pipeline across 23 product pairs, tracking well against the $100 million and 50 pair goal through 2027 that Chris described that investor day. [inaudible]
Bill: As a result of these targeted actions, we saw solid order momentum in the quarter across all of our business groups.
Bill: Our average daily order rate is up over 2% for the quarter accelerating in March and driving company wide backlog up low teens since the beginning of the year.
And finally, we're laser focused on customer retention and reducing churn and we've begun deployment of a predictive analytics tool to flag at risk accounts to proactively address the primary drivers of customer attrition.
Bill: And we continue to execute well on our key operational performance metrics, including leveraging our new three M Excellence operating model.
These initiatives are foundational to building a more commercially driven customer focused company.
Bill: On time in full or <unk> increased three five percentage points versus last year and about one point sequentially to 89% the best quarter, we've had in the past five years.
As a result of these targeted actions, we saw solid order momentum in the quarter across all of our business groups.
Our average daily order rate is up over 2% for the quarter, accelerating in March, and driving company-wide backlog up low teens since the beginning of the year.
Bill: Consumer and transportation electronics performed again above 90% and.
Bill: In safety and industrial was up two points to about 82% is on a steep climb to achieve 90% by year end.
and we continued to execute well on our key operational performance metrics, including leveraging our new 3M Excellence Operating Model.
Bill: So our metric for equipment utilization or OE was up four percentage points sequentially to 58% and is now deployed on 191 key assets across our 38 largest factories, a 10 X increase over this time last year and covering about 50% of.
On time in full, or OTIF increased 3.5 percentage points versus last year, and about 1.2 to 89 percent, the best quarter we've had in the past 5 years.
Bill: Production volume.
Consumer and Transportation Electronics performed again above 90% and Safety and Industrial was up two points to about 82% is on a steep climb to achieve 90% by year end.
Bill: Having a robust baseline under utilized capacity will help us adjust our sourcing strategy more readily to the changing trade landscape.
Bill: And finally safety performance continued to trend in the right direction with our incident rate down 25% in the quarter. Following a similar improvement last year as we continue on our journey to an injury free workplace.
Thank you.
Our metric for equipment utilization or OEE was up 4 percentage points sequentially to 58% and is now deployed on 191 key assets across our 38 largest factories, a 10x increase over this time last year and covering about 50% of production volume.
Bill: During the first quarter, we refinanced $1 1 billion in debt returned $1 7 billion to shareholders and raised our dividend by 4%.
Smith, having a robust baseline on our utilized capacity will help us adjust our sourcing strategy more readily to the changing trade landscape.
Bill: In Q1, the board approved the share repurchase authorization of seven 5 billion.
Bill: And we now expect repurchases to be about $2 billion.
And finally, safety performance continue to trend in the right direction with our incident rate down 25% in the quarter following a similar improvement last year as we continue on our journey to an injury-free workplace.
Bill: Up from our prior expectation of $1 5 billion.
Bill: We continued to advance our portfolio shaping efforts with one small divestiture recently signed and others progressing more slowly in view of trade policy uncertainty.
During the first quarter, we refinanced $1.1 billion in debt, returned $1.7 billion to shareholders, and raised our dividend by 4%.
Bill: Our guidance for the year remains $7 60 to $7 90.
Bill: Adjusted earnings per share before the impact of tariffs and offsetting cost sourcing and price actions.
In Q1, the board approved a share repurchased authorization of $7.5 billion and we now expect repurchases to be about $2 billion up from our prior expectation of $1.5 billion.
Bill: We are not flowing through the upside in our Q1 results to our full year outlook, given the uncertain macro environment with the recent data, reflecting some softening in GDP.
We continue to advance our portfolio shaping efforts with one small divestiture recently signed and others progressing more slowly in view of trade policy uncertainty.
Bill: And global auto build.
Tariffs are going to be a headwind this year, but we thought it would be prudent to hold the impact outside of our full year guidance, while they digest, the new policies and fully develop and qualify mitigation plans.
Our guidance for the year remains $7.60 to $7.90, adjusted earnings per share before the impact of tariffs in offsetting cost, sourcing and price actions.
Bill: With our significant footprint, we have in the U S and the flexibility of our global network. We are identifying a number of ideas to adjust product sourcing and logistics flows to mitigate at least a part of the impact.
We are not flowing through the upside in our Q1 results for a full year outlook given the uncertain macro environment with recent data reflecting some softening in GDP, IPI, and global auto build.
Bill: Some of which are no regret moves regardless of where trade policies eventually settle.
Bill: Overall, we have a solid game plan, we're executing well against our strategic priorities and we're focused on long term value creation for shareholders.
Tara is going to be a headwind this year, but we thought it would be prudent to hold the impact outside of our full year guidance, while I digest the new policies and fully develop and qualify mitigation plans.
Speaker Change: And with that I'll hand, it over to <unk> to talk through the details on Iraq.
With a significant footprint we have in the US and the flexibility of our global network, we're identifying a number of ideas to adjust products sourcing and logistics flows to mitigate at least a part of the impact.
Speaker Change: Thank you Bill turning to slide four we had a strong start to the year performing ahead of expectation on margins earnings and cash.
Speaker Change: On sales, we delivered a second consecutive quarter of positive organic growth across all three business groups performing at the high end of the 1% to one 5% range we provided in March.
Some of which are no regret moves, regardless of where trade policies eventually settle.
Overall, we have a solid game plan. We're executing well against our strategic priorities and we're focused on long-term value creation for shareholders. And with that, I'll hand it over to Anurag to talk through the details. Anurag.
Speaker Change: We saw strength in several of our key end markets and divisions, including electrical markets and industrial adhesives and tapes and <unk>.
Speaker Change: Aerospace and TPG, and consumer safety and well being in CPG.
Anurag: Thank you, Bill. Turning to slide four, we add a strong start to the year performing ahead of expectations on margins, earnings and cash.
Speaker Change: And we continue to see softer trends in auto abrasives and packaging and expression.
Anurag: On sales, we delivered a second consecutive quarter of positive organic growth across all three business groups performing at the high end of the 1% to 1.5% range we provided in March.
Geographies really all regions grew year on year with the exception of Europe.
China was up mid single digits with strength in the industrial business and electronic bonding solutions.
Anurag: We saw strength in several of our key end markets and divisions including electrical markets and industrial adhesives and tapes in SIBG, aerospace and TEBG and consumer safety and well-being in CBG.
Speaker Change: Driven by share gains with key accounts and increased orders ahead of tariff actions.
Speaker Change: The U S was up low single digits. Despite the challenging macro backdrop with continued I demand for cable accessories and strength in aerospace.
Anurag: And we continue to see softer trends in auto abrasives and packaging and expression, perfectly all regions grew year on year with the exception of Europe .
Speaker Change: Actually offset by weakness in auto.
Speaker Change: And Europe was down low single digits due to the continued weak environment, including a high single digit decline in auto builds.
Anurag: China was up mid-single digits with strength in the industrial business and electronic bonding solutions driven by share gains with key accounts and increased orders ahead of tariff actions.
Speaker Change: On orders, we saw good momentum through the quarter and our daily order rate grew by over 2%, resulting in a robust ending backlog that provides close to 25% of coverage as we enter the second quarter.
Anurag: The US was up low single digits despite the challenging macro backdrop with continued eye demand for cable accessories and strength in aerospace partially offset by weakness and auto
Speaker Change: Adjusted operating margins were 23, 5% up 220 basis points year on year.
Speaker Change: Operating income growth of $150 million at constant currency was driven by benefits from growth lower restructuring cost productivity and TSA cost reimbursements, which was partially offset by a continued growth investments timing of equity based comp and stranded costs.
Anurag: and Europe was down low single digits due to the continued weak environment line in auto bills.
Anurag: On orders, we saw good momentum through the quarter, 2% resulting in a robust ending backlog that provides close to 25% of coverage as we enter the second quarter.
Speaker Change: <unk> and CPG margin rates were up year on year, while the <unk> was down as expected due to a challenging prior year comparison and inclusion of Incrementals stranded costs from the exit of PFS manufacturing.
and Anurag Maheshwari.
Anurag: Adjusted operating margins were 23.5% up 220 basis points year on year. The operating income growth of 150 million dollars at cost and currency was driven by benefits from growth, lower restructuring cost, productivity and TSA cost reimbursement.
Speaker Change: The strong operational performance contributed <unk> 23 to earnings which was partially offset by six cents of non operational headwinds, including FX, resulting in adjusted EPS up 17, or 10% versus last year to $1 88.
Anurag: Firstment, which was partially offset by a continued growth investments, timing of equity-based comp and stranded cost.
Anurag: SIPG and CBG margin rates were up year on year while TBG was down as expected due to a challenging prior year comparison and inclusion of incremental strannic costs from the exit of PFAS manufacturing.
Speaker Change: Relative to our initial expectation of flat earnings growth in Q1. This 17 outperformance was driven by 10 cents of G&A efficiency, while maintaining our growth investments and seven of timing benefit related to spin and cost containment actions in the current quarter.
Anurag: The strong operational performance contributed 23 cents to earnings, which was partially offset by 6 cents of non-operational headwinds including FX resulting in adjusted EPS up 17 cents or 10% versus last year to $1.88
Speaker Change: We expect this seven of timing items to be earnings neutral for the first half of the year.
Speaker Change: Free cash flow of approximately $500 million.
Thank you.
Anurag: Relative to our initial expectation of flat earning growth in Q1, this 17-sense art performance was driven by 10 cents of GNA efficiency while maintaining our growth investments and 7 cents of timing benefits related to spin and cost containment actions in the current quarter
Speaker Change: Came in stronger than expected on the back of better earnings and disciplined capex spending.
Speaker Change: And we continue to have a balanced capital deployment, including returning $400 million to shareholders via dividends and $1 3 billion in gross share buybacks, partially offset by higher than expected stock option exercise.
Anurag: We expect this seven sense of timing items to be earnings neutral for the first half of the year.
Speaker Change: I will provide a quick overview of our growth performance for each business group on slide five.
Anurag: Free cash flow of approximately $500 million came in stronger than expected on the back of better earnings and discipline cap expending.
Speaker Change: Safety and industrial organic sales grew two 5% in the first quarter.
Speaker Change: This growth was broad based with five out of seven divisions posting positive growth.
Anurag: and we continue to have a balanced capital deployment, including returning $400 million to shareholders via dividends and $1.3 billion in gross share buybacks, partially offset by higher than expected
Speaker Change: We saw particularly strong demand for cable accessories, driven by construction of data centers and renewable energy projects.
Speaker Change: We also saw strength in industrial and electronics bonding solutions, driven by continued share gains and structural adhesives from improved service and a focus on pipeline management driving higher close one.
Anurag: I will provide a quick overview of a growth performance for each business group on Slide 5
Anurag: Safety and industrial organic sales grew 2.5% in the first quarter.
Speaker Change: We also saw good momentum in personal safety as they continue to win key government contracts in the U S and Europe.
Anurag: This growth was broad-based with five out of seven divisions posting positive growth.
Anurag: We saw particularly strong demand for cable accessories driven by construction of data centers and renewable energy projects
Speaker Change: Auto aftermarket was down low single digits on the back of a market where collision repair claim rates are down high single digits to the year to date.
Anurag: We also saw strength in industrial and electronics bonding solutions in structural adhesives from improved service and our focus on pipeline management driving higher closed one.
Speaker Change: Transportation and electronics adjusted sales were up one 1% organically in the first quarter.
Speaker Change: Aerospace delivered another quarter of double digit growth from commercial aircraft and defense related business with our strong value proposition and portfolios like films and bonding and joining and advanced materials grew high single digits driven by key project wins.
Anurag: We also saw good momentum in personal safety as they continue to win key government contracts in the US and Europe .
Anurag: Otto Aftermarket was down low single digits on the back of a market where collision repair claim rates are down high single digits to the year today.
Speaker Change: The electronics business grew low single digits softer than expected driven by lower device demand.
Anurag: Transportation and electronics adjusted sales were up 1.1% organically in the first quarter.
Speaker Change: Our auto OEM business was down mid single digits, reflecting continued weakness in auto builds, particularly in Europe, and the U S, which were each down high single digits year on year.
Anurag: Aerospace delivered another quarter of double-digit growth from commercial aircraft and defense-related business with our strong valley proposition in portfolios like films and bonding and joining and advanced materials grew high single digits driven by key project wins.
Speaker Change: Finally, the consumer business was up 0.3% organically in Q1.
Speaker Change: Growth investments in new product innovation drove strength for so to read filters respiratory products paint protection and Mcguire auto care, partially offset by soft consumer spending principally in command and packaging expression.
Anurag: The electronics business grew low single digits, softer than expected, driven by lower device demand.
Thank you. Thank you. Thank you.
Anurag: Our auto OEM business was down mid single digits, reflecting continued beatness and auto builds, particularly in Europe and the US, which were each down high single digits year on year.
Speaker Change: I will now share an update on our 25 outlook trends on slide six.
Speaker Change: Starting with the macro environment, we see a softer outlook than the start of the year.
Finally, the consumer business was up 0.3% organically in Q1. [inaudible]
Anurag: Growth Investments, a new product innovation, drove strength for filter-eat filters, respiratory products, pain protection, and Maguire's auto care, partially offset by soft consumer spending principally in command and packaging expression.
Speaker Change: Market forecasts have been lowered reflecting weaker consumer spending and lower demand in industries, such as auto and electronics.
Speaker Change: The blended GDP Ipi 20, or 25 growth was estimated to be two 1% and has since come down to one 8% for the year.
Anurag: I will now share an update on our 25 Outlook Trends on slide 6.
Speaker Change: We continue to believe we can grow above macro due to progress on all our commercial excellence initiatives and focus on new product introductions. However, due to the softer market, we're trending to the lower end of 2% to 3% range.
and many more. Thank you. Thank you.
Anurag: Starting with the macro environment, we see a softer outlook than the start of the year.
Anurag: Market focus has been lowered, reflecting weaker consumer spending and lower demand in industries such as auto and electronics.
Speaker Change: On operating margins due to the Q1 performance, we see upside to the midpoint of our margin and earnings guidance range.
Thank you.
Anurag: The blended GDP-IPI-2020-25 growth was estimated to be 2.1% and a sense come down to 1.8% for the year.
Speaker Change: In terms of non operational drivers.
Anurag: We continue to believe we can grow above macro due to progress on all our commercial excellence initiatives and focus on new product introductions. However, due to the software market, we are trending to the lower end of a two to three percent range.
Speaker Change: <unk> has been more favorable than expected. However, it is offset by share option exercise and a higher net interest.
Speaker Change: We expect the operational cadence of sales and EPS to be split equally between the first and second half in line with historical performance.
Thank you.
Anurag: On operating margins, due to the Q1 performance, we see upside to the midpoint of a margin and earnings guidance range.
Speaker Change: On cash we continue to expect approximately 100% adjusted free cash flow conversion.
Anurag: In terms of non-operational drivers, FX has been more favorable than expected, however it is offset by share option exercise and a higher net interest.
Speaker Change: Additionally to offset higher than expected share option exercise, we're increasing our gross share repurchases and $25 2 billion versus the $1 $5 billion discussed previously.
Thank you very much.
Anurag: We expect the operational cadence of sales in EPS to be split equally between the first and second half in line with historical performance.
Speaker Change: As Bill pointed out we have board authorization for $7 5 billion of repurchases and we are prepared to be opportunistic in response to market conditions.
Thank you. We appreciate it. Thank you.
Anurag: On cash, we continue to expect approximately 100% adjusted free cash flow conversion.
Speaker Change: As you know we are dealing with tariffs.
Anurag: Additionally, to offset higher than expected share option exercise, we are increasing our gross share repurchases in $25 to $2 billion versus the $1.5 billion discussed previously.
Speaker Change: I'll provide a quantification of the tariff sensitivity on slide seven.
Speaker Change: Looking from left to right on the slide our January guidance was for earnings of $7 60 to $7 90.
and many more. Thank you. Thank you.
Speaker Change: As I earlier mentioned given the Q1 strength, we are trending about 10 cents better operationally.
Speaker Change: As Bill pointed out, we have board authorization for $7.5 billion of Reaper Chasers and we are prepared to be opportunistic in response to market conditions.
Speaker Change: Our non operational is balanced between FX and below the line items.
Thank you.
Speaker Change: As you know, we are dealing with tariffs and will provide a quantification of the tariff sensitivity on slide seven.
Speaker Change: Our intention is to continue to drive our results, but we are early in the year and given the current environment, we're taking a tencent contingency and maintaining our 760 to $7 90 EPS guidance.
Speaker Change: On the slide, our January guidance was for earnings of $7.60 to $7.90.
Speaker Change: As I earlier mentioned, given the Q1 strength, we are trending about 10 cents better operationally, while our non-operational is balanced between FX and below the line items.
Speaker Change: On the right I provided a tariff sensitivity.
Speaker Change: I wanted to quantify the impact as we see it right now and outline our mitigation plan.
Speaker Change: As we have mentioned before we import $1 $6 billion into the U S and export $4 1 billion from the U S.
Speaker Change: Our intention is to continue to drive our results, but we are early in the year and given the current environment, we are taking a 10 cent contingency and maintaining our 760-790 EPS guidance.
Speaker Change: China is approximately 10% of the inputs and slightly more in exports for a total trade flow of approximately $600 million.
On the right, I provided a terrorist sensitivity.
Speaker Change: I wanted to quantify the impact as we see it right now and outline our mitigation plan.
Speaker Change: Between the U S and China.
Speaker Change: These flows at the current tariff rates of 125% imports into China from U S and 145% from China into U S will equate to approximately $675 million of potential annualized tariff impact after anticipated exemptions.
Speaker Change: As we have mentioned before, we import $1.6 billion into the US and export $4.1 billion from the US.
and many more. Thank you. Thank you.
Speaker Change: China is approximately 10% of the imports and slightly more on exports for a total trade flow of approximately $600 million between the US and China.
Speaker Change: In addition, tariffs on products not qualified under U S MCA.
and many more. Thank you.
Speaker Change: These flows are the current higher rates of 125% imports into China.
Speaker Change: Along with aluminum steel and other rescue protocol actions.
Speaker Change: Approximately $175 million impact for a total annualized impact of approximately $850 million before any mitigation actions.
from US, and 145% from China into US.
Speaker Change: will equate to approximately $675 million of potential annualized tariff impact after anticipated exemptions.
Speaker Change: Given that most of the tariffs were enacted recently and we typically carry 90 days of inventory, we expect only half of this impact this year, which is approximately $400 million.
and Anurag Maheshwari.
In addition, tariffs on products not qualified under USMCA
Speaker Change: Along with aluminium steel and other reciprocal actions add approximately $135 million impact for a total annualized impact of approximately $850 million before any mitigation actions.
Speaker Change: Our approximately 60.
Speaker Change: EPS before any offsets.
Speaker Change: The team has responded quickly and is working on a number of mitigation plans, including cost and productivity initiatives optimizing production and logistics, including leveraging our U S footprint and selective price increases where feasible.
Thank you.
Speaker Change: Given that most of the tariffs were enacted recently, and we typically carry 90 days of inventory, we expect only half of this impact this year, which is approximately $400 million or approximately 60 cents of EPS before any offsets. [inaudible]
Speaker Change: And we believe we can partially offset the headwind for an estimated 20 to 25 net impact of 20 to 40.
and many more. Thank you. Thank you.
Speaker Change: The team has responded quickly and is working on the number of mitigation plans.
Speaker Change: We will keep you updated as the situation evolves.
Speaker Change: In the meantime, we're controlling what we can and focus on growth acceleration strong margin expansion and delivering strong shareholder returns in 'twenty five.
including cost and productivity initiatives.
Optimizing Production and Logistics
Speaker Change: including leveraging our U.S. footprint and selective price increases were feasible.
Speaker Change: I want to take a moment to thank the three M team for remaining resilient through this environment.
Speaker Change: and we believe we can partially offset the Edwin for an estimated 2025 net impact of 20 to 40 cents.
Speaker Change: 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 limit your participation to one question and one follow up.
We will keep you updated as the situation evolves.
Speaker Change: In the meantime, we are controlling what we can and focus on growth acceleration, strong margin expansion and delivering strong shareholder returns in 25
Speaker Change: I want to take a moment to thank the 3M team for remaining resilient through this environment.
Speaker Change: We'll go first to Jeff Sprague at vertical research partners.
With that let's open the call for questions.
Speaker Change: Thank you and good morning, everyone.
Speaker Change: Thank you. 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: Thanks for all that color.
Speaker Change: Maybe we could start maybe a little bit on the macro side interesting commentary about the March exit rate, but obviously kind of post liberation day. All eyes are on what you know what happened in April.
Speaker Change: I assume that's encompassed in how you've guided here this morning, but maybe give us some color. If you could on how things progressed as you've moved out of the quarter into Q2.
We'll go first to Jeff Sprague at Vertical Research Partners.
Speaker Change: Thank you. Good morning, everyone. Thanks for all that color. Maybe we could start, again, maybe a little bit on the macro side. Interesting commentary about the March exit rate, but obviously kind of post liberation day, all eyes are on, but you know what happened in April . [inaudible]
Speaker Change: Whether that March activity, you saw maybe felt or look like some pre buys sort of actions by your customers.
Bill: Good morning, Jeff its bill <unk>.
Bill: On the pre buy we saw maybe $10 million moved from Q2 into Q1, primarily in China. So it was fairly minimal from our assessment on that part of the question on just the trends as we mentioned in the prepared comments, our Q1 order rates were up little more than 2%. We ended backlog of D. A.
Speaker Change: I assume that's encompassed in how you've guided here this morning, but maybe give us some color if you could on how things progressed as you moved out of the quarter or in the Q2 and whether that March activity is all maybe felt or look like some pre-bys sort of actions by your customers. Thank you very much.
Bill: End of March up low teens.
Bill: As it is on Rod mentioned, we have about 25% of our revenue in Q2 covered as we turned the corner into into April. We saw we're seeing continued against early tightened only half of the month, but we're seeing continued.
Speaker Change: Good morning, Jeff, it's Bill. I mean, first on the pre-buy, we saw maybe $10 million move from Q2 and Q1 primarily in China so it was
Fairly minimal from our assessment.
Speaker Change: on that part of the question. On just the trends, you know, as we mentioned in the prepared comments, our Q1 order rates were up a little more than 2% we ended.
Bill: Momentum in our industrial business in <unk>.
Bill: Order rates pretty similar to where they were in March which is a bit higher than they were for the overall quarter. So they had ended March pretty good and it continued into April.
Speaker Change: Backlog at the end of March, up, low teens, as Anurag mentioned, we have about 25% of our revenue in Q2 covered.
Bill: A little bit softer on <unk> again, it's a little bit early in the quarter, but maybe a little bit softer.
Speaker Change: As we turn to corner into April , we saw, we're seeing continued, against early time only half of the month but we're seeing continued
Bill: Consumer it typically starts a little bit weak.
Bill: The start up of course, the retailers close the books at the end of April So it's typically a slower month for us, but generally speaking industrial in line with March.
Momentum in our industrial business in SIBG. [inaudible]
Speaker Change: order rates pretty similar to where they were in March which is a bit higher than they were for the overall quarter so they had that ended March pretty good and it continued into April.
Bill: Just a tad softer than the other two businesses.
Bill: Great and then just back to the tariffs.
Bill: Appreciate that kind of build up to what the gross impact was that's some great color just when we think about bill the levers youre going to pull here on the mitigation side.
Speaker Change: You know, the start of a quarter, the retailers closed the books at the end of April so it's typically a slower month for us but generally speaking industrial in line with March, you know, just a tax offer in the other two businesses. [inaudible]
Bill: Maybe just a little bit more color there how much might be price the ability for the market to actually take price.
Bill: Wonder if you could just elaborate a little bit more on some of the moves you're making in some of the things you kind of characterized as no regret sort of moves.
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Speaker Change: Great, and then just back to the tariffs. I appreciate that kind of build up to what the gross impact was. That's some great color. Just when we think about Bill, the levers you're going to pull here on the mitigation side.
So yes, there's there are several things I put it at maybe three buckets, one is and we referenced this kind of high level in the in the call here.
Bill: The first around sourcing and logistics actions as you know we've got 110 factories 80 distribution centers and in my comments I talked about being at 58% utilization So yeah I.
Speaker Change: Maybe just a little bit more color there, how much might be price, the ability for the market to actually take price. And I wonder if you could just elaborate a little bit more on some of the moves you're making and some of the things you kind of characterize as no regrets sort of moves. Yeah.
Bill: I guess the positive side of that is we have a lot of flexibility to move those assets up and down.
Bill: And move things across our network so within sourcing logistics, we can change our source of supply fairly quickly.
Speaker Change: So yeah, there's several things. I put it in maybe three buckets. One is, and we reference this at kind of high level in the in the call here. The
Bill: We're looking at those kinds of things, we're adjusting our trade flows logistics flows leveraging more bonded facilities free trade zones, a little bit more point to point shipments on our logistics that we might've done before in terms of hub and spoke.
Speaker Change: ADA Distribution Centers, and at my comments, I talked about being a 58% utilization, so...
Speaker Change: I guess the positive side of that is we have a lot of flexibility to move those assets up and down and move things across our network. So within sourcing logistics, we can change our sources of supply fairly quickly. And we're looking at those kinds of things. We're adjusting our trade flows, logistics flows.
Bill: We're optimizing where value add occurs across our network, so where we might had been shipping a finished goods. We may now ship a semi finished goods into finishing in a different market different country.
Bill: And we're looking at alternative production sites with different countries of origin to try to optimize the network and minimize the tariff impact on our business. So theres a bunch of things from a sourcing perspective that we're looking at there are certain things. We can do relatively quickly within the first couple of months some of the things actually are in flight today or had been enacted.
Speaker Change: Leveraging more bonded facilities, free trade zones, a little bit more point-to-point shipments are logistics.
Speaker Change: You know, that we might have done before in terms of hub and spoke.
Speaker Change: We're optimizing where value-add occurs across our network, so where we might have been shipping a finished goods, we may now ship a semi-finished goods and do finishing in a different market, different country. And we're looking at alternative production sites.
Bill: There's others that won't take investment, but just take a little bit of time to qualify something there's others that might take a little bit of investment a little bit more time.
Speaker Change: with different countries of origin to try to optimize the network and minimize the tariff impact on our business. So there's a bunch of things.
Bill: It's likely to be more a 'twenty six.
Bill: Help for US if we go forward with that but several of the things. We can do some of which are being action today the second big.
Speaker Change: from a sourcing perspective that we're looking at. There are certain things we can do relatively quickly within the first couple of months. Some of the things actually are in flight today or have been enacted. There's others that won't take investment, but just take a little bit of time to qualify something. There's others that might take a little bit of investment, a little bit more time. That's likely to be more a 26 help for us if we go forward with that, but several things we can do, some of which are being action today. . . . . . .
Bill: Block is around around discretionary cost actions, we can take and there's a number of things that we're doing like we did in Q1, but still protecting the growth investments, we're trying to make in the business and in the third is selected surgical price actions that could be in the form of surcharges, depending upon the customer could be list price changes that might go into effect.
They're going to be a bit more limited, but when they put those three pieces together, we talk about our 20 to 40 <unk> offsetting mitigating actions.
Speaker Change: The second block is around discretionary cost actions we can take and there's a number of things that we're doing like we did in Q1 but still protecting the growth investments we're trying to make in the business and the third is selected.
Bill: The at the high end of that range, it's probably about 50 50 between cost sourcing and pricing at the low end assumes some of the pricing doesn't stay but where we continue to work on that those are all the things I think we're doing if you will from a defensive perspective, but I would remind you there's a offensive opportunities here as well we've got a very very large U S flip.
Speaker Change: Surgical price actions, they could be in the form of surcharges depending upon the customer, could be list price changes that might go in no fact.
Speaker Change: They're going to be a bit more limited. But when I put those three pieces together, we talk about our 20 to 40 cent offset and mitigating actions.
Jeff Sprague: Print, we can bring more things into the U S. There are certain products that we compete against that come in from other regions around the world and perhaps or as an offensive opportunity to take some share here and we're looking very carefully at that as well Jeff.
Speaker Change: You know, at the, at the high end of that range, it's probably about 50-50 between cost sourcing and pricing at the low end assumes some of the pricing doesn't stick. But we're, we're continued to work on that. Those are all the things I think we're doing, if you will, from a defensive perspective, but I remind you there's some offensive opportunities here as well. I'll, I'll, I'll.
Bill: Great. Thanks for all that color sure.
Bill: <unk>.
Scott Davis: Thank you we'll go next to Scott Davis of Melius research.
Scott Davis: Hey, good morning, guys.
Speaker Change: We've got a very, very large US footprint. We can bring more things into the US. There are certain products that we compete against that come in from other regions around the world. And perhaps there's an offensive opportunity to take some share here. And we're looking very carefully at that as well, Jeff. [inaudible]
Speaker Change: I'm always got.
Scott Davis: Yes.
Scott Davis: Another way to kind of follow on to Jeff's question I think there'll be lots of questions related is just do you feel like you are.
Scott Davis: More or less exposed than your kind of average competitor too.
Scott Davis: To the tariff risk and perhaps that.
Great, thanks for all that color, sure. [inaudible]
Scott Davis: Informs the ability to maybe get price or if everybody's in the same boat and similarly exposed and maybe it's a little bit easier to get price versus a <unk>.
Speaker Change: Thank you. We'll go next now to Scott Davis of Melius Research.
Hey, good morning guys.
Scott Davis: I guess another way to kind of follow on to Jeff's question, I think there'll be lots of questions related is just do you feel like you are more or less exposed than your kind of average competitor to
Scott Davis: I'll turn it but do you have any feel for that generally I know it.
Scott Davis: So a lot of ask you use in all our different markets and a lot of different competitors, but it is our general why do you think about that now it's a good question Scott look we compete against different competitors different companies across all of our business groups and across all of our divisions within business groups. So it's going to be.
Scott Davis: to the tariff risk and perhaps informs the ability to...
Scott Davis: maybe get price or if everybody's in the same boat and similarly expose and maybe it's a little bit easier to get price versus
Scott Davis: Fairly mixed.
Scott Davis: We do it.
Scott Davis: Export $4 billion as entourage mentioned in the piece that goes into China.
Scott Davis: You know, they'll turn it, but you have any feel for that, generally, I know it's, I know you sell a lot of SKUs in a lot of different markets and a lot of different competitors, but this is our general, why do you think about that?
Scott Davis: That's mainly for the electronics chain, but it's also for some domestic consumption as well.
Scott Davis: I wouldn't say, it's any better or worse than where our competitors happen to be but there are certain things that we can do with the flexibility of our network that we can take advantage of cost and sourcing actions and then move strategically what we tried to do on pricing that we do see some of our.
Speaker Change: No, it's a good question, Scott. Look, we compete against different competitors, different companies across all of our business groups and across all of our divisions within business groups. So it's it's going to be fairly mixed, you know, obviously we do export, you know, $4 billion as Anurag mentioned, a piece that goes into China, you know, that's mainly for the electronics change, but it's also for some domestic consumption as well. I wouldn't say it's any better or worse than where our competitors happen to be, but there's certain things that we can do with [inaudible]
Scott Davis: Competitors, some things have moved on the consumer side outside of the U S. Primarily China sourced we walked away from some of that business some of that might be private label today and there might be some opportunities to to pull back on this but.
Scott Davis: To push pricing is going to be different in every business that we're in with to make an assessment of the competitive nature of the business how differentiated our product happens to be and we're working very very closely with all our partners. This is a are we not us versus them, but we're working together on what do we do to mitigate the impact that is hitting all.
Speaker Change: to Flexibility of our Network that we can take advantage of, costs and sourcing actions, and then move strategically on what we try to do on pricing. We do see some of our competitors, some things have moved on the consumer side, outside the U.S. [inaudible]
Scott Davis: The company so.
Scott Davis: A bit of a mixed bag, Scott, but I think in general I think we're probably a little bit better positioned than a lot of our competitors.
Scott Davis: Okay, and then as a natural follow up I mean.
Scott Davis: As a global company, but it's a very American brand at least.
Scott Davis: The perception.
Speaker Change: Have you seen any kind of anti American.
Speaker Change: Behaviors purchasing behaviors from your customers in biopsies to.
Speaker Change: who to mitigate the impact that's hitting all of the company. So a bit of a mixed bag scout, but I think in general I think we're probably a little bit better positioned in a lot of our part competitors.
Speaker Change: Perhaps go in a different direction in certain areas or is that or is that just something that we read about in the papers, that's not a real thing yet so we haven't seen it yet I mean, it's still early days, but we've not seen that I'm not sure. We were initially anticipating that we do have very strong brands global brands. As you mentioned, a very strong position in the U S. We've got 50 factories here in a big.
Thank you. Thank you.
Speaker Change: Okay, and then as a natural follow-up, I mean, you know, 3M is a-
Speaker Change: is a global company, but it's a very American brand, at least that's the perception. Have you seen any kind of anti-American?
Speaker Change: Chunk of our supply base and we do a lot of R&D here, but we've not seen so far any.
Speaker Change: You know, behaviors, purchasing behaviors from your customers and you know biases to
Speaker Change: So are there any risks coming honest because of us being a U S based manufacturer of U S based brands.
Speaker Change: to perhaps go in a different direction in certain areas, or is that just something that we read about in the papers? It's not a real thing yet. Well, so we haven't seen it yet. I mean, it's still early days but we've not seen that. I'm not sure we're very strong brands, very global brands. It's a real thing.
Speaker Change: Okay helpful. Best of luck. This year guys. Thank you good luck.
Julian Mitchell: Thank you and the next now to Julian Mitchell of Barclays.
Speaker Change: You know, as you mentioned, a very strong position in the U.S., we've got 50 factories here in a big chunk of our supply base and we do a lot of R&D here but we've not seen so far any risk coming on us because of us being a U.S.-based manufacturer, U.S.-based brands. [inaudible]
Julian Mitchell: Hi, good morning.
Julian Mitchell: Maybe.
Julian Mitchell: Just wanted to follow up on the organic sales outlook first off. So I think you mentioned early on that may be looking at around 2% organic growth for the year.
Julian Mitchell: In the current guide.
Speaker Change: Okay, that's a luck this year guys, thank you, good luck. [inaudible]
Julian Mitchell: And just wondered sort of them, we're thinking about the balance of the year are you assuming kind of steady organic growth around that sort of one and a half 2% range each quarter through the rest of the year or do you think we see sort of a bit this quarter and then some improvement in the back half any color.
and many more. Thank you.
Thank you. Thank you. Thank you.
Speaker Change: Thank you, we go next now to Julian Mitchell of Barclays.
Julian Mitchell: Hi, good morning. Maybe I just wanted to follow up on the organic sales outlook first off, so I think you mentioned early on that maybe you're looking at around sort of 2% organic growth of the year.
Julian Mitchell: We're on that.
Julian Mitchell: And by the sort of segments with the interesting.
Julian Mitchell: in the current guide. And just wondered sort of when we're thinking about the balance of the year, are you assuming kind of steady organic growth around that sort of one and a half?
Okay. Thanks.
Julian Mitchell: Julian on a rug here.
Julian Mitchell: So just to start off with what we said is we're trending towards the lower end of the range right now, but if you look at it through the course of the year I think is going to be pretty stable. So let me first probably supposed to talk about the first half and then we can talk about sequentially. So as I said in my prepared comments, we expect the operating cadence to be split equally between the first and second.
Julian Mitchell: 2% range each quarter through the rest of the year or do you think we see sort of a dip this quarter and then some improvement in the back half? Any color on that and by the sort of segments would be interesting.
Julian Mitchell: So on the sales side this would actually imply that Q2 would be at or slightly better than Q1, and as we move into the second half we should see a little bit of take so I think it's pretty balanced between the two.
Anurag: Okay, thanks Julian Anurag here. So just to start off with, what we said is we're trending towards the lower end of the range.
Anurag: Range, right now, but if you look at it through the course of the year, I think it's going to be pretty stable. So let me first probably just talk about the first half and then we can talk about sequentially. So as I said in my perfect comments, we expect the operating cadence to be split equally between the first and second half. So on the sales side. [inaudible]
And as Bill mentioned on the industrial side, we are seeing good growth momentum we saw that in Q1 and that should continue through the rest of the year on the electronics a couple of pockets of weaknesses around the macro site on electronics and auto if you saw that in the first quarter, so that could be a little bit lower than what we thought at the beginning of the year and consumer is.
Anurag: This would actually imply that Q2 would be out of slightly better.
Anurag: Ben Q1, and as you move into the second half, we should see a little bit of take. So I think it's pretty balanced between the two.
Julian Mitchell: <unk>.
Julian Mitchell: So Q1 was kind of 3% a flattish growth, but we expect that to pick up through the course of the year. So we so to answer your question not seeing a dip in the second quarter on the back of the backlog coverage. We have the orders in the industrial side, we should kind of see this momentum continue through the course of the year.
Speaker Change: You know, as Bill mentioned, on the industrial side we are seeing a good growth momentum, we saw that in Q1 and that you'll continue through the rest of the year . . . .
Speaker Change: on the electronics, a couple of pockets of weaknesses, around the macro side, on electronics and auto. We saw that in the first quarter, so that could be a little bit lower than what we thought at the beginning of the year. And consumer is, you know, it's Q1 was kind of 0.3 percent of flatish growth, but we expect that to pick up through the course of the year. So we, so to answer your question, not seeing a dip in the second quarter on the back of the backlog coverage, we have the autism industrial side. We should kind of see this momentum continuing through the course of the year.
Speaker Change: That's very helpful. Thank you and then just my second question.
Julian Mitchell: Round the tariffs.
Julian Mitchell: So I think it is.
Julian Mitchell: In the EMEA.
Julian Mitchell: And the India framework, it's sort of 60 cents gross.
Gross headwind 30 net headwind.
Julian Mitchell: Potentially at the mid point of that framework you gave.
Julian Mitchell: Any more details you could give us you know.
Julian Mitchell: If it is around that middle of the middle type number.
Thank you.
Thank you.
Julian Mitchell: That's very helpful. Thank you. And then just my second question around the tariffs impact. So I think it's sort of in the in-year framework it's sort of 60 cents gross headwind 30 cent net headwind potentially at the midpoint of that framework you gave any more details you could give us, you know, if it if it is around that [inaudible]
Julian Mitchell: How do we think about the phasing of that 30 net headwind through the year.
Julian Mitchell: And also any color you could give on the impact by segment and sort of better or worse in every in any division.
Julian Mitchell: Yeah.
Julian Mitchell: Okay listen as we said the tariffs started in February.
With non U S MCA aluminium steel, but the ones with the biggest impact started in April, particularly with between U S and China.
Julian Mitchell: Middle of the Middle type number. How do we think about the seizing of that 30 cent net headwind through the year? And also any color you could give on the impact by
Julian Mitchell: As I mentioned, we typically carry about 90 days of inventory. So we will see this impact in mainly in the second half of the year for the second quarter. We may see a couple of pennies here and there a small impact but that's within the guidance range of $76 2019, So you'll see this impact in the second half of the year now regarding <unk>.
Julian Mitchell: Yeah, listen, as we said, the tariffs started in February with non-USMCA aluminum steel, but the ones with the biggest impact started in April , particularly with between US and China.
Julian Mitchell: Our businesses in the segments, we probably give more color as we kind of go around here what the team is more importantly, if you take a step back is working on actions very quickly across the buckets that bill mentioned and what we can control. So obviously on the cost side, you will see us control a little bit faster price will come in and then the offensive strategy, you'll see more of a benefit come through towards the end of the year.
Julian Mitchell: And as I mentioned, we typically carry about 90 days of inventory, so we will see this impact in mainly the second half of the year.
Julian Mitchell: For the second quarter, we may see a couple of pennies here and there's small impact, but that's within the guidance range of 767-790. So you'll see this impact in the second half of the year. Now regarding
Julian Mitchell: Sure. So you will see us mitigating this impact more as we go along through the course of the year and into next year.
Julian Mitchell: Great. Thank you.
Speaker Change: The businesses and the segments, we probably give more color as we kind of go around here what the team is more importantly to take a step back.
Julian Mitchell: Yeah.
Julian Mitchell: We'll go next now to Amit Mehrotra at UBS.
Speaker Change: He's working on actions very quickly across the buckets that Bill mentioned, and what we can control. So obviously on the cost side, you'll see his control a little bit faster, price will come in, and then the offensive strategy, you'll see more of the benefit come through towards the end of the year or next year. So you will see us mitigating this impact more as we go along through the course of the year and June next year.
Amit Mehrotra: Thanks, Good morning.
Speaker Change: And I guess just following up on the cadence maybe with respect to EPS as opposed to.
Amit Mehrotra: Organic sales in the last couple years, we've seen.
Speaker Change: 10% or so sequential uplift in EPS.
Speaker Change: A lot of moving parts and service stock comp I know there was a timing in terms of <unk> stock comp. There's obviously timing of other costs and then tariffs, but I guess tariffs for more second half given the inventory could you just help us think about the <unk>.
and many more. Thank you. Thank you.
Great. Thank you.
Thank you.
Thanks. Good morning.
<unk> in light of all of those moving parts as we think about EPS moving from <unk> into <unk> and the rest of the year.
Anurag just maybe with respect to EPS as the poster.
to Organic Sales, and last couple. [inaudible]
Speaker Change: Sure.
Speaker Change: Yes, absolutely.
years we've seen
Speaker Change: I'll touch upon the sale. So I'll go more on the earnings side. So first let me do the year over year between for Q2, and then I'll come to the sequential because as you correctly said there are a lot of moving pieces. There. So the EPS growth year over year should be about 15 to 20 cents on the operational side because of the benefits from volume restructuring costs productivity and lower <unk>.
Speaker Change: 10% or so sequential uplifting in EPS. There's a lot of moving parts in service.com. I know there was a timing in terms of 1Q2Qs.com .
Speaker Change: There's obviously timing of other costs and then tariffs, but I guess tariffs for more second half given the inventory. Could you just help us think about, you know, the cadence in light of all those moving parts as we think about EPS moving from 1Q into 2Q in the rest of the year?
Speaker Change: Column that you referenced to but as I mentioned in my prepared comments. There was some Q1 timing event, so that'll be partially offset the increase in investments, but you see a big step up in <unk>.
Speaker Change: Sure, yeah, absolutely, Amit, I'm not already touched upon the sale, so I'll go more on the earnings side. So first let me do the year-over-year between for Q2 and then I'll come to the sequential because as you correctly said a lot of moving pieces there.
Speaker Change: Q2 relative to last year, because we only started making investments in the second half of last year and the PFS credit costs, but operationally you should see be up 15 to 20 cents.
Speaker Change: So, the EPS growth year over year should be about 15 to 20 cents on the operational side [inaudible]
Speaker Change: On the EPS, but on the on the non op side, we have a total headwind of about 10 cents.
because of the benefits from volume restructuring cars. [inaudible]
Speaker Change: Peruptivity, the lower equity column that you reference to. But as I mentioned in my prepaid column, there was some Q1 timing events, so that would be partially offset.
Speaker Change: In large part of that is driven by net interest as the cash balance last year in the second quarter was over $10 billion.
Speaker Change: Increasing investments, but you see a big step up in Q2 relative to last year because you only started making investments in the second half of last year .
Speaker Change: And now we're returning back to more normal cash levels. So we will have some impact in non op pension as well, but all of that will be offset by lower share count, but if you take the net interest pensions offset by the lower share count. It's about 10 cents headwind our year over year. So you put that together, we should grow EPS by about <unk>.
Speaker Change: and the PFAS standard cost. But, operationally, you should see the up 15 to 20 cents.
Speaker Change: on EPS, but on the non-opside. We have a total headwind of about 10 cents.
Speaker Change: And large part of that is driven by net interest as the cash balance last year and second quarter was over $10 billion and now we are returning back to more normal cash levels.
Speaker Change: Five to 10 cents year over year sequentially, you're correct. It seasonally revenue should be up about $300 million when should come with good flow through but as I said there is some offsets around the.
Speaker Change: So we will have some impact in non-off-pension as well, like all of that will be offset by lower share count.
Speaker Change: Timing of Q1 items, there was some step up in investments. So what you will see is about five to 10 cents again operationally it should.
Speaker Change: But if you take the net interest pensions offset by the lower shake count, it's about a ten cents headwind year over year. So you put that together we should grow EPS by about five to ten cents year over year.
Speaker Change: Be good and <unk> benefit from a little bit below the line. So sequentially also we should see about 10 to 15 cents benefit on the EPS. So overall, if you put all of that together for the first half our EPS will grow about 20% to 27.
Speaker Change: Now, sequentially, you're correct, it's seasonally, you know, so revenue should be up about $300 million, which will come with good flow through.
Speaker Change: But as I said, there is some offsets around the timing of Q1 items. There is some step-up in investments. So what you will see is about 5 to 10 cents, again, operationally. It should...
Speaker Change: Which is actually a pretty much 50% of the growth what we expect for the full year and second half should kind of mirrored that too.
Speaker Change: Yeah.
Speaker Change: Okay very helpful. Thank you.
Speaker Change: Be good and fight since benefit from a little bit below the line. So sequentially also we should see about 10 to 15 cents benefit on the EPS.
And then I guess, maybe one for bill in terms of you obviously have a lot of.
Speaker Change: Efficiency actions that the company is pursuing I wonder if if what's happening now gives you an opportunity to accelerate some of those actions.
Speaker Change: So overall, if you put all of that together for the first half, our EPS will grow about 22 to 27 cents, which is actually a pretty much 50% of the growth what we expect for the full year. And second half should kind of mirror that too.
Speaker Change: If you can just talk about the opportunity that you see there.
Speaker Change: That'd be helpful. Thanks, So it's a good question Amit I mean look this is it's a challenging situation or we happen to be into the environment's moving pretty quickly, but you know the team has responded very very well the actions that I've talked about.
and Anurag Maheshwari.
Speaker Change: Okay, very helpful. Thank you. And then I guess maybe one for Bill in terms of you obviously have a lot of efficiency actions that the company is pursuing. I wonder if what's happening now.
Speaker Change: Talking about had been very large buckets, but the reality is this has to be done down at an S. SKU by SKU level based on our customer a flow of factory to a region. Its a very discrete analysis and it's really helping us get into the sort of the balance if you will of how we actually run the business. So it's pointing out some.
Speaker Change: Some good opportunity to do some things differently and better.
We have been focused on driving operational performance operational excellence across the enterprise, including on our operations and I went through some of the metrics that we're focused on here. There is an environment that we're in we're trying to figure out a way to offset some of the tariff effects, but the lot of the things that we're doing are just running our game plan.
Speaker Change: Costumer of flow, of factory, to a region, you know, with a very discreet . . . .
Speaker Change: analysis and you know it's really helping us get into the
Speaker Change: So the balance, if you will, of how we actually run the business. So it's pointing out some good opportunity to do some things differently and better. You know, we have been focused on driving operational performance operating on our operation. I went through. [inaudible]
Speaker Change: It's driving on time in full up we talked about that pretty extensively here driving OE year operational equipment effectiveness, improving that driving productivity driving cost per quality downers all of these various initiatives. It just puts a lot more focus and attention on so.
Speaker Change: Some of the metrics that were focused on here, there's an environment that we're trying to figure out a way to offset some of the...
Speaker Change: Is there more we can do there might be simply because we're getting deeper into.
Speaker Change: TAFFX, but a lot of the things that we're doing are just running our game plan. It's driving on time and full up. I talked about that pretty extensively here, driving, you know, OE or operational equipment effectiveness, improving that, driving productivity, driving cost per quality down. There's all of these various initiatives. It just puts a lot more focus and attention on. So,
Speaker Change: A deeper understanding of the trade flows and what's happening, but I think we've got a good game plan, it's executing well.
Speaker Change: And our margin improvement in Q1 is also pointing out good opportunities to tighten down on G&A. So look it's.
Speaker Change: We're trying to make the best of the situation, we're in and drive performance.
Speaker Change: Is there more we can do? There might be simply because we're getting deeper into a deeper understanding of the trade flows and what's happening, but I think we've got a good game plan. It's executing well. You know, you saw it in a larger improvement. [inaudible]
Amit Mehrotra: Very good. Thank you very much appreciate it thank you Amit.
Stephen Tusa: Thank you and the next now to Stephen Tusa of Jpmorgan.
Stephen Tusa: Hi, good morning, good morning.
Speaker Change: in Q1. It's also pointing out good opportunities to tighten down on GNA. So, you know, look, it's, you know, we're trying to make the best of the situation we're in and drive performance.
Stephen Tusa: So you guys had previously said I think negative.
Stephen Tusa: <unk> on Forex, what specifically are you now assuming for forex year over year.
Stephen Tusa: Hey, good morning, Steve on a rug here so are expecting 15 right now.
Now, very good. Thank you very much. Appreciate it. Thank you, Amit.
Stephen Tusa: Since <unk>.
Stephen Tusa: Of headwind.
Thank you.
Stephen Tusa: 20 cents headwind to a <unk> 15 headwind.
Speaker Change: Thank you. We go next now to Steven Tusa of JP Morgan. Hi, good morning. Good morning. So you guys had previously said I think negative 20 cents on 4x. What specifically are you now assuming for 4x, you over here? Yeah.
Stephen Tusa: On Forex correct yeah.
Speaker Change: What are you using for your euro rate.
Speaker Change: Oh, Okay. So we snapped at at the end of March Okay. So that was around a 108 109 level right. It has moved up since then I guess, where you're going.
Speaker Change: Hey, good morning, Steve Anurag here. So, expecting 15 cents right now, a five cents a month off headwind from a 20 cents headwind to a 15 cents headwind.
Speaker Change: With FX moving at this rate was only five so maybe let me just kind of take a step back and say when we gave the guidance in January we said operationally been gratify cents at the midpoint and we had 40 broken 20 centers between FX and 20 cents, which was no one off on.
and Anurag Maheshwari.
John Forex. Correct. Yeah.
What are you using for your Euro rate? [inaudible]
Speaker Change: Okay, so we snapped it at the end of March. Okay, so that was around a 108, 109 level, right? It has moved up since then. I guess where you're going is that, you know, with FX moving at this rate, why is there only 5 cents? So maybe, let me just kind of take a step back.
Speaker Change: On the FX as you said, we assume about 20 cents.
Speaker Change: Or are there no we rerun the forecast at the end of the quarter.
Speaker Change: And now the FX headwind on the revenue from 2% has become one of 5%, which translates into 15 cents of headwinds, but if the U S. Dollar continues the way. It is this headwind should definitely reduce but as you know not all FX rates move in the same direction and actually in some cases, we are net cost position, but if they continue to to go where they are we.
Speaker Change: And so, you know, when we give the guidance in January , we said operationally we will gradeify cents at the midpoint and we had 40 cents broken, 20 cents between FX and 20 cents which was
Speaker Change: on the FX as you said, we assume about 20 cents over there. Now we run the forecast to the end of the quarter.
Speaker Change: Should see we should see upside in the FX and that is the reason why we split the operational and the known operational which includes FX.
Speaker Change: and now the FX headwind on the revenue from 2% has become 1.5%, which runs between 15 cents of headwind.
Speaker Change: In our earnings bridge, because we want to drive on the operational side of the business and if there is upside on FX.
Speaker Change: But if the US dollar continues the way it is, this headwind should definitely reduce. But as you know, you know, all effects rates move in the same direction. And in some cases, we are net cost position. But if they continue to to go where they are, we should do it.
Speaker Change: We will share it as we go along.
Speaker Change: Right and then so I guess on the non op side, the non op. Non FX, then theres really not much change there because theres really not much change in the FX just underlying FX assumption.
Speaker Change: We should see upside in the FX. And that is the reason why we split the operational and the non-operation which includes FX in our earnings bridge because we want to drive on the operational side of the business. And if there is upset on FX, we will share it as we go along. And if there is upset on FX, we will share it as we go along. And if there is upset on FX, we will share it as we go along.
Speaker Change: Is that at that point, yes that is the point there was a penny to a year in each of the items, but not a material change for example in interest.
Speaker Change: Rates right, we had assumed about.
Speaker Change: Two cuts this year, there could be three or four cuts or what.
Speaker Change: We are hearing so we've kind of calibrated for that which is low in interest income on pension theres, a penny or two here because of the stock option exercise share count's, a penny or two so it's not very material, but the <unk> that we have assumed in the FX improving is probably mitigated by these other items, but if FX continues the way. It is there should be net upside.
Speaker Change: Right, and so I guess on the non-op side, the non-op, non FX, then there's really not much change there because there's really not much change in the FX's underlying FX assumption. That is at the point.
Speaker Change: And below the line.
Speaker Change: Rates, we had assumed about two cuts this year. There could be three or four cuts.
Speaker Change: Yeah, Okay, and then just lastly on China.
Speaker Change: Could you just they are their sales there that you could just.
Speaker Change: is what we are hearing so we've kind of calibrated for that which is low in interest income on pension there's a penny or two here on because the stock option exercise share concept penny or two so it's not very material but the five cents that we have assumed in the ethics improving is probably mitigated by these other items. [inaudible]
Speaker Change: [noise] walk from I mean, I know you guys export a decent amount there obviously I just don't know how critical those already or to your customers. I mean is that is that like an option.
Speaker Change: For the exports from the U S to China, I don't know how much a part of that $8 50 that actually is but.
Speaker Change: But if FX continues the way it is, there should be net upside and below the line [inaudible]
Speaker Change: Is there an option just walk from those sales I'd say, Steve. This is I don't think it is an option like walking from the sales we have a very strong business in China, we import and domestic and export customers in China. I think we we do have some opportunities to shift around our network to bring product into China from other regions.
Speaker Change: Yeah, okay, and then just lastly on China, could you just, are there sales there that you could just, you know, walk from? I mean, you know, I know you guys export a decent amount there obviously. I just don't know how like critical those are to your customers. I mean, is that, is that like an option for the exports from the US to China?
Speaker Change: Don't have the same sort of tariff effect.
Speaker Change: If you just an example, we today we shipped from products from the U S to China that we could also instead shipped from Europe into China, and then perhaps backfill that volume in the U S toward those factories in Europe, where we're direct in their products. So there's things we can do to mitigate some of these some of this impact and preserve the relationship and the great.
Speaker Change: I don't know how much a part of that 8-850 that actually is, but uh...
Speaker Change: You know, is there an option to just walk from those sales? I don't think it's an option to like walking from the sales. We have a very strong business in China. We important domestic and export customers in China. I think we do have some opportunities to shift around our network to bring product into China from other regions that don't have the same sort of tariff effect. [inaudible]
Speaker Change: Business, we have in China again, it's 10% of our company. It grew double digits last year, we had solid mid single digit Q1, we follow our international customers, there where they manufacture in China are moving more of their or moving to other different regions. So we want to be there to support them, but there are some things we can do on our end just in terms of sourcing to try to mitigate some of that impact.
Speaker Change: Now, give you just an example. We today, we ship from products from the US to China that we could also instead ship from Europe into China.
and then perhaps backfill that volume in the U.S.
Speaker Change: to where those factories in Europe were directed in their products. So there's things we can do to mitigate some of these, some of this impact and preserve the relationship and the great business we have in China. Again, it's 10% of our company. It grew double digits last year. We had solid mid single digit Q1. You know, we follow our international customers there where they manufacture and try and removing [inaudible]
Speaker Change: Alright makes ton of sense. Thank you. Thank you Steve.
Speaker Change: We'll go next now to Nigel Coe of Wolfe Research.
Nigel Coe: Thanks, Good morning.
Nigel Coe: Hey, Bill boards, but be more I think about tariff questions.
Any type of impacts.
Nigel Coe: As a result of these these excessive China tariffs so.
Speaker Change: Moore, they are moving to other different regions so we want to be there to support them you know but there's some things we can do on our end just in terms of sourcing to try to mitigate some of that impact. Let's go back.
Nigel Coe: With this increasing concerns around supply chain sort of impact here shipments are being made so it will be important to have a you know kind of news flow is there any risk that.
Speaker Change: Alright, big ton of sense. Thank you. Thank you, Steve.
We'll be next now to Nigel Coe of Wolf Research.
Nigel Coe: Your supply chain could be impacted by.
Thank you. Bye.
Nigel Coe: But it's just not making that shipments because of the tariffs.
Thanks. Thanks. Good morning.
Nigel Coe: We've not seen anything like that yet.
Speaker Change: I hate to be aboard, but a few more, a few more child questions. Are there any other impacts as a result of these, these excessive China tariffs? So, you know, this, this, this,
Nigel Coe: We haven't heard any any word of that we've seen no disruption no supplier hesitant at the moment to ship to us.
increasing concerns around supply chain sort of impact here. [inaudible]
Nigel Coe: We've not actually you've seen much push on to us in terms of pricing.
Speaker Change: Chippin's not being made, so all being paused in lieu of, you know, kind of new slow . . .
Nigel Coe: These things will evolve over the balance of the year, but I read a lot about what you are suggesting we have not yet seen that in our business.
Speaker Change: Is there any risk that your supply chain could be impacted by?
Speaker Change: Okay. That's good news.
Speaker Change: You know, Shippers, if you know, Nigel, we've not seen anything like that yet. We haven't heard any word of that. You know, we've seen no disruption, no supplier hesitant at the moment to ship to us.
Speaker Change: I don't know just to double confirm the 50 50 comment on the EPS is based on the 775 midpoint and then the second half would be whatever lands in terms of net tariffs is that right.
Speaker Change: We've not actually seen much push on to us in terms of pricing. You know, these things will evolve over the balance of the year, but I read a lot about what you're suggesting. We have not yet seen that in our business.
Speaker Change: That is correct.
Speaker Change: Okay, and then just a quick one on cash flow with again with the tariffs.
Speaker Change: Does that put them more of a backend loaded on cash flow because you have to pay the tariffs on on day one.
Speaker Change: Okay, that's good news. And then Anurag, just to double confirm, the 50-50 comment on EPS is based on the 775 midpoint. And then the second half would be whatever lands in terms of net tariffs. Is that right? That is correct.
Speaker Change:
Speaker Change: No not really I mean, if you look at our cash flow, we actually did quite well for the for the first quarter as well.
Speaker Change: Typically it's a low quarter for US net income is about $1 billion, we consume about $300 million of working capital as we build up inventory, we enter Q2 with the seasonally high quarter and then we have bonus payments AIP payments of about $300 million.
Speaker Change: Okay, and then just a quick one on cash flow with, again with the tariffs, you know, does that put them over back in load on cash flow because you have to pay the tariffs on day one? [inaudible]
Speaker Change: So that gets about 200, but we did better because of disciplined capex spending and receivables what we're seeing going out is in terms of.
Anurag: Now, not really. I mean, if you look at a cash flow, we actually did quite well for the first quarter as well, you know, typically it's a low quarter for us. Net income is about a billion dollars. We consume about 300 million dollars of working capital as you build up inventory. We enter a queue to which is season of the high quarter, and then we have bonus payments, AIP payments, about 300 million dollars.
Speaker Change: Definitely focusing us on the DSO and the AR and the AP payments as well and right now we're not really seeing a material change in that we're going to manage it. So I don't expect to be a little more pressure in the second half of the year and we will probably have a good cadence.
Speaker Change: Cash flow growth as we go through the course of the year.
So that gets about 200 but we did better [inaudible]
Speaker Change: That's great. Thank you.
because of discipline, caps, spending, and receivables. [inaudible]
Anurag: What we've seen going out is, in terms of areas we are definitely focusing is on the DSO and the AP payments as well, and right now we're not really seeing a material change in that. We're going to need to manage it. So I don't expect to be a little more pressure in the second half of the year, and we'll probably have a good cadence.
Speaker Change: Thank you well go next now to Andrew <unk> of Bank of America. Please proceed with your question.
Speaker Change: Yes.
Andrew: Good morning.
Andrew: Just another question on tariffs.
Andrew: Are you modeling any demand destruction are related to tariffs and your core guide.
Anurag: on cashflow growth as we go through the course of the year.
Andrew: All of them.
Andrew: Because as prices go up.
That's great. Thank you.
Andrew: Substitute things that sort of drives economic model will tell you. It will drive some demand destruction on the margin are you thinking about it or you just sort of a modeling of the volume based on your kind of economic forecast.
Thank you.
Speaker Change: Thank you. We go next now to Andrew Obin of Bank of America. Please proceed with your question.
Andrew Obin: Yes, good morning, morning. Just another question on tariffs. Are you modeling any demand destruction related to tariffs in your core guide?
Speaker Change: And Ron are wrong. So the tariff impact is all about the tariff cost impact sensitivity that we've shown obviously because of the terms of the market has been a little bit weaker. So that's why we said we were trending lower on that range, but other than that no. We have not modeled anything more.
Speaker Change: Right, because, you know, as prices go up, you know, as you need to substitute things that sort of drives the economic model, it will drive some demand destruction on the margin. Are you thinking about it, or you're just sort of modeling the volume based on your kind of economic forecast?
Speaker Change: But Andrew just to be clear on the price they were trying to be pretty smart strategic and surgical about this and we're not doing this without interaction with our customers in many cases, when we put out a surcharge it's through consultation with a distributor or a customer. There is there is some receptivity to a certain amount based upon the individual customer.
Speaker Change: Andrew Anurag here. So the tariff impact is all about the tariff cost impact sensitivity that we've shown obviously because of the tariffs of markets been a little bit weaker. So that's why we say we're trending lower on that range. But other than that, no, we have not modeled anything more.
Speaker Change: For a period of time, there is an understanding that that volume will deteriorate if.
Speaker Change: If we if we start to get to a point later in the year, where we we feel like we ought to be pushing price out.
Speaker Change: Comedy to offset more of the tariff risk and there is a volume impact we're going to have to sort of take that under consideration, but the team has been very smart surgical about how we do this so so.
Speaker Change: Distributor or a customer, there's some receptivity to a certain amount based upon the individual customer for a period of time. There's an understanding that that volume won't deteriorate. If we start to get to a point later in the year where we [inaudible]
Speaker Change: Outside of the macro erosion, we're not expecting much much demand deterioration from a volume perspective, because of the way, we're being smart about pricing.
Speaker Change: And just a follow up question on buyback thermostat.
Speaker Change: We feel like we ought to be pushing price out to accommodate or offset more of the tariff risk.
Speaker Change: The buyback because they're because folks are exercising their options.
Speaker Change: Andrew's a volume impact. We're going to have to sort of take that under consideration. But, you know, the team has been very smart and surgical about how we do this. So we, outside of the macro erosion, you know, we're not expecting much much demand deterioration from a volume perspective because of the way we're being smart about pricing. Thank you.
Speaker Change: Why not be.
Speaker Change: More aggressive.
Speaker Change: Aggressive huh.
Speaker Change: Youre doing a lot of good stuff operationally.
Speaker Change: It seems a lot of momentum that's long term underway.
Why not just take that shot on the stock weakness and be more aggressive on stock buyback, what's the board's of your thinking on that.
Speaker Change: And just a follow-up question, Bayback seems that, you know, the Bayback is there because folks are exercising their options.
Speaker Change: And run a rug here it was just a little bit more on the timing side, let me give you some color so.
Why not be more...
Speaker Change: We ended last two two out of the 10.
Speaker Change: aggressive, you know, you're doing a lot of good stuff operationally.
Speaker Change: Past two years out of the 10 of the past 10 years options were in the money.
Speaker Change: It seems, you know, a lot of momentum that's long-term underway . . .
Speaker Change: The 2015 options, which expired this year, we're not in the money and in February that came into the money. So that wasn't that was the one distinct exercise.
Speaker Change: Why don't I just take an adventure in the stock weakness and be more aggressive?
Speaker Change: on Talk Buyback, what's the boards of your thinking on that? It was Andrew Anurag here. It was just a little bit more on the timing site. Let me give you some color. So, you know, as we ended last year, two out of the 10, two years out of the 10, the past 10 years, options won the money. [inaudible]
Speaker Change: Incident.
Speaker Change: It happened in a couple of more which came in the money. So it was more around that as opposed to we seen accelerated options being exercised as more timing of the 2015 options, but are they think to your point, Andrew I think I think Andre.
Speaker Change: Rob mentioned in his remarks, we have a $700 billion authorization went from a $1 five two and we have the optionality to go bigger than that if we need to in the back half of the year based on situation, we happen to have in our business. So on Rod will make the right call as we as we get out of the quarter into later on in the year.
Speaker Change: and the 2015 options which expired this year were not in the money.
Anurag: and in February they came into the money, so that was a one distinct exercise that happened, and a couple more which came in the money. So it was more around that as opposed to we seem accelerated options being exercised, it was more timing of the 2015 options. [inaudible]
Speaker Change: I appreciate that thanks, so much thank you.
Speaker Change: We'll go next now to Nicole <unk> of Deutsche Bank. Please proceed with your question.
Anurag: But I think to your point, Andrew, I think, you know, Anurag mentioned in his remarks, we have a $7.5 billion authorization, went from $1.5 billion to $2 billion, and we have the optionality to go bigger than that if we need to in the back half of the year based on the situation we happen to have in our business. So Anurag will make the right call as we get out of the quarter into later on in the year.
Nicole: Yeah. Thanks, Good morning, guys good morning.
Nicole: Just a couple on <unk>.
Nicole: Outlook within the margin puts and takes.
Nicole: Have you guys actually shifted the G&A productivity expectation fully and same question on growth investments.
Nicole: Anything major to highlight on the timing of that but they've shifted at all between quarters.
I appreciate that, so thanks so much. Thank you.
and Anurag Maheshwari. Thank you.
Oganek,
Nicole: So firstly on the growth investments I think we are keeping track, we said we were going to.
Speaker Change: Next now to Nicole DeBlase of Deutsche Bank, please proceed with your question.
Nicole: Increased by $225 million, the first quarter it was around $15 million in this big step up in the second quarter.
Yeah, thanks. Good morning, guys. Morning.
Nicole DeBlais: Just a couple on the outlook within the margin puts and takes. Have you guys actually shifted the G&A productivity expectations for the full year and same question on growth investments and anything major to highlight on the timing of those if they've shifted at all between quarters?
Nicole: That cadence as we go along and you can see that actually in the R&D numbers for the first quarter.
Speaker Change: As a percentage of revenue last year was four 2%. This year is four 8%. So you see a step up of 60 basis points and all the other initiatives that bill was talking about on commercial excellence, we are funding that on the G&A side.
Nicole DeBlais: So, firstly, on the growth of investments, I think we're keeping track. You know, we said we're going to increase by $225 million. The first quarter was around $15 million and this big step up in the second quarter. And we are maintaining that cadence as we go along. And you can see that actually in the R&D numbers for the first quarter. As a person, there's a revenue last year was 4.2%. This year is 4.8%. You see a step up of 60 basis points. And all the other issues that Bill was talking about on commercial excellence, we are funding that. On the GNA side, on those. [inaudible]
Speaker Change: If you rolled through our Q1 performance, which we said 17 more than what we expected 10 cents was more on G&A efficiency in FX seven cents of that was generated.
Speaker Change: Rebidding pod was timing that was more structural and permanent right in Investor Day, We spoke about we have $2 billion of G&A outside that we also have indirect expense late last year. What we started doing a lot of these external like external services. For example would done locally we pulled it centrally.
and if you roll through cue-want performance,
Nicole DeBlais: which we said 17 cents more than what we expected. [inaudible]
Try to see if they are aligned with our strategic priorities. If yes, if not we don't spend if they do align then oh can we leverage our global buy to kind of get a better rate. We saw some benefits of that in the first quarter and we kind of expect that to move to probably increase as we move through the course of the year. So we.
Nicole DeBlais: Tencent was more on GNA efficiency and FX, seven cents of that was GNA
Nicole DeBlais: and the riveting part was timing. That was more structural and permanent, right? In the investor day, we spoke about we have $2 billion of GNA. Outside that, we also have indirect expense. You know, late last year, what we started doing, a lot of these external services, for example, were done locally. We pulled it centrally. Try to see if they align with the strategic priorities. If yes, if not, we don't spend. If they do align, then how can we leverage global buy to kind of get a better rate?
Speaker Change: We have taken a little bit of a hedge in our guide is as you can see the Q1 as upside, but we've taken a 10 cents hedge if it were not to have the <unk> hedge then I would say that you would see at least a $50 million of Ginnie improvement in Q1 flow through the rest of the year.
Speaker Change: Okay got it thanks, that's clear and just a follow up on a couple of here my expectation because theres a lot of movement of these two in particular, what are you guys thinking for auto builds and electronics for 2025.
Nicole DeBlais: We've got some benefits of that in the first quarter and we kind of expect that to move to probably increase as we move to the course of the year.
Nicole DeBlais: So, you know, we have taken a little bit of a hedge in our guide, as you can see the Q1 as upside, but we've taken a 10 cents hedge. If we were not to have the 10 cents hedge, then I would say that you would see at least the $50 million of GNA improvement in Q1, brought to the rest of the year.
Speaker Change: So right now auto bills. It came down very recently in the recent IHS data is down I think one 8% global auto builds now I think it's down about 9% in the U S.
Speaker Change: Pretty big erosion from that from the Middle of March I think middle modules like four 5% is down nine now and at least at latest estimate for the year of Europe is down around four 5% for the year I think China is up modestly for the full year I think from what I heard recently about a one 5 million units for the full year auto build.
Speaker Change: Okay, got it. Thanks, Anurag, that's clear. And just a follow-up on a couple of your market expectations because there's a lot of, you know, movement in these two in particular. What are you guys thinking for auto builds and electronics for 2025?
Speaker Change: So right now auto-bills, it came down very recently in recent IHS data. It's down I think 1.8% global auto-bills now. I think it's down about 9% in the US, so pretty.
Speaker Change: Forecast and that's what's reflected under numbers, we expect our auto OE business to be down mid single digits, both in the quarter and for the year. So that's already modeled into our expectations consumer electronics, we think it's probably going to be up low single digits. It was that's kind of where we were at in Q1, we think it's about that flat to up low single digits for the year.
Speaker Change: You know, a pretty big erosion for that from the middle of March. I think middle March was like 4.5% is down nine now in the latest estimate for the year. I mean, Europe is down around 4% or 5% for the year. I think China is up modestly. That's for the full year. I think from what I heard recently, about 1.5 million units came out of the full year auto build forecast. And that's what's reflected under numbers. We expect our auto OE business to be down mid single digits, both in the quarter and for the year. So that's already modeled into
Speaker Change: <unk>, there might've been a little bit of stockpiling in the in the channel in Q1, but but the reality is we see that to be kind.
Speaker Change: Kind of modest growth flattish to modest growth for us for this year.
Speaker Change: Thanks, Bill I'll pass it on.
to our expectations. [inaudible]
Speaker Change: We'll go next now to Andy Kaplowitz at Citi. Please proceed with your question.
Speaker Change: Consumer electronics, you know, we think it's probably going to be up low single digits. That's kind of where we're at in Q1. We think it's about that flat, up low single digits.
Andy Kaplowitz: Hey, good morning, everyone, Hey, good morning.
Andy Kaplowitz: So I just wanted to ask you about T V. G margin in Q1, it still looked like it was on there is still a bit of pressure as it was in Q4 I know you said that that's a segment that's absorbing P. Fast stranded costs, but you also said you expect to grow margin I think in all three segments at least before the tariff impact. So maybe you can give us some more color into what's happening in that segment was the issue.
Speaker Change: for the year. There might have been a little bit of stockpiling in the in the channel in Q1, but but the reality is we see that to be kind of modest growth. Flatters to modest growth for us for this year. [inaudible]
Thanks Bill, I'll pass it on
and Anurag Maheshwari.
and Anurag Maheshwari.
Speaker Change: We'll go next now to Andy Kaplowitz at City. Please proceed with your question. Hey, good morning, everyone. Hey, good morning.
Andy Kaplowitz: The lower electronics volume or something else.
Andy Kaplowitz: Yeah. Thanks for the question. So we do expect all three business groups to expand their margins for 2025.
Andy Kapowitz: I just wanted to ask you about TBG margin and Q1, it still looked like it was under still a bit of pressure as it wasn't Q4. I know you said that. That's a segment that's absorbing PFAS stranded costs, but you also said you expect to grow margin. I think in all three segments, at least before the tariff impacts, and then you can give some more color into what's happening that segment with the issue just the lower electron volume or something else.
Andy Kaplowitz: The first quarter, we did expect TV Youtube lower you've got their driver's correct. The biggest one is the PFS stranded costs in iron restaurants that will be made but also it was mix. If you look at Q1 last year electronic sales, which has a higher margin business was quite good in T. B G for the first quarter of last year and that obviously mix has shifted so it was a little bit.
Andy Kapowitz: Yeah, thanks for the questions. We do expect all three business groups to expand their margins for 2022-25.
Off of mix impact on the quarter, but as we go through the year. We do expect all three business groups margins to expand like we looked at this quarter. For example, <unk> very healthy margin expansion, so at CPG and that should continue.
Andy Kapowitz: In the first quarter, we did expect TVG to be lower. You got the drivers correct, the biggest one is the PFAS traffic costs and higher investments that we made. But also it was mixed. If you look at Q1 last year, electronic sales, which is a higher margin business, was quite good in TVG for the first quarter of last year. And that obviously mixes shifted. So it was a little bit of a mix impact more in the quarter. But as we go through the year, we do expect all three business groups, margins to expand. Like we looked at this quarter, for example, in the last quarter of last year, we did expect all three business groups to be lower. We did expect all three business groups to be lower. We did expect all three business groups to be lower.
Speaker Change: That's helpful and I think that we're all trying to figure out sort of what's going on in the macro and you mentioned your industrial businesses are holding up reasonably well in terms of order growth through April so far.
Speaker Change: In line with market. So as you know some of the recent regional manufacturing surveys to start to look a little weaker but doesn't seem like you're seeing it I just China your thoughts talking to customers.
Andy Kapowitz: IBGN, very healthy margin expansion sorted CBG, and that should continue.
Speaker Change: He's still expect things to hold up even with the survey style, let's call it a week or.
Speaker Change: Tellful, I think Bill, we're all trying to figure out sort of what's going on in the Matt girl and you mentioned your industrial businesses are holding up reasonably well in terms of order growth through April so far. You know, kind of in line with Mark. So, as you know, some of the recent regional manufacturing surveys are starting to look a little weaker, but doesn't seem like you're seeing it. Just trying to, your thoughts, talking to customers, you still expect things to hold up even with these surveys starting to look a little weaker. [inaudible]
Speaker Change: So it's still very early in the quarter and all of the conversations our teams are having with their customers distributor channel partners things to be seems to be reasonably solid at least through the beginning part of April.
Speaker Change: It's continue from where we were in the month of March were watching a lot of these renal indicators like like you are.
Speaker Change: And clearly things are softening.
Speaker Change: Interesting when we talk to our channel partners about inventory and channel generally speaking, it's fairly normalized we've not seen anything kind of moving from Q2 into Q1 in terms of adding to inventory, adding to stocks as fairly normal. So we don't think there was a correction is happening the sort of the elongation of orders.
Speaker Change: So it's still very early in the quarter and all of the conversations our teams are having with their customers, distributor, channel partners in our community.
Speaker Change: You know, things to be reasonably solid, at least through the beginning part of April .
Speaker Change: It's continued from where we were in the month of March. We're watching a lot of these regional indicators like you are.
Speaker Change: That we had articulated about a month ago, we see that continuing here in the month of April so so what might've been a.
Speaker Change: 45, or 50 day sort of cycle time, now stretching out a little bit longer that's one of the things that impacted us in Q1, we saw in February orders that were just pushing out into into Q2, we still see a bit of that activity, but the indicators of macro indicators that we're seeing still look okay for the industrial business.
Speaker Change: Adding to inventory, adding to stocks is fairly normal, so we don't think there's a correction that's happening.
Speaker Change: The elongation of orders that we had articulated about a month ago, we see that continuing here in the month of April . So what might have been a 45 or a 50 day sort of cycle time now stretching out a little bit longer?
Speaker Change: But again, we're watching it very carefully.
Speaker Change: Very helpful. Thank you.
Speaker Change: Yeah.
Speaker Change: We'll go next now to Joe O'dea with Wells Fargo. Please proceed with your question.
Speaker Change: You know, that's one of the things that impacted us in Q1. We saw in February orders that were just pushing out into Q2. We still see a bit of that activity, but you know, the indicators are macro indicators that we're saying still look okay for the industrial business, but again, we're watching you very carefully. Thank you very much.
Speaker Change: Hi, Good morning, Hi, Joe.
Speaker Change: Can you just talk about kind of tactically how you approach it.
Speaker Change: Imports from China, and when you think about that.
Speaker Change: $60 million or so I think that you were talking about.
Speaker Change: Just the timing of that and you've got some inventory that you're sitting on argue sort of pausing orders right now kind of waiting for better information just given the fluid nature of what we're seeing on that front.
Very helpful, thank you.
Thank you.
Speaker Change: We'll go next now to Joe O'Day with Wells Fargo. Please proceed with your question.
Speaker Change: Yeah, So no.
Good morning. Good morning. Good morning. [inaudible]
Speaker Change: We're not pausing any orders or shipments right now we have 90 days of inventory, so which will bleed through by the end of June and then you'll start seeing the impact of the tariff on the imports after that so we're not slowing down anything on the business side. What we are looking at as you know.
Joe O'Day: Can you just talk about, kind of tactically, how you approach imports from China, and when you think about that 160 million or so, I think that you're talking about...
Speaker Change: Um, just the timing of that. You've got some inventory that you're sitting on. You are you sort of pausing orders right now, kind of waiting for better information, just given the fluid nature of what we're seeing on the on the tariff headline from.
Speaker Change: Bill you mentioned around sourcing logistics discretionary costs as well as pricing. So that's the way we are tactically.
Speaker Change: Approaching a write down in pricing for example in some cases you can put a surcharge in some cases need to come up with the new list price. So we're looking depending upon the situation keeping in mind that we still the business is going on as it is as it was yeah. A lot of it is coming in from China for consumer that attaches to the channel just pretty large retailers in.
Speaker Change: Yeah, so Johan and Anurag, we're not pausing any orders or any shipments right now. We have 90 days of inventory, so which will bleed through by the end of June, and then you'll start seeing the impact of the tariff on the imports after that. So we're not...
Speaker Change: Slingon, anything on the business side, what we are looking at is, you know, as Bill earlier mentioned around sourcing logistics, discretionary cost as well as pricing. So that's the way we are tactically approaching it right now. And pricing, for example, in some cases, you can put a surcharge in some cases need to come up with a new list price. So we're working, depending upon the situation, keeping in mind that, you know, we still business is going on as it was. Yeah, a lot of it, a lot is coming in from China for consumer. That's it.
Speaker Change: We're having lots of conversations with them on that but we're not.
Speaker Change: At the moment pausing or stopping any push from China.
Speaker Change: And then actually don't anticipate doing that.
Speaker Change: Yeah.
Speaker Change: And just your comment there to make sure I understood it correctly.
Speaker Change: It would be kind of a higher weighting of exposure on those imports from China to the consumer side of the business on that on that element of the tariff impact that we got around articulate it yes, it would be more on the consumer business correct.
Speaker Change: who passed us through the challenges, pretty large retailers, and we're having lots of conversations with them on that, but we're not at the moment pausing or stopping any imports from China.
And then just one on the guidance side of the corporate and unallocated and other items for operating profit I think corporate around allocated initially 25 to 50 million loss.
and Dan actually don't anticipate doing that. [inaudible]
Thank you.
Thank you.
Speaker Change: And just to comment there to make sure I understood it correctly, there would be kind of a higher weighting of exposure on those imports from China to the consumer side of the business. On that element of the tariff impact that we, that around our articulated, yes, it would be more on the consumer business, correct? [inaudible]
Speaker Change: There are 500 million income.
Speaker Change: For the quarter.
Speaker Change: Looked a little better than we anticipated.
Speaker Change: On the corporate side, but any any updates or any changes to that initial expectation on those items, it's probably trending more towards the higher end and because corporate just to take a step by contango, obviously, the enterprise governance related costs. So the G&A cost. There is also the sole then some transition agreements that are sitting in there.
Speaker Change: Thank you for watching. And please, don't forget to subscribe to our channel.
Speaker Change: and then just one on the guide inside of the corporate and unallocated and other items for operating profit. I think corporate and unallocated initially 25 to 50 million loss.
and other 50-100 million income.
Speaker Change: So on the G&A side clearly there were some areas that we did in the first quarter. So that it helps it to go towards the end of the range, but on the on the spin related items, it's many timing between Q1 and Q2.
The Quarter.
Speaker Change: I think looked a little better than we anticipated on the corporate side, but any updates or any changes to that initial expectation on those items. Yeah, it's probably training more towards the higher end and because corporate just. [inaudible]
Speaker Change: Got it. Thank you okay. Thank you.
to take a step back contains obviously
Speaker Change: This concludes the question and answer portion of our conference call I will now turn the call back over to Bill Brown for some closing comments well. Thank you everybody for joining us joining us today I want to thank again all of the three <unk> for their continued hard work and their dedication to delivering value for our customers and our shareholders. I know, we covered a lot of moving parts today.
Speaker Change: the enterprise governance related costs, so there's DNA costs, there's also the Solventum transition agreements that are sitting in there.
Speaker Change: So on the GNA side, clearly there were some areas that we did in the first quarter, so that helps it to go towards the end of the range, but on the on the spin related items, it's many time between Q1 and Q2.
Speaker Change: But we're focused on executing against our key priorities and we're going to update you on our progress at the next earnings release in July. So thank you very much and have a good day.
and Anurag Maheshwari.
Got it, thank you. Okay, thank you
Speaker Change: This concludes the question and answer portion of our conference call. I will now turn the call back over to Bill Brown for some closing comments.
Speaker Change: Ladies and gentlemen that does conclude today's conference call. We thank you for your participation and ask that you. Please disconnect your lines at this time.
Speaker Change: Well, thank you everybody for joining us today. I want to thank again all the three embers for their continued hard work
Speaker Change: and their dedication, delivering value for our customers and our shareholders. I know we covered a lot of moving parts today but we're focused on executing against our key priorities and we're going to update you on our progress at the next earnings release in July . So thank you very much and have a good day. Thank you very much.
and Anurag Maheshwari. Thank you. Thank you.
Speaker Change: Ladies and gentlemen, that does conclude today's conference call. We thank you for your participation and ask that you please disconnect your line at this time.