Q2 2025 3M Co Earnings Call
And gentlemen, thank you for standing by.
Welcome to the <unk> second 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 Friday July 18th 2025.
Speaker Change: I would now like to turn the call over to <unk> Senior Vice President of Investor Relations and financial planning and analysis at three a M.
Speaker Change: Good morning, everyone and welcome to our quarterly earnings Conference call.
Speaker Change: With me today are Bill Brown, <unk>, Chairman and Chief Executive Officer, and then rock mechanics, really got Chief Financial Officer.
Rod: Rod will make some formal comments then we will take your questions.
Rod: 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.
Rod: Please turn to slide two and take a moment to read the forward looking statements.
Rod: During today's conference call, we'll be making certain predictive statements that reflect our current views about <unk> future performance and financial results.
Rod: These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties.
Rod: Item one a of our most recent Form 10-Q lists some of the most important risk factors that could cause actual results to differ from our predictions.
Rod: Please note throughout today's presentation, we'll be making references to certain non-GAAP financial measures.
Rod: Reconciliations of the non-GAAP measures can be found in the attachments with today's press release.
Rod: With that please turn to slide three and I will hand, the call off to Bill Bill.
Bill Brown: Thank you chip and good morning, everyone.
Bill Brown: We had another quarter of strong performance with second quarter adjusted earnings per share of $2 16.
Bill Brown: Up 12% versus last year and above expectations.
Bill Brown: Organic sales growth was one 5% with all three business groups reporting positive growth for the third quarter in a row.
Bill Brown: Operating margins increased 290 basis points year on year through productivity and cost controls, while we continued to invest in growth initiatives.
Bill Brown: And free cash flow was solid at $1 3 billion for the quarter and 110% conversion.
Bill Brown: Our performance reflects the culture of excellence, we're building inside the company as we continue to drive the rigor and op tempo necessary to deliver on our strategic priorities in this uncertain macro environment.
Bill Brown: As part of our commitment to innovation excellence, we're increasing the cadence of new product launches in.
Bill Brown: In Q2, we launched 64, new products up about 70% versus last year, which puts us at 126 launches for the first half and on track to exceed our target of $2 15 for the year.
Bill Brown: The pipeline remains healthy and theres more rigor and discipline in the process with better business cases, and higher launch schedule attainment.
Bill Brown: And most importantly, five year, new product sales bottomed last year and was up 9% in the first half accelerating from Q1 into Q2 and tracking well to be up more than 15% for the year.
Bill Brown: With 64 launches in the quarter there are a lot of exciting new products to discuss but let me take a moment to highlight just a few.
Bill Brown: And our fire safety business, we launched a low profile rugged air pack with updated like Bronx to enable telemetry and connectivity that has been well received by our largest firefighting customers, especially those who value compactness and maneuverability in small spaces.
Bill Brown: In our consumer business, we've been building around the fill tree platform with four new product launches in the last six months, including one with a reusable filter frame that can be refilled by a collapsible deep fleet filter and now it gets to a razor razorblade model.
Bill Brown: This innovative design reduces shipping costs and saves retailers storage and shelf space.
Bill Brown: At the same time, we're continuing our focus on commercial excellence as we drive increased sales force performance.
Bill Brown: <unk> higher cross selling opportunities.
Bill Brown: Improved price discipline and reduce churn.
Bill Brown: You'll recall that our team in safety and industrial launched the program in the U S late last year.
Bill Brown: And has now expanded this effort into Europe and Asia.
Bill Brown: We've trained over 400 sales managers and see early results through higher closed one opportunities and improved order rates.
Unknown Executive: Ladies and gentlemen, thank you for standing by.
Unknown Executive: Welcome to the 3M Second 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.
Bill Brown: We now have 48 cross selling pairs identified about doubled since Q1 with a pipeline value of over $60 million and $10 million of new orders booked to date.
At the same time, we're continuing our focus on Commercial Excellence. As we drive increased Salesforce performance capture, higher cross-selling opportunities, improve price discipline, and reduce churn.
Unknown Executive: At that time, if you do have a question, please press star one on your telephone keypad.
Bill Brown: We're tightening pricing controls by reducing price deviations and focusing on bigger deals with strategic customers.
you'll recall that our team and safety and Industrial, launched the program in us late last year
Unknown Executive: As a reminder, this call is being recorded Friday, July 18th, 2025.
And is now expanded this effort into Europe and Asia.
Bill Brown: And we're reducing customer churn by leveraging our predictive analytics model to identify and win back customers at risk.
Chinmay Trivedi: I would now like to turn the call over to Chinmay Trivedi, Senior Vice President of Investor Relations and Financial Planning and Analysis at 3M. Thank you.
We've trained over 400 sales managers and see early results through higher closed, 1 opportunities and improved order rates.
Bill Brown: <unk> has been first out of the gate on commercial Excellence initiative, and we're seeing promising early results with average daily order rates up low single digits in Q2.
We now have 48 cross-selling pairs identified about double since q1.
Bill Brown: Good morning, everyone, and welcome to our quarterly earnings conference call.
Chinmay Trivedi: With me today are Bill Brown, 3M's Chairman and Chief Executive Officer and Anurag Maheshwari, our Chief Financial Officer. Bill and Anurag will make some formal comments, then we will take your questions. Please note that today's earnings release and slide presentation accompanying this call are posted on the homepage of our investor relations website at 3M.com.
With a pipeline value of over $60 million and 10 million dollars of new orders, booked to date.
Bill Brown: Our strategy is working and we're now extending this <unk> enterprise wide commercial excellence model across the organization with transportation electronics quickly leveraging the learnings and best practices from <unk>, while adapting it to the unique nature of a more spec in type business.
We're tightening pricing controls by reducing price deviations and focusing on bigger deals with strategic customers.
And we're reducing customer churn by leveraging. Our Predictive Analytics model to identify and win back customers at risk.
Bill Brown: Our second priority is operational excellence.
Chinmay Trivedi: Please turn to slide two and take a moment to read the forward-looking statement. During today's conference call, we'll be making certain predictive statements that reflect our current views about 3M's future performance and financial results. These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainty. Item 1A of our most recent Form 10-Q lists some of the most important risk factors that could cause actual results to differ from our prediction. Please note, throughout today's presentation, we'll be making references to certain non-GAAP financial measures. Reconciliations of the non-GAP measures can be found in the attachments to today's press release.
Sib has been first out of the gate on Commercial Excellence initiative.
Bill Brown: In the second quarter, we made good progress on several fronts, including service asset utilization and quality.
And we're seeing promising early results. With average daily order rates up low, single digits in Q2.
Bill Brown: Service our on time in full metric reached 89, 6% the highest quarterly performance we've achieved a nearly six years and we exited June at just over 90%.
Bill Brown: Consumer and <unk> consistently above 90% and <unk> was 83% for the quarter, improving more than 300 basis points year on year.
Our strategy is working, and we're now extending this. 3M Enterprise wide, commercial Excellence model across the organization with Transportation Electronics, quickly leveraging, the learnings, and best practices from siblings to the unique nature of a more speken type business.
Our second priority is operational excellence.
Bill Brown: Our overall equipment effectiveness metric was approximately 59% showing continued improvement both year on year and sequentially with a lot of runway ahead of us.
In the second quarter, we've made good progress on several fronts, including service asset, utilization and quality.
Chinmay Trivedi: With that, please turn to slide three, and I will hand the call off to Bill.
Bill Brown: Bill? Thank you, Chinmay, and good morning, everyone. We had another quarter of strong performance with second quarter adjusted earnings per share of $2.16, up 12% versus last year and above expectations. organic sales growth was 1.5% with all three business groups reporting positive growth for the third quarter in a row. Operating margins increased 290 basis points year on year through productivity and cost controls while we continue to invest in growth initiatives. And free cash flow was solid at $1.3 billion for the quarter and 110% conversion. Our performance reflects the culture of excellence we're building inside the company as we continue to drive the rigor and op tempo necessary to deliver on our strategic priorities in this uncertain macro environment.
Bill Brown: We're now at the point, where OE is improving on a consistent basis through better tracking and deeper root cause analysis, and it's highlighting potential capacity consolidation opportunities.
On service our on-time and full metric, reach 89.6%. The highest quarterly performance we've achieved in nearly 6 years and we exited June at just over 90%.
Bill Brown: For example, our core manufacturing process at three am is adhesive coding and we have about 250 different types of coders throughout the network, some quite old and old all expensive to replace.
Consumer and tbg remain. Consistently above 90% And sib was 83% for the quarter. Improving more than 300 basis points year on year,
Bill Brown: One of our larger coders is in Knoxville, Iowa, making fiber adhesive tapes.
Our overall equipment, Effectiveness metric was approximately 59%. Showing continued Pro Improvement both year on year and sequentially with a lot of Runway ahead of us.
Bill Brown: Through an extensive effort to reduce changeovers increase operating speed and improved machine uptime. The team drove a 12 point improvement in O E and freed up enough capacity to retire 270 year old coders at another facility.
We're now at the point where oee is improving on a consistent basis, through better, tracking and deeper root, cause analysis, and it's highlighting potential capacity, consolidation opportunities.
Bill Brown: This is just one example of the broader opportunity at three am to use a rigorous methodical approach to get more production out of our higher capacity assets and proactively decommission aging less productive assets in the network.
Bill Brown: As part of our commitment to innovation excellence, we're increasing the cadence of new product launches. In Q2 we launched 64 new products, up about 70% versus last year, which puts us at 126 launches for the first half and on track to exceed our target of 215 for the year. The pipeline remains healthy, enters more rigor and discipline in the process with better business cases and higher launch schedule attainment. And most importantly, five-year new product sales bottomed last year and was up 9% in the first half, accelerating from Q1 into Q2 and tracking well to be up more than 15% for the year.
For example, a core manufacturing process at 3M is adhesive coding and we have about 250 different types of coders throughout the network, some quite old and old all expensive to replace.
1 of our larger coders is in Knoxville Iowa, making fiber adhesive tapes,
Bill Brown: Just thinking can be extended to all of our core manufacturing processes, making coding slitting packaging and over time more holistically to the design of our future network.
Through an extensive effort to reduce changeovers increase operating speed and improve machined uptime. The team drove a 12-point Improvement in oee and freed up enough capacity to retire 2, 70 year old coders at another facility.
Bill Brown: We're also making progress on quality.
Bill Brown: In the second quarter, our cost of poor quality was six 1% down 30 basis points sequentially and 90 basis points year over year.
Bill Brown: We're using AI enabled models to optimize machine settings for more efficient changeovers, leading to better utilization and higher yield.
This is just 1. Example of the broader opportunity at 3M to use a rigorous methodical approach to get more production out of our higher capacity, assets and proactively decommission, aging less productive Assets in the network.
Bill Brown: With 64 launches in the quarter, there are a lot of exciting new products to discuss. But let me take a moment to highlight just a few. In our fire safety business, we launched a low profile rugged air pack with updated electronics to enable telemetry and connectivity that has been well received by our largest firefighting customers, especially those who value compactness and maneuverability in small spaces. In our consumer business, we've been building around the Filtry platform with four new product launches in the last six months, including one with a reusable filter frame that can be refilled by a collapsible deep pleat filter, analogous to a razor razor blade model.
Bill Brown: Quality is a core element of our enterprise wide three M excellence operating model and we're extending our efforts to improve quality and every function and everything that we do.
This thinking can be extended to all of our core manufacturing processes, making coding sliding packaging and over time more holistically to the design of our future network.
We're also making progress on quality.
Bill Brown: Our third priority is effective capital deployment.
Bill Brown: In the first half of the year, we returned $3 billion to shareholders via dividends and share repurchases and we will continue to be opportunistic on buybacks in the second half of the year, while preserving balance sheet flexibility.
In the second quarter, our cost of poor quality was 6.1% down 30 basis point sequentially and 90 basis points year-over-year.
We're using AI enabled models to optimize machine settings for more efficient changeovers leading to better utilization and higher yield.
Bill Brown: In May we announced the settlement with the state of New Jersey on P. Fast claims taking the opportunity to settle both site specific and statewide claims with broad protections against future litigation and cash payments spread over 25 years.
Quality is a core element of our Enterprise wide 3M. Excellent. Operating model. And we're extending our efforts to improve quality and every function and everything that we do.
Bill Brown: This innovative design reduces shipping costs and saves retailers storage and shelf space. At the same time, we're continuing our focus on commercial excellence as we drive increased sales force performance, capture higher cross-selling opportunities, improve price discipline, and reduce churn. You recall that our team in safety and industrial launched the program in U.S. late last year and has now expanded this effort into Europe and Asia. We've trained over 400 sales managers and see early results through higher closed one opportunities and improved order rates. We now have 48 cross-selling pairs identified, about double since Q1, with a pipeline value of over $60 million and $10 million of new orders booked to date.
Our third priority is effective, Capital deployment.
Bill Brown: We continue to manage other state federal and international matters, all of which are extensively covered in our 10-Q.
Bill Brown: On the back of the progress, we're making on our priorities and the strong results in the first half we're increasing our earnings guidance to a range of $7 75 to $8 now inclusive of the anticipated impact of tariffs.
In the first half of the year, we returned 3 billion dollars to shareholders via dividends and share repurchases, and we'll continue to be opportunistic on Buybacks in the second half of the Year while preserving balance sheet flexibility.
Bill Brown: We expect organic growth to be approximately 2% for the year, reflecting the current macro environment as we see it today.
Bill Brown: Slide four highlights several of the key macro trends were tracking and their impact on three M.
We continue to manage other state federal and international matters. All of which are extensively covered in our 10 Q.
Bill Brown: All metrics on the left reflect a global economy that remains sluggish and moving laterally not materially improving or worsening.
Bill Brown: We're tightening pricing controls by reducing price deviations and focusing on bigger deals with strategic customers. And we're reducing customer churn by leveraging our predictive analytics model to identify and win back customers at risk. SIBG has been first out of the gate on commercial excellence initiative, and we're seeing promising early results with average daily order rates up low single digits in Q2. Our strategy is working, and we're now extending this 3M enterprise-wide commercial excellence model across the organization with transportation electronics quickly leveraging the learnings and best practices from SIBG, while adapting it to the unique nature of a more spec-in type business.
Bill Brown: Our safety and general industrial businesses were up low single digits in the first half and are both beginning to see a pick up you are our commercial excellence initiatives.
Bill Brown: Auto will be flattish in the second half of <unk>.
On the back of the progress, we're making on our priorities and the strong results in the first half were increasing our earnings guidance, to a range of 7.75 to 8. Now, inclusive of the anticipated impact of tariffs. We expect organic growth to be approximately 2% for the year reflecting the current macro environment as we see it today.
Bill Brown: Up from the decline in the first half due to share gains in new models, while consumer electronics is likely to soften a bit in the back half due to slower demand for premium devices.
Site 4 highlights. Several of the key macro Trends were tracking and their impact on 3M.
Bill Brown: Auto aftermarket will remain challenged and consumer will likely follow a similar pattern to the first half due to the subdued U S retail environment.
All metrics on the left, reflect a global economy that remains sluggish and moving laterally not materially improving or worsening.
Bill Brown: As we navigate these uncertain times, we're focused on what we control.
Our safety. In general industrial businesses were up low single digits in the first half and are both beginning to see a pickup. Do you are a commercial Excellence initiative?
Bill Brown: <unk> customer problems through innovation excellence, delivering high quality products on time to customers and driving efficiency and waste elimination all with a renewed sense of urgency that defines our new performance culture.
Bill Brown: Our second priority is operational In the second quarter, we've made good progress on several fronts, including service, asset utilization and quality. On service, our on-time and full metric reached 89.6%, the highest quarterly performance we've achieved in nearly six years, and we exited June at just over 90%. consumer and TEBG remain consistently above 90% and SIBG was 83% for the quarter, improving more than 300 basis points year on year. Our overall equipment effect of this metric was approximately 59% showing continued improvement both year on year and sequentially with a lot of runway ahead of us. We're now at the point where OEE is improving on a consistent basis through better tracking and deeper root cause analysis, and it's highlighting potential capacity consolidation opportunities.
Auto will be flattish in the second half a step up from the decline in the first half due to share gains in new models. While consumer electronics is likely to soften a bit in the back half due to slower demand for premium devices.
Bill Brown: And with that I'll turn it over to entourage to share the details on the quarter on Iraq.
Speaker Change: Thank you Bill turning to slide five we reported another quarter of strong profitable growth and robust free cash flow generation.
Auto aftermarket will remain challenged and consumer will likely follow a similar pattern to the first half due to the subdued us retail environment.
Speaker Change: Starting with the topline all three business groups delivered positive year on year growth. Despite the fluid macro environment, resulting in total company adjusted organic growth of one 5%.
We saw continued momentum across electronics general industrial and safety end markets, which was partially offset by known softness in auto and automotive aftermarket.
As we navigate these uncertain times, we're focused on what we control solving customer problems through Innovation. Excellence delivering high-quality products on time to customers and driving efficiency and waste elimination. All with a renewed sense of urgency that defines our new performance culture.
horiz: And with that, I'll turn it over to horiz to share the details on the quarter honor Rock.
Speaker Change: Consumer was flattish sentiment remains cautious.
Speaker Change: By geography, our growth was led by China up mid single digits with strength in industrial adhesives films and electronics bonding solutions driven by strong commercial execution that led to share gains.
horiz: Thank you Bill turning to slide 5. We reported another quarter of strong profitable growth and robust, free cash flow generation.
Bill Brown: For example, a core manufacturing process at 3M is adhesive coating, and we have about 250 different types of coaters throughout the network, some quite old and old, all expensive to replace. One of our larger coders is in Knoxville, Iowa, making fiber adhesive tape. Through an extensive effort to reduce changeovers, increase operating speed, and improve machine uptime, the team drove a 12 point improvement in OEE and freed up enough capacity to retire two 70 year old coders at another facility. This is just one example of the broader opportunity at 3M to use a rigorous, methodical approach to get more production out of our higher capacity assets and proactively decommission aging, less productive assets in the network.
horiz: Starting with the Top Line, all 3, business groups, delivered Positive year-on-year, Growth despite the fluid macro environment resulting in total company, adjusted organic growth of 1.5%.
Speaker Change: The U S was up low single digits led by growth in electrical markets and personal safety, partially offset by weakness in auto OEM and after market.
horiz: We saw continued momentum across Electronics, General industrial, and safety and markets, which was partially offset by known softness and auto and automotive, aftermarket
Speaker Change: Europe was flat with strength in electrical markets and personal safety, partially offset by weakness in transportation safety and auto.
horiz: Consumer was flattish as sentiment remains cautious.
Speaker Change: Q2 daily order trends were up modestly year on year, driven by our progress on commercial excellence and the industrials businesses, partially offset by weakness in consumer as retailers are watching to see how the season plays out.
By geography, a growth was led by China up mid single digits with strength in industrial, adhesives films and electronics. Bonding Solutions, driven by strong commercial execution, that led to share gains.
Speaker Change: Our backlog continues to grow providing 20% to 25% coverage of third quarter sales.
horiz: The US was up low. Single digits led by growth in electrical markets and personal safety, partially offset, by weakness and auto, OEM and aftermarket
Speaker Change: Q2, adjusted operating margins were 24, 5% up 290 basis points and operating profit increased high teens are $225 million in constant currency driven by continued strong operational performance.
Bill Brown: This thinking can be extended to all of our core manufacturing processes, making, coding, slitting, packaging, and over time, more holistically, to the design of our future network.
horiz: Europe was flat, which strengthened, electrical markets, and personal safety, partially offset by weakness and Transportation, safety and Auto
Speaker Change: This included a $300 million benefit from volume growth broad based productivity lower restructuring cost and equity comp timing, partially offset by $50 million of growth investments and $25 million from tariff impact and stranded cost headwind.
Bill Brown: We're also making progress on quality. In the second quarter, our cost support quality was 6.1%, down 30 basis points sequentially and 90 basis points year over year. We're using AI-enabled models to optimize machine settings for more efficient changeovers, leading to better utilization and higher yield. Quality is a core element of our enterprise-wide 3M Excellence Operating Model and we're extending our efforts to improve quality in every function and everything that we do.
horiz: Q2 daily order, Trends were up modestly. Year-on-year driven by our progress on Commercial excellence in the Industrials businesses. Partially offset by weakness in consumer as retailers are watching to see how the season plays out.
horiz: Our backlog continues to grow providing 20 to 25% coverage of third quarter sales.
Collectively this contributed 31 cents to earnings which was partially offset by <unk> <unk> from FX and <unk> from non operational below the line items.
horiz: Q2, adjusted operating margins with 24.5% up, 290 basis points, and operating profit increased High, Teens, or 225 million in constant currency driven by continued, strong operational performance.
Speaker Change: Our strong operational performance resulted in overall adjusted EPS of $2 16.
Bill Brown: Our third priority is effective capital deployment. In the first half of the year, we returned $3 billion to shareholders via dividends and share repurchases and will continue to be opportunistic on buybacks in the second half of the year while preserving balance sheet flexibility. In May, we announced a settlement with the state of New Jersey on PFAS claims, taking the opportunity to settle both site-specific and statewide claims with broad protections against future litigation and cash payments spread over 25 years. We continue to manage other state, federal, and international matters, all of which are extensively covered in our 10-Q.
Speaker Change: An increase of 12%.
Speaker Change: Relative to our initial expectations of approximately $2.
Speaker Change: This outperformance was driven by four factors.
Speaker Change: First continue G&A efficiency as we make progress on optimization and lower indirect expenses.
horiz: This included a hundred million dollar benefit from volume growth broad-based, productivity lower, restructuring, cost and Equity. Cam timing, partially offset by fifty million dollars of growth Investments, and 25 million from tariff impact and Stranded cost headwind.
Speaker Change: Second metering of increase in year over year investments in response to a lower demand environment and evolving tariff landscape.
horiz: Collectively this contributed 31 cents to earnings which was partially offset by 2 cents from FX and 6 cents from non-operational below the line items.
Speaker Change: Further weakening of the U S dollar.
Our strong operational performance. Resulted in overall adjusted, EPS of $2.16 and increase of 12%.
Speaker Change: Finally, we had a <unk> <unk> benefit from the sale of an investment below the line, which was initially anticipated in the third quarter and offset the impact from tariffs and other below the line items.
horiz: Relative to our initial expectations of approximately $2.
horiz: This outperformance was driven by 4 factors.
Bill Brown: On the back of the progress we're making on our priorities and the strong results in the first half, we're increasing our earnings guidance to a range of $7.75 to $8, now inclusive of the anticipated impact of tariffs. We expect organic growth to be approximately 2% for the year, reflecting the current macro environment as we see it today.
Speaker Change: Free cash flow was $1 3 billion, 10% higher than last year as we benefited from strong earnings.
horiz: First continue GNA efficiency, as we make progress on it, optimization and lower indirect expenses.
Speaker Change: We returned $400 million to shareholders via dividends and executed on a $1 billion and gross share buybacks.
horiz: Second metering of increase in year-over-year investments in response to a lower demand environment and evolving tariff landscape.
Speaker Change: For the first half our gross buybacks for $2 2 billion.
Weakening of the US dollar.
Speaker Change: I will provide a quick overview of our growth performance for each business group on slide six.
Bill Brown: Slide four highlights several of the key macro trends we're tracking and their impact on 3M. All metrics on the left reflect a global economy that remains sluggish and moving laterally, not materially improving or worsening. Our safety and general industrial businesses were up low single digits in the first half and are both beginning to see a pickup due to our commercial excellence initiative. Auto will be flattish in the second half, a step up from the decline in the first half due to share gains in new models, while consumer electronics is likely to soften a bit in the back half due to slower demand for premium devices.
Speaker Change: Safety and industrial organic sales grew for the fifth consecutive quarter up two 6% in Q2.
Finally, we had a 6 Cent benefit from the sale of an investment below the line, which was initially anticipated in the third quarter and offset the impact from tariffs and other below the line items.
Speaker Change: This was broad based with six out of seven divisions posting positive results.
horiz: Free cash flow was 1.3 billion 10% higher than last year as we benefited from strong earnings.
Speaker Change: Similar to the first quarter industrial adhesives, and tapes and electrical markets continue to perform well on the back of new product innovation and commercial excellence.
horiz: And we returned 400 million to shareholders via dividends and executed on a 1 billion dollars in Gross share BuyBacks.
For the first half, our gross BuyBacks were 2.2 billion.
Speaker Change: It was encouraging to see abrasives turned positive as we launched new products and execute our commercial strategy to increase sales effectiveness.
I will provide a quick overview of our growth performance for each business group on slide 6.
Speaker Change: Auto after market continues to see challenges down mid single digits, Amit industry pressure with collision repair claim rates down double digits year to date.
Bill Brown: auto aftermarket will remain challenged and consumer will likely follow a similar pattern to the first half due to the subdued U.S. retail environment. As we navigate these uncertain times, we're focused on what we control, solving customer problems through innovation excellence, delivering high quality products on time to customers, and driving efficiency and waste elimination, all with a renewed sense of urgency that defines our new performance culture.
horiz: Safety and Industrial, organic sales grew for the 5th, consecutive quarter up 2.6% in Q2.
This was broad-based with 6 out of 7 divisions, posting positive results.
Speaker Change: Transportation and electronics sales were up 1% organically in Q2.
Speaker Change: Growth was led by commercial graphics, and auto personalization driven by demand for our new product the premium fleet rep and expanding sales coverage.
horiz: Similar to the first quarter industrial adhesives and tapes. And electrical markets continue to perform well on the back of new product Innovation and Commercial excellence.
Speaker Change: Electronics, and aerospace and defense showed strength, while our auto OEM business was down low single digits.
It was encouraging to see abrasive turn positive as we launch new products and execute a commercial strategy to increase sales. Effectiveness
Anurag Maheshwari: And with that, I'll turn it over to Anurag to share the details on the quarter. Thank you, Bill. Turning to slide five, we reported another quarter of strong profitable growth and robust free cash flow generation. Starting with the top line, all three business groups delivered positive year-on-year growth despite the fluid macro environment, resulting in total company-adjusted organic growth of 1.5%. We saw continued momentum across electronics, general industrial, and safety and markets, which was partially offset by known softness in auto and automotive aftermarkets. Consumer was flattish as sentiment remains cautious. By geography, our growth was led by China, up mid-single digits, with strength in industrial adhesives, films, and electronics bonding solutions driven by strong commercial execution that led to share gains.
Speaker Change: Reflecting continued weakness in auto builds, particularly in Europe, and the U S, which were each down low single digits year on year.
Auto aftermarket continue to see challenges down mid single digits amid industry, pressure with Collision Repair claim rates down double digits, year to date.
Speaker Change: Finally, the consumer business was up 0.3% organically in Q2.
horiz: Transportation and electronics. Adjusted sales were up 1% organically in Q2.
Speaker Change: Well consumer sentiment remained soft we continue to execute on growth initiatives, including new product launches and Scotch Brite kitchen, scouring Scotch Blue Pro shop, Interstate and come on to <unk>.
Growth was led by Commercial Graphics and auto personalization driven by demand for a new product. The premium Fleet wrap and expanding sales coverage
Speaker Change: Continued service improvements and increase in advertising and merchandising investment.
Speaker Change: And along with organic growth each business group expanded margins year on year.
horiz: Electronics, and Aerospace, and defense showed strength. While our Auto OEM business was down low, single digits, reflecting, continued weakness and auto bills, particularly in Europe and the US which were each down low single digits year on year.
Speaker Change: <unk> up 320 basis points.
horiz: Finally, the consumer business was up 0.
horiz: An organically.
Speaker Change: <unk> up 230 basis points, and CPG up 370 basis points.
Speaker Change: Overall, our focus on delivering organic growth and improving operational excellence helped us deliver solid results in the first half including growth of one 5%.
Anurag Maheshwari: The US was up low single digits, led by growth in electrical markets and personal safety, partially offset by weakness in auto OEM and aftermarket. Europe was flat with strength in electrical markets and personal safety, partially offset by weakness in transportation safety and autonomy. Q2 daily order trends were up modestly year-on-year, driven by a progress on commercial excellence in the industrials businesses, partially offset by weakness in consumer, as retailers are watching to see how the season plays out. Our backlog continues to grow, providing 20 to 25% coverage of third quarter sales. Q2 adjusted operating margins with 24.5% of 290 basis points and operating profit increased high teens of $225 million in constant currency driven by continued strong operational performance.
horiz: No consumer sentiment remained soft. We continue to execute on growth initiatives, including new product launches in Scotch bright kitchen scouring, Scotch blue Pro Shop painters tape and command.
Speaker Change: Operating margin expansion of 250 basis points to 24%.
horiz: And continued service improvements and increase in advertising and Merchandising investment.
Speaker Change: On earnings growth of 11%.
Speaker Change: Before providing the details of our updated guidance, let me start with a reminder of how we framed it in April which is the middle column on slide seven.
And along with Organic growth, each business group expanded. Margins year on year, sib up 320 basis points,
horiz: Tbg up 230 basis points and CBG up 370 basis points.
Speaker Change: Organic sales growth due to the softer macro we indicated that we were trending to the lower end of our 2% to 3% range.
Speaker Change: Our first quarter productivity gains were very strong, but given the dynamic environment, we did not flow through this outperformance into our guidance.
horiz: Overall, our focus on delivering organic growth and improving operational excellence helped us deliver solid results in the first half, including growth of 1.5%.
horiz: Operating margin expansion of 250 basis points to 24%.
horiz: And earnings growth of 11%.
Speaker Change: <unk> maintained the EPS range at $7 60 to $7 90.
Speaker Change: Given that the tariff situation was uncertain, we kept tariffs out of the guidance range at the time, but estimated a gross impact of 60.
horiz: Before, providing the details of our updated guidance. Let me start with a reminder of how we framed it in April, which is the middle column on slide 7.
Anurag Maheshwari: This included a $300 million benefit from volume growth, broad-based productivity, lower restructuring costs, and equity calm timing, partially offset by $50 million of growth investments, and $25 million from tariff impact and stranded cost headwind. Collectively, this contributed $0.31 to earnings, which was partially offset by $0.02 from FX and $0.06 from non-operational below the line item. Our strong operational performance resulted in overall adjusted EPS of $2.16, an increase of 12%.
Speaker Change: The net impact of 20 to 40 after mitigating actions.
On organic sales growth due to the soft macro. We indicated that we were trending to the lower end of a 2 to 3% range.
Speaker Change: We have no updated the guidance to reflect our strong first half performance and have also incorporated the tariff impact.
Speaker Change: We are updating our organic revenue growth guidance to approximately 2% and expect all three business groups to grow low single digits for the year with a similar profile to the first half.
horiz: Our first quarter productivity, gains were very strong. But given the dynamic environment, we did not flow through this outperformance in 2, our guidance, and maintain the EPS range at $7.60 to $7.90.
Speaker Change: On the back of a strong first half performance. We now expect margin expansion of 150 to 200 basis points and our increasing both the lower and higher end of our EPS range, which is a 13th increase at the midpoint.
Given that the Tariff situation was uncertain, we kept tariffs out of the guidance range at the time, but estimated a gross impact of 60 cents or a net impact of 20 to 40 cents after mitigating actions.
Anurag Maheshwari: Relative to our initial expectations of approximately $2, this art performance was driven by four factors. First, continue GNA efficiency as we make progress on IT optimization and lower indirect expenses. Second, metering of increase in year-over-year investments in response to a lower-demand environment and evolving tariff landscape. Third Weekning of the U.S. Dollar. Finally, we had a six cent benefit from the sale of an investment below the line, which was initially anticipated in the third quarter and offset the impact from tariffs and other below the line items. Free cash flow was $1.3 billion, 10% higher than last year, as you benefited from strong earnings.
horiz: We have now updated the guidance to reflect our strong first staff performance, and have also Incorporated, the Tariff impact.
Speaker Change: 23, <unk> of that coming from operational performance offset by 10 cents of FX and tariff impact.
Speaker Change: We now expect our free cash flow conversion to be higher than 100% building on strong first half performance efficient capex in second half improvement in working capital, providing us with further optionality on capital deployment.
We are updating our organic Revenue growth guidance to approximately 2% and expect all 3 business groups to grow low single digits for the year with a similar profile to the first half.
Speaker Change: Let me walk you through the drivers of the EPS guidance update on slide eight.
Speaker Change: First we are flowing through 23 of operational improvements which include actions to offset the tariff impacts.
horiz: On the back of a strong first half performance. We now expect margin expansion of 150 to 200 basis points and are increasing both, the lower and higher end of our EPS range, which is a 13 cents increase at the midpoint.
23 cents of that, coming from operational performance, offset by 10 cents of FX and tariff impact.
Speaker Change: This was driven by 16 productivity, which includes the G&A efficiency gains and <unk> investments.
Speaker Change: As we highlighted previously we are investing in a metered manner, while maintaining the critical growth investments to support our strategic priorities.
Anurag Maheshwari: And we return $400 million to shareholders via dividends and execute it on a $1 billion in gross share buyback. For the first half, our gross buybacks were $2.2 billion.
Speaker Change: Finally as mentioned we have now included tariffs in the guidance, which is a gross headwind of 20.
horiz: Let me walk you through the drivers of the EPS guidance. Updated on slide 8.
Anurag Maheshwari: I will provide a quick overview of our growth performance for each business group on slide 6. Safety and Industrial Organic Sales grew for the fifth consecutive quarter, up 2.6% in Q2. This was broad based with six out of seven divisions posting positive results. Similar to the first quarter, industrial adhesives and tapes and electrical markets continue to perform well on the back of new product innovation and commercial excellence. It was encouraging to see abrasives turn positive as we launch new products and execute a commercial strategy to increase sales effectiveness.
Speaker Change: Partially offset by the foreign exchange headwind reduction from 15 to five.
horiz: First, we are flowing through 23 cents of operational improvements, which include actions to offset the Tariff impacts.
Speaker Change: On the other non operational items there is no change from the prior guidance.
Speaker Change: Putting this altogether the EPS growth year on year is driven by strong operational improvement.
horiz: This is driven by 16 cents a productivity which includes the GNA efficiency gains and 7 cents meter Investments.
Speaker Change: And we now expect an operational benefit of 95 to $1 20, partially offset by 50 of tariffs.
horiz: As we highlighted previously, we are investing in a metered manner, while maintaining the critical growth Investments to support our strategic priorities.
Speaker Change: Effects and non op headwinds for a total EPS growth of 6% to 10%.
horiz: Finally, as mentioned, we have now included a tariffs in the guidance which is a gross headwind of 20 cents.
horiz: Partially offset by the foreign exchange headwind reduction from 15 to 5 cents.
Speaker Change: Regarding the second half, we expect year on year earnings growth of 18 cents at the midpoint.
Anurag Maheshwari: Auto aftermarket continue to see challenges down mid-single digits amid industry pressure with collision repair claim rates down double digits year-to-date. Transportation and Electronics adjusted sales were up 1% organically in Q2. Growth was led by commercial graphics and auto personalization, driven by demand for a new product, the premium fleet wrap, and expanding sales coverage. Electronics and aerospace and defense showed strength while our auto OEM business was down low single digits, reflecting continued weakness in auto bills, particularly in Europe and the US, which were each down low single digits year on year.
horiz: On the other non-operational items. There is no change from the prior guidance.
Speaker Change: Similar to the first half. This includes an approximately 50 to 55 cents benefit from volume growth and continued productivity net of stranded costs and growth investments, which was partially offset by 30 to 35 cents of tariff impact and higher interest expense.
Putting this all together, the EPS growth year on year is driven by strong operational Improvement. And we now expect an operational benefit of 95 cents to a dollar 20 partially offset by 50 Cents of tariff.
Speaker Change: Before we open the call for questions I would like to acknowledge and thank the <unk> team for their focus on operational excellence and controlling the controllable in a dynamic macro environment, which gives us confidence in meeting our increased guidance and delivering strong shareholder returns in 2025.
FX and non-op headwinds for a total EPS growth of 6 to 10%.
regarding the second half, we expect year-on-year earnings growth of 18 cents at the midpoint
Speaker Change: With that let's open the line for questions.
Anurag Maheshwari: Finally, the consumer business was up 0.3% organically in Q2. Though consumer sentiment remains soft, we continue to execute on growth initiatives, including new product launches in Scotch Bright Kitchen Scouring, Scotch Blue ProSharp Painter's Tape, and Comanche. and Continued Service Improvements and Increase in Advertising and Merchandising Environment. And along with organic growth, each business group expanded margins year on year, SIBG up 320 basis points. TBG up 230 basis points and CBG up 370 basis points.
Speaker Change: Ladies and gentlemen, if you would like to register a question. Please press star one on your telephone keypad.
horiz: similar to the first half. This includes an approximately 50 to 55 cents, benefit from volume growth and continued, productivity, net of stranded cost and growth Investments, which is partially offset by 30 to 35 cents of tariff impact and higher interest expense.
Speaker Change: If your question has been answered and you would like to withdraw please press star two.
Speaker Change: You are using a speaker phone please lift up your handset before entering a request.
Speaker Change: Please limit your participation to one question and one follow up.
Scott Davis: Our first question comes from the line of Scott Davis with Melius Research. Please proceed with your question.
horiz: Before we open the call for questions, I would like to acknowledge and thank the 3M team for the focus on operational, excellence and controlling the controllables in a dynamic macro environment. Which gives us confidence in meeting our increased guidance and delivering strong shareholder returns in 2025.
horiz: With that, let's open the line for questions.
Scott Davis: Hey, good morning, guys Scot.
horiz: ladies and gentlemen, if you would like to register a question, please press star 1 on your telephone keypad,
Speaker Change: Bill can you talk about the new product plan.
Speaker Change: I guess kind of more specifically teasing out the impact on kind of margin versus.
Anurag Maheshwari: Overall, our focus on delivering organic growth and improving operational excellence helped us deliver solid results in the first half, including growth of 1.5 percent, operating margin expansion of 250 basis points to 24 percent, and earnings growth of 11 percent.
horiz: if your question has been answered and you would like to withdraw, please press star 2
Speaker Change: Versus growth.
horiz: If you are using a speaker-phone, please lift up your handset before entering your request.
Speaker Change: And how you think about the tipping point, where you can really start to see growth above your your end markets.
horiz: Please limit your participation to 1 question and 1 follow-up.
Speaker Change: I'll just leave it at that I have a follow on.
Speaker Change: So Scott I'm glad you asked about our R&D and NPI because it's been in a very important initiative and as I as I talked to a year ago. This would take some time to materialize and we are starting to see.
Speaker Change: Our first question comes from the line of Scott Davis with Melius research, please proceed with your question.
Anurag Maheshwari: Before providing the details of our updated guidance, let me start with a reminder of how we framed it in April, which is the middle column on slide 7. On organic sales growth, due to the soft macro, we indicated that we were trending to the lower end of a 2 to 3% range. Our first quarter productivity gains were very strong, but given the dynamic environment, we did not throw through this our performance into our guidance and maintain the EPS range at $7.60 to $7.90. Given that the tariff situation was uncertain, we kept tariffs out of the guidance range at the time but estimated a gross impact of $0.60 or a net impact of $0.20 to $0.40 after mitigating action.
Hey, good morning guys. Good morning Scott.
Speaker Change: Some improvement on our five year sales, we talked about 9% up in the.
Speaker Change: In the first half and quite good for the year going to 15%. So it's actually trending in the right way.
Scott Davis: Uh, bill, can you talk about the new product uh, plan and I, I guess kind of more specifically teasing out the impact on kind of margin versus, you know, versus growth. And, and how you think about that Tipping Point where you can really start to see growth above your, your end markets
Speaker Change: I'm really excited about the fact that we're launching more products up 70% in the quarter.
Um, I I'll just leave it at that. I have a follow on.
Speaker Change: Did more in the first half or about as many in the first half as we did in 2023. So the progress on that I think has been has been quite good.
Speaker Change: I think the we shouldn't be expecting both improvements in growth from new product innovation.
Speaker Change: As well as improving margin as you're bringing a product to market.
Anurag Maheshwari: We have now updated the guidance to reflect our strong first-half performance and have also incorporated the tariff impact. We are updating our Organic Revenue Growth Guidance to approximately two percent and expect all three business groups to grow low single digits for the year with a similar profile to the first half. On the back of a strong first half performance, we now expect margin expansion of 150 to 200 basis points and are increasing both the lower and higher end of our EPS range, which is a $0.13 increase at the midpoint. $0.23 of that coming from operational performance offset by $0.10 of FX and tariff impact.
Speaker Change: Certainly as these things materialize and they stabilize in a factory, we're bringing better benefits to the customers they should generate better pricing in the marketplace. So I do expect that we should see better margin performance from them, but really what we're focused on is delivering against customer expectations, beating the competition.
Speaker Change: So, Scott, I'm glad you asked about R&D and NPI because it's been in a very important initiative and as I as I talked to a year ago, this would take some time to materialize. And we are starting to see, you know, some improvement on our 5 year sales. We talked about 9% up in the, you know, in the first half and and you know quite good for the year going to 15%. So it's actually trending, you know, in the right way, uh, I'm I'm really excited about the fact that we're launching more products up, 70% in the quarter and, you know, we did more in the first half or about as many in the first half as as we did in 2023. So the progress on that I think has been has been quite good
Speaker Change: Gaining share of wallet and just getting back to that spirit of innovation at the company and.
As I said I think the progress we've made so far has been fantastic, we're investing more in R&D or shifting dollars, we're shifting resources into new product development as we've talked a year ago. We're up about 150 people since the since Q4 of last year or so so it takes some effort.
Speaker Change: It takes focus takes following the metrics but were.
Anurag Maheshwari: We now expect a free cash flow conversion to be higher than 100%, building on strong first-half performance, efficient CapEx, and second-half improvement in working capital, providing us with further optionality on capital deployment.
Speaker Change: We're making good progress and we should see certainly growth and hopefully some margin benefit as well.
Speaker Change: Okay. That's helpful.
Speaker Change: Wanted to follow on that a little bit I mean, historically when you think about.
Speaker Change: Some of your customers have been tough to get price with auto Big box guys.
Anurag Maheshwari: Let me walk you through the drivers of the EPS guidance updated on slide A. First, we are flowing through 23 stands of operational improvements, which include actions to offset the tariff impact. This is driven by 16 cents of productivity, which includes the GNA efficiency gains and 7 cents metered investment. As we highlighted previously, we are investing in a metered manner while maintaining the critical growth investments to support our strategic priorities. Finally, as mentioned, we have now included tariffs in the guidance, which is a gross headwind of $0.20, partially offset by the foreign exchange headwind reduction from $0.15 to $0.05.
Speaker Change: Brutally hard stuff is it have you found that new products are really going to be your only avenue of getting price for those guys or because of the realities of inflation and tariffs and such do you find it a little bit easier to capture a little bit of inflation impact from those guys also without new products.
Speaker Change: I think the we should be expecting both improvements in growth from new product Innovation, you know, as as well as improving margin as you're bringing a product to Market, um, certainly as these things materialize and they stabilize in a factory, we're bringing better benefits to the customers, they should generate, you know, better pricing in the marketplace so I do expect that we we should see better margin performance from them. But really what we're focused on is delivering against customer expectations, beating the competition, regaining share of wallet and just getting back to that Spirit of innovation at the company. And um as I said, I think the progress we've made so far has been fantastic. We're we're investing more in R&D. We're shifting dollars, we're shifting resources in the new product development, as we talked to a year ago, we're up about 150 people since the since Q4 of last year. So, so it takes some effort. Uh, it takes Focus, takes following the metrics, but um, we're making good progress and
We should see certainly growth and hopefully some margin benefit as well.
Speaker Change: So it's what we're seeing so far this year is pretty good progress on pricing and it's mostly coming out of the industrial businesses I think you're right for auto where it's a second business as you witnessed back you tend to have some value built into that it's hard to determine how much is price versus the value. That's there.
Anurag Maheshwari: On the other non-operational items, there is no change from the prior guidance. Putting this all together, the EPS growth year on year is driven by strong operational improvement, and we now expect an operational benefit of $0.95 to $1.20, partially offset by $0.50 of tariff, FX, and non-op headwinds for a total EPS growth of 6% to 10%. Regarding the second half, we expect year-on-year earnings growth of 18 cents at the midpoint. Similar to the first half, this includes an approximately $0.50 to $0.55 benefit from volume growth and continued productivity, net of stranded costs and growth investments, which is partially offset by $0.30 to $0.35 of tariff impact and higher interest expense.
Speaker Change: <unk>, the big box people, a little bit harder as you as you just pointed out.
So it's a bit we're getting better price certainly on the industrial side.
Speaker Change: Yeah, some of your customers have been tough to get price with, you know, Auto big box guys. I mean just brutally hard. So is it have you found that new products are really going to be your only Avenue of getting price for those guys or or because of the realities of inflation and tariffs and such? Do you find it a little bit easier to capture a little bit of of inflation impact? Uh, from those guys, also, without new products,
Speaker Change: And as I've said before we are covering our inflation typically with a little bit more because of the tariff impacts coming through so we're doing pretty well this year on pricing again, mostly on the industrial side.
Speaker Change: Best of luck guys. Thank you. Thank you David.
Speaker Change: Yeah.
Speaker Change: Our next question comes the line of Jeffrey Sprague with vertical research. Please proceed with your question.
Jeffrey Sprague: Hey, good morning, everyone.
Speaker Change: Bill.
Speaker Change: Morning.
Speaker Change: Maybe just.
Speaker Change: But from a growth side to the cost side and we're working on there I'm wondering if you could just elaborate a little bit more on.
Speaker Change: So it's uh, what we're seeing so far this year is is pretty good progress on on prices and it's mostly coming out of the industrial businesses. I think you're right for auto where it's just back in business as you win a spec. You you tend to have some value built into that. It's hard to determine how much is price versus the value. That's their consumer, The Big Box, people are a little bit harder as you as you just pointed out, you know? So it's a bit, you know, we're getting better price, certainly on the industrial side. Um, you know, and that and and as I've said before we, we are covering our inflation typically with a little bit more because of the, the, the Tariff impacts coming through. So we're doing pretty well this year on pricing again, mostly on the industrial side.
Speaker Change: The sources of operational upsides.
Speaker Change: Okay, that's a lot, guys. Thank you. I appreciate it.
Anurag Maheshwari: Before we open the call for questions, I would like to acknowledge and thank the 3M team for their focus on operational excellence and controlling the controllables in a dynamic macro environment, which gives us confidence in meeting our increased guidance and delivering strong shareholder returns in 2025.
Speaker Change: <unk>.
Speaker Change: And the footprint versus kind of G&A and the like and I ask the question of the spirit right. The adjusted margins are moving up pretty nicely. We don't get an adjusted gross margin for example, so how much of it at the gross line how much of it's kind of in G&A and how do you see that playing out going forward Okay. Jeff.
Speaker Change: Our next question comes from the line of Jeffrey sprag with vertical research, please proceed with your question.
Unknown Executive: With that, let's open the line for questions. 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.
Jeff: It's a good question and I'll start and maybe I'll ask on a rugby junket not been a part of this so for the year. It's about a half a billion dollars of productivity are more or less about half is coming out of G&A and about half is coming out of out of our factories are out of our supply chain, which as we translate it internally.
Jeff: Is running about 2% net of inflation, which is about what we had expected inflation in the quarter Q2 was a little bit higher than two in Q1 was a little less than two for the first half is around 2% for the year, we're expecting about the same and again, we're getting about 2% gross productivity too.
Scott Davis: Our first question comes from the line of Scott Davis with Melius Research. Please proceed with your question. Hey, good morning, guys. Morning, Scott.
2% net productivity on top of the deflation. So it's actually been pretty good on the on the supply chain side. It's the elements that we've been talking about I alluded to in some of my prepared remarks.
Bill Brown: Bill, can you talk about the new product plan and I guess kind of more specifically teasing out the impact on kind of margin versus you know versus growth and how you think about that tipping point where you can really start to see growth above your end markets. I'll just leave it at that, I have a follow-on. So Scott, I'm glad you asked about R&D and NPI because it's been a very important initiative and as I as I talked a year ago this would take some time to materialize and we are starting to see you know some improvement on our five-year sales we talked about nine percent up in the you know in the first half and and you know quite good for the year going to 15 so it's actually trending you know in the right way.
Speaker Change: Hey, good morning everyone, good morning Jeff. Um, hey Bill May good morning, um, maybe just uh, pivot from the gross side uh to the cost side and what you're working on there. I'm wondering if you could just elaborate a little bit more on, you know, kind of the sources of operational upside, um, you know, in the footprint versus kind of GNA. And, and the like, and I asked the question in the spirit, right? The adjusted margins are moving up, pretty nicely. We don't get an adjusted gross margin for example. So you know how much of its at at the gross line how much of its kind of in GNA and and how do you see that playing out moving forward? Okay, Jeff so it's it's a good question and I'll start and maybe I'll ask gone or I'll to jump jump, jump in a part of this. So, for the year, it's about half a billion dollars of of productivity, uh, more or less about half is coming out of GNA and about half is coming out of um out of our factories out, our out of our supply chain which as we translate it internally, uh is running about 2.
Jeff: $40 million to $50 million coming out of reduced.
Jeff: Cost of poor quality, which has been a good trajectory that we've been on a long journey a lot more to do good movement on procurement savings net net of any inflationary pressures from them from our suppliers.
Speaker Change: Good cost controls on the four wall size within our factories as well as in the logistics network as well. So overall about $250 million really good progress on driving supply chain productivity and I would say the same thing on the G&A side and I'll turn the Iraq to maybe say a couple of words of what's happening on the G&A side, but overall about half of.
Jeff: Billion.
Bill Brown: I'm really excited about the fact that we're launching more products up 70 in the quarter and you know we did more in the first half or about as many in the first half as we did in 2023. So the progress on that I think has been quite good. I think we should be expecting both improvements in growth from new product innovation as well as improving margin. As you're bringing a product to market, certainly as these things materialize and they stabilize in a factory, we're bringing better benefits to the customers. They should generate better pricing in the marketplace.
G&A half its supply chain, okay. Thanks Bill.
Speaker Change: Hey, Jeff really encouraged by the performance and productivity across both supply chain and on the G&A side and that gives us confidence to raise the EPS at the midpoint by about <unk> <unk>.
Speaker Change: Bill spoke to the pieces on supply chain very consistent to what we communicated at Investor day across the four buckets on the G&A. Similarly at the Investor Day, What we said is the three areas. Maybe you would expect G&A savings should come models.
Speaker Change: 2% net of inflation, which is about what we had expected, you know, inflation in the quarter. Uh, Q2 was a little bit higher than 2, in q1 was a little less than 2 for the first half. It's around 2%, for the year, we're expecting about the same. And again, we're getting about 2%, uh, gross productivity, uh, 2%, net productivity on top of inflation. So it's actually been pretty good on the, on the supply chain side. It's the elements that we've been talking about. I alluded to, in, in some of my prepared remarks, you know, uh, 4050 million dollars coming out of reduced, uh, cost per quality, which has been a good trajectory that we've been on a long journey. A lot more to do, uh, good movement on procurement savings net. Net of any inflationary pressures from, in from our suppliers. You know, really good cost controls on the 4-wall side So within our, our factories, as well as in the logistics Network as well. So overall about 250 million dollars really good progress on driving supply chain productivity. And I'd say the same thing on the GNA side
Speaker Change: Optimization, where you spent close to $1 billion.
Speaker Change: Second is indirect expenses, where we spend more than $3 billion and then shed.
Speaker Change: Shared services, so where are we seeing more of the opportunities coming to the first two buckets I think on the IC. The team has done a really really good job.
Bill Brown: So I do expect that we should see better margin performance from them. But really what we're focused on is delivering against customer expectations, beating the competition, regaining share of wallet, and just getting back to that spirit of innovation at the company. And as I said, I think the progress we've made so far has been fantastic. We're investing more in R&D. We're shifting dollars. We're shifting resources in the new product development. As we talked a year ago, we're up about 150 people since Q4 of last year. So it takes some effort. It takes focus. It takes following the metrics.
Speaker Change: We've taken our it expenses is broken into three categories, which is protecting and maintaining and investments to maintain and switch is about two thirds of.
Speaker Change: And I'll turn to OT to maybe say a couple of words of what's happening on the GNA side. But overall about about half a billion dollars, half GNA half in supply chain. Okay, uh, thanks Bill. So hey, Jeff really encouraged by the performance and productivity just across both supply chain and on the GNA site, and that gave us confidence to raise the EPS at the midpoint by about 13 cents. Yeah. So, you know, Bill spoke with the pieces on supply chain, very consistent, to what we communicated and invested across the 4 buckets, on the GNA, similarly at the investor day. What we said
Speaker Change: The team has done good job in terms of cloud mainframe network optimization also looking at staff augmentation number of applications. We have so there's a whole bunch of tactical efforts that the team has gone through and done a good job and whats also shown as not only as these savings, which we can take in the quarter, but ultra long term structural savings that we can see.
Scott Davis: But we're making good progress, and we should see certainly growth and hopefully some margin benefit as well. Okay, Phil, that's helpful.
Speaker Change: And we are well down that path on indirect I mentioned in the last call as well we have more visibility in terms of the data spend is going so first please look at it but it's aligned with our strategic priorities or not if it's not aligned then we don't need to spend if it's aligned what's the best way for us to procure and.
Scott Davis: And I just want to follow on in that a little bit. I mean, historically, when you think about, you know, some of your customers have been tough to get priced with, you know, auto big box guys, I mean, just really hard. So is it? Have you found that new products are really going to be your only avenue of getting price for those guys? Or because of the realities of inflation and tariffs and such? Do you find it a little bit easier to capture a little bit of inflation impact from those guys also without new products?
Speaker Change: To use the leverage of the enterprise. So I think it's moving quite well in that direction and shared services will take a little bit more time as we go down that path, but all I would say very good performance and productivity.
Bill Brown: And then bill maybe just back to growth as my follow up.
Bill Brown: So it's what we're seeing so far this year is is pretty good progress on on pricing, and it's mostly coming out of the industrial businesses. I think you're right for auto where it's a spec in business, as you win a spec, you tend to have some value built into that it's hard to determine how much is price versus the value that's their consumer, the big box people a little bit harder as you as you just pointed out, you know, so it's a bit, you know, we're getting better price, certainly on the industrial side. You know, and as I've said before, we are covering our inflation typically with a little bit more because of the the tariff impacts coming through.
Bill Brown: Just maybe your philosophy on sort of metering the best investments I get at the macro is not great and you're managing complex P&L.
Said is there are 3 areas where we would expect GNA savings to come out of, uh, it optimization where we spend close to a billion dollars. Second is indirect expenses, uh, where we spend more than 3 billion dollars and then uh uh, shared services. So where we seeing more of the opportunities coming into the first 2 buckets. I think on the it, the team has done a really, really good job. Um, we take our it expenses, it's broken into 3 categories, which is protecting maintaining, and, uh, Investments maintenance, which is about 2/3 of it. You know, the team's done, good job in terms of cloud Mainframe Network optimization. Also, looking at staff augmentation, the number of applications we have. So, there's a whole bunch of tactical efforts that the team has gone through and done a good job. And what's also shown is not only is these savings, which we can take in the quarter but also long-term structural savings that we can see. And we have well done on that path. On indirect, I mentioned in the last call as well. Uh, we have more visibility in terms of the data where the spend
Bill Brown: But it's but it <unk> right I think we all would have been.
Bill Brown: We with the guide seven slower than what you've put out today and you are telling us they were put on the gas on the investment. So are these just kind of longer term things that weren't going to bear fruit in the near term anyhow again, maybe just your philosophy on that.
Speaker Change: We look at, but it's aligned with our strategic priorities and not if it's not aligned, then we don't need to spend if it's aligned, what's the best way for us to procure and, um, use the leverage of the Enterprise? So I think it's moving quite well in that direction and shared services will take a little bit more time as we go down that path. But, but overall, I would say very good performance and productivity.
Speaker Change: Jeff It's a good question. If you look at this very very carefully and we're leaning in on making growth investments, where we think there's a a prudent payback in the near to medium term and if we see the macro not as strong as we had anticipated we're pulling back a little bit, but still we're significantly investing in growth investments. This year that number is.
Scott Davis: So we're doing pretty well this year on pricing, again, mostly on the industrial side. Best of luck, guys. Thank you.
Speaker Change: $175 million and when you parse that there's there is significant more than add bad merck's theres more in the sales force, there's more going into R&D.
Jeffrey Sprague: Our next question comes from the line of Jeffrey Sprague with Vertical Research. Please proceed with your question. Hey, good morning, everyone. Hey, Bill, good morning. Maybe just pivot from the growth side to the cost side and what you're working on there. I wonder if you could just elaborate a little bit more on, you know, kind of the sources of operational upside, you know, in the footprint versus kind of GNA and the like. And I asked a question in the spirit, right, the adjusted margins are moving up pretty nicely. We don't get an adjusted gross margin, for example.
Speaker Change: Mentioned went up 150 people there were pushing people from PFS into R&D into new product development as well so.
Speaker Change: We're pushing up our R&D spend as a percentage of of of.
Speaker Change: Of sales all those pieces I think are going in the right direction and there are some things that are happening on the IP side that are systems related to driving growth. So all of those things, we're trying to be smart and prudent and invest in to actually stimulate long term growth.
And then Bill, maybe just back to growth as my follow-up. Um, just maybe your philosophy on sort of metering, the best investments I get at. The macro is not great and you're managing, you know, a complex p&l, uh, you know, but it's, but it's 7 cents, right? I think we, yeah, all would have been perfectly happy with the guide, 7 cents, slower than what you put out today. And, you know, you're telling us. Hey, we're keeping our foot, on the gas, on the investment. So are these just kind of longer term things that weren't going to bear fruit in the near term anyhow. And again maybe just your philosophy on that. No. So so Jeff is a good question. I mean we look at this very very carefully and and we we are leaning in on making growth Investments where we think there's a a prudent payback you know in the near to medium term and if we see the macro not as strong as as we had anticipated. What we're pulling back a little bit but still we're we're significantly investing in growth Investments this year. The number is about 175 million dollars and when you parse that there's, there's significant more in ADB. Bad merch is more in the sales.
Speaker Change: Recognizing where the macro happens to be today. So I think we're being balanced tier Jeff when we look at it very carefully to the extent that things look a little bit better in the back half into 2006 that we'll let a little bit more out, but we watch it very carefully.
Bill Brown: So, you know, how much of it's at the gross line? How much of it's kind of in GNA? And how do you see that playing out moving forward?
Bill Brown: Okay, Jeff, so it's a good question. And I'll start and maybe I'll ask Anurag to jump in on part of this. So for the year, it's about half a billion dollars of productivity, more or less about half is coming out of GNA. And about half is coming out of our factories, out of our supply chain, which, as we translated internally, is running about 2% net of inflation, which is about what we had expected. You know, inflation in the quarter, Q2 was a little bit higher than two and Q1 was a little less than two for the fire staff.
Speaker Change: Great. Thanks for the perspective.
Speaker Change: Our next question comes from the line of Julian Mitchell with Barclays. Please proceed with your question.
Julian Mitchell: Hi, good morning.
Julian Mitchell: Maybe just wanted to start with this.
Julian Mitchell: Slide four where you run through some of those macro.
Julian Mitchell: Buckets.
Bill Brown: It's around 2% for the year, we're expecting about the same. And again, we're getting about 2% gross productivity, 2% net productivity on top of inflation. So it's actually been pretty good on the supply chain side. It's the elements that we've been talking about, I alluded to in some of my prepared remarks, you know, $40, $50 million coming out of reduced cost per quality, which has been a good trajectory that we've been on, a long journey, a lot more to do, good movement on procurement savings, net of any inflationary pressures from our suppliers. Really good cost controls on the four wall size within our factories, as well as in the logistics network as well.
Julian Mitchell: And just trying to understand within general industrial and safety is the improvement that based on sort of self help market share.
Force is more going into R&D, you know, as I mentioned, we're up 150 people. There were pushing people from POS into R&D into new product development as well. So so we're, we're pushing up our R&D spend as a percentage of of, uh, of sales. All those pieces I think are going, uh, in the right direction and there's some things that are happening on the it side that that are systems related to driving growth. So all of those things, we're trying to be smart and prudent and, and invest in to, to actually stimulate long term growth, you know, about recognizing where the macro happens to be today. So I I think we're being balanced here, Jeff we look at it very carefully, you know, to the extent that things, look a little bit better in the back, half in the 26th. Then we'll let it a little bit more out. Uh, but we watch it very carefully.
Jeff: Great, thanks for the perspective. Okay? Jeff
Julian Mitchell: Three of them.
Julian Mitchell: It sounded like that but I wanted to what you were assuming for the sort of core macro environment in the back half and maybe just give us any understanding of how recent demand trends evolved across different markets in the last couple of months, Okay. Julien I'll start here and Rob can jump in as well I'm glad you pointed that chart out we spent a lot.
Speaker Change: Our next question comes from the line of Julian Mitchell with Barclays. Please proceed with your question.
Time, putting together to make it as clear for investors as we can on on whats happening in the macro as we see it and the impacts on on the company you look at as I mentioned in my script. The macro it's sluggish it's moving laterally I went through some of the numbers there on what's happening with Ipi has shrunk, 2%, it's sort of flattish.
Bill Brown: So overall, about $250 million, really good progress on driving supply chain productivity.
Julian Mitchell: Maybe um, just wanted to start with the um, the slide 4, where you run through, some of those, um macro um buckets. Um, and just trying to understand within General industrial. And safety is the Improvement there based on sort of self-help market, share efforts at 3M. Um,
Anurag Maheshwari: And I'd say the same thing on the GNA side, and I'll turn to Adharag to maybe say a couple of words of what's happening on the GNA side. But overall, about half a billion dollars, half GNA, half in supply chain. Thanks, Bill. So Jeff, really encouraged by the performance and productivity just across both supply chain and on the GNA side. And that gave us confidence to raise the EPS at the midpoint by about $0.13. So, you know, Bill spoke through the pieces on supply chain, very consistent to what we communicated and invested across the four buckets.
Julian Mitchell: GDP is about the same as the twos and about to be the same maybe a little bit softer in the back half PMI I mentioned.
Julian Mitchell: Is below below 50% at 49, but it's.
Julian Mitchell: So it's still contracted but not as much. So again things are just moving laterally consumer remains relatively sluggish and.
Julian Mitchell: And what do you see on that on that slide four.
Julian Mitchell: Is momentum building inside the company on self help on new product introductions, many of which will come out in the market and commencing in the first half of the year will start to impact sales in the back half and the benefits of commercial actions, which is really starting to take hold inside the company. So general industrial includes parts.
Anurag Maheshwari: On the GNA, similarly, at the end of yesterday, what we said is there are three areas where we would expect GNA savings to come out of. IT optimization, where we spend close to a billion dollars. Second is indirect expenses, where we spend more than $3 billion. And then shared services. So where are we seeing more of the opportunities coming into the first two buckets? I think on the IT, the team has done a really, really good job. We take our IT expenses, it's broken into three categories, which is protecting, maintaining, and investments, maintenance, which is about two thirds of it.
Julian Mitchell: <unk> of both <unk> and <unk>, so parts of those two businesses. So as abrasives industrial specialties roofing granules electrical markets a piece of the tapes business that goes into industrial products and then from TPG includes advanced materials, Aerospace and defense, which actually we.
Julian Mitchell: It sounded like that but I wondered what you were assuming for the sort of core macro environment in the back half. And maybe just give us any understanding of how recent demand Trends have evolved across different markets and the last couple of months, okay, Julia. So I'll start here in on rock and jump in as well. I'm glad you pointed that chart out. We spent a lot of time putting together to make it as clear for investors as we can on on, what's happening in the macro as we see it and the impacts on on the company. You know, look at, as I mentioned, in my script, the, the macro it just, it's, it's sluggish. It's moving laterally. I, I went through some of the numbers there on, what's happening with IPI? It's around 2%. It's, it's sort of flattish. GDP is about the same. It's a mid twos and, and about, to be the same, maybe a little bit softer in the back half. You know, PMI I mentioned is, is below, you know, below 50 is at 49 but it's, you know, so it's still Contracting, but not as much. So so again things are just moving laterally. Consumer means relatively sluggish. Uh and what you see on that.
Anurag Maheshwari: You know, the team has done a good job in terms of mainframe network optimization, also looking at staff augmentation, the number of applications we have. So there's a whole bunch of tactical efforts that the team has gone through and done a good job. And what's also shown is not only is these savings, which we can take in the quarter, but also long-term structural savings that we can see. And we are well down on that path. On indirect, I mentioned in the last call as well, we have more visibility in terms of the data, where the spend is going.
Julian Mitchell: We expect to grow pretty decently in the back half consumer branding.
Julian Mitchell: So it's got commercial branding and de transportation safety. So you've got all those pieces in there its about 38% to 40% of the company. So it's a pretty big.
Julian Mitchell: Part of it.
Julian Mitchell: Again, industrial Ipi is moving somewhat laterally, but generally speaking the opportunities. We're seeing here are principally coming from us.
Julian Mitchell: On that slide for, um, is momentum Building inside the company on self-help, on new product. Introductions, you know, many of which will come out in the market. They come in to be in the first half of the year, we'll start to impact sales in the back half and, and the benefits of commercial Excellence, which is really starting to take hold inside the company. So, so General industrial uh includes parts of both sib and teb. So parts of those 2 businesses so it has a braces Industrial
Anurag Maheshwari: So first we look at whether it's aligned with our strategic priorities or not. If it's not aligned, then we don't need to spend. If it's aligned, what's the best way for us to procure and use the leverage of the enterprise. So I think it's moving quite well in that direction.
Julian Mitchell: Self help there is some in the markets. We know andas is going to be picking up for us in the back half it wasn't as strong in the first is as we had expected some internal some external issues, but we see that picking up for us in the back half electrical markets remain very robust for US again, we expect it to be high single digits going into the back half so that's kind of.
Anurag Maheshwari: And shared services will take a little bit more time as we go down that path, but overall, I would say very good performance and production.
Julian Mitchell: Not shown on the safety side.
Julian Mitchell: Or on the general industry side on safety, we had a good start to the year, we see some acceleration in the back half part of it is from new product introduction in fire safety CBA, We've launched a new product that we've had some big wins with government customers. So we do see the back half on safety.
Jeffrey Sprague: And then Bill, maybe just back to growth as my follow up, just maybe your philosophy on sort of metering the best investments. I get it, the macro is not great, and you're managing, you know, a complex P&L, you know, but it's but it's seven cents, right? I think we all would have been perfectly happy with the guide seven cents lower than what you put out today. And you know, you're telling us, hey, we're keeping our foot on the gas on the investment. So are these just kind of longer term things that weren't going to bear fruit in the near term?
Julian Mitchell: Celebrating their as well because of both a couple of wins that we've had with some new product introductions.
That's great. Thanks, very much and then just.
Bill Brown: Anyhow, again, maybe just your philosophy on that? No, so Jeff is a good question. I mean, we look at this very, very carefully. And we were leaning in on making growth investments where we think there's a prudent payback, you know, in the near to medium term. And if we see the macro not as strong as, as we had anticipated, we're pulling back a little bit, but still, we're significantly investing in growth investments this year, the number is about $175 million. And when you parse that there's there's significant more in ad merch, there's more in the Salesforce, there's more going into R&D.
Julian Mitchell: Focusing a little bit on the second half.
Julian Mitchell: Guidance.
Julian Mitchell: You know often you'll third quarter earnings.
Julian Mitchell: Good morning.
Julian Mitchell: Yeah.
Julian Mitchell: Okay.
Moving into the second quarter.
Julian Mitchell: Maybe help us understand you know how.
Julian Mitchell: Okay.
Julian Mitchell: Quarter versus fourth quarter dynamics anything to call out on sales or the margin progression.
Julian Mitchell: Uh, self-help. There's some in the markets, we know A and D is going to be picking up for us in the back half. It wasn't as strong in the first as as we had expected some internal, some external issues, but we see that picking up for us in the back. Half, electrical markets, remain, very robust for us again, we expect that to be high single digits, going into the back half. So that's kind of a nutshell on, on the safety side on on on on, on the General Industry side on safety. You know, we had a good start to the year, we see some acceleration in the back, half part of, it is from new product introduction. In fire safety SCBA, we've launched a new product, you know, that, uh, and, and we've had some big wins with government customers. So we do see the back half on safety, accelerating there as well because of, you know, both a couple of wins that we've had, but some new product introductions
Speaker Change: Thanks Julien.
Bill Brown: You know, as I mentioned, we're up 150 people there, we're pushing people from PFAS into R&D into new product development as well. So we're pushing up our R&D spend as a percentage of sales, all those pieces, I think, are going in the right direction. And there's some things that are happening on the IT side, that are systems related to driving growth. So all of those things we're trying to be smart and prudent, and invest in to actually stimulate long term growth, you know, about recognizing where the macro happens to be today. So I think we're being balanced here, Jeff, we look at it very carefully, you know, to the extent that things look a little bit better in the back half in the 26th, and we'll let a little bit more out, but we watch it very carefully.
Julian Mitchell: Here.
Julian Mitchell: So some of them in the second half lets just first start with the topline guidance.
Julian Mitchell: Guidance for the full year is approximately 2% organic growth in the first half we grew one 5% so that would imply a two 5% growth in the back half and we're expecting probably Q3 and Q4 to grow at similar levels around there in terms of EPS Q3 is historically higher than Q4 and Thats what puts these because seasonally our revenues higher in.
Julian Mitchell: Q3 than in Q4 and also on the margin side, it's higher the ratio as Ben If you look at the second half 52% of the EPS or the second half is in Q3 about 48% in Q4, so we kind of expect the same.
Speaker Change: That's great. Thanks, very much. And then just, um, focusing a little bit on the second half, um, guidance. Um, you know, often your third quarter earnings are up a little bit sequentially, but I understand you had that 6 Cent gain, um, moving into the second quarter. Um, maybe help us understand, you know, how you how we should be thinking about third quarter versus fourth quarter Dynamics, um, anything to call out on sales or the margin, uh, progression.
Julian Mitchell: And this year as well.
Speaker Change: That's great. Thank you.
Jeffrey Sprague: Great, thanks for the perspectives. Okay, Jeff.
Julian Mitchell: <unk>.
Speaker Change: Our next question comes from the line of Amit Mehrotra with UBS. Please proceed with your question.
Julian Mitchell: Our next question comes from the line of Julian Mitchell with Barclays. Please proceed with your question. Hi, good morning. Maybe just wanted to start with the slide four where you run through some of those macro buckets and just trying to understand within general industrial and safety is the improvement there based on sort of self-help market share efforts at 3M. It sounded like that, I wondered what you're assuming for the sort of core macro environment in the back half and maybe just give us any understanding of how recent demand trends have evolved across different markets and the last couple of months.
Amit Mehrotra: Thanks, Good morning, everybody.
Speaker Change: I guess, maybe just a separate topic talk about P fast.
Speaker Change: I think there was obviously a max settlement are on a nice settlement, but a decent settlement with the state of New Jersey.
Julian Mitchell: Yeah, thanks, Julian here. Um, so listen within the second half. Let's just first start with the Top Line. Uh guidance for the full year is approximately 2% organic growth. In the first half, we grew 1 and a half percent so that would imply a 2 and a half percent growth in the back half. And we expecting probably Q3 and Q4 to grow at a similar levels around there. In terms of eps Q3 is historically higher than Q4 and that's what firstly, because seasonally our revenue is higher in Q3 then in Q4. And also in the margin side, it's higher. The ratio has been. If you look at the second half, 52% of the EPS of the second half is in Q3 about 48% is in Q4. So we kind of expect the same uh, Trend this year as well.
Speaker Change: I think you have 30 more states still pending.
Speaker Change: That's great. Thank you.
Speaker Change: There's obviously a personal injury suits Austin, but just given the development in new Jersey, and kind of the structure of that.
Our next question.
Speaker Change: And then you obviously year to date.
May rotra: Comment May rotra with UBS, please. Proceed with your question.
Speaker Change: Feeding your full year share buyback target, but maybe bill talk about.
Speaker Change: Your precious most updated thoughts on that.
Speaker Change: I still feel that there's this overhang on the value of the company based on these pending liabilities. So I think it would be great to hear your thoughts on maybe how you view the progress on these and when you expect to maybe gain a little bit more color.
Bill Brown: Okay, Julian, so I'll start here and Anurag can jump in as well. I'm glad you pointed that chart out. We spend a lot of time putting it together to make it as clear for investors as we can on what's happening in the macro as we see it and the on the company. As I mentioned in my script, the macro, it's sluggish, it's moving laterally. I went through some of the numbers there on what's happening with IPI, it's around 2%. It's sort of flattish. GDP is about the same. It's in the twos and about to be the same, maybe a little bit softer in the back half.
Speaker Change: For clarity on it.
Thanks uh, morning everybody. Um, I guess maybe. Um just a separate topic. Talk about pfas. Uh I think there was obviously a nice settlement or not, a nice settlement, but a decent settlement ties with the state of New Jersey. Um, I I think you have 30 more States still pending um,
Speaker Change: So amit thanks for the question and yes. So we did have a settlement with the state of New Jersey, both for a specific site, which which we did not own <unk> Dupont site.
Speaker Change: But there was some liability there as well as state wide claims and we believe it was the right decision for the company and the shareholders to take risk off the table.
Bill Brown: PMI, as I mentioned, is below 50, it's at 49, so it's still contracting, but not as much. So again, things are just moving laterally. Consumer remains relatively sluggish. And what you see on that slide four is momentum building inside the company on self-help, on new product introductions, many of which will come out in the market in the first half of the year will start to impact sales in the back half, and the benefits of commercial excellence, which is really starting to take hold inside the company. So general industrial includes parts of both SIBG and TEBG, so parts of those two businesses.
Speaker Change: Spread cash out cash payments out over the next 25 years through 2050. So we thought that that was quite manageable you're right. There's just over 30 other states.
Speaker Change: AG cases, both within the <unk> some outside of the MTL.
Speaker Change: We're taking them piece by piece Theres, obviously lots of conversation going on with the Ags <unk> in individual states. So there's a lot of activity there.
Speaker Change: And I.
Speaker Change: I just want to remind you where we are exiting P fast manufacturing by the end of this year.
No new molecules at the company's produced on PFS going into the environment. These are all settling legacy issues and we're going to deal with this as best that we can personal injury is on the horizon. It is scheduled for October.
Speaker Change: There's obviously a personal injury suit still asking, but just given the, the development in New Jersey and kind of the structure of that, um, and then you're obviously year to date. Exceeding, your full year, share buyback Target. But, but maybe they'll talk about, um, your freshest most updated thoughts on on that because I still feel, I still feel. There's there's this overhang and the value of the company based on these pending liabilities. So I think it would be great to hear your thoughts on maybe how you view the progress on these and when you expect to, you know, maybe gain a little bit more Fuller or full full full clarity on it. Well, so, so I'm at. Yeah. Thanks for the question. And uh, yeah. So we did have a settlement with the state of New Jersey, both for a specific site which which we did not own. Uh, it's a chemours Dupont site. Uh, but there was some liability there as well as Statewide claims. And, you know, we believe it was the right decision for the company and the shareholders to take risk off the table. Uh, it spread cash out, cash payments out over the next 25 years through 2050. So we thought that that was, you know, quite manageable.
Bill Brown: So it has abrasives, industrial specialties, roofing granules, electrical markets, a piece of the tapes business that goes into industrial products. And then from TEBG includes advanced materials, aerospace and defense, which we expect to grow pretty decently in the back half, consumer branding. So it's got commercial branding and transportation safety. So you've got all those pieces in there. It's about 38 to 40% of the company, so it's a pretty big part of it. Again, industrial IPI is moving somewhat laterally, but generally speaking, the opportunities we're seeing here are principally coming from self-help. There's some in the markets we know A&D is going to be picking up for us in the back half.
Speaker Change: October Theres, a bellwether case it does it will be kidney cancer that would be one two or three cases that we tried around October 20th Theres a lot of conversation that's happening there as well there was a sign stay on other things.
Speaker Change: Last months, so theres a lot of activity here, we're managing as best we can.
Speaker Change: Uh, you're right. There's, uh, you know, just over 30 other states, uh, uh, AG cases, uh, both within the mdl and some outside of the mdl, um, we're taking them piece by piece. There's obviously lots of conversation going on with the, the AGS, and the mdl, and individual states. So, there's a lot of activity there. Um, and and we're, you know, I just want to remind you where we, we're exiting Pas manufacturing by the end of this year, you know? So there'll be no new molecules at the companies produced on people.
Speaker Change: It's important for us to make sure that we maintain the cash flexibility to handle these issues as they come up.
Speaker Change: Invest in the growth of the company and that's what we're trying to do our balance sheet is very very healthy.
Bill Brown: It wasn't as strong in the first half as we had expected, some external issues, but we see that picking up for us in the back half. Electrical markets remain very robust for us. Again, we expect that to be high single digits going into the back half. So that's kind of a nutshell on the safety side or on the general industry side. On safety, we had a good start to the year. We see some acceleration in the back half. Part of it is from new product introduction in fire safety. SCBA, we've launched a new product, and we've had some big wins with government customers.
Speaker Change: A lot of Optionality and things that we can do.
Speaker Change: And we are dealing with us and we communicated with investors with what we know as we know it and you see a lot of it in the 10-Q.
Speaker Change: Okay helpful. Thanks, and then maybe just one for Rob just circling back to the first half to second half cadence.
Speaker Change: If I just kind of unpack.
Speaker Change: <unk> margin I mean, I think the company to 24% in the first half guiding to 'twenty three.
Speaker Change: A little over 23 for the full year, we're starting to see that imply that.
Speaker Change: <unk> down in second half versus first half.
Julian Mitchell: So we do see the back half on safety accelerating there as well because of both a couple of wins that we've had, but some new product introductions. That's great. Thanks very much.
Speaker Change: We see your revenue should be higher sequentially. So I'm, just trying to kind of square that circle, a little bit and understand why.
To to handle these issues as they come yet still invest in the growth of the company. And that's what we're trying to do our balance. Sheets very, very healthy, you know, we have, uh, a lot of optionality and things that we can do and, and we're dealing with this and we communicate with investors with what we know, as we know it and you see a lot of it in in the 10q.
Speaker Change: Why.
Speaker Change: What are the puts and takes it actually take margin down two eight versus one age when revenues building sequentially.
Julian Mitchell: And then just focusing a little bit on the second half guidance, you know, often your third quarter earnings are up a little bit sequentially, but I understand you had that six cent gain moving into the second quarter. Maybe help us understand, you know, how we should be thinking about third quarter versus fourth quarter dynamics, anything to call out on sales or the margin progression.
Speaker Change: Thanks, so much.
Speaker Change: Yes.
Speaker Change: Our first half margins, 24%, we're guiding between 150 200 for the year, so that would imply at the midpoint of the second half guidance would be around 22, 5% and the delta between the two as you could see a pickup in volume productivity should do well is essentially the tariff impact that we're seeing in the second half, which is more than a 120 <unk> hundred 30 <unk>.
Speaker Change: At this point and also a pick up in our investment.
Anurag Maheshwari: Yeah, thanks Julian. It's Anurag here. So within the second half, let's just first start with the top line. Guidance for the full year is approximately 2% organic growth. In the first half, we grew 1.5%. So that would imply a 2.5% growth in the back half. And we're expecting probably Q3 and Q4 to grow at similar levels around there. In terms of EPS, Q3 is historically higher than Q4. And that's because seasonally our revenue is higher in Q3 than in Q4. And also on the margin side, it's higher. The ratio has been, if you look at the second half, 52% of the EPS of the second half is in Q3, about 48% is in Q4.
Speaker Change: And kind of cost so that's a big delta between the first half and second half, but volume productivity better, but if you take a step back and you look at it year over year, you're still seeing the second half margins go up by 110 basis points at the midpoint.
Speaker Change: Okay, um, helpful, thanks. And then maybe just 1 1 for hog, just circling back to the the first half the second half. Cadence. If I, if I just kind of unpack, the the implied margin, I mean, I think the company did 24% in the first half, guiding to 23 a little over 23 for the full year. So obviously, that implies a, a step down in second half versus first half, but obviously Revenue should be higher sequentially. So I'm just trying to kind of square that Circle a little bit and understand, you know, why, why, you know, what are the puts and takes that actually take margin down to H versus 1 age. When revenue is building sequentially,
Speaker Change: Okay.
Speaker Change: Tariff after absorbing strategy inquiries and startup costs and higher investment so it's pretty encouraging in terms of the performance of the second half, which is obviously as we go into next to mitigate more of a tariff impact there's more productivity that will come through so overall the momentum in the second half operationally is similar to where the behind the first.
Speaker Change: Yeah, uh, thanks so much. Uh, so yeah. Um, I'll first off margin is 24%. We're guiding between 15200 for the year, so that would imply at the midpoint that the second half guidance would be around 22 and a half percent and the Delta between the 2. As you clearly see a pick up in volume productivity should do. Well, it's essentially the Tariff impact that we are seeing in the second half, which is more than 120 and 130 basis points and also pick up in uh, Investments and Stranded costs. So that's a big Delta between the
Speaker Change: Jeff.
Jeff: Okay. Okay got it. Thank you very much I appreciate it.
Julian Mitchell: So we kind of expect the same trend this year as well. That's great. Thank you.
Speaker Change: Our next question comes from the line of Steve Tusa with Jpmorgan. Please proceed with your question.
Amit Mehrotra: Our next question comes from the line of Amit Mehrotra with UBS. Please proceed with your question. Thanks. Morning, everybody.
Steve Tusa: Hi, good morning, good morning.
Steve Tusa: Just a quick one to start what's the.
Steve Tusa: Embedded assumption on Forex I would've thought there was maybe a little bit more upside.
Bill Brown: I guess maybe just a separate topic, talk about PFAS. I think there was obviously a nice settlement, or not a nice settlement, but a decent settlement size with the state of New Jersey. I think you have 30 more states still pending. There's obviously a personal injury suit still outstanding, but just given the development in New Jersey and kind of the structure of that, and then you're obviously, year to date, exceeding your full year share buyback target. But maybe, Bill, talk about your freshest, most updated thoughts on that, because I still feel there's this overhang in the value of the company based on these pending liabilities.
Steve Tusa: Given your exposure on the euro.
Steve Tusa: Yes, so on Forex headwind on the EPS for the year is about five cents on revenue. We think we think its about flattish.
Speaker Change: First off and the second half uh but volume productivity better. But if you take a step back and you look at it year over year, you still seeing the second half margins, go up by 110 basis points at the midpoint of our guidance and that after absorbing tariff after absorbing straight, increasing strategic cost, and higher investment. So it's pretty encouraging in terms of the performance of the second half, which is obviously, as we go into next year, we mitigate more of the Tariff impact, there's more productivity that will come through. So, uh, overall, you know, the momentum in the second half, operationally is similar to where we are in the first half.
Speaker Change: Thank you very much, appreciate it.
Steve Tusa: And the reason there is a disconnect between the flattish on the revenue and the five cents headwind is just the impact of a year on year hedge benefit that we had last year.
Speaker Change: Our next question comes from the line of Steve tuso with JP Morgan. Please proceed with your question.
Steve Tuso: Uh hey, good morning. Good morning team.
Steve Tusa: As you know, we hedge our non dollar currencies, which create a hedge benefit or loss, which led to the currency movements. So last year in Q2, it produce a significant hedge benefit because of the strength of the dollar the dollar weakens in the second quarter. So the hedge benefit is modest, but which is why you see all of our <unk>.
Um, just a quick 1 to start. What what's the um embedded assumption on Forex? I would have thought there was maybe a little bit more upside uh just giving your exposure on the euro.
Bill Brown: So I think it would be great to hear your thoughts on maybe how you view the progress on these and when you expect to maybe gain a little bit more full clarity on it.
Steve Tusa: <unk> headwind in the first half of the year, which is about <unk> as you go into the second half you should see that kind of normalize and hopefully it will be about.
Bill Brown: Well, so thanks for the question. And yeah, so we did have a settlement with the state of New Jersey, both for a specific site, which we did not own. It's a Commodores DuPont site, but there was some liability there, as well as statewide claims. And we believe it was the right decision for the company and the shareholders to take risk off the table. It spread cash payments out over the next 25 years to 2050. So we thought that that was quite manageable. You're right, there's just over 30 other states, AG cases, both within the MDL and some outside of the MDL.
Steve Tusa: On <unk>.
Steve Tusa: Headwind on the FX side.
Steve Tusa: Okay and then just.
Steve Tusa: A follow up on the consumer electronics side I think you guys are.
Steve Tuso: Yeah. So on Forex, uh, our headwind on the EPS for the year is about 5 cents on Revenue. We think we think it's about flattish, um, and the reason there is a disconnect between the flattish on the revenue and the 5 cents headwind is just the impact of the year on year hedge benefit that we had last year as you as, you know, you know, we hedge our non-dollar currencies, which create a hedge benefit or a loss, which led to the currency movements. So last year in q
Steve Tusa: Maybe a little bit more bearish it seems like on the trends there can you maybe talk about specifically.
Steve Tusa: Where that weakness is on electronics. So we see electronics is still is still up in the back half of it is just not as strong in the front half when we look at the you know across all of the things Tvs tablets phones notebooks everything is sort of softening towards the back end of the year at least that's what's been expected we had a.
Steve Tuso: 2, It produced a significant hedge benefit because of the uh strength of the dollar. Now, the dollar weakens in the second quarter. So the Hedge benefit is modest which is why you see all of our uh FX headwind in the first half of the year, which is about 5 cents as you go into the second half. You should see that kind of normalized. And for fully, I'll be about 5 cents, uh, uh, headwind on the FX side,
Bill Brown: We're taking them piece by piece. There's obviously lots of conversation going on with the AGs and the MDL in individual states, so there's a lot of activity there. And I just want to remind you, we're exiting PFAS manufacturing by the end of this year, so there'll be no new molecules that the company's produced on PFAS going into the environment. There's a lot of conversation that's happening there as well. There was a science day on other things last month. So there's a lot of activity here. We're managing it as best that we can. It's important for us to make sure that we maintain the cash flexibility to handle these issues as they come, yet still invest in the growth of the company, and that's what we're trying to do.
Steve Tusa: Very strong year last year, so part of it is year over year comps, but started.
Steve Tusa: Pretty good in the first half up mid single digits.
Steve Tusa: Still fill up in the back half with softening versus in terms of a rate basis versus the first.
Speaker Change: Okay, and then just uh, this is the follow up on the consumer electronic side. I think you guys are, um, you know, maybe a little bit more bearish. It seems like on uh, on the trends there. Um, can you maybe talk about specifically uh, where that weakness is on electronics?
Steve Tusa: Okay, great. Thanks, a lot. Thank you Steve.
Steve Tusa: Yeah.
Speaker Change: Our next question comes from the line of Andrew <unk> with Bank of America. Please proceed with your question.
Steve Tusa: Hi, guys. Good morning, Hey, good morning, Andrew.
Andrew: Just a quick question kind of weird.
Steve Tusa: Okay.
Steve Tusa: Turns out.
Steve Tusa: On time.
Steve Tusa: And for Oh.
Steve Tusa: I know that that's what kind of a big drag on top line safety and industrial.
Speaker Change: So we see Electronics, it's still it's still up in the back half. It's just not as as strong in the in the front half. You know, when we look at the you know, cross all things, you know TVs, tablets, you know, phones notebooks you know, everything is sort of softening towards the back, end of the year, at least that's what's been expected. You know, we had a very strong year last year, so part of it is year-over-year comps but started, you know, pretty pretty good. In the first half up mid mid single digits, you know, still still up in the back half but softening versus in terms of a rate basis versus the first.
Steve Tusa: What kind of impact to the top line does it have an improving area start regaining traction.
Steve Tuso: Okay, great. Thanks a lot. Thank you, Steve.
Steve Tusa: On the smaller customers can you quantify that or are you seeing any discernible impact yet so we're not going to quantify it specifically because theres lot of factors into why you know why customers may not buy from us because of Otis, but improving at delivering on time in full to customers is quite important and we know from talking to.
Speaker Change: Our next question comes from the line of Andrew Obin with Bank of America. Please proceed with your question.
Speaker Change: I have good morning. Hi, good morning, Andrew.
Speaker Change: Uh, just a question. Uh, can we just, uh, sort of say, uh, in terms of, uh,
Bill Brown: Our balance sheet is very, very healthy. We have a lot of optionality around things that we can do, and we're dealing with this, and we communicate with investors with what we know as we know it, and you see a lot of it in the 10Q.
Steve Tusa: Our end customers. It is a it is a element of churn.
Steve Tusa: <unk> customers leave us that number as you know across the company is pretty substantial we're focused on this we're trying to bring it down one element is responsiveness and customer service its quality its but importantly, it's on time in full so clearly Andrew as we get better on that that's going to allow us to reduce churn grow and we're starting to see.
Amit Mehrotra: Okay, helpful. Thanks.
Anurag Maheshwari: And then maybe just one for Anurag, just circling back to the first half to second half cadence. If I, if I just kind of unpack the implied margin, I mean, I think the company did 24% in the first half, guiding to 23, a little over 23 for the full year. So obviously, that implies a step down in second half versus first half. But obviously, revenue should be higher sequentially. So I'm just trying to kind of square that circle a little bit and understand, you know, what, why, you know, what are the puts and takes that actually take margin down to age versus one age when revenue is building sequentially.
Steve Tusa: The benefits of lower churn in the back half I think part of it probably is related to <unk>, it's hard to say exactly what part of it is though.
Steve Tusa: Okay Gotcha.
Steve Tusa: Sort of going back to the guidance.
Steve Tusa:
Steve Tusa: Okay.
Steve Tusa: I Havent got our way right.
Steve Tusa: It is a little bit different.
Steve Tusa: Second half is weaker.
Anurag Maheshwari: Yeah, thanks so much. So yeah, our first half margin is 24%. We're guiding between 150-200 for the year. So that would imply at the midpoint that the second half guidance would be around 22.5%. And the delta between the two is you clearly see a pickup in volume, productivity should do well. It's essentially the tariff impact that we are seeing in the second half, which is more than 120-130 basis points, and also pickup in investments and stranded costs. So that's a big delta between the first half and the second half, but volume productivity better. But if you take a step back and you look at it year over year, you're still seeing the second half margins go up by 110 basis points at the midpoint of our guidance.
Steve Tusa: The normal seasonality despite accelerating top line until the second half right and I would imagine based on what we're hearing actually pricing dynamic all of that is not that bad on the industrial side.
Steve Tusa: So can you just highlight.
There's a lot of factors into why, you know why customers may not buy from us, you know, because of otip but improving it delivering on time in full. The customers is, is quite important. We know from talking to our end customers. It is a, it is a element of churn. Uh, why customers leave us that number is, you know, cross. The company is pretty substantial. We're focused on this. We're trying to bring it down, you know, 1 element is responsiveness and customer service it's quality. Its but importantly, it's on time in full. So clearly Andrew, as we get better on that, that's going to allow us to reduce churn grow and we're starting to see, you know, benefits of lower churn in the back half. I think, part of it probably is related to otip. It's hard to say exactly what part of it is though.
Steve Tusa: One time items related to your footprint consolidation.
Okay. Gotcha. And and and, and just sort of uh going back to the guidance.
Steve Tusa: And as an observer, what are the headwinds and the.
Steve Tusa: Second half.
Steve Tusa: That is sort of messing with the seasonality could just quantify them cross the gap I really appreciate it. Thank you.
Steve Tusa: There is nothing on the footprint of any one timers in the second half, which is doing operationally. We grew the first half at 50 to 55.
Steve Tusa: And second if we grow around the same rate as well, so volume and productivity, where we see the impact is more on the tariffs. We have 20 <unk> for the year. We had a couple of pennies in second quarter. So 18 cents of that isn't the second half that is the major impact on top of that the stranded cost is picking up in the second half versus the first half.
Anurag Maheshwari: And that's after absolving tariff, after absorbing increasing stranded costs and higher investment. So it's pretty encouraging in terms of the performance of the second half, which is obviously as we go into next year, we mitigate more of the tariff impact, there's more productivity that will come through. So overall, you know, the momentum in the second half operationally is similar to where we are in the first. Okay, got it. Thank you very much. Appreciate it.
Speaker Change: Uh, you know, just very simplistically, you know, I, I I, I think generally write seasonality is a little bit different than it seems second. Half is weaker despite the normal seasonality despite accelerating Topline into the second half, right? And I would imagine based on what we're hearing actually pricing Dynamic, all in is not that bad on the industrial side. So can you just highlight uh 1 time items related to your footprint consolidation and changes and absorb what are the headwinds uh in the second half uh that are sort of messing with the seasonality? Could you just quantify them for us?
Speaker Change: Once again, I really appreciate it. Thank you.
Steve Tusa: And a pickup in investments so I would say those are the big factors. There is no not much of a one timer.
Steve Tusa: Over there the only thing on the EPS between first half and second half is obviously the sale of the investment that we had in Q2, which is below the line, which impacts the second half.
Steve Tusa: Our next question comes from the line of Steve Tusa with J.P. Morgan. Please proceed with your question. Hey, good morning. Good morning to you. Morning. Just a quick one to start. What's the embedded assumption on Forex? I would have thought there was maybe a little bit more upside just given your exposure on the euro. Yeah, so on Forex, our headwind on the EPS for the year is about $0.05. On revenue, we think it's about flat-ish. And the reason there is a disconnect between the flat-ish on the revenue and the $0.05 headwind is just the impact of the year-on-year hedge benefit that we had last year.
Speaker Change: And one other one can you quantify the standard cost again I apologize.
Steve Tusa: Was it trying to cost yes.
Steve Tusa: It's $100 million for the year, it's about $30 million in the first half and $70 million in the second half.
Steve Tusa: Okay, so that hasn't changed.
Steve Tusa: Okay. Thank you.
Steve Tusa: Yeah.
Speaker Change: Our next question comes from the line of Deane Dray with RBC capital markets. Please proceed with your question.
Speaker Change: Uh, thanks. And there is nothing on the footprint. I need 1 time is in the second half which is doing operationally. We grew the first half at 50 to 55 cents and second half, we grow around the same rate as well, so volume and productivity where we see the impact is more on the Tariff. We have 20 cents for the year, we add a couple of pennies in second quarter, so 18 cents of that is in the second half. That is the major impact. On top of that, you know, stranded cost is picking up in the second half versus the first half and a pick up in Investments. So, I would say those are the big factors. Uh, there's no. Not much of a 1-time, uh, over there. The only thing on the EPS between first half and second half is, obviously, the sale of the investment that we had in Q2, which is below the line, which impacts the second half.
Deane Dray: Thank you good morning, everyone winning.
Anurag Maheshwari: As you know, we hedge our non-dollar currencies, which create a hedge benefit or a loss which lag to the currency movements. So last year in Q2, it produced a significant hedge benefit because of the strength of the dollar. Now the dollar weakens in the second quarter, so the hedge benefit is modest, which is why you see all of our FX headwind in the first half of the year, which is about $0.05.
Deane Dray: I was hoping you could take us through the changes in your tariff assumptions.
Quantify the strength that costs, again, I apologize.
Speaker Change: The benefit of the pause that was implemented but did you make any specific mitigation actions in the quarter and kind of what was the decision about <unk>.
Speaker Change: The was it trying to cost? Yeah, so it's it's it's 100 million dollars for the year. It's about 30 million dollars in the first half and 70 million dollars in the second half.
Okay, so that hasn't changed? Yeah.
Speaker Change: Okay, thank you.
Speaker Change: Including it in guidance on a go forward basis.
Speaker Change: Our next question.
Anurag Maheshwari: As you go into the second half, you should see that kind of normalize, and hopefully it'll be about $0.05 headwind on the FX.
Speaker Change: So the last time, we said it was 60 gross now it's 20, the biggest change really is going to be around China.
Question comes from the line of Dean Dre with RBC Capital markets, please proceed with your question.
Speaker Change: Thank you. Good morning everyone morning.
Speaker Change: Last year last quarter, it was about 80% of the tariff impact.
Bill Brown: Okay, and then just just to follow up on the consumer electronics side, I think you guys are, you know, maybe a little bit more bearish, it seems like on on the trend there, can you maybe talk about specifically where that weakness is on electronics? So we see electronics, it's still it's still up in the back half, it's just not as as strong in the front half, you know, when we look at the, you know, across all things, you know, TVs, tablets, you know, phones, notebooks, you know, everything is sort of softening towards the back end of the year, at least that's what's been expected.
Speaker Change: At the time the rate was $1 25, 145, So U S 145, China was 125% they've come down dramatically to tenant 30 that was the biggest source of change you know things are moving around a little bit but we included it in the guidance, mainly because we're more than halfway through the year.
Speaker Change: Hey, I was hoping you'd take us through the changes in your tariff assumptions. Um, you know, the benefit of the the pause that was implemented. But did you make any specific mitigation actions in the quarter? And, you know, kind of what was the decision about uh including it in guidance on a go forward basis?
Speaker Change: Is it stabilized a little bit.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: The balance of the year that would impact 'twenty five the rest would roll into 2026. So we feel we were pretty well calibrated of course, we're watching very carefully what happens in the EU, we've got to watch against any.
Steve Tusa: You know, we had a very strong year last year. So part of it is year over year comps, but started, you know, pretty, pretty good in the first half of the single digits, you know, still still up in the back half, but softening versus in terms of a rate basis versus the first Okay, great. Thanks a lot. Thank you, Steve.
Speaker Change: <unk> escalation and trade tensions with China that could be a change but from the way we see it today.
Andrew Obin: Our next question comes from the line of Andrew Obin with Bank of America. Please proceed with your question. Good morning. Hi. Good morning, Andrew. Just a question.
Speaker Change: We know enough about it in terms of the gross and net impact to roll it through.
Speaker Change: Into guidance, which I think is cleaner for investors. So so we're offsetting 20 gross tariff with both cost and sourcing.
Andrew Obin: Can we just sort of say, in terms of on time, in full, I know that this was, you know, a big drag on top line and safety and industrial. What kind of impact to top line does it have as it's improving and you're sort of regaining traction with your medium and smaller customers? Can you quantify that? Are you seeing any discernible impact yet? So we're not going to quantify it specifically because there's a lot of factors into why, you know, why customers may not buy from us, you know, because of OTIP, but improving it, delivering on time in full to customers is quite important.
Speaker Change: Changes, which is about half of the offset and the other half is coming through price. So the gross amount is about $140 million net around 70 about half, let's say $35 million to $40 million is price. The other half 35 ish million dollars is going to be cost savings as well as sourcing.
Speaker Change: So so the, you know, last time we said it was 60 cents, gross now it's 20, the biggest change really going to be around China, you know, last year, uh, last quarter. You know, it was about 80% of the Tariff impact, you know, at the time the rate was 125 145. So you guys won 45 China was 125%, they they've come down dramatically to 10 and 30, you know, that was the biggest source of change, you know, things are moving around. Still a little bit but we included it, you know, in the guidance you know mainly because we're more than halfway through the year. Uh things have stabilized at least a little bit. Um, and any any changes from here, you know, we'd only have a couple of months in the balance of the year that would impact 25. The rest would roll into 2026 so so we feel we, we were pretty well. Calibrated, of course, we're watching very carefully. What happens in the EU? You know, we we've got to watch against any, uh, re-escalation and trade tensions with China.
Speaker Change: And the pricing piece of it.
Speaker Change: That's one of the elements is helping us push second half growth a little bit because that's mostly a second half item.
Speaker Change: Great and then in your answer.
Speaker Change: Just to put the spotlight on in China and now.
Bill Brown: We know from talking to our end customers, it is a, it is a element of churn. Why customers leave us, that number is, you know, across the company is pretty substantial. We're focused on this. We're trying to bring it down. You know, one element is responsiveness and customer service. It's quality, but importantly, it's on time in full. So clearly, Andrew, as we get better on that, that's going to allow us to reduce churn grow. And we're starting to see, you know, benefits of lower churn in the back half. I think part of it probably is related to OTIP.
Speaker Change: There might've been expectation there be some fallout because of tariffs maybe pushed back on on your business, there, but up single digits look pretty healthy. So just yeah. It was.
Speaker Change: <unk> seen much of a fall out and how much is embedded in the second half.
Speaker Change: So do you know, we actually had a very good first half up mid single digits. It was frankly, it was better than we expected coming into the year.
Speaker Change: You know, that that's 1 of The Elements. That's helping us push second app growth a little bit because that's mostly a second half it
Speaker Change: Early in the year, we were thinking its low single digits has been mid single digits in the front half we do expect it will slow down in the back half that's embedded in our numbers.
Andrew Obin: It's hard to say exactly what part of it is, though. Okay, gotcha.
Andrew Obin: And then just sort of going back to the guidance, you know, just very simplistically, you know, I think generally, right, seasonality is a little bit different, and it seems second half is weaker, despite the normal seasonality, despite accelerating top line into the second half. Right. And I would imagine based on what we're hearing, actually, pricing dynamic, all in is not that bad on the industrial side. So can you just highlight one time items related to your footprint consolidation and changes in absorption? What are the headwinds in the second half that are sort of messing with the seasonality?
Speaker Change: For us, it's roughly half as domestic cap is export and both where we're performing very well. It's some of the local stimulus happening in China for appliances, white goods, which we sell our tape products into as well as the export market lot of which was electronics again that that for us has been pretty healthy.
Speaker Change: But again, we do see it softening in the back half of the year, we're committed to China. It's a big part of the company in some factories 5000 people there and we have a great team great business really driving a great job on commercial excellence there in China.
Speaker Change: It'll it'll slow down but still be up for the year.
Anurag Maheshwari: Could you just quantify them for us again? I really appreciate it. Thank you. Thanks, Andrew. There is nothing on the footprint. Only one time is in the second half, which is in operationally, we grew the first half at 50 to 55 cents. And second half, we grew around the same rate as well. So volume and productivity. Where we see the impact is more on the tariff. We have 20 cents for the year. We add a couple of pennies in second quarter. So 18 cents of that is in the second half. That is the major impact.
Speaker Change: Great. Thank you sure.
Speaker Change: Our next question comes from the line of Nicole the plane with Deutsche Bank. Please proceed with your question.
Speaker Change: Great. And then in your answer, uh, they just put the spotlight on China and, you know, there might have been expectation there, be some Fallout because of tariffs and maybe some push back on on your business there. But up single digits. Look pretty healthy. So just you know, what have you seen much of a Fallout and you know, how much is embedded in the second half. So so do you know? We, we actually had a very good first half up mid single digits. It it was that frankly, it was better than we expected coming into the year. You know, early in the year we were thinking it's low single digits. It's been mid single digits in the front half, you know, we do expect it will slow down in the back half that's embedded in our numbers. Um, you know, for us, it's, uh, roughly half as domestic, half as export, you know, and both were were, were performing very well. Um, it's some of the local stimulus happening in China for appliances white goods, which we, we sell a lot of tape products into, as well as their export Market.
Nicole: Yeah. Thanks, good morning, I'm going to go.
Nicole: Maybe just starting with the demand trends through the quarter.
Nicole: There's some concern out there that we've heard about like whether there was any kind of tariff pre buy it seems like what kind of on the verge of cabling that so just wanted to hear your thoughts Bell and it's what you've seen through July kind of get it.
Speaker Change: Market a lot of which was Electronics again that that for us has been been pretty healthy. But again, we do see it softening in the back half of the Year we're committed to China. It's a big part of the company and we send factories 5,000 people there, and we have a great team, great business, really driving a great job on Commercial Excellence there in China. Um and again it's it'll it'll slow down but still be up for the year.
Anurag Maheshwari: On top of that, you know, second half versus the first half and a pickup in investments. So I would say those are the big factors. There is no, not much of a one timer over there. The only thing on the EPS between first half and second half is obviously the sale of the investment that we add in Q2, which is below the line, which impacts the second.
Nicole: Conviction that pre buy it wasn't really a factor.
Speaker Change: Great. Thank you. Sure.
Nicole: So it is not.
Nicole: So it's hard to discern that theres, probably a little bit hanging out there, but it's not it's not substantial.
Our next question comes from the line of Nicole de Blake with Deutsche Bank. Please proceed with your question.
Nicole: Anything that might happen from Q2 into Q1, we see Q3 coming into Q2 Q2. So I don't think the pre buy is an issue for the quarter.
Yeah, thanks. Good morning morning, Nicole.
Anurag Maheshwari: And what other words, can you quantify the stranded costs again? I apologize. that was a strata cost. Yeah. So yeah, it's $100 million for the year. It's about $30 million in the first half and $70 million in the second. Okay, so that hasn't changed. Okay, thank you.
Nicole: <unk> were up low single digits as we described in the materials a little bit better in <unk>.
Nicole: Flattish in <unk> down a little bit in consumer, but consumer accelerated over the course of the quarter. So so June was better than May may was better than April. So we saw some acceleration there.
Speaker Change: Uh, maybe just starting with the demand Trends through the quarter, I guess. You know, there's still been some concern out there that we've heard about. Like, whether there was any sign of tariff prebby. It seems like what kind of on the verge of table that. So just wanted to hear your thoughts, um, bill. And if what you've seen through July, kind of gives convictions that free by wasn't really a factor.
Deane Dray: Our next question comes from the line of Deane Dray with RBC Capital Markets. Please proceed with your question. Thank you. Good morning, everyone.
Nicole: July it's still very very early.
Nicole: We saw some.
Nicole: Similar progress here in July, but again, it's only a couple of weeks. So it's hard to discern a pattern over that but the Q2 orders were up low single digits or backlog grew.
Deane Dray: I was hoping you'd take us through the changes in your tariff assumptions, you know, the benefit of the pause that was implemented, but did you make any specific mitigation actions in the quarter? And, you know, kind of what was the decision about including it in guidance on a go forward basis? So the last time we said it was $0.60 gross, now it's $0.20. The biggest change really is going to be around China. Last year, last quarter, it was about 80% of the tariff impact. At the time, the rate was $125, $145. So US $145, China was 125%.
Nicole: About 1% sequentially, so about $2 billion and it is not.
Nicole: I had mentioned in his comments I mean, we're not really a backlog driven business, where more book and ship, but we saw some backlog growth sequentially and in 2025% of Q3's covered in backlog, which is which is a pretty good place to be so what I'm pleased about is orders are hanging in there and backlog is hanging if not growing a little bit sequentially.
Speaker Change: Thanks, that's helpful and then on Europe I feel like.
So so it's not uh, so it's hard to discern that there are probably a little bit hanging out there, but it's not it's not substantial. Um, you know, anything that might happen from Q2 in the q1. We see Q3 coming into Q Q2. So, it's, I, I don't think the pre-b buy is, is a is an issue for the quarter. You know, our orders were up low single digits as as we described in the in the materials a little bit better in sib, you know, about flattish and tep down a little bit in consumer, you know? But consumer accelerated over the course of the quarter. So, so June was better than Mei. Mei was better than April. So we saw some acceleration there. Uh, July, it's, it's still very, very early. Um, you know, it's, uh, you know, we saw some some similar progress here in July, but again, it's only a couple of weeks. So, it's hard to discern a pattern over that, but, but Q2 orders are up below single digit, our backlog group.
Speaker Change: There's definitely been a little bit of excitement building out the potential for recovery there.
Speaker Change: You guys were flat in the quarter, but have you seen anything when you look at those orders and backlog.
Deane Dray: They've come down dramatically to $10 and $30. That was the biggest source of change. Things are moving around still a little bit, but we included it in the guidance mainly because we're more than halfway through the year. Things have stabilized at least a little bit. And any changes from here, we'd only have a couple of months in the balance of the year that would impact $25. The rest would roll into 2026. So we feel we're pretty well calibrated. Of course, we're watching very carefully what happens in the EU. We've got to watch against any re-escalation and trade tensions with China.
Speaker Change: That's the green shoots in Europe.
Speaker Change: So we're hopeful for Europe in the back half.
Speaker Change: It's a it's an important market for us the thing to watch item for us is going to be auto the KOL actually what we've seen overall is IHS.
Speaker Change: It's about what percent sequentially. So about 2 billion dollars and it's it's not mentioned in his comments. I mean, we're not really a backlog driven business, we're more book and ship but you know, we we we saw some backlog growth sequentially and and 20, 25% of Q3 is covered in backward, which is, which is a pretty good place to be. So what I'm pleased about is orders are hanging in there. And backlog is hanging in if not growing a little bit sequentially.
Speaker Change: Sort of flattish so it moved from down a little bit to up a couple of tenths in the latest dropped a couple of days ago lot of that is China.
Speaker Change: Which is driving that growth Europe, and North America, both Dow, which adversely affects three a M.
Speaker Change: Thanks Bill, that's helpful. And then on Europe, I feel like, um, there's definitely been a little bit of excitement building about the potential course of recovery there. Um, I know you guys were flat in the quarter, but have you seen anything when you look at those orders and backlog, um, that suggests green shoots in Europe.
Speaker Change: Europe is expected to be down in the back half on auto build and that's one that's important to us other parts of our business are showing some signs of growth we saw <unk> in the quarter in Europe, and I think there's there are signs that there could be growth on that side, but auto as a watch area for us in Europe in the back half.
Deane Dray: That could be a change. But from the way we see it today, I think we know enough about it in terms of the gross and net impact to roll it through into guidance, which I think is cleaner for investors. So we're offsetting $0.20 a gross tariff with both cost and sourcing changes, which is about half of the offset, and the other half is coming through price. So the gross amount is about $140 million. Net's around $70. About half of that, say, $35-$40 million is price. The other half, $35-ish million, is going to be cost savings as well as sourcing.
Speaker Change: Thank you I'll pass on.
Speaker Change: Our next question comes from the line of Chris Snyder with Morgan Stanley. Please proceed with your question.
Speaker Change: Thank you I wanted to ask about back half organic growth to 2.5% so up from the one and a half in the first half.
Deane Dray: And the pricing piece of it, that's one of the elements that's helping us push second F growth a little bit because that's mostly a second F item.
Speaker Change: The comps do get a bit tougher it sounds like you guys think the macro continues to go sideways. So is that lift really all just price that's coming through and maybe some help from the NPI and then is there any.
So we're we're hopeful for for Europe in the back half. Um, you know, it's a it's an important market for us. You know, the thing, the watch item for us is going to be Auto Nicole. Actually you know what we've seen overall is IHS builds globally or sort of flattish. So it moved from down a little bit to up a couple tenths you know in the latest drop a couple of days ago you know a lot of that's China. Um which is driving that growth Europe and and North America both now which adversely affects 3M, you know. Uh Europe is expected to be down in the back half on auto build and that's the 1 that's important to us other parts of our business. You know, are showing some signs of growth. We saw sib up in in in the quarter in in Europe and I think there's there's signs that there could be growth on that side but Auto is a watch I area for us.
In in Europe, in the back half.
Deane Dray: Great. And then in your answer, you put the spotlight on China and, you know, there might have been expectation there'd be some fallout because of tariffs and maybe some pushback on your business there, but up single digits look pretty healthy. So just, you know, have you seen much of a fallout and, you know, how much is embedded in the second half? So, Deane, no, we actually had a very good first half up mid single digits. It was, frankly, it was better than we expected coming into the year. You know, early in the year, we were thinking it's low single digits.
Speaker Change: Thank you. I'll pass it on.
Speaker Change: Buffer in that guide for maybe some volume pressure should there have been first half channel Bill. Thank you. So Chris. Thanks. Thanks for the question look there is some price in there.
Our next question comes from the line of Chris Snyder with Morgan Stanley.
Speaker Change: Please proceed with your question.
Speaker Change: Billy 40 basis points, let's say of price it at two five so.
Speaker Change: If you look at just comparable to Q1 is one five in Q1. So it's up in terms of growth rate sequentially Q first half in the second half, but there is some pricing benefits and I went through some of the drivers on the general industrial side the safety business.
Deane Dray: It's been mid single digits in the front half. You know, we do expect it will slow down in the back half. That's embedded in our numbers. You know, for us, it's roughly half as domestic, half as export, and both were performing very well. It's some of the local stimulus happening in China for appliances, white goods, which we sell a lot of tape products into, as well as the export market, a lot of which was electronics. Again, that for us has been pretty healthy. But again, we do see it softening in the back half of the year.
Speaker Change: One area I talked a little bit about electronics, so softening a little bit in the back half is still up there is some some end markets that are up we do see some larger orders that have come through in the government side in electrical products side.
Speaker Change: One area that I didn't.
Speaker Change: Speak about was on the automotive side, even though automotive will remain weak.
Speaker Change: We are working hard on repositioning our business there in driving growth with new models, we do expect us to be flattish in the back half of being down in the front half even though the builds are are still weak in a back half part of it is really aggressive commercial excellence efforts to go back and recapture.
Deane Dray: We're committed to China. It's a big part of the company and seven factories, 5,000 people there. We have a great team, great business, really driving a great job on commercial excellence there in China. And again, it'll slow down, but still be up for the year.
Speaker Change: <unk> opportunities in the tiers, particularly bonding enjoining in acoustics and other things, there's some model switch overs happening where respect and we're hopeful that we can continue our position on those new models as they get into production later on this year. So so auto is a watch area for us we do expect that to be.
Speaker Change: Pumps do get a bit tougher. Um, it sounds like you guys think the macro continues to go sideways? So is that lifts really all just price that's coming through and and maybe some help from the NPI? Um, and is there any, uh, buffer in that guide for maybe some volume pressure? Should there have been first half Channel build, thank you. So Chris, thanks, thanks for the question. Look there, there is some price in there. You know, is probably 40 basis points. Let's say of price in that 2.5. So, you know, if you look at just comparable to q1 is 15 to 21. So its up in terms of growth rate, sequentially Q, uh, first half of the second half but there is some pricing benefits and I went through some of the drivers on the general industrial side, the the safety business, you know, the 1 area. I talked a little bit about Electronics, so softening a little bit in the back app but still up, you know, there is some, some end markets that are up. We see, do see some uh, larger orders that have come through in the government side and electrical product side.
Deane Dray: Great. Thank you.
Nicole DeBlase: Sure. Our next question comes from the line of Nicole DeBlase with Deutsche Bank. Please proceed with your question. Yeah, thanks. Good morning. Good morning, Nicole.
Nicole DeBlase: Maybe just starting with the demand trends through the quarter, I guess, you know, there's still been some concern out there that we've heard about whether there was any sign of tariff pre-buy. It seems like we're kind of on the verge of tabling that. So just wanted to hear your thoughts, Bill, and if what you've seen through July kind of gives conviction that pre-buy wasn't really a factor. So it's not, so it's hard to discern that. There's probably a little bit hanging out there, but it's not, it's not substantial. You know, anything that might happen from Q2 into Q1, we see Q3 coming into Q2.
Speaker Change: Better in the back half and more flattish versus down in the front, but that's an important driver of their second half performance Chris.
Speaker Change: Thank you I appreciate that and if I could follow up on maybe competitive tailwind.
Speaker Change: You know the 1 area that I didn't uh uh speak about was on the automotive side even though Automotive uh will remain weak. You know we are we are working hard on repositioning, our our business there and driving growth with new models you know we do expect us to be flattish in the back half from being down in the front half even though the builds are are still weak in a back half part of it is really aggressive commercial, Excellence efforts to go back and recapture opportunity.
Speaker Change: That could that could support demand.
Speaker Change: Particularly in consumer there's a lot of low cost competitors from Asia I mean, if we look at the online marketplaces have you seen any impact here from Paris cost on those competitors that could maybe give you guys. Some pricing in consumer, which I know, it's typically difficult or even some share gain opportunity. Thank you hey, Chris. Thank you.
Bill Brown: So it's, I don't think the pre-buy is an issue. For the quarter, you know, our orders were up, low single digits as we described in the materials, a little bit better in SIBG, you know, about flattish in TEPG, down a little bit in consumer, you know, but consumer accelerated over the course of the quarter. So, so June was better than May, May was better than April. So we saw some acceleration there. July, it's still very, very early. You know, it's, you know, we saw some similar progress here in July, but again, it's only a couple of weeks.
Speaker Change: Some but not gonna be prices more volume in there as you know all of the U S. Retailers are looking very carefully at where their source of supply is coming from non U S. Markets is important obviously the tariff impacts makes them a little less economic and makes us a little more attractive so on the margin. Yes, there are some opportunities there.
Speaker Change: And the team and CPG are really pushing that it's not going to come through necessarily in price is more likely to be in volume in and those are some of the opportunities that are embedded in the back half of the year for for CPG.
Bill Brown: So it's hard to discern a pattern over that, but Q2 orders were up low single digit. Our backlog grew. It's about 1% sequentially, so about $2 billion. And as Anurag mentioned in his comments, I mean, we're not really a backlog-driven business. We're more book and ship, but, you know, we saw some backlog growth sequentially and 20%, 25% of Q3 is covered in backlog, which is a pretty good place to be. So what I'm pleased about is orders are hanging in there and backlog is hanging in, if not growing a little bit sequentially. Thanks, Bill. That's helpful.
Speaker Change: Opportunities in the tears, particularly bonding and joining and Acoustics and other things. There's some model switch overs happening where respect in. You know we're hopeful that we we can, you know, continue our position on those new models as they get into production later on this year. So so Auto uh is is a watch area for us. We do expect that to be you know, better in the back half and more flattish versus down in the front but that's an important driver of their second half performance Chris. Thank you. I I appreciate that. And if I could, um, follow up on maybe competitive Tailwind, um, that could that could support demand. I imagine, you know, particularly in consumer, there's a lot of low-cost competitors from Asia. You know, if we look at the online marketplaces, have you seen any impact here from Tyrus costs on those competitors that could maybe give you guys some pricing and consumer which I know it's typically difficult or even some fair game opportunities. Thank you. Hey Chris thank you you know some but but it's not going to be price it's more.
Speaker Change: I appreciate that thank you you bet.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Nigel Coe with Wolfe Research. Please proceed with your question.
Speaker Change: Oh, Thanks, good morning, Thanks for the question.
Speaker Change: Obviously, a lot of my questions have been answered already.
Bill Brown: Sure Bill.
Bill Brown: The price competition in the second half I think it's up 40 basis points is that 40 basis points absolute.
Bill Brown: So it was up 40 basis points of improvement.
Bill Brown: And then on Europe, I feel like there's definitely been a little bit of excitement building about the potential course of recovery there. I know you guys were flat in the quarter, but have you seen anything when you look at those orders and backlog that suggest green shoots in Europe? So we're hopeful for Europe in the back half, you know, it's a, it's an important market for us. You know, the thing, the watch item for us is going to be auto, Nicole, actually, you know, what we've seen overall is IHS builds globally or sort of flattish.
Bill Brown: The first half.
Speaker Change: Volume and there's you know, all of the US retailers are looking very carefully at where their source of Supply is. If it's coming from non-us markets, it's important. Obviously, the Tariff impacts makes them a little less economic and makes us a little more attractive. So on the margin, yes, there are some opportunities there and the team in CBG are really pushing that. It's not going to come through necessarily in price. It's more likely to be in volume and and those are some of the opportunities that are embedded in the back half of the year for for CBG.
Bill Brown: It's 40 basis points of absolute year over year improvement.
Speaker Change: I appreciate that. Thank you. You bet.
Bill Brown: Let me let me just step back on the whole thing just because for the year, we're getting about 70 basis points more or less a price we typically would see about <unk>.
Our next question comes from the line of Nigel. Co with wolf research, please proceed with your question.
Bill Brown: 50 basis points, which is which is what is required to offset 2% material cost inflation, so 2% or 6 billion in materials of $120 million.
Bill Brown: Has it through a price, which we've done at 50 basis points, we're getting about 70 basis points. So it's so it's a little bit of an extra lift part of that is coming because we're offsetting tariff headwind and a lot of that is going to happen in the back of the year part of it is going to come from some of the pricing discipline.
Bill Brown: So it moved from down a little bit to up a couple of tenths, you know, in the latest drop a couple of days ago, you know, a lot of that's China, which is driving that growth. Europe and North America are both down, which adversely affects 3M, you know, Europe is expected to be down in the back half on auto build, and that's one that's important to us. Other parts of our business, you know, are showing some signs of growth. We saw SIBG up in the quarter in Europe, and I think there's signs that there could be growth on that side, but auto is a watch area for us in Europe in the back half.
Bill Brown: We're putting in place what we see it very different processes on price governance in <unk> and now moving to <unk> as well so in <unk>, we used to have.
Bill Brown: About 60% or more of the deals.
Bill Brown: With less than $20000, so very small today, that's less than 20%.
Bill Brown: We're trying to be more strategic on where we get pricing discounts for larger customers and make sure we get the volume for it. So that's showing an effect in some price as well so long winded way of saying, yes, it's 40 basis points year over year, and 70 basis points for the full year price.
Chris Snyder: Thank you all. Pass on.
Chris Snyder: Our next question comes from the line of Chris Snyder with Morgan Stanley. Please proceed with your question. Thank you. I wanted to ask about back half organic growth to two and a half percent, so up from the one and a half in the first half. The comps do get a bit tougher. It sounds like you guys think the macro continues to go sideways. So is that lift really all just price that's coming through and maybe some help from the NPI? And is there any buffer in that guide for maybe some volume pressure should there have been first half channel built?
Oh, thanks. Good morning. Thanks for the question. Um, obviously a lot of my questions have been answered already. Um, just want to make sure bill I heard, uh, you know, uh, the price convolution in in the second half. I think you said 40 basis points is, is that 40 basis points absolute price, was at 40 basis points Improvement versus the first half know it's, it's it's 40 basis points of absolute year-over-year Improvement for the, you know. Look, it's let me, let me just step back on the whole thing, just because for the year, we're getting about 70 basis points more or less of price, we typically would see about you know 50 basis points which is which is what is is required to offset 2% material costs inflation. So 2% on 6 billion of materials 120 million that's and if we pass it through a price which we've done at 50 basis points, we're getting about 70 basis points. So it's so it's a little bit of an extra lift part of that is coming because we're offsetting tariff headwind and a lot of that's going to happen in the back half of the year, you know? But part of it is is going to come from some of the pricing discipline you know that
Speaker Change: Okay. That's helpful and then I find it curious.
Bill Brown: Or maybe a little bit.
Bill Brown: <unk> growth is actually see periods. Despite the fact that Oh tariffs.
Bill Brown: The other two segments. So number one are you still on track to get out of with.
Bill Brown: Within <unk> Tonight defense by by year end.
Bill Brown: You have to guess if he can improved from 83 to 93, what kind of growth uplift would you expect to see.
Chris Snyder: Thank you.
Chris Snyder: So Chris, thanks for the question. Look, there is some price in there. You know, it's probably 40 basis points, let's say, of price in that 2.5. So, you know, if you look at just comparable to Q1, it's 1.5 to 2.1. So it's up in terms of growth rate sequentially Q first half and the second half. But there is some pricing benefits. And I went through some of the drivers on the general industrial side, the safety business. You know, the one area I talked a little bit about electronics. So softening a little bit in the back half is still up.
We're putting in place. You know what? We see, uh, a very different processes on price governance in in sibghatullah.
Bill Brown: Again.
Bill Brown: The question gets back to sort of try to get parse a notice to our revenue is very difficult to do that but we do know that not delivering on time is a source of churn and reducing churn implicitly drive growth. So look 83% just over that was a good result, not not what we had expected we expect more from that.
um uh or or maybe a little bit ironic that you know, sib growth is actually Superior despite the fact that Otis is lagging the other 2 segments,
Bill Brown: As we transition into July where the world North of 85.
Bill Brown: We expect to be in the high eighties now by the end of the year. The team tells me they want to exit the year at 90, I think thats a stretch goal.
Chris Snyder: You know, there is some some end markets that are up. We do see some larger orders that have come through on the government side, on the actual product side. You know, the one area that I didn't speak about was on the automotive side, even though automotive will remain weak. You know, we are we are working hard on repositioning our business there and driving growth with new models. You know, we do expect us to be flattish in the back half from being down in the front half, even though the builds are are still weak in the back half.
Speaker Change: So number 1, are you still on track to get OD if Within sibghatullah?
Bill Brown: You may have noticed our inventories are running a little bit higher than the last year. So part of it is we're making up for <unk>.
Bill Brown: Lower <unk> with higher inventory. So we've got to make sure that we both drive <unk> improvement in the back end, which we're really really focused on at the same time, we bring down inventory. So so that's what we're trying to do the teams focused on is we're making progress I would say I wish it would be faster I think Chris would expect it to be faster.
Chris Snyder: Part of it is really aggressive commercial excellence efforts to go back and recapture opportunities in the tiers, particularly bonding and joining and acoustics and other things. There's some model switchovers happening where we're specced in. You know, we're hopeful that we can continue our position on those new models as they get into production later on this year. So auto is a watch area for us. We do expect that to be better in the back half and more flattish versus down in the front. But that's an important driver of their second half performance. Chris.
Bill Brown: But the good progress and we know that's going to drive growth in the back half.
Bill Brown: Okay.
Speaker Change: Our next question comes from the line of Handicap, what's with Citigroup. Please proceed with your question.
Speaker Change: Good morning, everyone. Thank one Andy.
Speaker Change: Alright.
Speaker Change: A nice jump in margin after what seemed like a few quarters of pressure in key BG. So could you talk about what if anything changed I know you talked about the metering and the investments that you're making.
Again, that's the question is back to like, sort of trying to get part, you know, an O tip to a revenue is very difficult to do that. But we do know that not delivering on time is a source of churn and reducing churn implicitly drives growth. So look at 83%, just over that was was a good result. Not, not what we had expected, we expect more from that, you know, as we transition into July we're a little north of 85, you know, we expect to be in the high 80s. Now by the end of the year, you know the team tells me they want to exit the year at 90. I think that's a stretch goal. You know, you may have noticed our inventories are running a little bit higher than than last year. So so part of it is, you know, we're making up for, uh, lower oot, tiff with higher inventory, you know? So we've got to make sure that we both Drive otif Improvement in the back end which we're really, really focused on. At the same time, we bring down inventory. So so that that's what we're trying to do. The teams focused on is we're making progress. I would say, I wish it would be faster.
Chris Snyder: Thank you, I appreciate that. And if I could follow up on maybe competitive tailwinds, that could that could support demand. I imagine, you know, particularly in consumer, there's a lot of low cost competitors from Asia. You know, if we look at the online marketplaces, have you seen any impact here from Paris costs on those competitors that can maybe give you guys some pricing and consumer which I know it's typically difficult or even some sharing an opportunity? Thank you.
Speaker Change: Company does it hit that segment, a bit more than others or maybe youre getting closer to fully absorbing Australia costs from it was just better mix any color would be helpful.
Faster. I think Chris would expect it to be faster, but but good progress and and we know that's going to drive growth in the back out.
Speaker Change: Okay, thanks though.
Speaker Change: Great. Thanks for the question.
It's driven by volume and productivity is not so much of the instrument I think all the three segments. The margin expansion was very very good typically TPG that was what it was about a point higher than last year, but just the productivity, which we did both on the supply chain and on the G&A side, it's spread across all the three business groups also in T V.
Speaker Change: Our next question comes from the line of Andy kapow with croup please proceed with your question.
Speaker Change: Good morning everyone. Good morning, Andy.
Chris Snyder: Hey, Chris, thank you. You know, some but but it's not going to be price, it's more volume. And there's, you know, all of the US retailers are looking very carefully at where their source of supply is, if it's coming from non US markets is important. Obviously, the tariff impacts makes them a little less economic and makes us a little more attractive. So on the margin, yes, there are some opportunities there. And the team and CBG are really pushing that it's not going to come through, necessarily in price is more likely to be in volume. And those are some of the opportunities that are embedded in the back half of the year for for CBG.
Speaker Change: G, which more than mitigated the stranded costs that they had signaled with the past couple of quarters.
Speaker Change: TPG margins that have been done when we see this pick up and as we go through the course of the year.
Speaker Change: And our current margin guide of 150 to 200 basis points, you should see all three business groups doing well <unk> and CPG will definitely do better.
Speaker Change: Because you're a little bit lighter because of the stranded costs that you pointed out but the productivity is flowing through there.
Speaker Change: Thank you for that and I think it might be helpful to hear about your.
Chris Snyder: I appreciate that. Thank you.
Speaker Change: Your thoughts on the physical environment here in the U S. Maybe a little bit of color on how you're thinking.
Nigel Coe: Our next question comes from the line of Nigel Coe with Wolf Research. Please proceed with your question. Thanks. Good morning. Thanks for the question. Obviously, a lot of my questions have been answered already. Just want to make sure, Bill, I heard the price contribution in the second half, I think you said 40 basis points. Is that 40 basis points absolute price or is that 40 basis points improvement versus the first half? No, it's 40 basis points of absolute year-over-year improvement.
Speaker Change: Thinking about that they can get a full bill I think it does for money in industrial companies pockets, you know getting bonus depreciation et cetera, but it doesn't seem like you're reacting put at all its too early how do you think about it Mike companies react to it and moving forward.
I'll get a nice jump in margin after what seemed like a few quarters of pressure and tbg. So, could you talk about? What if anything changed? I know you talked about the metering of the Investments that you're making for the company. Does it hit that segment of them? More than others, or maybe you're getting closer to fully absorbing trying to cook cost or maybe it's just better mix any color would be helpful. Yeah, great. Thanks for the question Andy. Uh, it's, it's during my volume and productivity. It's not so much of the investment. I think all the 3 segments, the margin expansion was very, very good. Specifically, in tbg that was, uh, Walling was about a point higher than last year but just the productivity, which we did both on the supply chain. And on the GNA side, it's spread across all the 3 business groups, also in tbg, which, more than mitigated the stranded costs that they had. So, you know, when we, um, the past couple of quarters, I have tbg margins have been done. We see this, pick up and as we go through the course of the year, uh, in our current margin guide of 150 to 200 basis points, you should see all 3 business,
Speaker Change: So it's a good question a very broad question I think specifically to the tax bill.
Speaker Change: Groups doing well, sibghatullah.
Speaker Change: <unk> to us is favorable to other companies.
Speaker Change: In the sense it helps us with maintaining reasonable city guilty race, which is important to us helps us maintain our.
Nigel Coe: Look, let me just step back on the whole thing just because for the year, we're getting about 70 basis points more or less of price. We typically would see about 50 basis points, which is what is required to offset 2% material cost inflation. 2% on 6 billion in materials, 120 million if we pass it through a price, which we've done at 50 basis points. We're getting about 70 basis points. It's a little bit of an extra lift. Part of that is coming because we're offsetting tariff headwind. A lot of that's going to happen in the back half of the year.
Speaker Change: Our effective tax rate in the 20% range, which is what we had anticipated and hope for so.
Speaker Change: It maintains where we happen to be as good news because it could have gone the other way.
Speaker Change: Depreciation.
Speaker Change: And the R&D expense it doesn't really work for us for the next couple of years because of the some of the the PWM US a cost and other things, but that will help us in the out years, but right now very guilty rates hovering can maintain or up 14%, which I think they made permanent.
Bill Brown: Part of it is going to come from some of the pricing discipline that we're putting in place. What we see are very different processes on price governance in SIBG and now moving to TEBG as well. In SIBG, we used to have about 60% or more of the deals with less than $20,000. Very small. Today, that's less than 20%. We're trying to be more strategic on where we get pricing discounts to larger customers and make sure we get the volume for it. That's showing an effect in some price as well. Long-lived way of saying, yes, it's 40 basis points a year over year, and it's 70 basis points for the full year price.
Speaker Change: Is it as good news for the company for sure so I.
Speaker Change: I won't comment on any relative physical environment, but that's certainly from a tax perspective help with as a company.
Speaker Change: I appreciate the color.
Speaker Change: Yeah.
Speaker Change: Our next question comes from the line of Joe O'dea with Wells Fargo. Please proceed with your question.
Speaker Change: Thank you for that and Bill. I think it might be helpful to hear about your, um, your thoughts on the fiscal environment, here in the US, maybe a little bit of color on. How do I was thinking about the big beautiful bill? I think it does put money in industrial companies Pockets. You know, giving bonus, depreciation, Etc. But it doesn't seem like you're reacting to it at all. It's just too early. How do you think about it? And how we might companies react to it moving forward. It's a, it's a, it's a good question. It's a very broad question, you know, I think specifically to the the tax bill. It's uh, it's favorable to us as favorable to other companies. Uh, in in the sense, it helps us with, you know, maintaining uh, reasonable fitty, guilty race, which is important to us, helps us maintain our effective tax rate in 20% range, which is what we had anticipated and hoped for. Uh, so it it maintains what we happen to be. It's good news because it could have gone the the other way uh bonus appreciation. Um and the R&D expense, it doesn't really work for us. It's for the next couple of years because of the, the
Joe O'dea: Hi, good morning.
Speaker Change: Just wanted to make sure hi, just want to make sure I'm thinking about the back half organic construct across the segments, where if there's roughly 100 basis points better year over year growth in two ways first it's one H.
Speaker Change: Some of the, the PWS, uh, costs and other things. But, but that'll that'll help help us in the out years. But right now, fitty, guilty rates hovering around maintaining around 14%, which I think they made permanent. Um, is a, uh, is is a, is a good news for the company, for sure. So, uh, I I won't comment on any relative fiscal environment, but that's certainly from a tax perspective, help for the company.
Bill Brown: Okay, that's helpful.
Bill Brown: And then I find it curious, or maybe a little bit ironic that, you know, SIBG growth is actually superior, despite the fact that OTIF is lagging the other two segments. So, number one, are you still on track to get OTIF within SIBG to 90% by year end? And if you were to guess, you know, if you can improve OTIF from 83 to 93, what kind of growth uplift would you expect to see? Again, again, the question gets back to like, sort of trying to get harsh, you know, an OTIF to a revenue, it's very difficult to do that.
Speaker Change: Appreciate the caller.
Speaker Change: That we would see a stronger than average improvement in S.
Speaker Change: The <unk> improving growth a little bit and consumer maybe that growth rate is more consistent from the first half is that.
Our next question comes from the line of Joe OD with Wells Fargo, please proceed with your question.
Speaker Change: Reasonable framework, yes, that's exactly what it is yet so both <unk> and <unk> should be a little bit better in the back half and consumer in line with that maybe a tick or two up but but again it depends on the consumer behavior, but it's really good it's a smaller business, but it hinges on the first two.
Speaker Change: Hi, good morning. Um, just wanted to make sure hi. Just want to make sure I'm thinking about the the back half organic constructs across the segments where if there's roughly a hundred basis points, better year-over-year growth in
Speaker Change: 2 H versus 1 h.
Speaker Change: Got it.
Bill Brown: But we do know that not delivering on time is a source of churn, and reducing churn implicitly drives growth. So, look, 83%, just over that was a good result, not what we had expected. We expect more from that. You know, as we transition into July, we're a little more than 85. You know, we expect to be in the high 80s now by the end of the year. You know, the team tells me they want to exit the year at 90. I think that's a stretch goal. You know, you may have noticed our inventories are running a little bit higher than last year.
Speaker Change: And then I actually thought the consumer margin was was the most impressive I think organic was up 30 bps year over year.
Speaker Change: It up north of 20%.
Speaker Change: And so just any unpacking of the bridge there.
Speaker Change: <unk> side of things absence of any items that were a drag last year any any color would be helpful.
Speaker Change: We finished over 21% of the C V G on the consumer business group, which is very good last year we ended.
Speaker Change: Would see a a stronger than average improvements in sibghatullah.
Speaker Change: Of the 19% level. So this was really good I.
Bill Brown: So, part of it is, you know, we're making up for lower OTIF with higher inventory. You know, so we've got to make sure that we both drive OTIF improvement in the back end, which we're really, really focused on, at the same time, we bring down inventory. So, that's what we're trying to do. The team's focused on us. We're making progress. I would say I wish it would be faster. I think Chris would expect it to be faster, but good progress, and we know that's going to drive growth in the back end.
Speaker Change: I think where you would see the benefit more is around the productivity side in fact, the investments actually did go up in the consumer group relative to last year. The one compare from Q2 of last year was obviously, the equity comp timing, which did impact consumer as well, but I would say more of the outperformance on the margin is driven by the productivity that we're driving both.
Speaker Change: On the supply chain side as well as on the G&A side was trickled through to the consumer.
Speaker Change: Business.
Speaker Change: Great. Thank you.
Bill Brown: Okay, let's go.
Speaker Change: Our last question comes from the line of Laurence Alexander with Jefferies. Please proceed with your question.
Andy Kapowitz: Our next question comes from the line of Andy Kapowitz with Citigroup. Please proceed with your question. Good morning everyone. Good morning, Andy. Anurag, you had a nice jump in margin after what seemed like a few quarters of pressure in the TBG. So could you talk about what, if anything changed? I know you talked about the metering of investments that you're making for the company. Does it hit that segment a bit more than others, or maybe you're getting closer to fully absorbing FIFA's current costs, or maybe it's just better mix? Any cut would be helpful. Yeah, great.
Laurence Alexander: Good morning, just two hopefully very quick questions. One is how do you think about the effect of your metering of investments.
Laurence Alexander: On operating leverage if demand surprises on the upside either back half of this year or next year.
Got it. Um, and then I actually thought the consumer margin was, was the most impressive. I think organic was up, 30 bits year-over-year, and our profit was up north to 20%. Um, and so just any unpacking of of the bridge there, um, the self-help side of things, absence of any items that were a drag last year, any any color would be helpful? Yeah. So Hey, listen, we finished over 21%. On CBG on the consumer business Group, which is very good. Last year we ended on the 19th of level. So this was really good. I think way you'd see the benefit more is around the productivity side. I in fact, the Investments actually did go up into consumer group relative to last year, the 1 compared from Q2 of last year was obviously the equity comp timing which did impact consumer as well. But I would say more of the outperformance on the margin is driven by the productivity that we are driving both on the supply chain side as well as in the GNA side with trickle through.
Speaker Change: Uh, to the consumer.
Laurence Alexander: And secondly can you on the PFS question I, just want to follow up on on kind of.
Speaker Change: Business. Yeah.
Speaker Change: Great. Thank you.
Laurence Alexander: If I understand one of your comments.
Laurence Alexander: How are you thinking about the property damage side of DFAST litigation.
Our last question comes from the line of
Anurag Maheshwari: Thanks for the question, Andy. It's driven by volume and productivity. It's not so much of the investment. I think all the three segments, the margin expansion was very, very good, specifically in TBG. Volume was about a point higher than last year, but just the productivity, which we did both on the supply chain and on the GNA side, it spread across all the three business groups, and also in TBG, which more than mitigated the stranded cost that they had. So when we passed a couple of quarters, TBG margins have been down, we see this pick up.
Lawrence Alexander with Jeffrey's please, proceed with your question.
Laurence Alexander: And when do you think you'll have.
Laurence Alexander: Visibility around our legal strategy to ring fence, the logos suite there.
Laurence Alexander: Yeah, maybe I'll just start off with the operating leverage for us.
Speaker Change: Good morning just 2. Hopefully very quick. Ones 1 is, um, how do you think about the effect of your metering of Investments?
Laurence Alexander: On the operating leverage piece, we should see that flow through okay. Today, our operating leverage is about increments is about 35% that will probably be the same if not go higher.
Speaker Change: On operating leverage, if demand surprises on the upside, either back half of this year or next year.
Laurence Alexander: As volume picks up on the upside because if you look at.
Speaker Change: And secondly can you on the Pas question? I just want to follow up on on kind of if I understand 1 of your comments.
Laurence Alexander: The metering of investments I mean.
Anurag Maheshwari: And as we go through the course of the year, in our current margin guide 150 to 200 basis points, you should see all three business groups doing well. SIPG and CBG will definitely do better. TBG a little bit lighter because of the stranded cost that you pointed out, but the productivity is flowing through well. Thanks for that.
Laurence Alexander: We are spending $175 million of a step up in investment this year relative to last year. The metering was more because of the demand calibration.
Speaker Change: How are you thinking about the property damage? Side of Pas litigation, um, you know, when do you think you'll have visibility around the legal strategy to ring fence reliability there?
Laurence Alexander: Demand softens up a little bit then you don't spend so much on advertising and merchandising you look at the tariff landscape. When you look at different projects and you say, okay, let's prioritize them, but when it comes to R&D comes to sales.
Bill Brown: And Bill, I think it might be helpful to hear about your thoughts on the fiscal environment here in the U.S., maybe a little bit of color on how you're thinking about the big, beautiful bill. I think it does put money in industrial companies' pockets, you know, giving bonus depreciation, et cetera. It doesn't seem like you're reacting to it at all. Is it just too early? How do you think about it? How might companies react to it moving forward? So it's a good question. It's a very broad question. I think specifically to the tax bill, it's favorable to us.
Laurence Alexander: It would be additive for the second quarter, we had envisioned about $85 million of pick up in investment we did more than 40 million. So it's still quite insignificant amount. So that that investment is probably going to the right stage second half, we still maintaining divestment that we always had and if volume comes up I think the operating leverage should be north of 35.
Laurence Alexander: <unk> in the second half or in time to come.
Laurence Alexander: And on the <unk> question, a lot of the environmental natural resources property issues are.
Speaker Change: Yeah, maybe I'll just start off with the operating leverage first uh, on on the operating leverage piece, we should see that flow through. Okay. Today our operating Leverage is about, I mean increments is about 35%, uh, that will probably be the same if not go higher, uh, as the volume picks up on the upside. Because if you look at the, the metering of Investments, I mean, we, we spending 175 million of a step up in investment. This year, relative to last year, the meeting was more because of the demand calibration, you know, of demand, softens up a little bit and you don't spend so much on advertising and Merchandising you, look at a tariff landscape that you look at different.
Bill Brown: It's favorable to other companies. In the sense, it helps us with maintaining reasonable, fitty, guilty rates, which is important to us, helps us maintain our effective tax rate in the 20% range, which is what we anticipated and hoped for. So it maintains where we happen to be. It's good news because it could have gone the other way. Bonus depreciation and the R&D expense doesn't really work for us for the next couple of years because of some of the PWS costs and other things. But that will help us in the out years. But right now, fitty, guilty rates hovering on – maintain around 14%, which I think they may permit, is good news for the company for sure.
Laurence Alexander: Encompassed in the AG cases, part of which was resolved in new Jersey for months coming up in May.
Laurence Alexander: To November and the rest are in the NPL and will handle them as they come as they come forward.
Laurence Alexander: Surface circumscribed any particular number on that there's plenty of disclosure in our 10-Q.
Laurence Alexander: Thank you.
Projects and you say okay that's prioritized then but when it comes to R&D comes to sales we've we've added it for the second quarter. We had envisioned about 85 million of pick up and investment. We did more than 40 million so it's still quite insignificant amount. So the that investment is probably going in the right stage second half, we still maintaining the investment that we always had and if volume comes up, I think the operating leverage should be north of 35% in the second half or in time to come.
Speaker Change: Okay, everybody well. Thank you very much for joining the call for the all of the questions. We got through every analyst, which was good I also want to thank all of the three ml for their continued drive towards excellence.
Speaker Change: The company, improving every single day, and delivering value to customers and to our shareholders. We are laser focused on our priorities and it will be through the next number of quarters and I look forward to speaking with you at the end of our third quarter. Thank you. So much have a good day.
Bill Brown: So I won't comment on the relative fiscal environment, but that's certainly from a tax perspective helpful to the company. Appreciate the color.
Speaker Change: And on the Pas question you know a lot of the environmental natural resources property issues are uh encompassed in the AG cases, you know, part of which was resolved in New Jersey Vermont's, coming up in, you know, moved out to November and the wrestler in the mdl and we'll handle them as they come as they come forward and, you know, won't surf circumscribe any particular number on that. There's, there's plenty of disclosure in our 10q.
Speaker Change: Yeah.
Joe O'Day: Our next question comes from the line of Joe O'Day with Wells Fargo. Please proceed with your question. Hi, good morning. Just wanted to make sure, hi, just want to make sure I'm thinking about the back half organic constructs across the segments, where if there's roughly 100 basis points better year over year growth in 2H versus 1H, that we would see a stronger than average improvement in SIBG, TEBG, improving growth a little bit, and consumer, or maybe that growth rate is more consistent with the first half. Is that a reasonable framework? Yeah, that's exactly what it is.
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.
Speaker Change: Thank you. Okay, everybody. Well, thank you very much for, uh, joining the call for the all the questions we've got through every analyst which was good. And I also want to thank all the 3, em for their continued drive toward Excellence, you know in the company, improving every single day and delivering value to customers. And to our shareholders we're laser focused on our priorities. And and we'll be through uh, the next, uh, number of quarters and I look forward to speaking with you, uh, at the end of our third quarter, thank you so much. Have a good day.
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.
Joe O'Day: Yeah. So both SIBG and TEBG should be a little bit better in the back half and consumer in line with that, maybe a tick or two up. But again, it depends on the consumer behavior, but it's really going to, and it's a smaller business, but it hinges on the first. Got it.
Joe O'Day: And then I actually thought the consumer margin was the most impressive. I think organic was up 30 bps year over year, and our profit was up north of 20%. And so just any unpacking of the bridge there, the self-help side of things, absence of any items that were a drag last year, any color would be helpful. Yeah, so we finished over 21% on CBG on the consumer business group, which is very good. Last year, we ended on the 19% level. So this was really good. I think where you'd see the benefit more is around the productivity side.
Anurag Maheshwari: In fact, the investments actually did go up in the consumer group relative to last year. The one compared from Q2 of last year was obviously the equity comp timing, which did impact consumer as well. But I would say more of the performance on the margin is driven by the productivity that we're driving both on the consumer business.
Anurag Maheshwari: Great, thank you.
Lawrence Alexander: Our last question comes from the line of Lawrence Alexander with Jeffreys. Please proceed with your question. Good morning, just two hopefully very quick ones. One is, how do you think about the effect of your metering of investments on operating leverage if demand surprises on the upside, either back half of this year or next year? And secondly, can you on the PFAS question, I just want to follow up on on kind of if I understood one of your comments. How are you thinking about the property damage side of PFAS litigation? When do you think you'll have visibility around a legal strategy to ring fence the liabilities there?
Lawrence Alexander: Yeah, maybe I'll just start off with the operating leverage first. On the operating leverage piece, we should see that flow through. Okay, today, our operating leverage is about, I mean, increments is about 35%. That will probably be the same if not go higher, if volume picks up on the upside. Because if you look at the metering of investments, I mean, we spending $175 million of a step up in investment this year relative to last year. The metering was more because of the demand calibration, you know, demand, softens it up a little bit, and you don't spend so much on advertising and merchandising.
Anurag Maheshwari: You look at a tariff landscape, and you look at different projects, and you say, okay, let's prioritize them. But when it comes to R&D comes to sales, we've added it. For the second quarter, we had envisioned about $85 million of pickup and investment, we did more than $40 million. So it's still quite a significant amount. So that investment is probably going in the right stage. Second half, we're still maintaining the investment that we always had. And if volume comes up, I think the operating leverage should be north of 35% in the second half or in time to come.
Bill Brown: And on the PFAS question, you know, a lot of the environmental natural resources property issues are encompassed in the AG cases, you know, part of which was resolved in New Jersey, Vermont's coming up in, you know, moved out to November and the rest are in the MDL and we'll handle them as they come as they come forward. You know, I won't circumscribe any particular number on that. There's plenty of disclosure in our 10-Q. Thank you.
Bill Brown: Okay, everybody. Well, thank you very much for joining the call for the all the questions we've got through every analyst, which was good. And I also want to thank all the 3Mers for their continued drive toward excellence, you know, in the company, improving every single day, and delivering value to customers and to our shareholders. We're laser focused on our priorities, and we'll be through the next number of quarters.
Unknown Executive: I look forward to speaking with you at the end of our third quarter. Thank you so much. Have a good day.
Unknown Executive: 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.