3M Q4 2025 3M Co Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 3M Co Earnings Call
Welcome to the three of them fourth quarter earnings Conference call.
During the presentation, all participants will be in a listen only mode.
Afterwards, we will conduct a question and answer session.
At that time, if you do have a question. Please press star one on your telephone keypad.
As a reminder, this call is being recorded Tuesday January 20th 2026.
I would now like to turn the call over to Jim <unk> Senior Vice President of Investor Relations and financial planning and analysis out three of them.
Speaker #1: 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.
Thank you good morning, everyone and welcome to our quarterly earnings Conference call.
With me today are Bill Brown premiums, Chairman and Chief Executive Officer, and <unk> Chief Financial Officer.
Speaker #1: As a reminder, this call is being recorded. Tuesday, January 20, 2026. 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.
Rod will make some formal comments then we will take your questions.
Please note that today's earnings release and slide presentation accompanying this call.
Is it on the homepage of our Investor Relations website at <unk> Dot com.
Please turn to slide two and take a moment to read the forward looking statements.
Speaker #2: Thank you. Good morning, everyone, and welcome to our quarterly earnings conference call. With me today are Bill Brown, 3M's Chairman and Chief Executive Officer, and Anurag Maheshwari, our Chief Financial Officer.
During today's conference call, we'll be making certain predictive statements that reflect our current views about <unk> future performance and financial results.
These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties.
Speaker #2: 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.
Item one 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.
Speaker #2: Please turn to slide two, and take a moment to read the forward-looking statements. 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.
Please note throughout today's presentation, we'll be making references to certain non-GAAP financial measures.
Reconciliations of the non-GAAP measures can be found in the attachments with today's press release.
Speaker #2: These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Item 1A of our most recent Form 10-Q lists some of the most important risk factors.
With that please turn to slide three and I will hand, the call off to Bill Bill.
Thank you and good morning, everyone. We delivered solid results in Q4, including organic growth of two 2% operating margin of 21, 1% earnings per share of $1 83, and free cash flow conversion of over 130%.
Speaker #2: That could cause actual results to differ from our predictions. Please note, throughout today's presentation, we'll be making references to certain non-GAAP financial measures. Reconciliations of the non-GAAP measures can be found in the attachments to today's press release.
These results capped a strong year with organic sales growth exceeding 2% outperforming the macro environment and accelerating from one 2% organic growth in 2024 and negative growth in 2023.
Speaker #2: With that, please turn to slide three. And I will hand the call off to Bill. Bill?
Speaker #3: Thank you, Chinmay. Good morning, everyone. We delivered solid results in Q4, including organic growth of 2.2%, operating margin of 21.1%, earnings per share of $1.83, and free cash flow conversion of over 130%.
This growth was underpinned by the strong commercial Excellence Foundation, we've established and our focus on reinvigorating innovation.
We delivered significant margin expansion with full year adjusted operating margin of 23, 4% up 200 basis points year on year at the high end of our guidance range and on top of over 200 basis points expansion in 2024.
Speaker #3: These results capped a strong year, with organic sales growth exceeding 2%, outperforming the macro environment and accelerating from 1.2% organic growth in 2024 and negative growth in 2023.
Adjusted EPS grew double digits to $8 six and free cash flow conversion was slightly above 100% for the year.
Speaker #3: This growth was underpinned by the strong commercial excellence foundation we've established and our focus on reinvigorating innovation. We delivered significant margin expansion with full-year adjusted operating margin of 23.4%, up 200 basis points year on year, at the high end of our guidance range and on top of over 200 basis points expansion in 2024.
Our 2025 financial results reflect the progress, we're making and we're tracking ahead of the medium term commitments, we made at the Investor day last year.
2025 was an important year for <unk>, where we implemented fundamental changes in the company building a foundation for our future growth through commercial excellence and innovation.
Speaker #3: Adjusted EPS grew double digits to $8.06, and free cash flow conversion was slightly above 100% for the year. Our 2025 financial results reflect the progress we're making and we're tracking ahead of the medium-term commitments we made at the investor day last year.
We previously described the three pillars of commercial excellence.
Improved sales effectiveness and pricing governance stronger collaboration with channel partners, including joint business planning and cross selling.
And increased customer loyalty, and we're making progress across all of them.
Speaker #3: 2025 was an important year for 3M, where we implemented fundamental changes in the company. Building a foundation for our future growth through commercial excellence and innovation.
We've implemented greater rigor across our sales force and sales management tightened pricing controls and developed over 600 joint business plans and closed on nearly $50 million of annualized cross selling wins with a robust pipeline of opportunities.
Speaker #3: We previously described the three pillars of commercial excellence: improved sales effectiveness and pricing governance, stronger collaboration with channel partners—including joint business planning and cross-selling—and increased customer loyalty. We're making progress across all of them.
Innovation is the lifeblood of the company and we successfully launched 284, new products in 2025 up 68% versus 2024 exceeding our initial target and more than double the launches in 2023.
Speaker #3: We've implemented greater rigor across our sales force and sales management, tightened pricing controls, and developed over 600 joint business plans. We also closed on nearly $50 million of annualized cross-selling wins, with a robust pipeline of opportunities.
We expect this growth to continue with 350 launches in 2026.
Okay.
These new products are vital for our long term growth and are already contributing to our top line.
Speaker #3: Innovation is the lifeblood of the company, and we successfully launched 284 new products in 2025, up 68% versus 2024, exceeding our initial target and more than double the launches in 2023.
Sales from products launched in the last five years were up 23% in the full year exceeding our high teens target and exit Q4 at 44%, giving us momentum into 2026.
Our new product vitality index or NPV I <unk>.
Speaker #3: We expect this growth to continue, with 350 launches in 2026. These new products are vital for our long-term growth and are already contributing to our top line.
Measure of the freshness of our portfolio ended at 13% about two points above where we started the year.
It was also a year, where we saw operational excellence become embedded across the enterprise as we drove better service levels for our customers and stronger operating rigor in our factories and across our enterprise functions.
Speaker #3: Sales from products launched in the last five years were up 23% in the full year, exceeding our high-teens target, and exited Q4 at 44%, giving us momentum into 2026.
And I've been describing our performance across three important metrics Otis OE E and cost of poor quality.
Speaker #3: Our new product vitality index, or NPVI, a measure of the freshness of our portfolio, ended at 13%, about two points above where we started the year.
<unk> ended the year above 90% 300 basis points above the prior year and the best we have achieved in decades, and we sustain that rate for seven months in a row.
Speaker #3: It was also a year where we saw operational excellence become embedded across the enterprise, as we drove better service levels for our customers and stronger operating rigor in our factories, and across our enterprise functions.
This improvement is translating into a better customer experience that is helping us win shelf space and reduce churn.
Speaker #3: And I've been describing our performance across three important metrics: OTIF, OEE, and cost of quality. OTIF ended the year above 90%, 300 basis points above the prior year, and the best we've achieved in decades, and we sustained that rate for seven months in a row.
OE, our asset utilization metric ended the year at about 63% up over 300 basis points across assets covering 70% of production volume.
Cost of poor quality also improved considerably last year and is now 6% of cost of goods down 100 basis points year on year.
Speaker #3: This improvement is translating into a better customer experience that's helping us win shelf space and reduce churn. OEE, our asset utilization metric, ended the year at about 63%, up over 300 basis points across assets covering 70% of production volume.
We're focused on key areas of inefficiency like frequent oriented effective changeovers and late detection of material defects, leading to raw material yield loss scrap and quality credits issued to customers.
We're leveraging kaizen events vigilant inspection systems automation solutions, and AI enabled models to optimize changeovers to improve quality with a target of five 4% cost of quality in 2026 and less than 4% overtime.
Speaker #3: Cost of quality also improved considerably last year and is now at 6% of cost of goods, down 100 basis points year on year. We're focused on key areas of inefficiency like frequent or ineffective changeovers and late detection and material defects, leading to raw material yield loss, scrap, and quality credits issued to customers.
Meanwhile, we continue to deploy capital effectively for our shareholders, returning $4 8 billion through dividends and buybacks in the year.
Speaker #3: We're leveraging Kaizen events, visual inspection systems, automation solutions, and AI-enabled models to optimize changeovers to improve quality, with a target of $5.4% cost of quality in 2026 and less than 4% over time.
Progressing well and our commitment to return $10 billion to shareholders as part of our multiyear capital allocation strategy.
The key to making this all work in the long run is our relentless focus on building a performance culture and delivering excellence everywhere every day.
Speaker #3: Meanwhile, we continue to deploy capital effectively for our shareholders, returning $4.8 billion through dividends and buybacks in the year. We are progressing well in our commitment to return $10 billion to shareholders as part of our multi-year capital allocation strategy.
This means greater speed and urgency a deeper sense of accountability challenging the status quo and finding ways to get better every day in the spirit of continuous improvement.
Our performance is a direct result of the cultural and operational changes, we are driving across the enterprise and improve how we develop produce and deliver products and build a strong foundation for the future.
Speaker #3: The key to making this all work in the long run is our relentless focus on building a performance culture and delivering excellence everywhere, every day.
Speaker #3: This means greater speed and urgency, a deeper sense of accountability, challenging the status quo, and finding ways to get better every day in the spirit of continuous improvement.
Slide four is a chart we've used for the past few quarters connecting macro trends to our organic growth to.
The macro remains soft and largely unchanged from Q3, but due to our strong execution we've outperformed.
Speaker #3: Our performance is a direct result of the cultural and operational changes we're driving across the enterprise that improve how we develop, produce, and deliver products, and build a strong foundation for the future.
General industrial safety and electronics collectively about 65% of our business came in better than expected with exceptional year on year strength in the second half and electrical markets aerospace and self contained breathing apparatus.
Speaker #3: Slide 4 is a chart we've used for the past few quarters, connecting macro trends to our organic growth. The macro remains soft and largely unchanged from Q3, but due to our strong execution, we've outperformed.
All of which were up low double digits.
Abrasives, and industrial adhesives, and tapes and electronics were all up mid single digits.
<unk> accelerating from low single digits in the first half.
Speaker #3: General industrial, safety, and electronics—collectively about 65% of our business—came in better than expected, with exceptional year-on-year strength in the second half in electrical markets, aerospace, and self-contained breathing apparatus, all of which were up low double digits.
<unk> holding steady through the year and electronics not softening as previously anticipated.
Auto and auto aftermarket remains soft as expected, while our consumer segment and roofing granules business were weaker than expected.
Despite the macro headwind organic sales growth accelerated to two 7% in the second half from one 5% in the first due to the breadth of our portfolio and our strong execution.
Speaker #3: Abrasives, industrial adhesives, and tapes, and electronics were all up mid-single digits. Abrasives accelerated from low single digits in the first half, IETD held steady through the year, and electronics did not soften as previously anticipated.
Turning to our outlook on slide five our team's constancy of purpose and execution rigor allowed us to finish 2025 strong and we're carrying that momentum forward into 2026.
Speaker #3: Auto and auto aftermarket remained soft as expected, while our Consumer segment and Roofing Granules business were weaker than expected. Despite the macro headwind, organic sales growth accelerated to 2.7% in the second half from 1.5% in the first, due to the breadth of our portfolio and our strong execution.
This year, we expect organic sales growth of approximately 3% adjusted operating margin expansion of 70 to 80 basis points and earnings per share of $8 50.
$8, 70, and free cash flow conversion greater than 100%.
Speaker #3: Turning to our outlook on Slide 5, our team's constancy of purpose and execution rigor allowed us to finish 2025 strong, and we're carrying that momentum forward into 2026.
We're planning for the macro to be similar to 2025, but it's still early to put too much weight on market forecast.
We expect most of our industrial businesses to continue to perform well in 'twenty six with watch items, including the pace and timing of the U S consumer recovery.
Speaker #3: This year, we expect organic sales growth of approximately 3%, adjusted operating margin expansion of 70 to 80 basis points, earnings per share of $8.50 to $8.70, and free cash flow conversion greater than 100%.
Auto build rates, especially in geographies, where we have higher content and consumer electronics.
While we will closely monitor macro trends, we're going to continue to execute our game plan and control the controllable.
Speaker #3: We're planning for the macro to be similar to 2025, but it's still early to put too much weight on market forecasts. We expect most of our industrial businesses to continue to perform well in '26, with watch items including the pace and timing of a U.S. consumer recovery, auto build rates—especially in geographies where we have higher content—and consumer electronics.
Lastly, I want to turn your attention to slide six which is the framework by which will create value for shareholders over time.
The three phases aren't net to be sequential but evolve together with shifting emphasis they build on what we outlined at Investor day and reflect how we view. These elements is interconnected and essential to building a stronger company operationally and financially.
Speaker #3: While we will closely monitor macro trends, we're going to continue to execute our game plan and control the controllables. Lastly, I want to turn your attention to Slide 6, which is the framework by which we'll create value for shareholders over time.
It started with a back to basics focus on fundamentals approach, which is all about building a sustainable foundation.
I've been talking to you about these initiatives and how we track them since I joined three M 21 months ago and did so again today.
Speaker #3: The three phases aren't meant to be sequential, but evolve together with shifting emphasis. They build on what we outlined at Investor Day, and reflect how we view these elements as interconnected and essential to building a stronger company operationally and financially.
These core elements of our focus on commercial and innovation excellence operational excellence and reinvigorating, our culture with accountability and agility, creating a solid platform from which to grow.
Speaker #3: The strategy is a back-to-basics, focus-on-fundamentals approach, which is all about building a sustainable foundation. I've been talking to you about these initiatives and how we track them since I joined 3M 21 months ago, and did so again today.
As we have gained confidence in our execution and is foundational stage, we're beginning to shift our emphasis to the next phase of value creation, which is more transformational in nature.
Like we proved previewed at Investor Day. This phase includes reengineering, the structural cost base that underpins, our supply chain network and business processes, simplifying and standardizing core activities and embedding an AI first mentality as we shift from a holding company model to an integrated operating company.
Speaker #3: These core elements are focused on commercial and innovation excellence, operational excellence, and reinvigorating our culture with accountability and agility, creating a solid platform from which to grow.
Speaker #3: As we've gained confidence in our execution and this foundational stage, we're beginning to shift our emphasis to the next phase of value creation, which is more transformational in nature.
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We described this program at a high level last quarter as a thoughtful strategic long term effort paced at the ability of the team to execute well.
Speaker #3: Like we previewed at Investor Day, this phase includes reengineering the structural cost base that underpins our supply chain network and business processes, simplifying and standardizing core activities, and embedding an AI-first mentality as we shift from a holding company model to an integrated operating company.
Transformation also includes proactive steps on risk reduction and effectively managing the litigation docket.
Anytime we can take care of risk at an appropriate price in which suitable protections will be prepared to act like we did last year with the state of New Jersey.
Speaker #3: We describe this program at a high level last quarter as a thoughtful, strategic, long-term effort paced at the ability of the team to execute well.
And as our organic machine begins to turn faster and our risk profile comes down we'll be prepared to execute on our portfolio management strategy to pivot the company towards higher growth and margin potential priority verticals to help us accelerate value creation for the company.
Speaker #3: Transformation also includes proactive steps on risk reduction and effectively managing the litigation docket. Anytime we can take care of risk at an appropriate price and suitable protections, we'll be prepared to act, like we did last year with the state of New Jersey.
This is a multiyear journey and progress won't be linear, but with a successful 2025 behind us we are accelerating the transformation of three M and building the runway for performance beyond 2027.
Speaker #3: And as our organic machine begins to turn faster, and our risk profile comes down, we'll be prepared to execute on our portfolio management strategy to pivot the company towards higher-growth and margin-potential priority verticals that help us accelerate value creation for the company.
The three M team is energized and motivated and I want to thank them for their dedication and focus on delivering improvement day after day.
And with that I'll turn it over to Andre to share the details of the quarter on Iraq.
Speaker #3: This is a multi-year journey, and progress won't be linear. But with a successful 2025 behind us, we're accelerating the transformation of 3M and building the runway for performance beyond 2027.
Thank you Bill turning to slide seven we had a strong finish to the year across all financial metrics. We delivered another quarter of sales growth above macro continued margin expansion strong earnings growth and robust cash flow generation.
Speaker #3: The 3M team is energized and motivated, and I want to thank them for their dedication and focus on delivering improvement day after day. And with that, I'll turn it over to Anurag to share the details of the quarter.
Starting with top line and a continued muted environment, we delivered organic sales growth of two 2% driven by our commercial excellence initiatives and new product launches.
Speaker #3: Anurag?
Speaker #2: Thank you, Bill. Turning to Slide 7, we had a strong finish to the year across all financial metrics. We delivered another quarter of sales growth above macro, continued margin expansion, strong earnings growth, and robust cash flow generation.
The growth was driven by strength in safety electronics, and general industrial which more than offset the softness in consumer roofing granules and auto markets.
All three of our business segments delivered sustained order momentum, which contributed to a higher ending backlog compared to last year, giving us confidence as we go into 2026.
Speaker #2: Starting with the top line, in our continued muted environment, we delivered organic sales growth of 2.2%, driven by our commercial excellence initiatives and new product launches.
Fourth quarter adjusted operating margins were 21, 1% up 140 basis points and operating profit increased double digits or $125 million driven by continued disciplined operational performance.
Speaker #2: The growth was driven by strength in Safety, Electronics, and General Industrial, which more than offset the softness in Consumer, Roofing Granules, and Auto markets.
Speaker #2: All three of our business segments delivered sustained auto momentum, which contributed to a higher ending backlog compared to last year, giving us confidence as we go into 2026.
This included a $275 million benefit from volume growth broad based productivity and lower restructuring cost, partially offset by approximately $50 million of growth investments and headwind of $100 million from gross tariff impact on stranded costs.
Speaker #2: Fourth quarter adjusted operating margins were 21.1%, up 140 basis points, and operating profit increased double digits, or $125 million, driven by continued disciplined operational performance.
Collectively this contributed 17 cents to earnings which was partially offset by <unk> from non operational and below the line items.
Speaker #2: This included a $275 million benefit from volume growth, broad-based productivity, and lower restructuring costs, partially offset by approximately $50 million of growth investments and a headwind of $100 million from gross tariff impact and stranded cost.
Our strong operating performance resulted in adjusted EPS of $1 83, an increase of 9% and exceeded the top end of our guidance range.
I also want to mention that we took a $55 million charge in the quarter as we continued to make transformation investments to redesign our manufacturing distribution and business process services in locations.
Speaker #2: Collectively, this contributed $0.17 to earnings, which was partially offset by $0.02 from non-operational below-the-line items. Our strong operating performance resulted in adjusted EPS of $1.83, an increase of 9%, and exceeded the top end of our guidance range.
Two last quarter. These charges will be excluded from our adjusted results.
Adjusted free cash flow in the quarter was $1 3 billion with.
With the conversion of approximately 130% as we benefited from strong earnings growth and working capital efficiency.
Speaker #2: I also want to mention that we took a $55 million charge in the quarter, as we continue to make transformation investments to redesign our manufacturing, distribution, and business process services and locations.
Turning to slide eight I will provide an overview of our business group performance for both the fourth quarter and full year 2025.
Speaker #2: Similar to last quarter, these charges will be excluded from our adjusted results. Adjusted free cash flow in the quarter was $1.3 billion, with a conversion of approximately 130%, as we benefited from strong earnings growth and working capital efficiency.
First in safety and industrial we delivered another quarter of strong organic growth as we continue to gain traction on commercial excellence initiatives and realized benefits from new product launches.
Fourth quarter organic sales increased three 8% driven by strong performance in safety, which grew high single digits through enhanced channel engagement and new product launches.
Speaker #2: Turning to slide 8, I will provide an overview of our business group performance for both the fourth quarter and full year 2025. Safety and Industrial: We delivered another quarter of strong organic growth as we continue to gain traction on commercial excellence initiatives and realize benefits from new product launches.
Industrial adhesives, and tapes growth accelerated to high single digits as we continue to win share globally, and electronics and general industrial from new product introductions and improved manufacturing throughput.
Speaker #2: Fourth-quarter organic sales increased 3.8%, driven by strong performance in Safety, which grew high single digits through enhanced channel engagement and new product launches.
Abrasives continue to improve delivering another quarter of mid single digit growth benefiting from sustained focus on sales force effectiveness.
Collectively this strong growth more than offset known weakness.
Speaker #2: Industrial adhesives and tapes growth accelerated to high single digits as we continue to win share globally in electronics and general industrial from new product introductions and improved manufacturing throughput.
In automotive after market and incremental weakness in roofing granules due to the slower housing market and weak consumer sentiment.
Speaker #2: Abrasives continue to improve, delivering another quarter of mid-single-digit growth, benefiting from sustained focus on sales force effectiveness. Collectively, this strong growth more than offset known weakness in automotive aftermarket and incremental weakness in roofing granules due to the slow housing market and weak consumer sentiment.
For the full year <unk> grew three 2% with growth accelerating from two 5% in the first half to three 9% in the second half on the back of strong execution.
Turning to transportation and electronics fourth quarter organic sales increased two 4% driven by continued momentum in electronics and aerospace.
These gains more than offset weakness in auto which in our organizational structure includes commercial vehicles, which was down high teens in the quarter.
Speaker #2: For the full year, SIBG grew 3.2%, with growth accelerating from 2.5% in the first half to 3.9% in the second half on the back of strong execution.
Electronics continued to gain share supported by commercial excellence initiatives and strong demand for our film technology is an optically clear adhesives.
Speaker #2: Turning to Transportation and Electronics, fourth quarter organic sales increased 2.4%, driven by continued momentum in electronics and aerospace. These gains more than offset weakness in auto, which in our organizational structure includes commercial vehicles, which was down high teens in the quarter.
We also expanded our presence in the mainstream market by partnering with leading consumer electronic brands to deliver solutions aligned with the portfolio needs.
Aerospace delivered another strong quarter, given by growing demand for space materials and continued strength in defense related markets.
Speaker #2: Electronics continue to gain share, supported by commercial excellence initiatives and strong demand for our film technologies and optically clear adhesives. We also expanded our presence in the mainstream market by partnering with leading consumer electronic brands to deliver solutions aligned with the portfolio needs.
We are seeing sustained growth in this portfolio of sales have doubled over the last four years.
For 2025 transportation and electronics grew 2% with second half growth of 3% versus the first outgrowth of 1% driven by continued focus on commercial excellence and the ramp up of new product launches.
Speaker #2: Aerospace delivered another strong quarter, driven by growing demand for space materials and continued strength in defense-related markets. We have seen sustained growth in this portfolio, where sales have doubled over the last four years.
Finally, consumer fourth quarter organic sales were down two 2%.
For the first nine months of the year the business was up 0.3% and we had expected the fourth quarter to be similar.
Speaker #2: For 2025, Transportation and Electronics grew 2%, with second-half growth of 3% versus first-half growth of 1%, driven by continued focus on commercial excellence and the ramp-up of new product launches.
But weaker consumer sentiment and sluggish retail traffic in the U S resulted in lower point of sale trends on discretionary categories, where we compete.
This market weakness was partially offset by new product introductions increased advertising and promotional investments in the U S and overall business growth in Asia and Latin America.
Speaker #2: Finally, consumer fourth quarter organic sales were down 2.2%. For the first nine months of the year, the business was up 0.3%, and we had expected the fourth quarter to be similar.
As a result of the fourth quarter weakness.
Speaker #2: But weaker consumer sentiment and sluggish retail traffic in the US resulted in lower point-of-sale trends on discretionary categories where we compete. This market weakness was partially offset by new product introductions, increased advertising and promotional investments in the US, and overall business growth in Asia and Latin America.
<unk> revenue declined by 0.3% for the full year.
On slide nine is a summary of the full year 2025 performance.
Overall, our strong fourth quarter capped a successful 2025, we had organic sales growth of two 1% margin expansion of 200 basis points, and EPS increase of 10% and free cash flow slightly above 100%.
Speaker #2: As a result of the fourth quarter weakness, CBG revenue declined by 0.3% for the full year. On Slide 9 is a summary of the full year 2025 performance.
Sales growth strengthened from one 5% in the first half to two 7% in the second exceeding the two 5% we mentioned in our July earnings call.
Speaker #2: Overall, a strong fourth quarter capped a successful 2025 with organic sales growth of 2.1%, margin expansion of 200 basis points, and EPS increase of 10% and free cash flow slightly above 100%.
This momentum underscores the impact of our commercial excellence initiatives and add service levels and successful new product launches.
<unk> us well to accelerate our performance going forward.
By geography, all areas delivered growth in the year.
Speaker #2: Sales growth strengthened from 1.5% in the first half to 2.7% in the second, exceeding the 2.5% we mentioned in our July earnings call. This momentum underscores the impact of our commercial excellence initiatives, enhanced service levels, and successful new product launches, positioning us well to accelerate our performance going forward.
China grew mid single digit from strength in general industrial and electronics bonding solutions supported by a strong focus on key accounts.
This momentum more than offset the fourth quarter shift in smartphone manufacturing from China to other parts of Asia.
And the rest of Asia, we grew low single digits led by strong performance in India, which grew mid teens on account of progress in commercial excellence across all businesses.
Speaker #2: By geography, all areas delivered growth in the year. China grew mid-single digits from strength in general industrials and electronics bonding solutions, supported by a strong focus on key accounts.
After a couple of years of decline Europe grew low single digits due to strength in general industrial and safety, which more than offset the weakness in consumer and auto after market.
Speaker #2: This momentum more than offset the fourth quarter shift in smartphone manufacturing from China to other parts of Asia. In the rest of Asia, we grew low single digits, led by strong performance in India, which grew mid-teens on account of progress in commercial excellence across all businesses.
Despite soft consumer and auto after market. The U S grew low single digit for the year on the back of commercial excellence initiatives in the general industrial and safety businesses.
Speaker #2: After a couple of years of decline, Europe grew low single digits due to strength in general industrial and safety, which more than offset the weakness in consumer and auto aftermarket.
Productivity initiatives drove strong margin expansion every quarter and 25, resulting in full year operating margins of 23, 4%.
Operating profit growth of approximately $650 million at constant currency.
Speaker #2: Despite soft consumer and auto aftermarket, the U.S. grew low single digits for the year on the back of commercial excellence initiatives in the general industrial and safety businesses.
Was driven by $200 million from volume growth and $550 million of net productivity across supply chain and G&A.
Speaker #2: Productivity initiatives drove strong margin expansion every quarter in '25, resulting in full-year operating margins of 23.4%. Operating profit growth of approximately $650 million at constant currency was driven by $200 million from volume growth and $550 million of net productivity across supply chain and G&A.
This was partially offset by $100 million in.
Headwinds driven by $185 million in growth and productivity investments. In addition to ongoing stranded cost and tariff impacts with year on year lower restructuring costs.
The strong operational performance contributed 96 cents of earnings which was offset by approximately <unk> 20 of non operational items for a total EPS of $8 six.
Speaker #2: This was partially offset by 100 million dollars in headwinds driven by 185 million dollars in growth and productivity investments in addition to ongoing stratic cost and tariff impacts with year-on-year lower restructuring costs.
This 10% EPS growth was better than our expectations and above the initial guidance at the start of the year.
And we returned $4 8 billion to shareholders in 25, including $1 6 billion in dividends and $3 2 billion through gross share repurchases.
Speaker #2: The strong operational performance contributed $0.96 of earnings, which was offset by approximately $0.20 of non-operational items, for total EPS of $8.06. This 10% EPS growth was better than our expectations and above the initial guidance at the start of the year.
Overall 2025 laid the foundation for a strong operating culture.
Grounded in excellence accountability, and our phosphate operating temple, enabling us to overcome external factors to drive profitable growth.
Speaker #2: And we returned $4.8 billion to shareholders in ’25, including $1.6 billion in dividends and $3.2 billion through gross share repurchases. Overall, 2025 laid the foundation for a strong operating culture.
We have momentum as we enter 2026 and I will walk you through the guidance on slide 10.
We expect organic sales growth to be approximately 3%.
Earnings per share ranging from $8 50 to $8 70.
Speaker #2: Grounded in excellence, accountability, and a faster operating tempo, enabling us to overcome external factors to drive profitable growth. We have momentum as we enter 2026 and I will walk you through the guidance on Slide 10.
Free cash flow conversion of greater than 100%.
We expect sales to accelerate for all business groups.
<unk> grew two 7% combined in 2025, and we expect this growth rate will accelerate in 2026 supported by ongoing commercial excellence initiatives strong service levels and continued new product introductions.
Speaker #2: We expect organic sales growth to be approximately 3%, earnings per share ranging from $8.50 to $8.70, and free cash flow conversion of greater than 100%.
And we expect consumer to return to growth in 2026.
Speaker #2: We expect sales to accelerate for all business groups. SIBG and TBG grew 2.7% combined in 2025, and we expect this growth rate will accelerate in 2026, supported by ongoing commercial excellence initiatives, strong service levels, and continued new product introductions.
The business groups combined will expand margins over $450 million or 100 basis points, including $875 million from volume growth and net productivity across supply chain and G&A.
This will be partially offset by headwinds from P fast stranded costs and tariff impacts as well as an increase in growth and productivity investments to $225 million.
Speaker #2: And we expect consumer to return to growth in 2026. The business groups combined will expand margins over $450 million, or 100 basis points, including $875 million from volume growth and net productivity across supply chain and G&A.
This is on top of the incremental investment over the past two years, bringing the total investment from 2024 to over half a billion.
Corporate and other income will be lower by $50 million to $75 million or 20 to 30 basis points largely from wind down of transition services agreements related to <unk>.
Speaker #2: This will be partially offset by headwinds from PFAS, strategic cost and tariff impacts, as well as an increase in growth and productivity investments to $225 million.
Overall, we expect total company income to grow by $400 million at the midpoint of our 70 to 80 basis points margin expansion guidance.
Speaker #2: This is on top of the incremental investment over the past two years, bringing the total investment from 2024 to over $500 million.
Adjusted free cash flow conversion is expected to be greater than 100% driven by strong operating income growth and a focus on working capital management.
Speaker #2: Corporate and other income will be lower by $50 to $75 million, or 20 to 30 basis points, largely from wind-down of transition services agreements related to Solventum.
And we plan to deploy capital effectively including a gross share repurchases of approximately two 5 billion in 2026.
Speaker #2: Overall, we expect total dollars at the midpoint of our 70 to 80 basis points margin expansion guide. Adjusted free cash flow conversion is expected to be greater than 100%, driven by strong operating income growth and a focus on working capital management.
Slide 11 provides a look at earnings growth drivers, which is primarily driven by strong operations consistent with our 2025 performance.
Regarding cadence, we expect the rate of sales growth to increase through the year, we had margin and EPS equal between the two halves.
Speaker #2: And we plan to deploy capital effectively, including a gross share repurchase of approximately $2.5 billion in 2026. Slide 11 provides a look at earnings growth drivers, which is primarily driven by strong operations consistent with our 2025 performance.
In the first quarter the sales growth in <unk> BG combined is expected to be higher than 3%.
We will continue to monitor the recovery in our consumer business.
Volume productivity and slight favorability in FX will more than offset the stranded cost gross tariff impact and increase in investments, resulting in high single digits year on year earnings growth.
Speaker #2: Regarding cadence, we expect the rate of sales growth to increase through the year, with margin and EPS equal between the two halves. In the first quarter, the sales growth in SIBG and TBG combined is expected to be higher than 3%.
Before we open the call for questions turning to slide 12, I want to take a minute to highlight the progress we have made so far.
Speaker #2: And we will continue to monitor the recovery in our Consumer business. Volume productivity and slight favorability in FX will more than offset the static costs, gross tariff impact, and increase in investments, resulting in high single-digit year-on-year earnings growth.
We are trending ahead of our Investor day targets, we laid out a year ago.
Our organic sales growth is accelerating due to our investment in growth and commitment to commercial excellence and innovation.
Speaker #2: Before we open the call for questions, turning to slide 12, I want to take a minute to highlight the progress we have made so far.
Our relentless focus on operational excellence is resulting in strong operating margin expansion and sustained earnings growth despite pressures such as soft macro tariffs and stranded costs.
Speaker #2: We are trending ahead of our investor-day targets we laid out a year ago. Our organic sales growth is accelerating due to our investment in growth and commitment to commercial excellence and innovation.
We continue to be a consistent generator of cash that allows us to effectively return capital to shareholders, while maintaining a healthy balance sheet.
Speaker #2: Our relentless focus on operational excellence is resulting in strong operating margin expansion and sustained earnings growth despite pressures such as soft macro, tariffs, and strategic costs.
Not too long ago, our growth rates were trailing the macro and now we are progressing ahead of our medium term commitments of $1 billion growth over macro and a 25% operating margin by 2027.
Speaker #2: We continue to be a consistent generator of cash that allows us to effectively return capital to shareholders while maintaining our healthy balance sheet. Not too long ago, our growth rates were trailing the macro.
While we are focused on executing these commitments. We are also broadening our horizons to the out years.
Ensuring our transformation efforts position the company not only for the short term, but for sustained profitable growth well past 2027.
Speaker #2: And now we are progressing ahead of our medium-term commitments of $1 billion growth over macro and a 25% operating margin by 2027. While we are focused on executing commitments, we are also broadening our horizons to the out years.
This strong performance is a credit to the expertise and the commitment of the <unk> team and.
And I, thank them for their hard work and dedication.
With that let's open the call for questions.
Speaker #2: Ensuring our transformation efforts position the company not only for the short term, but for sustained profitable growth well past 2027. This strong performance is accredited to the expertise and the commitment of the 3M team.
Ladies and gentlemen, if you would like to register a question. Please press star one on your telephone keypad.
If your question has been answered and you would like to withdraw please press star two.
If you are using a speaker phone please lift up on your handset before entering your request.
Speaker #2: And I thank them for their hard work and dedication. With that, let's open the call for questions.
Please limit your participation to one question and one follow up.
Speaker #1: Ladies and gentlemen, if you would like to register a question, please press star one (*) on your telephone keypad. If your question has been answered and you would like to withdraw, please press star two (*2).
Our first question comes from the line of Jeff Sprague with vertical research. Please proceed with your question.
Thank you good morning, everyone.
I guess two for me one longer term and one shorter term hey, Bill just back to your.
Speaker #1: 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.
Slide six has just said.
These things are going on to varying degrees simultaneously.
But the pivot to priority verticals sort of jumps out to me obviously not the first time, we've heard that but I was just wondering if you could put into context.
Speaker #1: Our first question comes from the line of Jeff Sprague with Vertical Research. Please proceed with your question.
Speaker #2: Hey, thank you. Good morning, everyone. I guess two for me—one longer-term and one shorter-term. Hey, Bill, just back to your slide six. As you said, all these things are going on, to varying degrees, simultaneously.
How much of that pivot is sort of addition by subtraction.
Versus sort of investment focus growing and bulking up sort of the areas that you view as the priority and maybe sort of what percent of your current revenue base or business base would you say is in that priority bucket.
Speaker #2: But the pivot to priority verticals sort of jumps out to me, obviously not the first time we've heard that. But I just wonder if you could put into context how much of that pivot is sort of addition by subtraction versus sort of investment focus, growing and bulking up sort of the areas that you view as the priority and maybe sort of what percent of your current revenue base or business base would you say is in that priority bucket?
So good morning, Jeff Great. Great question. So we've been talking about our priority verticals going back a year actually to February of last year.
It's a little bit north of 60 percentage growing frankly, because of the investments, we're making I'd put it in two pieces one.
We spent the last year and a half focusing a lot of our internal investment dollars on the priority verticals and now probably 80% of what we spend on R&D is aligned to NPI in the priority verticals that of course.
Speaker #3: So, good morning, Jeff. Great question. So we've been talking about our priority verticals going back to a year—actually, to February of last year.
Speaker #3: It's a little bit north of 60 percent growing, frankly, because of the investments we're making. And I put it in two pieces. One, we spent the last year and a half focusing a lot of our internal investment dollars on the priority verticals.
They are defined as ones that are growing faster, where we have good margin potential as well in the business, where technology brings differentiation a right to win.
And that's been the pivot in the organization.
Speaker #3: And now, probably 80% of what we spend on R&D is aligned to NPI in the priority verticals. And, of course, they are defined as ones that are growing faster, where we have good margin potential as well, in the business where technology brings differentiation or a right to win.
Over time as we as we think about what the portfolio is going to look like for us to get to a much better sustainable organic growth rate for the overall company. We've got a structurally adjust the portfolio, which means some pieces coming out and we've been talking about some of those pieces, we've said before about 10% of our company.
Speaker #3: And that's been the pivot in the organization. Over time, as we think about what the portfolio is going to look like for us to get to a much better, sustainable, organic growth rate for the overall company, we've got to structurally adjust the portfolio.
In places that are more commodity like and it will probably will think about what we want to do with those business over time, but as we do that we will be pivoting, both organically as well as inorganically towards those priority verticals, which is the nature of that chart. It shows that that's an evolution over time and again, its not sequential but thats kind of the overall flow how we think about.
Speaker #3: Which means some pieces coming out, and we've been talking about some of those pieces. We've said before, about 10% of our company would be in places that are more commodity-like.
Creating value at three a M.
Yeah, and then just thank you for that just on the on the very near term.
Speaker #3: And we'll think about what we want to do with those businesses over time. But as we do that, we'll be pivoting both organically as well as inorganically towards those priority verticals.
That view on U S Ipi.
It's kind of a tough slog out there right, but your industrial businesses do seem to be performing well right abrasives and some of the use of electrical businesses. So I guess there is some outgrowth there, but I guess just the nature of my question is just a little more color on how you see the year kind of starting out on Iraq gave a little bit of color but.
Speaker #3: Which has the nature of that chart. It shows that that's an evolution over time. And again, it's not necessarily sequential, but that's kind of the overall flow of how we think about creating value here at
Speaker #3: Which has the nature of that chart. It shows that that's an evolution over time. And again, it's not necessarily sequential, but that's kind of the overall flow of how we think about creating value here at 3M.
Speaker #2: Yeah, and then just thank you for that. Just on the very near term, the flat view on US IPI—it's kind of a tough slog out there, right?
You know that.
Restart soft here in January and the.
Speaker #2: But your industrial business does seem to be performing well, right? Abrasives and some of the adhesives, electrical businesses. So I guess there's some outgrowth there.
Shifting sort of kind of picking up off a low base here.
<unk> at the year, so last year I mean, we the.
Asia was pretty pretty solid actually cross the industrial businesses, and we aren't Ravi and his comments talked about the acceleration for about 2% to three 6% across T. B G. N S. I B G. As we went first half into the second half, yes, I Ipi is softening both in the U S as well as in China was important mark.
Speaker #2: But I guess just the nature of my question is just a little more color on how you see the year kind of starting out Anurag gave a little bit of color, but did we start soft here in January and do you see things sort of kind of picking up off a low base here as we exited the
Speaker #2: year? Yeah.
Speaker #3: So, last year, I mean, the exit rate was pretty solid actually and crossed the industrial businesses. And Anurag, in his comments, talked about the acceleration from about 2% to 3.6% across TEBG and SIBG as we went from the first half into the second half.
That's for US certainly, but we do expect our overall industrial businesses to remain pretty solid I pointed out a couple of watch areas. One is in auto builds auto builds were around three 8% last year, a little weaker in Q4, a lot of it was China deal, but overall it will be says right now down <unk>, 3% as much as you are.
Speaker #3: Yes, IPI is softening both in the U.S. as well as in China. It was an important market for us, certainly. But we do expect our overall industrial businesses to remain pretty solid.
I believe the numbers.
And not so good across the all of the regions. So that that auto was a little bit a little bit softer meals to watch that consumer electronics look at a little bit more flattish in terms of the overall macro forecast of course, we believe that our business like <unk> will continue to grow we still see that to be overall electronics up mid single digits for the year and of course, we were watching.
Speaker #3: I pointed out a couple of watch areas. One is in auto builds. Auto builds, we're around 3.8% last year. A little weaker in Q4.
Speaker #3: A lot of it was China. But overall, it'll be—says right now—down 0.3%, as much as you can believe the numbers. And not so good across all of the regions.
Carefully which happens what happens in the U S consumer market.
Speaker #3: So that auto is a little bit softer to watch that. Consumer electronics looking a little bit more flattish in terms of the overall macro forecast.
Right now it feels subdued we had a very very good December although Q4 came in down two 2%. So so a drop the year to being negative for consumer but December we typically see the third month pretty good but it was up double digits over the prior year in December.
Speaker #3: Of course, we believe in our business, electronics, will continue to grow. We still see that to be overall electronics up mid-single digits for the year.
Speaker #3: Of course, we're watching very carefully what happens in the US consumer market. Right now, it feels subdued. We had a very good December, although Q4 came in down 2.2%.
Early in January again, it's early this year, we're looking okay. So.
That's sort of the landscape, but I do see that even though ipi is coming down our commercial excellence initiatives, our NPI initiatives.
Speaker #3: So, it dropped the year to being negative for consumer, but December—we typically see the third month pretty good, but it was up double digits over the prior year in December.
To allow us to continue to outperform that macro and we expect that to accelerate in 2006 from what we've experienced in 'twenty five.
Speaker #3: And early in January, again, it's early this year—we're looking. Okay, so that's sort of the landscape. But I do see that, even though IPI is coming down, our commercial excellence initiatives—our NPI initiatives—are going to allow us to continue to outperform that macro.
Great Thanks for that sure.
Our next question comes from the line of Scott Davis with Melius Research. Please proceed with your question.
Hey, good morning, guys. Good morning, Scott.
Speaker #3: And we expect that to accelerate in '26 from what we experienced in—
Thanks.
Thanks for the detail.
Hey, guys I don't think you mentioned inventory levels customer inventory levels in the prepared remarks, and just as we exited the.
Speaker #3: 25. You bet, Jeff. Great.
Speaker #2: Thanks for that.
Speaker #3: Sure.
Speaker #1: Our next question comes from the line of Scott Davis with Melius Research. Please proceed with your question.
2025, it what we're what's your sense of where your customer inventory levels, where are our I guess now kind of point of reference kind of pre COVID-19 postcode kind of a new normal versus kind of pre COVID-19. Just just just a little color around that I think would be helpful. Sure. That's a good good question. So on the industrial channels, it's pretty normalized.
Speaker #1: question. Hey, good
Speaker #3: Morning, Scott. morning, guys.
Speaker #4: Thanks for the detail. Guys, I don't think you mentioned inventory levels, customer inventory levels, in the prepared remarks. And just as we exited 2025, what's your sense of where your customer inventory levels were, or are, I guess now? Kind of for point of reference, how do they look pre-COVID, post-COVID, and in the new normal versus pre-COVID?
And that sort of 60 day range, you know a little bit little bit more than that but but as we would expect it to be as we were selling out in Q4, we do watch pass out of our channel partners and they were selling through so even though we had good sales into the channel. We also saw good sales out of the channel. So so pretty good actually on the industrial side that's good.
Speaker #4: Just a little color around
Speaker #4: That, I think, would be helpful. Sure.
Speaker #3: Good question. So on the industrial channels, it's pretty normalized. It's in the sort of 60-day range, a little bit more than that. But as we would expect it to be, as we were selling out in Q4. We do watch POS out of our channel partners, and they were selling through.
On the consumer side.
The CPG side, it was a little bit elevated early in the quarter, but we had very strong growth in December and inventory started to come down and normalize still a little bit elevated as we as we exited the year, but but but not not as concerning as we were sort of at the beginning of the quarter. So overall industrial pretty good.
Speaker #3: So even though we had good sales into the channel, we also saw good sales out of the channel. So pretty good, actually, on the industrial side.
Speaker #3: That's good. On the consumer side, on the CBG side, it was a little bit elevated early in the quarter, but we had very strong growth in December.
Consumer getting normalize as we speak.
Okay Fair enough and then catch what what is the pricing strategy right now I mean, it kind of.
Speaker #3: And inventory started to come down and normalize. Still a little bit elevated as we exited the year, but not as concerning as we were sort of at the beginning of the quarter.
Just listening to the prepared remarks, it sounds like new products is where you lean in on on price or at least try to get get get a positive mix shift there, but is there also a pricing strategy around getting an annual.
Speaker #3: So overall, industrial is pretty good, consumer is getting normalized as we—
Speaker #3: speak. Okay.
Speaker #4: Fair enough. And then, guys, what is the pricing strategy right now? I mean, it kind of, when just listening to the prepared remarks, it sounds like new products are where you lean in on price, or at least try to get a positive mix shift there.
Bump up perhaps that maybe you didn't get historically, but going out with price increases on January one, particularly where you are going through distribution. So yes. It's a good question. So for the year, we would expect it to be about 70 basis points last year stepping up first half second half as we are covering some of the tariff headwind we saw that in the third.
Speaker #4: But is there also a pricing strategy around getting an annual bump up—perhaps one you didn't get historically—but going out with price increases on January 1, particularly where you're going through distribution?
Quarter in the fourth quarter was a little bit lighter because of the consumer market and the promos and discounts that we provided there to stimulate that business. So overall, we were a little lighter on pricing last year than we had expected, but still very solid the place where we get pricing generally speaking as an <unk> and that was solid that remains strong we continue to.
Speaker #3: So yeah, good question. So for the year, we had expected to be about 70 basis points last year, stepping up first half, second half, as we were covering some of the tariff headwind.
Speaker #3: We saw that in the third quarter. In the fourth quarter, it was a little bit lighter because of the consumer market and the promos and discounts that we provided there to stimulate that business.
See good pricing movement here going into 2026.
We expect it will be about 80% 80 basis points more or less in 'twenty in 2026, a lot of it is S. I B G.
Speaker #3: So overall, we were a little lighter on pricing last year than we had expected, but still very solid. The place where we get pricing, generally speaking, is in SIBG, and that was solid.
There's a couple of threads here. One one is we do continue to cover material cost inflation. Two we continue to tightened down our pricing governance, making sure across all of the industrial businesses that when we get pricing discounts, we get the volume we would expect in English in giving those discounts and then third as you pointed out Scott It is the pricing.
Speaker #3: That remains strong. We continue to see good pricing movement here going into 2026. We expect it'll be about 80 basis points, more or less, in 2026.
Speaker #3: A lot of it is SIBG. There are a couple of threads here. One, as we do continue to cover material cost inflation. Two, we continue to tighten down our pricing governance, making sure across all of the industrial businesses that when we give pricing discounts, we get the volume we'd expect.
We should expect to get when we the launching new products. This is an area of opportunity for us over the medium or longer term I think we're okay. On this but we could be a lot better there's pockets, where we we are very thoughtful and pricing to value, but I would not say that today that thats over all of the NPI were launching and then he gets long term opportunity for the company.
Speaker #3: In giving those discounts. And then third, as you pointed out, Scott, is the pricing we should expect to get when we're launching new products.
Best of luck this year guys. Thanks. Thank you. Thank you Scott.
Speaker #3: This is an area of opportunity for us over the medium to longer term. I think we're okay on this, but we could be a lot better.
Yeah.
Our next question comes from the line of Julian Mitchell with Barclays. Please proceed with your question.
Speaker #3: There's pockets where we are very thoughtful in pricing to value, but I would not say that today that that's all of the NPI we're launching.
Hi, good morning.
Maybe.
Speaker #3: And I think it's a long-term opportunity for the company.
First off I just wanted to understand.
The degree to which if any there was.
Speaker #4: All right. Best of luck this year, guys. Thank you.
A backend loading in.
Speaker #3: Thank you. Thank you, Scott.
In the guide.
It seems like you are expecting about 6% EPS growth year on year in the first half.
Speaker #1: Our next question comes from the line of Julian Mitchell with Barclays. Please proceed with your
Speaker #1: question. Hi, good
So not that different from the full year, just wanted to check that and how you're starting out in the in the first quarter should we expect the consumer business to still be down for example, and then that picks up steam through the year.
Speaker #5: Good morning. Maybe first off, I just wanted to understand the degree to which, if any, there was a back-end loading in the guide. It seems like you're expecting about 6% EPS growth year-over-year in the first half.
Alright.
Things are going on around here. So I would say in terms of EPS growth, we expect the first half and second half to be equal. So as I said in my prepared comments, the EPS will be equally between the first and second half which implies.
Speaker #5: So, not that different from the full year. Just wanted to check that, and how you're starting out in the first quarter. Should we expect the consumer business to still be down, for example, and then that picks up steam through the year?
Similar growth rate as well.
And if you look at what I said is in the <unk>, but just given the exit rates, we do expect revenue to be over 3% in the first quarter. CPG is an area. We will watch out and you probably see that out of the revenue go through the course of the year with materially do not expect the rate of growth to be significantly different between the first half and the <unk>.
Speaker #3: Right. Thanks, Julian. Anurag here. So I would say, in terms of EPS growth, we expect the first half and second half to be equal.
Speaker #3: So, as I said in my prepared comments, the EPS will be equal between the first and second half, which implies a similar growth rate as well.
Second half.
Speaker #3: If we look at what I said, is that the SIBG TBG, given the exit rates, we do expect revenue to be over 3% in the first quarter.
If I look at productivity as well, it's pretty even loaded across the full quarters. So I think as we sit here today, we feel that its a fairly even loaded.
Speaker #3: CBG is an area we will watch out for, and you probably see that part of the revenue goal through the course of the year. But materially, do not expect the rate of growth to be significantly different between the first half and the second half.
The cadence for both revenue as well as EPS.
Yeah.
That's very helpful. Thank you.
And just my follow up would be around that sort of interplay and it's been touched on a couple of times, but between the macro and the self help initiatives.
Speaker #3: And if I look at productivity as well, it's pretty evenly loaded across the four quarters. So I think as we sit here today, we feel that it's a fairly evenly loaded quarterly cadence for both revenue as well as productivity.
So when we're thinking about the guidance for a deceleration in ipi.
In the U S. This year, but an acceleration somewhat in <unk> organic growth rate is our impression that that's really old.
Speaker #3: EPS.
Speaker #5: That's
Speaker #5: Very helpful, thank you. And then just my follow-up would be around that sort of interplay—and it's been touched on a couple of times—but between the macro and the self-help initiatives.
Self help initiatives that you mentioned and the outgrowth for the acceleration in the second half of 2025.
Speaker #5: So when we're thinking about the guidance for a deceleration in IPI in the US this year, but an acceleration somewhat in 3M's own organic growth rate, is our impression that that's really all self-help initiatives that you mentioned?
Is your impression that that was all self help driven as well with nothing from the macro just just to understand.
How much is sort of putting on your own shoulders versus relying on the external environment for this year.
So Julien thanks for the question, let me maybe frame it by just talking about it a little more granularity to the $1 billion over macro.
Speaker #5: And the outgrowth, or the acceleration in the second half of 2025— is your impression that that was all self-help driven as well, with nothing from the macro?
<unk> talked about over at the Investor day over the next three years and Henri mentioned.
2025.
Speaker #5: Just to understand how much you're sort of putting on your own shoulders versus relying on the external environment for this.
Speaker #5: Just to understand how much you're sort of putting on your own shoulders versus relying on the external environment for this year. So, Julian, thanks for the—
Our growth came in at two 1%, we look at the overall macro to be around a point and a half that's ipi GDP with some sectors that were a bit weaker.
Speaker #3: Let me maybe frame it by just talking about a little more granularity—the billion dollars over macro. We talked about, over the Investor Day, over the next three years, and Anurag mentioned in 2025, our growth came in at 2.1%.
What we see it so we saw ourselves with about 60 basis points help performance versus the macro if you just run the math that that gives you about $150 million, so a little bit better than we had expected to be 100 million over over macro last year.
Speaker #3: We look at the overall macro to be around a point and a half. That's IPI, GDP, with some sectors that were a bit weaker.
The majority of that probably 75% of it or more was <unk>.
Commercial excellence less of that was new product introductions, but we did say that that would start to even out and an NPI or innovation would take over in that third year and that's in fact, what we're seeing in 2026, so we're guiding you're at 3%.
Speaker #3: It was where we see it. So we saw ourselves with about 60 basis points of outperformance versus the macro. If you just run the math, that gives you about $150 million.
Speaker #3: So, a little bit better than we had expected, to be $100 million over macro last year. And the majority of that, probably 75% of it or more, was commercial excellence.
We expect the macro in 2026 to be a little bit better one five maybe $1 seven range something like that so.
Speaker #3: Less of that was new product introductions, but we did say that that would start to even out, and NPI or innovation would take over in that third year.
Outperformance this year versus the macro was more like $300 million or more and thats roughly half and half between NPI and commercial excellence. So so that is how do we see this playing out in the back half of last year did show that we did outperform the macro a lot of it was that your phrase Julie was carrying on our shoulders.
Speaker #3: And that's, in fact, what we're seeing in 2026. So we're guiding here at 3%. We expect the macro in 2026 to be a little bit better, at 1.5%, maybe 1.7% range, something like that.
Speaker #3: So our outperformance this year versus the macro is more like $300 million or more. And that's roughly half and half between NPI and commercial excellence.
We expect to see more of that coming into 2026 with launching more projects, which is very good we're getting a lot more granular tracking the incremental revenue coming from the class three fours and fives and as we look out into next year, we're pretty confident that those are going to start to move the needle for the company, which is <unk>.
Speaker #3: So that's how we see this playing out. And yeah, the back half of last year did show that. We did outperform the macro. A lot of it was that your phrase, Julian, was 'carrying it on our shoulders.'
Why do we feel good about outgrowing the macro here in 2006.
Speaker #3: And we expect to see more of that coming into 2026. We're launching more projects, which is very good. We're getting a lot more granular tracking the incremental revenue coming from class threes, fours, and fives.
Great. Thank you you bet.
Our next question comes from the line of Joe O'dea with Wells Fargo. Please proceed with your question.
Speaker #3: And as we look out into next year, we're pretty confident that those are going to start to move the needle for the company. Which is why we feel good about outgrowing the macro here in '26.
Hi, good morning, Thanks for taking my questions.
Wanted to start on footprint optimization, and if you can give a little color between factories and distribution centers, how youre thinking about targets for footprint reduction or consolidation in 2026, both in terms of kind of a number of facilities and as well as op profit impact and then <unk>.
Speaker #5: Great. Thank you.
Speaker #3: You
Speaker #3: bet. Our next
Speaker #1: The question comes from the line of Joe Ode with Wells Fargo. Please proceed with your question.
Speaker #1: question. Hi, good morning.
Speaker #6: Thanks for my
Speaker #6: Questions. Morning, Joe. I wanted to start on footprint optimization. And if you can give a little color between factories and distribution centers, how you're thinking about targets for footprint reduction or consolidation in 2026, both in terms of number of facilities as well as profit impact, and then any color around segments and regions where we would see the biggest impact there.
Any color around segments and regions, where we would see the biggest impact there. So that's all part of our broader transformation agenda. We're just starting on that as we speak we did see some announcements at the back end of last year, We announced one small facility last week.
Our network we ended the year around about 108 factories, we have several about seven coming out with the sale of a precision grinding and finishing so call. It about 100 factories that will come down over time I can't size. It for you today, we will be making some investments in 26 to restructure that network, but keep them on.
Speaker #3: So look, it's all part of our broader transformation agenda. We're just starting on that as we speak. We did see some announcements at the back end of last year.
Speaker #3: We announced one small facility last week. In our network, we ended the year about 108 factories. We have several about seven coming out with the sale of precision grinding and finishing.
These things are 345 year payback. So so we'll start on it.
Accelerating into 'twenty six accelerated 27, but this is really about building that margin runway to grow beyond 25% in 27 on in terms of operating margin. So.
Speaker #3: Factories. That will come down over—so call it about 100 times. I can't size that for you today. We will be making some investments in '26 to restructure that network.
We will consolidate this network it'll be factories and distribution centers, we're making some progress on <unk> as well.
Speaker #3: But keep in mind, these things are three-, four-, five-year payback. So we'll start on it, accelerate in '26, accelerate in '27. But this is really about building that margin runway to grow beyond 25% in '27, in terms of operating margin.
But it won't be able to size. It for you today in terms of the specific numbers, but that's the plan that's the trajectory we're on here.
And then just wanted to touch a little bit more on consumer if you could elaborate on kind of what your tracked over the course of the quarter kind of early into this year.
Speaker #3: So, we will consolidate this network. It’ll be factories and distribution centers. We’re making some progress on DCs as well. But I won’t be able to size it for you today in terms of the specific numbers.
Sort of a step down in demand trends versus what maybe give us a little bit more transitory and just kind of how that's pacing.
Speaker #3: But that's the trajectory we're on here.
And then separately just with a focus on memory chips out there I think you said consumer electronics for you expect it to be up mid single digits, but any impact you're seeing in the markets tied to that.
Speaker #5: And then just wanted to touch a little bit more on Consumer. If you could elaborate on kind of what you tracked over the course of the quarter, kind of early into this year, sort of a step down in demand trends versus what maybe was a little bit more transitory, and just kind of how that's pacing. And then separately, just with the focus on memory chips out there.
So on the on the consumer market as I mentioned earlier, we as we entered for first of all for the first nine months of the year. We're at about 30 basis points of growth in each quarter, which was pretty consistent and that was above what we saw the macro was a good time to return to growth we feel very positive about that than we had expected that we would see the similar true.
Speaker #5: I think you said consumer electronics for you expect to be in the mid-single digits, but is there any impact you're seeing in the markets tied to—
Speaker #5: that? So on the consumer
January going into the fourth quarter that didn't happen, we saw October and November being a little bit light you will sell through the channel was a bit light Pos was light so inventory start to come up a little bit we started to see that reverse a little bit in December. So December orders were okay growth was double digit.
Speaker #3: Market, as I mentioned earlier, as we entered, first of all, for the first nine months of the year, we're at about 30 basis points of growth in each quarter, which was pretty consistent.
Speaker #3: And that was above what we saw. The macro was a good time to return to growth. We felt very positive about that, and we had expected that we would see a similar trajectory going into the fourth quarter.
Over the prior year December holiday season was a little bit muted I would say so overall for Q4, we came in at down two 2% and as I said as we turned the corner into you know into January it's very very early we're only a couple of weeks in.
Speaker #3: That didn't happen. We saw October and November being a little bit light. Sell through the channel was a bit light. POS was light. So.
We're trending as we would expect it to be so I can't really comment too much about that we'll say more over time, but that's the consumer again I would just characterize it as being relatively soft bumping around flattish as we as we entered as we ended the fourth quarter. So on the on electronics.
Overall, we have so it's consumer electronics business. We have we provided he says we pride films into that into that technology into that area for foldable devices for the bond it will devise a lot of NPI going into that into that space.
We are focusing on growing our position in the mainstream market <unk> as a whole and consumer electronics is more like 80, 20, or 70 30 premium to mainstream in the markets. The opposite of that we do see an opportunity to grow and penetrate mainstream some of that is in China, and we're making good progress so a lot of the NPI.
We're launching we are penetrating into a lot of China Oems in Asia Oems in that mainstream market and I think we're starting to gain some share there. So that's why we see that business for us when we add in elektron in semiconductors datacenter, all electronics to be up mid single digits here coming into 2026.
Similar to what we saw last year.
Thank you.
Our next question comes from the line of Steve Tusa with Jpmorgan. Please proceed with your question.
Hi, Good morning, Hey, good morning, Steve.
Just on the on that electronics point. So the the reported revenues were down sequentially and also year over year is is there a do we just adjust that back to get to that mid single digit for the fourth quarter. I think you said it was strong but what was kind of the organic rate of growth its tough to tell from the from the sub segment.
Yes. It was in the mid single digits, you know, what we're looking at and the tables as with with PFS and we exclude the <unk> out of the result, so when you exclude that it's mid single digits.
Okay and then when you are expanding into this and it is mainstream area is there any any kind of dilutive impact to margins at all or are you kind of make up for it in the other end by being more efficient with somebody.
They're working on no we're not seeing it being more margin dilutive as we as we innovate here developed products designed to cost is an important push that the team is making is is designing more cost effective product now we're not seeing any margin degradation and so far it's been it's been good it's early but it's the push we're making.
And again, a lot of a lot of NPI in that space.
[Analyst]: Some of the, you know, initiatives you're working on?
[Analyst]: Some of the, you know, initiatives you're working on?
Okay, sorry, one more just just for for this year, the the $500 million.
William Brown: No, we're not seeing it being margin-dilutive. As we innovate here, develop products designed-to-cost, it's an important push that the team is making, designing more cost-effective product. Now, we're not seeing any margin degradation. And so far, it's been good. It's early, you know, but it's the push we're making. And again, a lot of NPI in that space.
William Brown: No, we're not seeing it being margin-dilutive. As we innovate here, develop products designed-to-cost, it's an important push that the team is making, designing more cost-effective product. Now, we're not seeing any margin degradation. And so far, it's been good. It's early, you know, but it's the push we're making. And again, a lot of NPI in that space.
<unk> litigation costs and 25, how do you expect that to trend in that adjustment to trend in 'twenty six.
It's probably going to be in line with that I can't really tell you if it's going to be up or down I mean, it depends on what happens in the overall docket, but I would expect it to be pretty similar to that.
Great. Thanks, a lot.
[Analyst]: Okay. Sorry, one more. Just for this year, the $500 million in, I guess, litigation costs in 2025, how do you expect that adjustment to trend in 2026?
[Analyst]: Okay. Sorry, one more. Just for this year, the $500 million in, I guess, litigation costs in 2025, how do you expect that adjustment to trend in 2026?
Yeah.
Our next question comes from the line of Andrew <unk> with Bank of America. Please proceed with your question.
Hey, guys. Good morning, Hey, good morning, Andrew.
William Brown: It's probably gonna be in line with that. I can't really tell you if it's gonna be up or down. I mean, it depends on what happens in the overall docket, but I would expect it to be, you know, pretty similar to that.
William Brown: It's probably gonna be in line with that. I can't really tell you if it's gonna be up or down. I mean, it depends on what happens in the overall docket, but I would expect it to be, you know, pretty similar to that.
On.
Okay, so I want more just for, uh, for this year, the $500 million, and, uh, I guess litigation costs in '25. How do you expect that to trend, and that adjustment to trend, in '26?
So on F I B G.
Growth in 26, I think last quarter, you had the slide five that showed a S. IPG growth correlation to improving <unk>, new product introduction and you sort of can see in the fourth quarter on a two year stack.
[Analyst]: Okay. Great. Thanks a lot.
[Analyst]: Okay. Great. Thanks a lot.
It's probably going to be in line with that. I can't really tell you if it's going to be up or down. I mean, it depends on what happens in the overall docket, but I would expect it to be, you know, pretty similar to that.
Okay, great. Thanks a lot.
Operator: Our next question comes from the line of Andrew Obin with Bank of America. Please proceed with your question.
Operator: Our next question comes from the line of Andrew Obin with Bank of America. Please proceed with your question.
Andrew Obin: Hey, yes. Good morning.
Andrew Obin: Hey, yes. Good morning.
Our next question comes from the line of Andrew Oen with Bank of America. Please proceed with your question.
William Brown: Hey, good morning, Andrew.
William Brown: Hey, good morning, Andrew.
Clearly there is more momentum so given that comps in the first half are going to be is there that on the <unk>.
I asked, 'Good morning.' Hey, good morning, Andrew.
Andrew Obin: So on SIBG growth in 2026, I think last quarter you had the slide five that showed SIBG growth correlation to improving OTIF, new product introduction. And you sort of can see in the fourth quarter on a two-year stack, you know, clearly there's more momentum. So given that comps in the first half are gonna be easier than in the second half, but at the same time, we have seemingly good momentum with self-help, should we see first half stronger growth than second half, or should the growth be fairly steady year over year throughout the year?
Andrew Obin: So on SIBG growth in 2026, I think last quarter you had the slide five that showed SIBG growth correlation to improving OTIF, new product introduction. And you sort of can see in the fourth quarter on a two-year stack, you know, clearly there's more momentum. So given that comps in the first half are gonna be easier than in the second half, but at the same time, we have seemingly good momentum with self-help, should we see first half stronger growth than second half, or should the growth be fairly steady year over year throughout the year?
Second half.
Same time, we have.
Seemingly a good momentum with self help.
Should we see.
First half stronger growth than second half or should.
The growth be fairly steady year over year throughout the year.
So Andrea there very very good question, we do see really good momentum in <unk> as it went from a first half to the second half.
Uh on. Um so so on SI BG uh growth uh in 26. I I think last quarter you have the slide 5 that showed uh sibghatullah
Could see where you're going and I'll pass that message on to Chris who I'm sure. He is listening as well.
Be easier than in the second half. But at the same time, uh, we have
Reality is there is good momentum really good progress on commercial excellence, we're launching more projects there.
Seemingly good momentum with self-help. Uh, should we see first half?
The only the only caveat is we as I talked about earlier, we do see U S. Ipi a little bit softer we know the roofing business.
William Brown: So, Andrew, that's a very, very good question. We do see really good momentum in SIBG as it went from the first half to the second half. And, you know, I could see where you're going, and I'll pass that message on to Chris, who I'm sure he's listening as well. You know, the reality is there's good momentum, really good progress on commercial excellence. We're launching more projects there. You know, the only caveat is, you know, we, as I talked about earlier, you know, we do see US IPI a little bit softer. We know the roofing business, you know, experienced a trough really in Q4. It was weaker than we'd expect, quite a bit weaker than we'd expected, you know, and that's a small, that's a piece of the SIBG business.
William Brown: So, Andrew, that's a very, very good question. We do see really good momentum in SIBG as it went from the first half to the second half. And, you know, I could see where you're going, and I'll pass that message on to Chris, who I'm sure he's listening as well. You know, the reality is there's good momentum, really good progress on commercial excellence. We're launching more projects there. You know, the only caveat is, you know, we, as I talked about earlier, you know, we do see US IPI a little bit softer.
Stronger growth than second half, or should the growth be fairly steady year-over-year throughout the year?
You'll experience at a trough really in Q4, it was weaker than we would expect quite a bit weaker than we had expected.
That's a small piece of the <unk> business I would expect that weakness will drag into the front half of this year. So there's going to be some offsets, but but yes, I mean, largely I think youre heading in right direction I think.
We know the roofing business, you know, experienced a trough really in Q4. It was weaker than we'd expect, quite a bit weaker than we'd expected, you know, and that's a small, that's a piece of the SIBG business. I'd expect that weakness will drag into the front half of this year. So there's gonna be some offsets, but yeah, I mean, largely, I think you're heading in the right direction. I think, you know, SIBG is performing really well. We'd expect to continue that trend here in 2026.
<unk> is performing really well, we'd expect to continue that trend here in 2026.
Thank you and just a follow up on electronics.
You sort of talk about expanding into mainstream and the sort of echoes our strategy from the days of George Buckley the Pea.
William Brown: I'd expect that weakness will drag into the front half of this year. So there's gonna be some offsets, but yeah, I mean, largely, I think you're heading in the right direction. I think, you know, SIBG is performing really well. We'd expect to continue that trend here in 2026.
<unk> strategy is to focus on consumer electronics or are you thinking of sort of.
Yeah tweaking it implementing it beyond consumer electronics, the sort of mainstream strategy.
Andrew Obin: Thank you. And just to follow up on electronics, you sort of talk about extending into mainstream, and this sort of echoes strategy from the days of George Buckley, the pyramid strategy. Is this just the focus on consumer electronics, or are you thinking of sort of, you know, tweaking it, and implementing it beyond consumer electronics, this sort of mainstream strategy?
Andrew Obin: Thank you. And just to follow up on electronics, you sort of talk about extending into mainstream, and this sort of echoes strategy from the days of George Buckley, the pyramid strategy. Is this just the focus on consumer electronics, or are you thinking of sort of, you know, tweaking it, and implementing it beyond consumer electronics, this sort of mainstream strategy?
So Andrea is a very, very good question. We do see really good momentum in SG as it went from the first half to the second half and you know, I could see where you're going, and I'll pass that message on to Chris who I'm sure he's listening as well. You know, the, the reality is there's a good momentum, really good progress on Commercial Excellence for launching more projects there. Um, you know, the only the only caveat is, you know, we as, as I talked about earlier, you know, we do see us IPI a little bit softer. We know the roofing business, um, you know, experience a, a trough really in Q4 it was weaker than we'd expect quite a bit weaker than we'd expected, you know, and that's a small, that's a piece of the SG business. I had expected that weakness will drag into the front half of this year. So there's going to be some offsets but but yeah, I mean largely, I think you're you're heading in the right direction. I think, you know, sibs performing really well. We'd expect to continue that Trend here in 2026.
I'm speaking today basically on consumer electronics, and I think you've commented before that the strategy was embarked upon in the past.
This has to be a very thoughtful way of going at this we have to make sure that all of our infrastructure. Our designs are sourcing how we manufacture how we ship how we price all of these geared towards.
Thank you, and just to follow up on electronics. You sort of talk about extending into mainstream, and this sort of echoes the strategy from the days of George Buckley—the pyramid strategy. Is this just the focus on consumer electronics, or are you thinking of sort of...
Going after that segment, which is quite big but making sure. We do it profitably. So it's a bit of a business model shift as well. So I draw you back to what we're trying to do on our transformation agenda. A lot of this business model shift shifting our cost structure, both G&A as well as on the factory side and if we do that and we bring that.
William Brown: No, it's. I'm speaking today basically on consumer electronics. You know, I think you've commented before that this strategy was embarked upon in the past. You know, look, this is. This has to be a very thoughtful way of going at this. We have to make sure that all of our infrastructure, our designs, our sourcing, how we manufacture, how we ship, how we price, all is geared towards going after that segment, which is quite big, you know, but making sure we do it profitably. So it's a bit of a business model shift as well. I draw you back to what we're trying to do in our transformation agenda. A lot of this business model shift is shifting our cost structure, both G&A as well as on the factory side.
William Brown: No, it's. I'm speaking today basically on consumer electronics. You know, I think you've commented before that this strategy was embarked upon in the past. You know, look, this is. This has to be a very thoughtful way of going at this. We have to make sure that all of our infrastructure, our designs, our sourcing, how we manufacture, how we ship, how we price, all is geared towards going after that segment, which is quite big, you know, but making sure we do it profitably.
Cost out that does allow us to lower the water level of our of our cost and attack. These interesting in growing segments.
So it's a bit of a business model shift as well. I draw you back to what we're trying to do in our transformation agenda. A lot of this business model shift is shifting our cost structure, both G&A as well as on the factory side. You know, and if we do that and we bring that cost out, that does allow us to lower the water level of our cost and attack these interesting and growing segments, you know, at profit rates that we have today. So that's where we're going. You know, we're pushing ahead in consumer electronics. It could go beyond that? We'll see. But right now, the comments are specific to consumer electronics.
Profit rates that we have today. So that's that's where we're going we're pushing ahead and consumer electronics could it be on it go beyond that we'll see but right now the comments are specific to consumer electronics.
William Brown: You know, and if we do that and we bring that cost out, that does allow us to lower the water level of our cost and attack these interesting and growing segments, you know, at profit rates that we have today. So that's where we're going. You know, we're pushing ahead in consumer electronics. It could go beyond that? We'll see. But right now, the comments are specific to consumer electronics.
No. Thank you very much nothing wrong with that strategy of your stock kind of outperformed under George Buckley July yes.
Our next question comes from the line of Amit Mehrotra with UBS. Please proceed with your question.
You know, tweaking it uh and implementing it Beyond consumer electronics, the sort of mainstream strategy know. It's I'm I'm speaking today. Basically on consumer electronics. And you know, I think you've commented before that, the strategy was embarked upon in the past, you know. Look, this is this has to be a very thoughtful way of going at this. We have to make sure that all of our infrastructure, our designs, our sourcing, how we manufacture, how we ship, how we price? All is geared towards, um, going after that segment, which is quite big, you know, but making sure we do it profitably. So it it's a bit of the business model shift as well. So I draw you back to what we're trying to do in our transformation agenda. A lot of this business model shift is is Shifting our cost structure both GNA as well as on the factory side, you know? And if we do that and we bring that cost out that does allow us to to lower the water level of our, of our cost and attack these interesting and growing segments, you know, at profit rates that we have today. So that's
Thanks, Good morning, everybody going on it.
I guess I I guess I wanted to just ask about incremental margins for this year, the implied sort of in the low 40%, which is not that much above the 30% to 40% kind of core organic.
Andrew Obin: No, thank you very much. Nothing wrong with that strategy. It's not kind of outperformed under George Buckley since July.
Andrew Obin: No, thank you very much. Nothing wrong with that strategy. It's not kind of outperformed under George Buckley since July.
That's what we're doing. You know, we're pushing ahead in consumer electronics, and could it go beyond that? We'll see. But right now, the comments are specific to consumer electronics.
William Brown: Yep. Yep.
William Brown: Yep. Yep.
No, thank you very much. Nothing wrong with that strategy. Your stock outperformed under George Buckley. Thanks a lot. Yeah.
Operator: Our next question comes from the line of Amit Mehrotra with UBS. Please proceed with your question.
Operator: Our next question comes from the line of Amit Mehrotra with UBS. Please proceed with your question.
The growth sorry, I'm, just kind of curious.
Amit Mehrotra: Thanks. Morning, everybody.
Amit Mehrotra: Thanks. Morning, everybody.
What the productivity assumption is what the offsets are from stranded cost maybe I'm double counting maybe some of that is already included in the 30% to 40%, but if you can unpack that for US I think that'd be helpful. And then on the first quarter, specifically I know you said high single digits I'm not to be nitpicky, but are we kind of above $2 per share and <unk> like any finer point would be helpful.
Our next question comes from the line of Amit Mehrotra with UBS. Please proceed with your question.
William Brown: Good morning, Amit.
William Brown: Good morning, Amit.
Amit Mehrotra: Anurag, I guess I wanted to ask about incremental margins for this year. The implied is sort of in the low 40%, which is not that much above the 30% to 40% kind of, you know, core or organics, on the growth. So I'm just kind of curious to, you know, what the productivity assumption is, what the offsets are from stranded cost. Maybe I'm double counting. Maybe some of that's already included in the 30%, 40%, but if you can unpack that for us, I think that specifically. I know you said high single digits, not to be nitpicky, but are we kind of above $2 per share in Q1? Like, any finer point would be helpful.
Amit Mehrotra: Anurag, I guess I wanted to ask about incremental margins for this year. The implied is sort of in the low 40%, which is not that much above the 30% to 40% kind of, you know, core or organics, on the growth. So I'm just kind of curious to, you know, what the productivity assumption is, what the offsets are from stranded cost. Maybe I'm double counting. Maybe some of that's already included in the 30%, 40%, but if you can unpack that for us, I think that specifically. I know you said high single digits, not to be nitpicky, but are we kind of above $2 per share in Q1? Like, any finer point would be helpful.
Okay, great. Thanks for the question.
Just firstly, if you look at both volume and productivity in 2026, it's going to be higher than what it was in 25.
25 between volume and productivity, we had about $715 million of operating income increase and that was a two 1% organic revenue growth with 3% growth the $200 million volume will now become closer to $250 million and productivity actually goes up from $5 50 to about $600 million.
William Brown: Okay. Hey, great. Thanks for the question, Ahmed. Hey, just, just firstly, if you look at both volume and productivity in 2026, it's gonna be higher than what it was in 2025. Yeah. So in 2025, between volume and productivity, we had about $750 million of operating income increase, and that was a 2.1% organic revenue growth. With 3% growth, the $200 million of volume will now become closer to $250 million, and productivity actually goes up from $550 to about $600 million. So overall, we're gonna see about a $125 to $150 million increase between volume and productivity in 2026. And the productivity is going up on, on three real buckets around there. First is on supply chain.
William Brown: Okay. Hey, great. Thanks for the question, Ahmed. Hey, just, just firstly, if you look at both volume and productivity in 2026, it's gonna be higher than what it was in 2025. Yeah. So in 2025, between volume and productivity, we had about $750 million of operating income increase, and that was a 2.1% organic revenue growth. With 3% growth, the $200 million of volume will now become closer to $250 million, and productivity actually goes up from $550 to about $600 million.
So oral where you're going to see about 125 to.
$250 million increase between volume and productivity and 26 and the productivity is going up on <unk> Ru buckets around their first is on supply chain, we expect half of that to come out of supply chain, which is continued cost of poor quality, bringing it down procurement managing a full wall spend in the factory and logistics, there's about 150 million.
So overall, we're gonna see about a $125 to $150 million increase between volume and productivity in 2026. And the productivity is going up on, on three real buckets around there. First is on supply chain. We expect half of that to come out of supply chain, which is continued cost of poor quality, bringing it down, procurement, you know, managing a full-scale spin in the factory and logistics. There's about $150 million of indirect expenses. We did a good job in 2025. We'll continue to do that in 2026.
Of indirect expenses, we did a good job in 'twenty fall, we'll continue to do that in 2006, and another $150 million in G&A efficiency as we look at our processes all of optimization and so on so we're all I would say that the incrementals between volume between productivity and the volume growth is going to be higher what's offsetting it in <unk>.
Um, on the growth. So I'm just kind of curious that, you know, what the productivity assumption is what the offsets are from standard cost. Maybe I'm double counting, maybe some of that's already included in the 30 40%, but if you can unpack that for us, I think that specifically, I know you said High single digits, um, not to be nitpicky, but are we kind of above 2 dollars per share in 1 Q? Like any? Any finer point would be helpful. Okay, great. Thanks for the question. Um, Ahmed. Hey, uh, just just firstly, if you look at both volume and productivity is in 2026, it's going to be higher than what it was in 25 in 25 between volume and productivity. We had about 750 million dollars of operating, uh, income increase. And that was a 2.1% organic Revenue growth, with 3% growth, the 200 million of volume will now become closer to 250 million, and productivity actually goes up from 550 to about 600 million dollars. So, overall, we're going to see about 125.
William Brown: We expect half of that to come out of supply chain, which is continued cost of poor quality, bringing it down, procurement, you know, managing a full-scale spin in the factory and logistics. There's about $150 million of indirect expenses. We did a good job in 2025. We'll continue to do that in 2026. And another $150 million in G&A efficiency as we look at our processes, automation optimization, and so on. So overall, I would say that the incrementals between volume, productivity, and the volume growth is gonna be higher. What's offsetting it in 2026 is the $0.5 billion, which is being offset in 2026. One is a pickup in investments. Last year, we did $185 million. We're gonna do an incremental $225 million this year. The stranded cost goes up from $100 million last year to $150 million this year.
<unk> six is.
The half a billion dollars, which is being offset in 2006 when does it pick up in investments Lastly, we did 185, you're going to do an incremental 25 this year.
And another $150 million in G&A efficiency as we look at our processes, automation optimization, and so on. So overall, I would say that the incrementals between volume, productivity, and the volume growth is gonna be higher. What's offsetting it in 2026 is the $0.5 billion, which is being offset in 2026. One is a pickup in investments. Last year, we did $185 million. We're gonna do an incremental $225 million this year. The stranded cost goes up from $100 million last year to $150 million this year.
The stranded cost goes up from 100 million allows you to $115 million. This year. So I would say those are the probably the two biggest buckets.
There's a $250 million increase between volume and productivity in '26, and the productivity is going up on three little buckets around there versus on supply chain. We expect half of that to come out of supply chain, which is continued cost of quality, bringing it down—procurement, you know, managing a full world spend in the factory and logistics. There's about 150 miles of brake sensors. We did a good job on any file, we continue to do that in '26, and another $150 million in G&A efficiency, as we look at our processes, our optimization, and so on. So overall, I would say that the incremental speed...
And obviously, we have half a year of tariffs as well, which is $140 million. So you put these three together that's half a billion of it obviously as we go into 'twenty seven a couple of them will not recur, but the incrementals overall are pretty good for 26 now on your first quarter is a very specific question that you're asking me.
Between volume, between productivity and the volume growth is going to be higher. What's offsetting it in '26—is it the half a billion dollars which is being offset in '26? One is a pickup in investments. Lastly, we did $185 million, we're going to do an increment of $225 million this year.
William Brown: So I would say those are probably the two biggest buckets, and obviously, we have half a year of tariff as well, which is under $140 million. So you put these three together, that's half a billion of it. Obviously, as we go into 2027, a couple of them will not recur, but the incrementals overall are pretty good, for 2026. Now, on your Q1, it is a very specific question that you're asking me. I, I, what I would say is that as I spoke about volume and productivity, I said about $875 to 900 million for the year. The Q1 is almost 25% of that, right?
So I would say those are probably the two biggest buckets, and obviously, we have half a year of tariff as well, which is under $140 million. So you put these three together, that's half a billion of it. Obviously, as we go into 2027, a couple of them will not recur, but the incrementals overall are pretty good, for 2026. Now, on your Q1, it is a very specific question that you're asking me. I, I, what I would say is that as I spoke about volume and productivity, I said about $875 to 900 million for the year. The Q1 is almost 25% of that, right?
What I would say is that as I spoke about volume and productivity I said about 870 $500 million for the year. The first quarter was almost 25% of that right. So if you kind of run the numbers through and there'll be a little bit of FX favorability in the first quarter, given where we were last year, we run all of that through it will be high single digit EPS.
Growth.
Okay. Thanks, and then just maybe a longer term question for Bill.
You've obviously given us a lot of metrics.
For OA and I'm kind of intrigued by this.
William Brown: So if you kind of run the numbers through, and, you know, there'll be a little bit of FX favorability in Q1 given where we were last year, we run all of that through, it will be high single-digit EPS growth.
So if you kind of run the numbers through, and, you know, there'll be a little bit of FX favorability in Q1 given where we were last year, we run all of that through, it will be high single-digit EPS growth.
Move to the design to cost approach and the R&D function.
NPI is helpful, but it doesn't really capture kind of how the addressable market is changing based on the incremental NPI fact, I'd be curious one how do you hold the R&D function kind of accountable to this this cultural shift in and what can you share with us in terms of the NPI coming out how effective that isn't going after the 80%.
Amit Mehrotra: Okay. Thanks. And then just maybe a longer-term question for Bill. You know, you've obviously given us a lot of metrics, whether it's OTIF or OEE, and I'm kind of intrigued by this move to this design-to-cost approach in the R&D function. NPI is helpful, but it doesn't really capture kind of how the addressable market is changing based on the incremental NPI. So I'd be curious, one, how do you hold the R&D function kind of accountable to this cultural shift? And what can you kind of share with us in terms of the NPI coming out, how effective that is in going after the 80% of the market that, you know, you're kind of not there in the mo at the moment?
Amit Mehrotra: Okay. Thanks. And then just maybe a longer-term question for Bill. You know, you've obviously given us a lot of metrics, whether it's OTIF or OEE, and I'm kind of intrigued by this move to this design-to-cost approach in the R&D function. NPI is helpful, but it doesn't really capture kind of how the addressable market is changing based on the incremental NPI. So I'd be curious, one, how do you hold the R&D function kind of accountable to this cultural shift? And what can you kind of share with us in terms of the NPI coming out, how effective that is in going after the 80% of the market that, you know, you're kind of not there in the mo at the moment?
The stranded cost goes up from 100 million last year to 150 million this year. So, I would say those are the probably the 2 biggest buckets, uh, which would be we have half a year of tariff as well, which is under 140 million. So you put these 3 together. That's half a billion of it. Obviously, as we go into 27, a couple of them will not recur but the incremental overall are pretty good. Uh for 26. Now on your first quarter, it is a very specific question that you're asking me. I I what I would say is that as I spoke about volume and productivity, I said about 875 900 million dollars for the year. The first quarter is almost 25% of that, right? So if you kind of run the numbers through and you know, there'll be a little bit of FX favorability in the first quarter given where we were last year, we run all of that through, it will be high single digit EPS growth.
The market.
You're kind of.
Not there at the moment. So I mean, good question I'll just briefly I think theres two pieces of it. One is is the value engineering efforts that we are stepping up dramatically. This year on it to take cost out of products that are on the market today, which does require additional engineering work just qualification work, there's things that have to happen.
Okay. Thanks, and then, just maybe a longer term question for bill. Um, you know, you've obviously given us a lot of metrics, whether it's otif or OE. And I'm kind of intrigued by this, this move to this design to cost approach. In the R&D function NPI is helpful, but it doesn't really capture kind of how the addressable Market is changing based.
Generally speaking to get those initiatives, taking taking hold we also that way to drive that back into the overall design mindset.
William Brown: So Amit, I mean, good, good question. I'll just hit it briefly. I think there's two, two pieces of it. One is, is the value engineering efforts that we, we are stepping up dramatically this year on to take costs out of products that are on the market today, which does require additional engineering work, there's qualification work, there's things that have to happen, generally speaking, to get those initiatives taking, taking hold. You know, we also that we have to drive that back into the, overall design mindset and, and thinking of cost, you know, as we start developing products. And that's the push we're making is, is thinking about early in the design process, which is the best time to be thinking about that.
William Brown: So Amit, I mean, good, good question. I'll just hit it briefly. I think there's two, two pieces of it. One is, is the value engineering efforts that we, we are stepping up dramatically this year on to take costs out of products that are on the market today, which does require additional engineering work, there's qualification work, there's things that have to happen, generally speaking, to get those initiatives taking, taking hold. You know, we also that we have to drive that back into the, overall design mindset and, and thinking of cost, you know, as we start developing products. And that's the push we're making is, is thinking about early in the design process, which is the best time to be thinking about that.
Thinking of cost as we start developing products and that's the push we're making is is thinking about it early in the design process, which is the best time to be thinking about that how you hold people accountable and R&D or anywhere through the company product leaders General managers. Even me is the quality of the business cases, and making sure that the business case.
Says our developed rigorously from the ground up with a good sense of what the costs happen to be and you start with the design to cost mentality and holding people accountable to the results of what we're investing in based on these business cases, where we're gonna be pushing the company more of this year.
William Brown: How we hold people accountable in R&D or anywhere through the company, product leaders, general managers, even me, is the quality of the business cases and making sure that the business cases are developed, you know, rigorously from the ground up with a good sense of what the costs happen to be. And you start with a design-to-cost mentality and holding people accountable to the results of what we're investing in, you know, based on these business cases where we're gonna be pushing the company more this year.
How we hold people accountable in R&D or anywhere through the company, product leaders, general managers, even me, is the quality of the business cases and making sure that the business cases are developed, you know, rigorously from the ground up with a good sense of what the costs happen to be. And you start with a design-to-cost mentality and holding people accountable to the results of what we're investing in, you know, based on these business cases where we're gonna be pushing the company more this year.
Based on the incremental NPI. So I'd be curious 1 how do you hold the R&D function kind of accountable to this this cultural shift and and what can you kind of share with us in terms of the NPI coming out how effective that is and going after the 80% of the market that, you know, you're kind of not there in the at the moment. So I I mean good, good question, I'll just hit it briefly. I think there's 2 2 pieces that 1 is is the value engineering efforts that we we are stepping up dramatically this year on to take costs out of products that are on the market today which does require additional engineering work. Just qualification work, there's things that have to happen. Generally speaking to get those initiatives, taking taking hold, you know, we also that we have to drive that back into the, um, overall design mindset in in thinking of cost, you know, as we start developing products and that's the push we're making, is, is thinking about early in the design process, which is the best time to think about that. How we hold people accountable in R&D or anywhere through
Thank you.
Yeah.
Our next question comes from the line of Nicole to place with Deutsche Bank. Please proceed with your question.
Yes. Thanks, Good morning, guys good morning, Nicole.
Just wanted to circle back on China, I think you guys have embedded 4% Ipi credits and 26 and that compares to like 6% and 25 I know 25 was like a pretty good share for you guys in China. So you could just elaborate a little bit on what you're seeing in the region and where that <unk> coming from for next year.
Through the company, product leaders, general managers, even me, is the quality of the business cases and making sure that the business cases are developed, you know, rigorously from the ground up with a good sense of what the costs happen to be. And you start with the 'design to cost' mentality and holding people accountable to the results of what we're investing in, you know, based on these business cases. We're going to be pushing the company more this year.
Amit Mehrotra: Thank you.
Amit Mehrotra: Thank you.
Thank you.
Operator: Our next question comes from the line of Nicole DeBlaise with Deutsche Bank. Please proceed with your question.
Operator: Our next question comes from the line of Nicole DeBlaise with Deutsche Bank. Please proceed with your question.
Nicole DeBlaise: Yeah, thanks. Good morning, guys.
Nicole DeBlaise: Yeah, thanks. Good morning, guys.
So thanks for the question Yeah, China, It actually had a very good year for us at good couple of years in 'twenty four they're up double digits last year. They were up mid single digits. It was a little lighter in Q4, but only because of his entourage had mentioned in his prepared remarks, the shift out of China's smartphone production when you exclude that the market the China business.
Our next question comes from the line of Nicole Delos with Deutsche Bank. Please proceed with your question.
William Brown: Morning, Nicole.
William Brown: Morning, Nicole.
Operator: Just wanted to circle back on China. I think you guys have embedded 4% IPI growth in 2026, and that compares to like 6% in 2025. I know 2025 was like a pretty good year for you guys in China. So you could just elaborate a little bit on what you're seeing in the region and where that decel is coming from for next year.
Nicole DeBlaise: Just wanted to circle back on China. I think you guys have embedded 4% IPI growth in 2026, and that compares to like 6% in 2025. I know 2025 was like a pretty good year for you guys in China. So you could just elaborate a little bit on what you're seeing in the region and where that decel is coming from for next year.
Yeah, thanks. Good morning, guys. Good morning, Nicole.
<unk> remain mid single digits and as we turned the corner. This year, yes, the macro softening a little bit is what we're expecting I think two points down year over year on ipi at least as we see it today and you know the forecast here to get this could go in lots of different ways.
William Brown: So, thanks for the question. Yeah, China actually had a very good year for us, actually a good couple of years. In 2024, they were up double digits. Last year, they were up mid-single digits. It was a little lighter in Q4, but only because of, as Anurag had mentioned in his prepared remarks, the shift out of China's smartphone production. When you exclude that, the market, you know, the China business for us remained mid-single digits. And as we turn the corner to this year, yeah, the macro is softening a little bit, you know, is what we're expecting. I think two points down year over year on IPI, at least as we see it today and, you know, the forecasts see it again.
William Brown: So, thanks for the question. Yeah, China actually had a very good year for us, actually a good couple of years. In 2024, they were up double digits. Last year, they were up mid-single digits. It was a little lighter in Q4, but only because of, as Anurag had mentioned in his prepared remarks, the shift out of China's smartphone production. When you exclude that, the market, you know, the China business for us remained mid-single digits. And as we turn the corner to this year, yeah, the macro is softening a little bit, you know, is what we're expecting. I think two points down year over year on IPI, at least as we see it today and, you know, the forecasts see it again.
But we see that market to be more low to mid single digits. This year still growing maybe not as robustly as we saw last year, but still low to mid single digits. The Bottomline is we run China, a little bit differently in the current in the company just like we do indeed, it's a hybrid model. So we have global business groups and a really strong dedicated.
William Brown: This could go in lots of different ways, you know, but, but we see that market to be more low to mid-single digits this year, still growing, maybe not as robustly as we saw last year, but still low to mid-single digits. You know, the bottom line is we run China a little bit differently in the context of the company, just like we do India. It's a hybrid model. So we have global business groups and a really strong, dedicated, driven local team. We're driving a lot of localization of R&D, localization of sourcing. We're attacking the market. You know, we've got six factories there, 5,000 people, and we've got people lined up to really drive that business. And I think we are performing well, and I would say we're outperforming, and I expect the same thing here in 2026.
This could go in lots of different ways, you know, but, but we see that market to be more low to mid-single digits this year, still growing, maybe not as robustly as we saw last year, but still low to mid-single digits. You know, the bottom line is we run China a little bit differently in the context of the company, just like we do India. It's a hybrid model. So we have global business groups and a really strong, dedicated, driven local team. We're driving a lot of localization of R&D, localization of sourcing. We're attacking the market.
Driven local team, we're driving a lot of localization of R&D localization of sourcing we're attacking the market. We've got six factories. There are 5000 people in it and we've got people lined up to really drive that business and I think we are performing well and I would say, we're outperforming and I expect the same thing here in 'twenty six.
Thanks, That's helpful. And then obviously you had quite a bit of noise from a tariff perspective over the weekend. So can you just confirm the tariff headwind that you guys are embedding in 2026 doesn't include any of that potentially new tariffs from from Europe and have you guys tried to quantify what that could mean for your business. If they are enacted.
Just elaborate a little bit on what you're seeing in the region and where that Del is coming from for next year. So, so, thank. Thanks for the question. Yeah, China actually had a very good deal year for us act good. Couple of years. In 24, they're up double digits last year, they're up mid single digits. It was a little bit lighter in Q4, but only because of, as on had mentioned, in his prepared remarks, the shift out of China's smartphone production, when you exclude that the market, you know, the China business for us remained mid- single digits, and as we turn the corner into this year, yeah, the macros softening a little bit, is what we're expecting. I think 2 points down year over year on IPI, at least as we see it today and you know, the forecast, see it again, this could go in lots of different ways, you know. But um but we see that market to be more low to mid single digits this year. Still growing maybe not as robustly as we saw last year but still low to mid single digits. You know, the bottom line is, we run China, a little bit differently in the C in the company just like we do India, it's a hybrid model. So we have Global business groups.
You know, we've got six factories there, 5,000 people, and we've got people lined up to really drive that business. And I think we are performing well, and I would say we're outperforming, and I expect the same thing here in 2026.
So Nicole Great question. So what we're embedding in our guidance is the carryover effect of the 20 <unk> of gross impact that we saw last year that that's in and the entourage mentioned, that's mostly in the first half half of this year, that's what's in our guidance because thats whats in wall and that's what's in practice today and we're moving now the pieces that that debt at least for.
Operator: Thanks, Bill. That's helpful. And then obviously had quite a bit of new noise from a tariff perspective over the weekend. So can you just confirm the tariff headwind that you guys are embedding in 2026 doesn't include any of this potentially new tariffs from Europe? And have you guys tried to quantify what that could mean for your business if they are enacted? Thank you.
Nicole DeBlaise: Thanks, Bill. That's helpful. And then obviously had quite a bit of new noise from a tariff perspective over the weekend. So can you just confirm the tariff headwind that you guys are embedding in 2026 doesn't include any of this potentially new tariffs from Europe? And have you guys tried to quantify what that could mean for your business if they are enacted? Thank you.
And it's a really strong, dedicated, driven local team. We're driving a lot of localization of R&D, localization in sourcing. We're attacking the market—you know, we've got 6 factories there, 5,000 people, and we've got people lined up to really drive that business. And I think we are performing well, and I would say we're outperforming. I expect the same thing here in '26.
Presence now talking about relative to Greenland and new different tariffs on on Europe. It's about eight countries at least talking about 10% in February another 25% mid year or something like that.
William Brown: So Nicole, great question. So what we're embedding in our guidance is the carryover effect of the $0.20 of gross impact that we saw last year. That's in, and Anurag mentioned that's mostly in the first half of this year. That's what's in the guidance because that's what's in law. That's what's in practice today, and we're moving. Now, the pieces that at least the president's now talking about relative to Greenland and new different tariffs on Europe, it's about eight countries. You know, they talk about 10% in February, another 25%, you know, mid-year, something like that. You know, for us, the trade flows between the US and Europe is around $1 billion. We're a net exporter, so we export $700 million into Europe. We import back about $250 million.
William Brown: So Nicole, great question. So what we're embedding in our guidance is the carryover effect of the $0.20 of gross impact that we saw last year. That's in, and Anurag mentioned that's mostly in the first half of this year. That's what's in the guidance because that's what's in law. That's what's in practice today, and we're moving. Now, the pieces that at least the president's now talking about relative to Greenland and new different tariffs on Europe, it's about eight countries.
For us the trade flows between U S and Europe is around $1 billion. We are a net exporter. So we export $700 million in Europe, we import back about $250 million. If you just run the numbers at 10% and then growing up to 25% you can get to something in the order of $60 million to $70 million, but thats as it over the call.
You know, they talk about 10% in February, another 25%, you know, mid-year, something like that. You know, for us, the trade flows between the US and Europe is around $1 billion. We're a net exporter, so we export $700 million into Europe. We import back about $250 million. You know, if you just run the numbers at 10% and then growing up to 25%, you know, you can get to something in the order of $60 to 70 million.
Of the year, we'll see some of that going in inventory, we'll see some of that dragging into 2027. So as that plays out exactly as we expect in the vault. The trade flows I mentioned it could be a 30 $30 million to $40 million impact this year, but again, we're a long way from that becoming an executive order. So we'll see we're watching it.
Thanks Bill, that's helpful. And then obviously had quite a bit of um, new noise from a tariff perspective over the weekend. So can you just confirm the tariffs headwind that you guys are in budding in 2026 doesn't include any of this potentially new tariffs from, from Europe, and have you guys tried to quantify? What that could mean for your business. If they are enacted. Thank you. So Nicole, great question. So what we're embedding in our guidance is the carryover effect of the 20 cents of gross impact that we saw last year that that's in in honor of mention. That's mostly in the first half half of the year, that's what's in the guidance because that's what's in law. That's what's in in practice today and we're moving now, the pieces that that that at least the the presence now talking about relative to Greenland and the new different tariffs on on Europe is about 8 countries. You know, they talk about 10% in February, you know, the 25%, you know, mid year, something like that, you know for us to trade flows between us and Europe, is around a billion dollars. We are a net exporter, so we
William Brown: You know, if you just run the numbers at 10% and then growing up to 25%, you know, you can get to something in the order of $60 to 70 million. But that's as it over the course of the year, you know, we'll see some of that going in inventory. We'll see some of that dragging into 2027. So if that plays out exactly as we expect and evolve the trade flows I mentioned, you know, it could be a $30 to 40 million impact this year. But again, you know, we're a long way from that becoming an executive order, so we'll see. We're watching it as everybody else is. That is not yet in our guidance.
But that's as it over the course of the year, you know, we'll see some of that going in inventory. We'll see some of that dragging into 2027. So if that plays out exactly as we expect and evolve the trade flows I mentioned, you know, it could be a $30 to 40 million impact this year. But again, you know, we're a long way from that becoming an executive order, so we'll see. We're watching it as everybody else is. That is not yet in our guidance.
As everybody else's that is not yet in our guidance.
Thank you Bill I'll pass it on.
Our next question comes from the line of Christopher Snyder with Morgan Stanley. Please proceed with your question.
Thank you I wanted to ask about consumer Bill I think you said December was up double digits. So with the quarter down 2% I guess October November would be down high single. So so really sharp positive rate of change there I guess is there anything to call out with the comps the December just haven't really.
Export 700 million in Europe, we import back about about 250 million. You know if you just run the numbers at 10% and then growing up to 25%, you know, you can get to Something in the order of 6070 million dollars. But that's as a over the course of the year you know, we'll see some of that going in inventory. We'll see some of that dragging into 2027, so that plays out exactly as we expect in the vault, the trade flow, as I mentioned, you know, it could be a 30 30 40 million dollar impact this year. But again,
Operator: Thank you, Bill. I'll pass it on. Our next question comes from the line of Chris Snyder with Morgan Stanley. Please proceed with your question.
Nicole DeBlaise: Thank you, Bill. I'll pass it on.
You know, we're a long way from that becoming an executive order, so we'll see. We're watching it, as everybody else is. That is not yet in our guidance.
Operator: Our next question comes from the line of Chris Snyder with Morgan Stanley. Please proceed with your question.
Thank you, Bill. I'll pass it on.
Easy comp because it doesn't seem like you guys expect much of that strength to continue into Q1 or maybe one month doesn't make a trend so too early but any color there would be appreciated. So yeah. We typically Chris we typically see seasonality within the quarter and CPG to be lower in the first couple of months and then higher in.
Our next question comes from the line of Chris Snyder with Morgan Stanley. Please proceed with your question.
Amit Mehrotra: Thank you. I wanted to ask about consumer. Bill, I think you said December was up double digits. So with the quarter down 2%, I guess October, November would be down high single. So, so really sharp positive rate of change there. I guess is there anything to call out with the comps? Did December just, just have a really easy comp? 'Cause it doesn't seem like you guys expect much of that strength to continue into Q1. Maybe, you know, one month doesn't make a trend, so too early. But any color there would be appreciated. Thank you.
Chris Snyder: Thank you. I wanted to ask about consumer. Bill, I think you said December was up double digits. So with the quarter down 2%, I guess October, November would be down high single. So, so really sharp positive rate of change there. I guess is there anything to call out with the comps? Did December just, just have a really easy comp? 'Cause it doesn't seem like you guys expect much of that strength to continue into Q1.
Um, thank you. Um, I wanted to ask about consumer, um, um, bill I think you said December was up double digits, so with the quarter down 2%, um, I guess October November would be down, high singles, so so really sharp.
In the third month, we saw that pattern play out each quarter last year, including in Q4. This one was a little bit different it was a little bit weaker in October and November then we would have expected and then a little bit stronger in December than we would have expected I think part of it was the team pushing pretty hard a lot of really good work that the team did.
Maybe, you know, one month doesn't make a trend, so too early. But any color there would be appreciated. Thank you.
William Brown: Yeah. We typically, Chris, we typically see, you know, seasonality within the quarter in CBG to be, you know, lower in the first couple of months and then higher in, in the third month. We saw that pattern play out each quarter last year, including in, in Q4. This one was a little bit different. It was a little bit weaker in October and November than we would have expected, and then a little bit stronger in December than we would have expected. I think part of it was, you know, the team pushing pretty hard, a lot of really good work that the team did in promotional programs with our large retailers who also were, you know, striving to drive their growth. That combination, I think, paid some dividends in December.
William Brown: Yeah. We typically, Chris, we typically see, you know, seasonality within the quarter in CBG to be, you know, lower in the first couple of months and then higher in, in the third month. We saw that pattern play out each quarter last year, including in, in Q4. This one was a little bit different. It was a little bit weaker in October and November than we would have expected, and then a little bit stronger in December than we would have expected. I think part of it was, you know, the team pushing pretty hard, a lot of really good work that the team did in promotional programs with our large retailers who also were, you know, striving to drive their growth. That combination, I think, paid some dividends in December.
Good in promotional programs with our large retailers, who also were striving.
Striving to drive their growth and that combination I think paid some dividends in December. So we grew a little bit better than expected in December a little bit weaker in October November.
Read too much into the trend so far in the first couple of weeks now, let's see how the next <unk>.
A number of weeks and maybe a couple of months ago.
But at least it seems to be holding okay to what we had expected in the first couple of weeks, so I wouldn't read too much into that at this moment Chris.
Positive rate of change there, I guess. Is there anything to call out with the comps? The December—did you just have a really easy comp? Because it doesn't seem like you guys expect much of that strength to continue into Q1. Maybe, you know, one month doesn't make a trend, so it's too early. But any color there would be appreciated. Thank you.
Yeah, we typically, Chris, we typically see, you know, seasonality within the quarter in CBG to be, you know, lower in the first couple of months and then higher in the third month. We saw that pattern play out each quarter last year, including in Q4. This one was a little bit different—it was a little bit weaker in October and November than we would have expected, and then a little bit stronger in December than we would have expected. I think part of it was, you know, the team pushing pretty hard—a lot of really good work that the team did in promotional programs with our large retailers, who also were, you know, striving to drive their growth. And that combination, I think—
William Brown: So we, we grew a little bit better than expected in December, a little bit weaker in October, November. You know, I wouldn't read too much into the trend so far in the first couple of weeks. You know, let's see how the next, you know, number of weeks and maybe a couple of months go. But, but at least it seems to be holding okay to what we had expected in the first couple of weeks. So I wouldn't read too much into that at this moment, Chris.
So we, we grew a little bit better than expected in December, a little bit weaker in October, November. You know, I wouldn't read too much into the trend so far in the first couple of weeks. You know, let's see how the next, you know, number of weeks and maybe a couple of months go. But, but at least it seems to be holding okay to what we had expected in the first couple of weeks. So I wouldn't read too much into that at this moment, Chris.
Thank you I appreciate that and then if I could follow up on the the U S. Key assumption you guys are calling for flat in 2006 after 1% growth in 'twenty five.
When we looked at the quarterly U S industrial production numbers, they seem to be strengthening as 25. It went along.
You guys are obviously, calling for things to soften do you see.
Amit Mehrotra: Thank you. I appreciate that. And then if I could follow up on the US IPI assumption, you know, you guys are calling for flat in 2026, after 1% growth in 2025. You know, when we look at the quarterly US industrial production numbers, they seem to be strengthening as 2025 went along. You know, you guys are obviously calling for things to soften. You know, do you see, you know, anything, you know, out there that is softening? You know, is there just some conservatism in that assumption? Thank you.
Chris Snyder: Thank you. I appreciate that. And then if I could follow up on the US IPI assumption, you know, you guys are calling for flat in 2026, after 1% growth in 2025. You know, when we look at the quarterly US industrial production numbers, they seem to be strengthening as 2025 went along. You know, you guys are obviously calling for things to soften. You know, do you see, you know, anything, you know, out there that is softening? You know, is there just some conservatism in that assumption? Thank you.
Paid some dividends in December. So we grew a little bit better than expected in December, a little bit weaker in October, November. You know, I wouldn't read too much into the trend so far the first couple of weeks. Now, let's see how the next, you know, number of weeks and maybe a couple of months go. Um, but at least it seems to be holding okay to what we had expected in the first couple of weeks. So I wouldn't read too much into that at this moment. Chris.
Anything.
Out there that is softening is there just some conservatism in that assumption. So you're right I mean, if you look at ipi through the course of last year.
After 1% growth in 25.
We're seeing backward looking it did improve sequentially over the course of the year was a little bit stronger in the back half and it wasn't a fund that according to forecast it looks like it's flattish in in in 2026, So we're reading those numbers.
For US you know as I mentioned before we do expect our industrial businesses continued to perform very well the two areas within industrial that were watching one is in auto aftermarket looks like it's still remaining relatively soft theyre expected to marine softened on car repair claims both in U S and Europe.
William Brown: So, you're right. I mean, if you look at IPI through the course of last year, you know, what we're seeing backward looking, it did improve sequentially over the course of the year. It was a little bit stronger in the back half than it was in the front half. You know, according to the forecast, it looks like it's flattish in 2026. So we're reading those numbers. You know, for us, you know, as I mentioned before, we do expect our industrial businesses to continue to perform very well. You know, the two areas within industrial that we're watching, one is in auto aftermarket.
William Brown: So, you're right. I mean, if you look at IPI through the course of last year, you know, what we're seeing backward looking, it did improve sequentially over the course of the year. It was a little bit stronger in the back half than it was in the front half. You know, according to the forecast, it looks like it's flattish in 2026. So we're reading those numbers. You know, for us, you know, as I mentioned before, we do expect our industrial businesses to continue to perform very well. You know, the two areas within industrial that we're watching, one is in auto aftermarket.
As well as in the roofing granules business because of the housing market consumers not looking to replace the roof right now that business has been a little bit soft factor was very soft in the fourth quarter. We expect some softness in the beginning of this year, but again I just come back to the with the execution of the team and commercial excellence in NPI I think they're doing it.
William Brown: Looks like it's still remaining relatively soft or expected to remain soft on car repair claims both in the US and Europe, as well as in the roofing granules business because of the housing market, consumers not looking to replace the roofs right now. You know, that business has been a little bit soft. In fact, it was very soft in Q4. We expect some softness in the beginning of this year. But again, I just come back to the execution of the team and commercial excellence and NPI. I think they're doing a very good job. I expect it will outperform that industrial macro as we get into 2026.
Looks like it's still remaining relatively soft or expected to remain soft on car repair claims both in the US and Europe, as well as in the roofing granules business because of the housing market, consumers not looking to replace the roofs right now. You know, that business has been a little bit soft. In fact, it was very soft in Q4. We expect some softness in the beginning of this year. But again, I just come back to the execution of the team and commercial excellence and NPI. I think they're doing a very good job. I expect it will outperform that industrial macro as we get into 2026.
Good job I expect it will outperform that industrial macro as we get into 'twenty six.
You know, when we look at the quarterly us industrial production numbers, they seem to be strengthening as 25 went along. Um, you know, you guys obviously, calling for things to soften um, you know, do you see, you know anything um, you know out there that is softening, um, you know, is there just some conservatism in that assumption? Uh, thank you so so you're right, I mean if you look at IPI through the course of last year, you know what, we're seeing backward. Looking it did improve sequentially over the course of the year it was a little bit stronger in the back half than it was in the front half, you know. According to forecasts it looks like it's flattish in in uh in 2026. So we're reading those numbers, you know, for for us you know as I mentioned before we do expect our industrial businesses to continue to perform very well. You know, the 2 areas within industrial that we're watching 1 is an auto aftermarket looks like it's still remaining relatively soft or expected to be really soft on on on a car repair claims both in us and Europe. Um,
Thank you I appreciate that.
Our next question comes from the line of Andy Kaplowitz with Citigroup. Please proceed with your question.
Hey, good morning, everyone, Hey, good morning, Andy.
As you said, you originally forecast and twenty-five averaging high teens growth from that rolling five year new products.
Amit Mehrotra: Thank you. I appreciate that.
Chris Snyder: Thank you. I appreciate that.
As well as in the, the roofing granules business. Be because of the housing market consumers, not looking to replace the roofs right now, you know, that business has been a little bit. So I think it was very soft in the fourth quarter. We expect some softness in the beginning of this year. But again I I just come back to the with the execution of the team and Commercial excellence and NPI I think they're doing a very good job. I expect it will outperform that industrial macro as we get into 26.
But your average closer to mid 20%. It's obviously one of the metrics leading to your market outgrowth, but what could it averaged <unk> 26 and does it suggest you get higher than that $300 million are higher as you just said in terms of market outgrowth.
Thank you, I appreciate that.
Operator: Our next question comes from the line of Andy Kaplowitz with Citigroup. Please proceed with your question.
Operator: Our next question comes from the line of Andy Kaplowitz with Citigroup. Please proceed with your question.
Our next question comes from.
Andy Kaplowitz: Hey, good morning, everyone.
Andy Kaplowitz: Hey, good morning, everyone.
William Brown: Hey, good morning, Andy.
William Brown: Hey, good morning, Andy.
So we do see higher in 26% and 25 in terms of market outgrowth and it's exactly from the progress made on innovation in five year, new product sales coming up again, when we look at the 26 numbers, we assess the macro as it affects three of them to be on.
Andy Kaplowitz: So as you said, you originally forecast end 2025 averaging high teens growth from that rolling five-year new products, but you averaged closer to mid-20%. It's obviously one of the metrics leading to your market outgrowth, but what could it average in 2026? And does it suggest you get higher than that $300 million or higher, as you just said, in terms of market outgrowth?
Andy Kaplowitz: So as you said, you originally forecast end 2025 averaging high teens growth from that rolling five-year new products, but you averaged closer to mid-20%. It's obviously one of the metrics leading to your market outgrowth, but what could it average in 2026? And does it suggest you get higher than that $300 million or higher, as you just said, in terms of market outgrowth?
Good morning, everyone. Hey, good morning, Andy.
The order of around one 7% that we're projecting growth of the company organic growth of 3%.
William Brown: So we do see a higher in 2026 than 2025 in terms of market outgrowth. And it's exactly from the progress made on innovation and five-year new product sales coming up. You know, again, when we look at the 2026 numbers, you know, we assess the macro as it affects 3M to be on the order of around 1.7%. We're projecting growth of the company, organic growth of 3%. You know, that delta, that outgrowth is over $300 million above the macro. Half of that is coming from new product introductions, both those that were launched at the back end of 2025. We had a very good back half, as well as those that we expect will launch in 2026. So I feel really good about the trajectory we're on and the momentum we're building here.
William Brown: So we do see a higher in 2026 than 2025 in terms of market outgrowth. And it's exactly from the progress made on innovation and five-year new product sales coming up. You know, again, when we look at the 2026 numbers, you know, we assess the macro as it affects 3M to be on the order of around 1.7%. We're projecting growth of the company, organic growth of 3%. You know, that delta, that outgrowth is over $300 million above the macro. Half of that is coming from new product introductions, both those that were launched at the back end of 2025.
So, as you said, you originally forecast, in '25, averaging high-teens growth from that rolling, 5-year new products. Uh, but you averaged closer to mid-20%. It's obviously one of the metrics leading to your market outgrowth, but what could it average in '26? And does it suggest you get higher than that $300 million or higher, as you just said, in terms of market outgrowth?
Delta that outgrowth is over $300 million above the macro half of that is coming from new product introductions. Both those that were launched at the back into 25, we had a very good back half as well as those that we expect will launch in 2026, So I feel really good about the trajectory we're on and the momentum.
We are building here. This is really I think moving the needle with a little market tailwind, we will see even greater pickup, but I feel good that we'll outgrow the macro next year. This year 26, as a result of some of the initiatives, we have in place and NPI and commercial excellence.
We had a very good back half, as well as those that we expect will launch in 2026. So I feel really good about the trajectory we're on and the momentum we're building here. This is really, I think, moving the needle. You know, with a little market tailwind, we'll, we'll see even greater pickup, but I feel good that we'll outgrow the macro next year, this year, 2026, as a result of some of the initiatives we have in place on NPI and commercial excellence.
Got it and then you were able to essentially hold the line I think all year in 'twenty, five and consumer in terms of growing margin nicely, despite flat sales and with the.
William Brown: This is really, I think, moving the needle. You know, with a little market tailwind, we'll, we'll see even greater pickup, but I feel good that we'll outgrow the macro next year, this year, 2026, as a result of some of the initiatives we have in place on NPI and commercial excellence.
Understanding that Q4 organic sales declined it seems like you're still at a relatively significant degradation in margin performance. So.
So, so we we we do see uh, higher in 26 and 25 in terms of Market out growth. And it's exactly from the progress made on Innovation and, and 5 year. New product sales coming up, you know. Again, when we look at the 26 numbers, you know, we we assess the macro as it affects 3M to be on the order of around. 1.7%, the we're we're projecting growth of the company, organic growth of 3%, you know, that Delta that outgrowth is over $300 million above the macro half of that is coming from new product. Introductions, both those that were launched at the back in the 25s that we expect will launch in 2026. So I feel really good about the trajectory we're on and the momentum we're building here. This is really I think moving the needle, you know, with a little market Tailwind. We'll we'll see even greater
So could you give us more color on that was it mostly just the increased advertising promo that you talk about can you talk about your confidence level in growing consumer margin or at least holding up in 'twenty six yes. So good question. It was it was the promos and discounts that were offered I think for the whole year. We did we did very well we're up 130 basis points, we're down 110 in the fourth.
Andy Kaplowitz: God, and then you were able to essentially hold the line, I think, all year in 2025 in consumer in terms of growing margin nicely despite flash sales. And, you know, with the understanding that Q4 organic sales declined, it seemed like you still had a relatively significant degradation in margin performance. So could you give us more color on that? Was it mostly just the increased advertising promos that you talked about? And can you talk about your confidence level in growing consumer margin or at least holding up in 2026?
Andy Kaplowitz: God, and then you were able to essentially hold the line, I think, all year in 2025 in consumer in terms of growing margin nicely despite flash sales. And, you know, with the understanding that Q4 organic sales declined, it seemed like you still had a relatively significant degradation in margin performance. So could you give us more color on that? Was it mostly just the increased advertising promos that you talked about? And can you talk about your confidence level in growing consumer margin or at least holding up in 2026?
Pick up, but I feel good at the—will outgrow the macro next year? This year? '26, as a result of some of the initiatives we have in place on NPI and Commercial Excellence.
and then you were
Quarter, but again for the year really good the team is doing an excellent job of focusing on the priority brands in appropriately investing in Admiral the NPI launches in in CPG were really good up double year over year, and I would expect margin growth as we get into 'twenty six as well as a really level out the business. So I feel pretty good about that.
William Brown: Yeah. So good question. It was the promos and discounts that were offered. I think for the whole year, we did very well. We're up 130 basis points. We're down 110 in the fourth quarter. But again, for the year, really good. The team's doing an excellent job of focusing on the priority brands and appropriately investing in admirers. The NPI launches in CBG were really good, up double year over year. And I expect margin growth as we get into 2026, as well as they really level out the business. So I feel pretty good about the structure that we have in place in CBG and the strategy that's being executed. And with a little bit of consumer recovery, you'll see that coming through in that CBG business this year. So I appreciate that question. Thank you.
William Brown: Yeah. So good question. It was the promos and discounts that were offered. I think for the whole year, we did very well. We're up 130 basis points. We're down 110 in the fourth quarter. But again, for the year, really good. The team's doing an excellent job of focusing on the priority brands and appropriately investing in admirers. The NPI launches in CBG were really good, up double year over year.
The structure that we have in place in CPG and the strategy that is being executed and with a little bit of consumer recovery Youll see that coming through in our CPG business. This year. So I appreciate that question. Thank you.
Thanks, Phil.
And I expect margin growth as we get into 2026, as well as they really level out the business. So I feel pretty good about the structure that we have in place in CBG and the strategy that's being executed. And with a little bit of consumer recovery, you'll see that coming through in that CBG business this year. So I appreciate that question. Thank you.
Okay.
This concludes the question and answer portion of our conference call I will now turn the call back over to Bill Brown for some closing comments well. Thank you everybody for joining US again today and thanks to all of the three ml for their efforts for their dedication in executing against our priorities in delivering value to both our.
I think all year in 25 in consumer, in terms of growing margin, nicely despite FL sales and you know, we understand in the Q4 organic so the client it seemed like you still had a relatively significant degradation in marginal performance. Uh, so could you give us more color and that was it mostly just to increase advertising promos that you talked about and can you talk about your confidence level and growing consumer margin or at least holding up in 26? Yeah. So good question. It was, it was the promos and discounts that were offered. I think for the whole year we did, we did very well, we're up 130 basis points, we're down, 110 in the fourth quarter, but again, for the year really good. The team is doing an excellent job of focusing on the priority brands in in appropriately. Investing in admirers. The NPI launches in in CBT were really good up double year-over-year and I'd expect margin growth as we get into the 26 as well as they really level out the business. So I feel pretty good about about, or the, the structure that we have in place in CBG and the strategy that's being executed. And
Andy Kaplowitz: Thanks, Bill.
Andy Kaplowitz: Thanks, Bill.
With a little bit of consumer recovery, you'll see that coming through in that CBG business this year. So, I appreciate that question. Thank you.
<unk> as well as our shareholders. Thank you and have a good day.
Operator: This concludes the question and answer portion of our conference call. I will now turn the call back over to Bill Brown for some closing comments.
Operator: This concludes the question and answer portion of our conference call. I will now turn the call back over to Bill Brown for some closing comments.
Ladies and gentlemen that does conclude today's conference call.
William Brown: Well, well, thank you everybody for joining again today. And thanks to all of the 3Mers for their efforts, for their dedication in executing against our priorities and delivering value to both our customers as well as our shareholders. Thank you and have a good day.
William Brown: Well, well, thank you everybody for joining again today. And thanks to all of the 3Mers for their efforts, for their dedication in executing against our priorities and delivering value to both our customers as well as our shareholders. Thank you and have a good day.
We thank you for your participation and ask that you. Please disconnect your line.
This concludes the question and answer portion of our conference call. I will now turn the call back over to Bill Brown for some closing comments. Well, thank you everybody for joining again today, and thanks to all of the 3M team for their efforts and dedication in executing against our priorities and delivering value to both our customers as well as our shareholders. Thank you, and have a good day.
Operator: Ladies and gentlemen, that does conclude today's conference call. We thank you for your participation and ask that you please disconnect your line.
Operator: Ladies and gentlemen, that does conclude today's conference call. We thank you for your participation and ask that you please disconnect your line.
Ladies and gentlemen, that does conclude today's conference call.
Participation, and ask that you please disconnect your line.
