Q2 2026 3M Co Earnings Call

July 21, 2026

Speaker #1: During the presentation, all participants will be in listen-only mode. Afterward, we will conduct a question-and-answer session. At that time, if you do have questions, please press star one on your telephone keypad.

Speaker #1: As a reminder, this call is being recorded Tuesday, July 21, 2026. I would now like to turn the call over to Chinmay Trivedi, Senior Vice President of Industry Relations and Financial Planning and Analysis at 3M.

Operator: 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, 21 July 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.

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, 3M's Chief Financial Officer.

Speaker #2: Bill and Anurag will make some formal comments, then we will take your questions. Please note that today's earnings release and the slide presentation accompanying this call are posted on the homepage of our investor relations website at 3M.com.

Chinmay Trivedi: 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, 3M's Chief Financial Officer. Bill and Anurag will make some formal comments. 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. Please turn to Slide two and take a moment to read the forward-looking statements. During today's conference call, we will be making certain predictive statements that reflect our current views about 3M's future performance and financial results. These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties.

Speaker #2: Please turn to slide 2 and take a moment to read the forward-looking statements. During today's conference call, we will be making certain predictive statements that reflect our current views about 3M's future performance and financial results.

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 that could cause actual results to differ from our predictions.

Chinmay Trivedi: During today's conference call, we will be making certain predictive statements that reflect our current views about 3M's future performance and financial results. These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Item 1A of our most recent Form 10-Q lists some of the most important risk factors that could cause actual results to differ from our predictions. Please note, throughout today's presentation, we will be making references to certain non-GAAP financial measures.

Speaker #2: Please note through our today's presentation, we will 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.

Chinmay Trivedi: Item 1A of our most recent Form 10-Q lists some of the most important risk factors that could cause actual results to differ from our predictions. Please note, throughout today's presentation, we will 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. With that, please turn to Slide three. I will hand the call off to Bill. Bill?

Speaker #2: With that, please turn to slide 3, and I will hand the call off to Bill. Bill?

Speaker #3: Thank you, Chinmay, and good morning, everyone. We deliver strong performance in Q2, including organic growth of 5.4%, operating margin of 24.9%, up 40 basis points, earnings per share of $2.40, up 11%, and free cash flow of $1.3 billion with $107% conversion.

Chinmay Trivedi: Reconciliations of the non-GAAP measures can be found in the attachments to today's press release. With that, please turn to Slide three. I will hand the call off to Bill. Bill?

Bill Brown: Thank you, Chinmay. Good morning, everyone. We delivered strong performance in Q2, including organic growth of 5.4%, operating margin of 24.9%, up 40 basis points, earnings per share of $2.40, up 11%, and free cash flow of $1.3 billion with 107% conversion. We returned $1.4 billion to shareholders in the quarter, including $400 million in dividends and $1 billion of share repurchases. Since 2025, we returned $8.6 billion to shareholders against our commitment to return $10 billion-plus through 2027. Given our strong H1 performance, we are raising our guidance for the year for sales, EPS, and free cash flow. Our results today exceeded our expectations, demonstrate the progress we are making to build a higher performing company, and continue to give us confidence we are on the right path forward.

Speaker #3: We returned $1.4 billion a shareholder in the quarter, including $400 million in dividends and $1 billion a share repurchases. Since 2025, we returned $8.6 billion to shareholders against our commitment to return $10 billion plus through 2027.

Speaker #3: Given our strong first-half performance, we're raising our guidance for the year for sales, EPS, and free cash flow. Our results today exceeded our expectations, demonstrate the progress we're making to build a higher-performing company, and continue to give us confidence we're on the right path forward.

Speaker #3: The strategy we put in place two years ago was delivering results, and we're building momentum and executing against our strategic priorities. Commercial excellence initiatives continue to drive results through improved Salesforce effectiveness and stronger account execution, supported by AI-enabled tools that enhance planning, prioritize opportunities, and accelerate productivity.

Bill Brown: Given our strong H1 performance, we are raising our guidance for the year for sales, EPS, and free cash flow. Our results today exceeded our expectations, demonstrate the progress we are making to build a higher performing company, and continue to give us confidence we are on the right path forward. The strategy we put in place two years ago is delivering results, and we're building momentum and executing against our strategic priorities.

Speaker #3: Cross-selling continues to outperform expectations, with $110 million of opportunities booked and another $120 million in the pipeline—up over 40% quarter over quarter—and putting us ahead of the goal we set at our Investor Day.

Bill Brown: The strategy we put in place two years ago is delivering results, and we're building momentum and executing against our strategic priorities. Commercial excellence initiatives continue to drive results through improved sales force effectiveness and stronger account execution, supported by AI-enabled tools that enhance planning, prioritize opportunities, and accelerate productivity. Cross-selling continues to outperform expectations with $110 million of opportunities booked and another $120 million in the pipeline, upward of 40% quarter-over-quarter, and putting us ahead of the goal we set at our Investor Day. Change engine at 3M and significantly accelerating our pace of new product introductions. In the quarter, we launched 92 new products, up 44% versus last year, bringing our H1 total to 176 launches and putting us on track to deliver more than 350 new products this year.

Bill Brown: Commercial excellence initiatives continue to drive results through improved sales force effectiveness and stronger account execution, supported by AI-enabled tools that enhance planning, prioritize opportunities, and accelerate productivity. Cross-selling continues to outperform expectations with $110 million of opportunities booked and another $120 million in the pipeline, upward of 40% quarter-over-quarter, and putting us ahead of the goal we set at our Investor Day.

Speaker #3: Engine at 3M and significantly accelerating our pace of new product introductions. In the quarter, we launched 92 new products, up 44% versus last year, bringing our first half total to $176 launches and putting us on track to deliver more than 350 new products this year.

Speaker #3: The benefits are showing up in our results, and I'll talk more about our innovation journey in a moment. Our focus on operational discipline and productivity improvement continues to create value across the enterprise.

Bill Brown: Change engine at 3M and significantly accelerating our pace of new product introductions. In the quarter, we launched 92 new products, up 44% versus last year, bringing our H1 total to 176 launches and putting us on track to deliver more than 350 new products this year. The benefits are showing up in our results, and I'll talk more about our innovation journey in a moment. Our focus on operational discipline and productivity improvement continues to create value across the enterprise.

Speaker #3: Cost of work over the year, while overall equipment effectiveness improved 140 basis points. As asset utilization improves, we're able to consolidate production into fewer assets, optimize our manufacturing footprint, and retire older and less efficient equipment.

Bill Brown: The benefits are showing up in our results, and I'll talk more about our innovation journey in a moment. Our focus on operational discipline and productivity improvement continues to create value across the enterprise. Cost per over year, while overall equipment effectiveness improved 140 basis points. As asset utilization improves, we're able to consolidate production into fewer assets, optimize our manufacturing footprint, and retire older and less efficient equipment. While overall utilization remains a long-term opportunity, there are pockets in our manufacturing network today where capacity is constrained and short of demand. One example is our new Ohm facility, which produces cable accessories for electrical markets, a product that's facing high and increasing demand.

Speaker #3: While overall utilization remains a long-term opportunity, there are pockets in our manufacturing network today where capacity is constrained and short of demand. One example is our new own facility, which produces cable accessories for electrical markets, a product that's facing high and increasing demand.

Bill Brown: Cost per over year, while overall equipment effectiveness improved 140 basis points. As asset utilization improves, we're able to consolidate production into fewer assets, optimize our manufacturing footprint, and retire older and less efficient equipment. While overall utilization remains a long-term opportunity, there are pockets in our manufacturing network today where capacity is constrained and short of demand.

Speaker #3: Here, the team ran a multi-week sprint that set a discipline operating cadence against a locked production schedule, improved material flow, eliminated process bottlenecks, and focused the team on rapidly resolving the underlying constraints holding back output.

Speaker #3: As a result, the work center achieved record production levels in June, delivering $13 million of incremental revenue for nearly 50 basis points at the SIBG level.

Bill Brown: One example is our new Ohm facility, which produces cable accessories for electrical markets, a product that's facing high and increasing demand. Here, the team ran a multi-week sprint that set a disciplined operating cadence against a locked production schedule, improved material flow, eliminated process bottlenecks, and focused the team on rapidly resolving the underlying constraints holding back output.

Bill Brown: Here, the team ran a multi-week sprint that set a disciplined operating cadence against a locked production schedule, improved material flow, eliminated process bottlenecks, and focused the team on rapidly resolving the underlying constraints holding back output. As a result, the work center achieved record production levels in June, delivering $13 million of incremental revenue, or nearly 50 basis points at the SIBG level. The actions we're taking across commercial execution, innovation, and operations are part of a broader transition at 3M from a holding company to a more integrated operating company model. The next step in the journey is around transformation, simplifying and standardizing core processes, reducing complexity in our factory and distribution network, and reshaping our portfolio. Today, many of the activities and support functions like finance, HR, and customer service operate independently across regions and business units, creating unnecessary complexity, inefficiency, and duplication.

Speaker #3: The actions were taken across commercial execution, innovation, and operations are part of a broader transition at 3M from a holding company to a more integrated operating company model.

Speaker #3: The next step in the journey is around transformation—simplifying and standardizing core processes, reducing complexity in our factory and distribution network, and reshaping our portfolio.

Bill Brown: As a result, the work center achieved record production levels in June, delivering $13 million of incremental revenue, or nearly 50 basis points at the SIBG level. The actions we're taking across commercial execution, innovation, and operations are part of a broader transition at 3M from a holding company to a more integrated operating company model. The next step in the journey is around transformation, simplifying and standardizing core processes, reducing complexity in our factory and distribution network, and reshaping our portfolio.

Speaker #3: Today, many of the activities in support functions like finance, HR, and customer service operate independently across regions and business units, creating unnecessary complexity, inefficiency, and duplication.

Speaker #3: We're bringing these activities together into a single global service delivery model and partnering with an external provider to run them at scale, using automation and AI.

Speaker #3: This move will increase agility, accelerate technology adoption, and sharpen our focus on the capabilities that are most critical to driving growth and long-term value creation.

Bill Brown: Today, many of the activities and support functions like finance, HR, and customer service operate independently across regions and business units, creating unnecessary complexity, inefficiency, and duplication. We're bringing these activities together into a single global service delivery model and partnering with an external provider to run them at scale using automation and AI.

Speaker #3: We're also continuing to enhance our portfolio. On July 1st, we closed on the acquisition of Madison Fire and Rescue consolidating it with our Scott SCBA business into a new majority-owned joint venture and receiving $700 million in cash as part of the transaction.

Bill Brown: We're bringing these activities together into a single global service delivery model and partnering with an external provider to run them at scale using automation and AI. This move will increase agility, accelerate technology adoption, and sharpen our focus on the capabilities that are most critical to driving growth and long-term value creation. We're also continuing to enhance our portfolio. On 1 July, we closed on the acquisition of Madison Fire & Rescue, consolidating it with our Scott SCBA business into a new majority-owned joint venture and receiving $700 million in cash as part of the transaction. This JV generates revenue of $800 million, growing at high single digits, and with margins above our company average. This is a clear example of how we're reshaping the portfolio towards higher growth, higher margin businesses, strengthening a priority vertical while keeping our capital allocation disciplined.

Speaker #3: This JV generates revenue of $800 million, growing at high single digits and with margins above our company average. This is a clear example of how we're reshaping the portfolio towards higher-growth, higher-margin businesses, strengthening our priority vertical while keeping our capital allocation disciplined.

Bill Brown: This move will increase agility, accelerate technology adoption, and sharpen our focus on the capabilities that are most critical to driving growth and long-term value creation. We're also continuing to enhance our portfolio. On 1 July, we closed on the acquisition of Madison Fire & Rescue, consolidating it with our Scott SCBA business into a new majority-owned joint venture and receiving $700 million in cash as part of the transaction.

Speaker #3: Another priority vertical is data centers, and I want to touch on an exciting announcement we made last week. We entered a strategic partnership with Microsoft who will become the first hyperscaler to deploy our patented expanded beam optics, or EBO, technology in Azure data centers.

Bill Brown: This JV generates revenue of $800 million, growing at high single digits, and with margins above our company average. This is a clear example of how we're reshaping the portfolio towards higher growth, higher margin businesses, strengthening a priority vertical while keeping our capital allocation disciplined. Another priority vertical is data centers, and I want to touch on an exciting announcement we made last week.

Speaker #3: This is a powerful proof point of how we're applying 3M's innovation to one of the fastest growing markets in the world. Our connectors install faster, hold up far better to dust and handling, and help customers stand up AI capacity more quickly.

Bill Brown: Another priority vertical is data centers, and I want to touch on an exciting announcement we made last week. We entered a strategic partnership with Microsoft, who will become the first hyperscaler to deploy our patented Expanded Beam Optics, or EBO technology, in Azure data centers. This is a powerful proof point of how we're applying 3M's innovation to one of the fastest-growing markets in the world. Our connectors install faster, hold up far better to dust and handling, and help customers stand up AI capacity more quickly. We're rapidly scaling production capacity, both internally and externally, and engaging the broader ecosystem of suppliers, partners, and customers to support standardization and industry adoption of EBO technology. On slide 4, we show that the positive momentum in Q1 in several growth areas carried into Q2, driving strong performance in the H1 across adhesives, abrasives, aerospace, electrical markets, and safety.

Speaker #3: We're rapidly scaling production capacity, both internally and externally, and engaging the broader ecosystem of suppliers, partners, and customers to support standardization and industry adoption of EBO technology.

Bill Brown: We entered a strategic partnership with Microsoft, who will become the first hyperscaler to deploy our patented Expanded Beam Optics, or EBO technology, in Azure data centers. This is a powerful proof point of how we're applying 3M's innovation to one of the fastest-growing markets in the world. Our connectors install faster, hold up far better to dust and handling, and help customers stand up AI capacity more quickly.

Speaker #3: On slide 4, we show that the positive momentum in Q1 in several growth areas carried into Q2, driving strong performance in the first half across adhesives, abrasives, aerospace, electrical markets, and safety.

Speaker #3: We continue to see a couple of places with pressure, including spending. We're clearly outgoing the market in aggregate through better commercial execution including increased cross-selling and improved customer retention and a faster pace of innovation.

Bill Brown: We're rapidly scaling production capacity, both internally and externally, and engaging the broader ecosystem of suppliers, partners, and customers to support standardization and industry adoption of EBO technology. On slide 4, we show that the positive momentum in Q1 in several growth areas carried into Q2, driving strong performance in the H1 across adhesives, abrasives, aerospace, electrical markets, and safety. We continue to see a couple places with pressure, including commercial aftermarket and US consumer spending.

Speaker #3: Overall, our first half performance positions us well for continued momentum in the second half of the year. Innovation is always been one of 3M's greatest competitive advantages, and slide 5 highlights this significant inflection in launches and new product sales beginning about two years ago.

Bill Brown: We continue to see a couple places with pressure, including commercial aftermarket and US consumer spending. We're clearly outgrowing the market in aggregate through better commercial execution, including increased cross-selling and improved customer retention, and a faster pace of innovation. Overall, our H1 performance positions us well for continued momentum in the H2 of the year. Innovation has always been one of 3M's greatest competitive advantages, and slide 5 highlights a significant inflection in launches and new product sales beginning about two years ago. Our goal is to restore that advantage at an even higher level by combining our unmatched material science capabilities with greater speed and better execution. Over the past couple of years, we've taken deliberate actions to increase rigor, accountability, and focus within our R&D organization, what we've been calling our R&D factory.

Speaker #3: Our goal is to restore that advantage at an even higher level by combining our unmatched material science capabilities with greater speed and better execution.

Bill Brown: We're clearly outgrowing the market in aggregate through better commercial execution, including increased cross-selling and improved customer retention, and a faster pace of innovation. Overall, our H1 performance positions us well for continued momentum in the H2 of the year. Innovation has always been one of 3M's greatest competitive advantages, and slide 5 highlights a significant inflection in launches and new product sales beginning about two years ago.

Speaker #3: Over the past couple of years, we've taken deliberate actions to increase rigor, accountability, and focus within our R&D organization—what we've been calling our R&D factory.

Speaker #3: As a result, we're beginning to see meaningful improvements across the innovation pipeline. We're increasing the pace of innovation and are on track to nearly triple the number of new products introduced this year versus three years ago, and launch more than 1,000 products by 2027, while reducing development cycle time by about 20%.

Bill Brown: Our goal is to restore that advantage at an even higher level by combining our unmatched material science capabilities with greater speed and better execution. Over the past couple of years, we've taken deliberate actions to increase rigor, accountability, and focus within our R&D organization, what we've been calling our R&D factory. As a result, we're beginning to see meaningful improvements across the innovation pipeline.

Speaker #3: We expect performance to continue accelerating as we leverage AI to move more quickly from idea generation to development and production. These efforts are translating into commercial results, with five-year new product sales reaching about $4 billion this year, and new product vitality index climbing to the mid-teens this year, and 20% next year.

Bill Brown: As a result, we're beginning to see meaningful improvements across the innovation pipeline. We're increasing the pace of innovation and are on track to nearly triple the number of new products introduced this year versus three years ago, and launch more than 1,000 products by 2027, while reducing development cycle time by about 20%. We expect performance to continue accelerating as we leverage AI to move more quickly from idea generation to development and production. These efforts are translating into commercial results, with five-year new product sales reaching about $4 billion this year, and New Product Vitality Index climbing to the mid-teens this year and 20% next year. The right side of the slide highlights several next generation innovations and showcases the breadth of our portfolio and ability to address emerging customer needs.

Bill Brown: We're increasing the pace of innovation and are on track to nearly triple the number of new products introduced this year versus three years ago, and launch more than 1,000 products by 2027, while reducing development cycle time by about 20%. We expect performance to continue accelerating as we leverage AI to move more quickly from idea generation to development and production.

Speaker #3: The right side of the slide highlights several next-generation innovations and showcases the breadth of our portfolio and ability to address emerging customer needs. From developing new products for new markets, like EBO for data centers, to adapting existing technologies to new applications, like Next Tail High Performance Fibers for fuel cells, and light reflective films for space satellites.

Bill Brown: These efforts are translating into commercial results, with five-year new product sales reaching about $4 billion this year, and New Product Vitality Index climbing to the mid-teens this year and 20% next year. The right side of the slide highlights several next generation innovations and showcases the breadth of our portfolio and ability to address emerging customer needs.

Speaker #3: These products demonstrate how we're applying technology to unlock new growth opportunities. Slide 6 pulls it all together. Over the last couple of years, we've moved from a decline of 4.4% in 2023 to positive growth of 3% on a trailing 12-month basis through the first half of 2026, while at the same time expanding margins by about 500 basis points.

Bill Brown: From developing new products for new markets, like EBO for data centers, to adapting existing technologies to new applications, like Nextel high performance fibers for fuel cells and light reflective films for space satellites. These products demonstrate how we're applying technology to unlock new growth opportunities. Slide 6 pulls it all together. Over the last couple of years, we've moved from a decline of 4.4% in 2023 to positive growth of 3% on a trailing 12-month basis through the H1 of 2026, while at the same time expanding margins by about 500 basis points. This is 3M excellence at work, and demonstrates that we can both grow the top line and increase margins simultaneously. Our performance is increasingly outpacing underlying end markets, with our growth to market multiple improving from roughly in line to 2x, and with businesses that declined in 2023 turning solidly positive in 2026.

Speaker #3: This is 3M, excellent at work, and demonstrates that we can both grow the top line and increase margins simultaneously. Our performance is increasingly outpacing underlying markets, with our growth-to-market multiple improving from roughly in line to 2x, and with businesses that declined in 2023 turning solidly positive in 2026.

Bill Brown: Over the last couple of years, we've moved from a decline of 4.4% in 2023 to positive growth of 3% on a trailing 12-month basis through the H1 of 2026, while at the same time expanding margins by about 500 basis points. This is 3M excellence at work, and demonstrates that we can both grow the top line and increase margins simultaneously.

Speaker #3: While we're still in the early innings of our journey to create value, the momentum is building. I'm encouraged by the progress we're making and confident in our ability to continue to deliver above-market growth and sustainable margin expansion over the long term.

Speaker #3: With that, I'll turn it over to Anurag to share the details of the quarter. Anurag?

Speaker #2: Thank you, Bill. Turning to slide 7, we exceeded expectations across all financial metrics in the quarter, delivering mid-single-digit organic growth, margin expansion, double-digit earnings growth, and robust free cash flow all reflecting strong progress against our strategic priorities.

Bill Brown: Our performance is increasingly outpacing underlying end markets, with our growth to market multiple improving from roughly in line to 2x, and with businesses that declined in 2023 turning solidly positive in 2026. While we're still in the early innings of our journey to create value, the momentum is building.

Bill Brown: While we're still in the early innings of our journey to create value, the momentum is building. I'm encouraged by the progress we're making and confident in our ability to continue to deliver above-market growth and sustainable margin expansion over the long term. With that, I'll turn it over to Anurag to share the details of the quarter. Anurag?

Speaker #2: Starting with top line, in an unchanged macro environment, the organic sales growth of 5.4% was driven by successful execution of our commercial excellence initiatives and increasing contribution from new product launches supported by strong operating tempo.

Bill Brown: I'm encouraged by the progress we're making and confident in our ability to continue to deliver above-market growth and sustainable margin expansion over the long term. With that, I'll turn it over to Anurag to share the details of the quarter. Anurag?

Speaker #2: Coming into the quarter, we had expected sales conversion from the Q1 order strength to accelerate revenue growth to over 3% in the second quarter.

Anurag Maheshwari: Thank you, Bill. Turning to slide seven, we exceeded expectations across all financial metrics in the quarter, delivered mid-single-digit organic growth, margin expansion, double-digit earnings growth, and robust free cash flow, all reflecting strong progress against our strategic priorities. Starting with top line. In an unchanged macro environment, the organic sales growth of 5.4% was driven by successful execution of our commercial excellence initiatives and increasing contribution from new product launches, supported by a strong operating tempo. Coming into the quarter, we had expected sales conversion from the Q1 order strength to accelerate revenue growth to over 3% in the second quarter. The sustained order momentum in the quarter, combined with good supply chain execution, we were able to grow above expectations. This puts the H1 organic growth at 3.3%, comfortably outperforming macro. By geography, we saw broad-based growth across all the five regions.

Speaker #2: With the sustained order momentum in the quarter, combined with good supply chain execution, we were able to grow above expectations, this puts the first half organic growth at 3.3% comfortably outperforming macro.

Anurag Maheshwari: Starting with top line. In an unchanged macro environment, the organic sales growth of 5.4% was driven by successful execution of our commercial excellence initiatives and increasing contribution from new product launches, supported by a strong operating tempo. Coming into the quarter, we had expected sales conversion from the Q1 order strength to accelerate revenue growth to over 3% in the second quarter.

Speaker #2: By geography, we saw broad-based growth across all the five regions, China grew double digits with strength in industrial adhesives, safety, and auto films, as we executed on our key accounts in local NPI strategies leading to share gains.

Speaker #2: US and Canada industrial businesses grew mid-single digits, partially offset by softness in consumer and auto aftermarket. It was encouraging to see Europe return to growth, with mid-single digits despite a muted auto market.

Anurag Maheshwari: The sustained order momentum in the quarter, combined with good supply chain execution, we were able to grow above expectations. This puts the H1 organic growth at 3.3%, comfortably outperforming macro. By geography, we saw broad-based growth across all the five regions. China grew double digits with strength in industrial adhesives, safety, and auto films as we executed on our key account and local NPI strategies, leading to share gains.

Speaker #2: And in Asia, we saw double-digit growth led by India, a trend that has continued for seven straight quarters as a result of increased sales coverage in a growing economy.

Speaker #2: Q2 adjusted operating margins were 24.9%, up 40 basis points, with the business group operating margins up 70 basis points, partially offset by expected corporate headwind of 30 basis points.

Anurag Maheshwari: China grew double digits with strength in industrial adhesives, safety, and auto films as we executed on our key account and local NPI strategies, leading to share gains. US and Canada industrial businesses grew mid-single digits, partially offset by softness in consumer and auto aftermarket. It was encouraging to see Europe return to growth, up mid-single digits despite a muted auto market. In Asia, we saw double-digit growth led by India, a trend that has continued for seven straight quarters as a result of increased sales coverage in a growing economy. Q2 adjusted operating margins were 24.9%, up 40 basis points, with the business group operating margins up 70 basis points, partially offset by expected corporate headwind of 30 basis points.

Speaker #2: Operating profit increased 110 million dollars or 16 cents, including a 240 million dollar benefit from sales growth and broad-based productivity, partially offset by 30 million dollars of investments and 110 million dollars from tariff impact and standard cost headwind.

Anurag Maheshwari: US and Canada industrial businesses grew mid-single digits, partially offset by softness in consumer and auto aftermarket. It was encouraging to see Europe return to growth, up mid-single digits despite a muted auto market. In Asia, we saw double-digit growth led by India, a trend that has continued for seven straight quarters as a result of increased sales coverage in a growing economy.

Speaker #2: We have not received any tariff refunds to date. The 24 cents of EPS growth in the quarter is driven by 16 cents of operating profit growth and 8 cents primarily from lower share count as we continue to return capital to shareholders.

Anurag Maheshwari: Q2 adjusted operating margins were 24.9%, up 40 basis points, with the business group operating margins up 70 basis points, partially offset by expected corporate headwind of 30 basis points. Operating profit increased $110 million, or $0.16, including a $240 million benefit from sales growth and broad-based productivity, partially offset by $30 million of investments and $110 million from tariff impact and stranded cost headwind. We have not received any tariff refunds to date.

Speaker #2: The benefit from tax timing and lower pension costs was offset by a prior year gain on investment. This earnings growth was also reflected in the unadjusted results with Q2 gap EPS of $1.78, growing 33% year over year.

Anurag Maheshwari: Operating profit increased $110 million, or $0.16, including a $240 million benefit from sales growth and broad-based productivity, partially offset by $30 million of investments and $110 million from tariff impact and stranded cost headwind. We have not received any tariff refunds to date. The $0.24 of EPS growth in the quarter is driven by $0.16 of operating profit growth and $0.08 primarily from lower share count as we continue to return capital to shareholders. The benefit from tax timing and lower pension costs was offset by a prior gain on investment. This earnings growth was also reflected in the unadjusted results with Q2 GAAP EPS of $1.78, growing 33% year-over-year. This included the impact of costs from ongoing transformation actions, exit of certain PFAS manufacturing assets, and gain from change in value of our Solventum ownership.

Speaker #2: This included the impact of costs from ongoing transformation actions, exit of certain PFAS manufacturing assets, and the gain from the change in value of our Solventum ownership.

Speaker #2: Free cash flow was robust at $1.3 billion, or 107% conversion, as we benefited from strong earnings and working capital management, including a seven-day improvement over last year in inventory.

Anurag Maheshwari: The $0.24 of EPS growth in the quarter is driven by $0.16 of operating profit growth and $0.08 primarily from lower share count as we continue to return capital to shareholders. The benefit from tax timing and lower pension costs was offset by a prior gain on investment. This earnings growth was also reflected in the unadjusted results with Q2 GAAP EPS of $1.78, growing 33% year-over-year.

Speaker #2: We returned 1.4 billion dollars to shareholders via dividends and gross share buybacks. For the half, we generated cash flow of 1.9 billion dollars and returned 3.8 billion dollars to shareholders including 0.8 billion dollars in dividends and 3 billion dollars in share repurchases.

Speaker #2: Turning to the next slide, I will provide a quick overview of our growth performance for each business group. Safety and industrial delivered a standout quarter with 8.2% organic sales growth driven by the continued expansion of commercial excellence initiatives and the ramp-up of new product launches.

Anurag Maheshwari: This included the impact of costs from ongoing transformation actions, exit of certain PFAS manufacturing assets, and gain from change in value of our Solventum ownership. Free cash flow was robust at $1.3 billion, or 107% conversion, as we benefited from strong earnings and working capital management, including 7 days improvement over last year in inventory. We returned $1.4 billion to shareholders via dividends and gross share buybacks.

Anurag Maheshwari: Free cash flow was robust at $1.3 billion, or 107% conversion, as we benefited from strong earnings and working capital management, including 7 days improvement over last year in inventory. We returned $1.4 billion to shareholders via dividends and gross share buybacks. For H1, we generated cash flow of $1.9 billion and returned $3.8 billion to shareholders, including $0.8 billion in dividends and $3 billion in share repurchases. Turning to the next slide, I will provide a quick overview of our growth performance for each business group. Safety and Industrial delivered a standout quarter with 8.2% organic sales growth, driven by the continued expansion of commercial excellence initiatives and the ramp-up of new product launches. We delivered double-digit growth across the four industrial businesses, electrical markets, industrial adhesives and tapes, abrasives, and industrial specialties.

Speaker #2: We delivered double-digit growth across the four industrial businesses: electrical markets, industrial adhesives and tapes, abrasives, and industrial specialties. This growth was driven by targeted commercial initiatives to reduce customer churn, strengthen sales coverage and effectiveness, and increase consultative selling.

Anurag Maheshwari: For H1, we generated cash flow of $1.9 billion and returned $3.8 billion to shareholders, including $0.8 billion in dividends and $3 billion in share repurchases. Turning to the next slide, I will provide a quick overview of our growth performance for each business group. Safety and Industrial delivered a standout quarter with 8.2% organic sales growth, driven by the continued expansion of commercial excellence initiatives and the ramp-up of new product launches.

Speaker #2: Safety grew high single digits on the back of new product launches and continued international expansion. It was encouraging to see roofing granules return to growth, and we expect that trend to continue in the back half on a recovering market and easy comparison.

Speaker #2: For the half, SIB grew 5.7%, demonstrating sustained acceleration over the last two years. Transportation and electronic sales grew 5.9% in the second quarter from the expected backlog conversion, combined with stronger commercial execution and account management.

Anurag Maheshwari: We delivered double-digit growth across the four industrial businesses, electrical markets, industrial adhesives and tapes, abrasives, and industrial specialties. This growth was driven by targeted commercial initiatives to reduce customer churn, strengthen sales coverage and effectiveness, and increase cross-selling. Safety grew high single digits on the back of new product launches and continued international expansion.

Speaker #2: The first half growth of 2.9% reflects strength in approximately half of the business segments more than offsetting end-market weakness in the other half. Semiconductor, aerospace, and data center business segments comprising approximately 20% of sales, grew double digits as we gained traction from new product introductions, and commercial branding and transportation which is about a third of the business grew approximately 5%.

Anurag Maheshwari: This growth was driven by targeted commercial initiatives to reduce customer churn, strengthen sales coverage and effectiveness, and increase cross-selling. Safety grew high single digits on the back of new product launches and continued international expansion. It was encouraging to see roofing granules return to growth, and we expect that trend to continue in H2 on a recovering market and easy compares. For H1, SIBG grew 5.7%, demonstrating sustained acceleration over the last two years. Transportation and Electronics sales grew 5.9% in Q2 from the expected backlog conversion, combined with stronger commercial execution and account management. The H1 growth of 2.9% reflects strength in approximately half of the business segments, more than offsetting end market weakness in the other half.

Anurag Maheshwari: It was encouraging to see roofing granules return to growth, and we expect that trend to continue in H2 on a recovering market and easy compares. For H1, SIBG grew 5.7%, demonstrating sustained acceleration over the last two years. Transportation and Electronics sales grew 5.9% in Q2 from the expected backlog conversion, combined with stronger commercial execution and account management.

Speaker #2: On the other hand, auto was flat in a soft market and consumer electronics was down low single digit, performing better than the broader consumer device market.

Speaker #2: SIBG and TBG, which together represent 80% of our business, delivered 7% growth in the second quarter and approximately 5% growth for the first half.

Anurag Maheshwari: The H1 growth of 2.9% reflects strength in approximately half of the business segments, more than offsetting end market weakness in the other half. Semiconductor, aerospace, and data center business segments, comprising approximately 20% of sales, grew double digits as we gained traction from new product introductions, and commercial branding and transportation, which is about a third of the business, grew approximately 5%.

Speaker #2: Finally, consumer, which makes up the remaining 20% of our sales, was down 2.1% for the quarter and 1.7% for the half. Point-of-sale growth in the U.S. remained healthy and has been positive in 18 of the 26 weeks year to date, versus 7 positive weeks in all of last year.

Anurag Maheshwari: Semiconductor, aerospace, and data center business segments, comprising approximately 20% of sales, grew double digits as we gained traction from new product introductions, and commercial branding and transportation, which is about a third of the business, grew approximately 5%. On the other hand, Auto was flat in a soft market, and Consumer Electronics was down low single digit, performing better than the broader consumer device market. SIBG and TEBG, which together represent 80% of our business, delivered 7% growth in Q2 and approximately 5% growth for H1. Finally, Consumer, which makes up the remaining 20% of our sales, was down 2.1% for Q2 and 1.7% for H1. Point-of-sales growth in the US remained healthy and has been positive in 18 of the 26 weeks year to date, versus seven positive weeks in all of last year.

Speaker #2: However, tightening of inventory levels at several key retailers in the second half of June more than offset this positive momentum. The second-quarter performance caps a strong first half, including organic sales growth of 3.3%, an operating margin of 24.3%, and earnings growth of 12%.

Anurag Maheshwari: On the other hand, Auto was flat in a soft market, and Consumer Electronics was down low single digit, performing better than the broader consumer device market. SIBG and TEBG, which together represent 80% of our business, delivered 7% growth in Q2 and approximately 5% growth for H1. Finally, Consumer, which makes up the remaining 20% of our sales, was down 2.1% for Q2 and 1.7% for H1.

Speaker #2: This gives us confidence to raise our full-year guidance across all the financial metrics shown on slide 9. We are raising our organic growth expectations from 3% to greater than 3.5% for the year.

Speaker #2: This is a result of strong commercial momentum in our industrial businesses, supported by increased sales contribution from new product launches, which will more than offset the slight weakness in the consumer business.

Anurag Maheshwari: Point-of-sales growth in the US remained healthy and has been positive in 18 of the 26 weeks year to date, versus seven positive weeks in all of last year. However, tightening of inventory levels at several key retailers in H2 of June more than offset this positive momentum. The Q2 performance caps a strong H1, including organic sales growth of 3.3%, operating margin of 24.3%, and earnings growth of 12%, giving us confidence to raise our full-year guidance across all the financial metrics on slide nine.

Speaker #2: EPS guidance is increasing from a range of $8.50 to $8.70 to a range of $8.80 to $8.95, or a growth of 9% to 11% year over year.

Anurag Maheshwari: However, tightening of inventory levels at several key retailers in H2 of June more than offset this positive momentum. The Q2 performance caps a strong H1, including organic sales growth of 3.3%, operating margin of 24.3%, and earnings growth of 12%, giving us confidence to raise our full-year guidance across all the financial metrics on slide nine. We are raising our organic growth expectations from 3% to greater than 3.5% for the year. This is a result of strong commercial momentum in our industrial businesses, supported by increased sales contribution from new product launches, which will more than offset the slight weakness in Consumer business. EPS guidance is increasing from a range of $8.50 to $8.70 to a range of $8.80 to $8.95, or a growth of 9% to 11% year over year.

Speaker #2: This increases both the low and high end of the guidance and reflects about a 27% increase at the midpoint. The increase in earnings versus the prior guidance is coming from stronger sales growth, productivity gains, and our capital deployment strategy.

Anurag Maheshwari: We are raising our organic growth expectations from 3% to greater than 3.5% for the year. This is a result of strong commercial momentum in our industrial businesses, supported by increased sales contribution from new product launches, which will more than offset the slight weakness in Consumer business. EPS guidance is increasing from a range of $8.50 to $8.70 to a range of $8.80 to $8.95, or a growth of 9% to 11% year over year.

Speaker #2: We now estimate oil inflation to be 150 to 175 million dollars, up from 125 million dollars previously. This impact is expected to be fully covered by the price actions we implemented in Q2.

Speaker #2: Though oil price cost is dollar-neutral, it impacts margin rate by 20 basis points, which we will mitigate through higher volume and better productivity, resulting in operating margin expansion in line with our prior expectations.

Speaker #2: Given the higher earnings growth and progress in working capital, we have increased our free cash flow guidance by 100 million dollars to a range of 4.7 to 4.9 billion dollars, implying conversion greater than 100%.

Anurag Maheshwari: This increases both the low and high end of the guidance and reflects about a $0.27 increase at the midpoint. The increase in earnings versus the prior guidance is coming from stronger sales growth, productivity gains, and our capital deployment strategy. We now estimate oil inflation to be $150 million to $175 million, up from $125 million previously. This impact is expected to be fully covered by the price actions we implemented in Q2. Though oil price cost is dollar neutral, it impacts margin rate by 20 basis points, which we will mitigate through higher volume and better productivity, resulting in operating margin expansion in line with our prior expectations. Given the higher earnings growth and progress in working capital, we have increased our free cash flow guidance by $100 million to a range of $4.7 billion to $4.9 billion, implying conversion greater than 100%.

Speaker #2: The updated guidance implies second half organic sales growth of high threes or better over two times macro, and margin expansion of about 100 basis points from the prior year resulting in EPS growth of approximately 30 cents at the midpoint.

Speaker #2: Sequentially, we expect operating profit to follow typical seasonality with similar phasing between the halves, while earnings will see an impact from tax timing. Turning to slide 10, I want to take a minute to highlight the progress we have made since our yesterday last year.

Anurag Maheshwari: Though oil price cost is dollar neutral, it impacts margin rate by 20 basis points, which we will mitigate through higher volume and better productivity, resulting in operating margin expansion in line with our prior expectations. Given the higher earnings growth and progress in working capital, we have increased our free cash flow guidance by $100 million to a range of $4.7 billion to $4.9 billion, implying conversion greater than 100%.

Speaker #2: We are at the halfway point, and with the strong 2025 foundation, and the updated 26 guidance, we are tracking ahead of investor day commitments across all metrics.

Speaker #2: Our growth trajectory continues to accelerate from commercial excellence and innovation, and we're on track to exceed the $1 billion above-macro commitment. Along with growth, we are seeing strong operating margin expansion and are tracking ahead of the approximately 25% margin rate by '27.

Anurag Maheshwari: The updated guidance implies H2 organic sales growth of high threes or better over 2 times macro, and margin expansion of about 100 basis points from the prior year, resulting in EPS growth of approximately $0.30 at the midpoint. Sequentially, we expect operating profit to follow typical seasonality with similar phasing between the halves, while earnings will see an impact from tax timing. Turning to slide 10. I want to take a minute to highlight the progress we have made since our Investor Day last year. We are at the halfway point, and with the strong 2025 foundation and the updated 2026 guidance, we are tracking ahead of Investor Day commitments across all metrics. Our growth trajectory continues to accelerate from commercial excellence and innovation and is on track to exceed the $1 billion above macro commitment.

Speaker #2: For earnings, we are trending to a double-digit CAGR, reflecting strong operational improvements coupled with below-the-line efficiency. And on cash, we expect to continue the strong trajectory, exceeding a cumulative cash commitment and $10 billion return to shareholders.

Speaker #2: Overall, we are pleased with the progress we are making and want to thank the team for the relentless focus determined pace and strong execution to drive long-term value for our shareholders.

Anurag Maheshwari: We are at the halfway point, and with the strong 2025 foundation and the updated 2026 guidance, we are tracking ahead of Investor Day commitments across all metrics. Our growth trajectory continues to accelerate from commercial excellence and innovation and is on track to exceed the $1 billion above macro commitment. Along with growth, we are seeing good operating margin expansion and are tracking ahead of the approximately 25% margin rate by 2027.

Speaker #2: With that, let's open the call for questions.

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.

Speaker #1: If you are using a speakerphone, please lift up on your handset before entering your request. Please limit your participation to one question and one follow-up.

Anurag Maheshwari: Along with growth, we are seeing good operating margin expansion and are tracking ahead of the approximately 25% margin rate by 2027. For earnings, we are trending to a double-digit CAGR, reflecting strong operational improvements coupled with below-the-line efficiency. On cash, we expect to continue the strong trajectory, exceeding our cumulative cash commitment and $10 billion return to shareholders. Overall, we are pleased with the progress we are making and want to thank the team for their relentless focus, determined pace, and strong execution to drive long-term value for our shareholders. With that, let's open the call for questions.

Anurag Maheshwari: For earnings, we are trending to a double-digit CAGR, reflecting strong operational improvements coupled with below-the-line efficiency. On cash, we expect to continue the strong trajectory, exceeding our cumulative cash commitment and $10 billion return to shareholders. Overall, we are pleased with the progress we are making and want to thank the team for their relentless focus, determined pace, and strong execution to drive long-term value for our shareholders. With that, let's open the call for questions.

Speaker #1: Our first question comes from the line of Jeff Sprague with Vertical Research. Please proceed with your question.

Speaker #3: Hey, thanks. Good morning, everyone. Hey, nice to see the top line here. Bill, I was wondering if you could just unpack this a little bit more.

Speaker #3: There's some great detail on these slides, but just kind of looking at the new product launches and the closely on track to what you thought, I believe, right?

Speaker #3: But the revenues are coming in better. So do we have a combination of just upside and new product revenue relative to plan? It sounds like cross-sells a little bit better.

Operator: 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 speakerphone, please lift up on your handset before entering your request. Please limit your participation to one question and one follow-up. Our first question comes from the line of Jeff Sprague with Vertical Research. Please proceed with your question.

Speaker #3: And then maybe, what role is reduced churn playing in all this? And I guess, really, what I want to get to at the end of the question is an algorithm of roughly two times macro.

Speaker #3: Do you view that as sort of a sustainable model for 3M going forward?

Speaker #2: Good morning, Jeff. That's a great question—thank you for that. We're very confident in where the growth happens to be. We came in stronger than we had expected in the quarter.

Speaker #2: It really is a combination of both commercial excellence and innovation excellence. The journey that we've been on for two years that has maturing I think very rapidly.

Jeff Sprague: Thanks. Good morning, everyone. Nice to see the top line here. Bill, I was wondering if you could just even unpack this a little bit more. There's some great detail on these slides, but just looking at the new product launches and the like, closely on track to what you thought, I believe, right? The revenues are coming in better. Do we have a combination of just upside in new product revenue relative to plan? It sounds like cross-sell is a little bit better. Then maybe what role reduced churn is playing in all this. I guess really what I want to get to at the end of the question is, an algorithm of roughly two times macro, do you view that as a sustainable model for 3M going forward?

Speaker #2: It's not really macro-tailored. The macro on the industrial side looks pretty good, but there are some headwinds in the marketplace. It's mostly just internal performance.

Speaker #2: And when you look at just the quarter, a little bit better than we had expected over the last 12 months at 3%, it's clearly trending above the macro. We think that's pretty good.

Speaker #2: Mostly driven in the first half from commercial excellence activities—a lot of the things we've laid out in the past around Salesforce effectiveness, better performance at the front end, and pricing governance.

Jeff Sprague: I guess really what I want to get to at the end of the question is, an algorithm of roughly two times macro, do you view that as a sustainable model for 3M going forward?

Speaker #2: We're putting a lot into our channel partners—joint business plans and cross-selling are much better. And on loyalty, we are improving on attrition. We've been tracking this very carefully over the last couple of years.

Anurag Maheshwari: Good morning, Jeff. That's a great question. Thank you for that. We're very confident in where the growth happens to be. We came in stronger than we had expected in the quarter. It's a combination of both commercial excellence and innovation excellence, the journey that we've been on for 2 years that is maturing, very rapidly. It's not really macro tailwind. Macro on the industrial side looks pretty good, but there are some headwinds in the marketplace. It's mostly just internal performance.

Bill Brown: Good morning, Jeff. That's a great question. Thank you for that. We're very confident in where the growth happens to be. We came in stronger than we had expected in the quarter. It's a combination of both commercial excellence and innovation excellence, the journey that we've been on for 2 years that is maturing, very rapidly. It's not really macro tailwind. Macro on the industrial side looks pretty good, but there are some headwinds in the marketplace. It's mostly just internal performance.

Speaker #2: We've seen about 200 basis points of improvement in attrition, primarily coming out of our SIBG business. It takes some time for that to turn, but it's starting to turn.

Speaker #2: It's still too high, but it's actually making some good improvements here. As we look to the back end of the year, we do see the innovation engine contributing even more in the back half.

Speaker #2: And in fact, even greater into 2027, based on just the momentum that we happen to be building here. So we feel pretty good. This year, we think we'll be about $450 million above macro in the full year—a little bit better than we thought last quarter, which was around $340–350 million.

Bill Brown: When you look at just the quarter, a little bit better than we had expected. Over the last 12 months at 3%, it's clearly trending above the macro, we think is pretty good. Mostly driven in H1 from commercial excellence activities. A lot of the things we've laid out in the past around sales force effectiveness, better performance at the front end, pricing governance. We're pushing a lot with our channel partners, joint business plans, cross-selling is much better. On loyalty, we are getting better on attrition. We've been tracking this very carefully over the last couple of years. We've seen about 200 basis points of improvement in attrition, primarily coming out of our SIBG business. It would take some time for that to turn, but it's starting to turn. It's still too high, but it's actually making some good improvements here.

Speaker #2: And that's largely on the back of good commercial excellence, but the machine churning faster on innovation. So all good signs, and we're very pleased with the performance in the quarter, and we expect our momentum to continue.

Speaker #3: Great. And then maybe just unrelated follow-up for Anurag. Madison, not included in the guide, although it's closed, is there some peculiarity we need to work through before we dial this in?

Bill Brown: We've been tracking this very carefully over the last couple of years. We've seen about 200 basis points of improvement in attrition, primarily coming out of our SIBG business. It would take some time for that to turn, but it's starting to turn. It's still too high, but it's actually making some good improvements here. As we look to the back end of the year, we do see the innovation engine contributing even more in H2, and in fact, even greater into 2027, based on the momentum that we happen to be building here.

Speaker #3: Just curious on why that wasn't included and are we looking at a lower tax rate for the year? Thanks.

Speaker #2: Great. Well, thanks for the question, Jeff. We just wanted to provide an apples-to-apples guidance from our last call so that we can see how our organic performance has impacted overall revenue, EPS, and cash.

Speaker #2: We have a page at the back of the webcast that has the revenue margin and other information on Madison. It does not have a material impact to the EPS guidance range, or the numbers, and will incorporate that in our third-quarter call.

Bill Brown: As we look to the back end of the year, we do see the innovation engine contributing even more in H2, and in fact, even greater into 2027, based on the momentum that we happen to be building here. We feel pretty good this year. We think we'll be about $450 million above macro in the full year. A little bit better than we thought last quarter, around $340 to 350 million, and that's largely on the back of good commercial excellence, but the machine churning faster on innovation. All good signs, and we're very pleased with the performance in the quarter, and we expect the momentum to continue.

Speaker #2: And just for tax, we still plan to be around 20% for the year.

Bill Brown: We feel pretty good this year. We think we'll be about $450 million above macro in the full year. A little bit better than we thought last quarter, around $340 to 350 million, and that's largely on the back of good commercial excellence, but the machine churning faster on innovation. All good signs, and we're very pleased with the performance in the quarter, and we expect the momentum to continue.

Speaker #3: Great. Thank you.

Speaker #1: Thank you. Our next question comes from the line of Scott Davis with Melius Research. Please proceed with your question.

Speaker #4: Hey, good morning, guys.

Speaker #2: Good morning, Scott.

Speaker #4: This expanded beam optical thing seems interesting, and what I'm trying to get a sense of, I guess, is a couple of things. One is really materiality and how that scales out.

Jeff Sprague: Great. Maybe just unrelated follow-up for Anurag. Madison not included in the guide, although it's closed. Is there some peculiarity we need to work through before we dial this in? Just curious on why that wasn't included, and we're looking at the lower tax rate for the year. Thanks.

Speaker #4: And it looks like it was launched with Microsoft as kind of the partner. So, is there an opportunity for that to scale across more hyperscalers, and how do you think about that?

Anurag Maheshwari: Well, thanks for the question, Jeff. No, we just wanted to provide an apple-to-apple guidance from our last earnings call so that we can see how our organic performance has impacted our revenue, EPS, and cash. We have a page at the back of the webcast that has the revenue margin and other information on Madison. It does not have a material impact to the EPS guidance range or the numbers, and we'll incorporate that in our Q3 call. Just for tax, we still plan to be around 20% for the year.

Speaker #4: I'll just leave that as a little bit of an open-ended to help us understand where the upside is in that market.

Speaker #2: So, Scott, thanks for the question. Yeah, it's getting quite a bit of excitement, and we're excited internally as well. It's been a technology that was developed several years ago, just in a nutshell.

Speaker #2: It's very durable, dust-resistant, vibration-resistant. Fiber optic connecting technology. We've proven with the hyperscaler that it can reduce by about 85% the time to revenue, time to install circuits in a data center.

Jeff Sprague: Great. Thank you.

Speaker #2: We've got about 100 patents in the space, with 50 pending. So it's very well protected, and we're very excited about this. It's been in testing for several years.

Operator: Thank you. Our next question comes from the line of Scott Davis with Melius Research. Please proceed with your question.

Scott Davis: Hey, good morning, guys.

Bill Brown: Good morning, Scott.

Speaker #2: With Microsoft, we're very pleased that they have qualified us for as a technology for the resort data centers that's very encouraging. The revenue this year is in the 40, 50 million dollar range.

Anurag Maheshwari: Good morning.

Scott Davis: This expanded beam optical thing seems interesting. I'm trying to get a sense, I guess, of a couple things. One is really materiality and how that scales out. It looks like it was launched with Microsoft as kind of the partner. Is there an opportunity for that to scale across more hyperscalers and how do you think about that? I'll just leave that as a little bit of an open-ended to help us understand where the upside is in that market.

Speaker #2: We do think it will scale over time. Could be four or five next hour, even more over the next several years, depending upon our progress here as well as the adoption of optical technologies in data centers as that transitions.

Speaker #2: A couple of things are happening here. One, as we continue to develop the technology, each hyperscaler has some uniqueness in their architecture. So that's got to be developed.

Bill Brown: Scott, thanks for the question. Yeah, it's getting quite a bit of excitement, and we're excited internally as well. It's been a technology that's developed several years ago. Just in a nutshell, it's a very durable, dust resistant, vibration resistant, fiber optic connection technology. We've proven with a hyperscaler that it can reduce by about 85% the time to revenue, time to install circuits at a data center. We've got about 100 patents in this space, 50 pending. It's very well protected, and we're very excited about this. It's been in testing for several years with Microsoft. We're very pleased that they have qualified us as a technology for the Azure data centers. That's very encouraging. The revenue this year is in the $40, $50 million range. We do think it will scale over time.

Speaker #2: We've got to scale it, both internally and externally. And earlier this year, we announced that we would double our capacity on EBO this year and another doubling over the next year to 18 months.

Speaker #2: But even that is nowhere near the volume demand in the marketplace. So we're also working with various contract manufacturers. We're pretty developed on one.

Speaker #2: The third item in this is that we will not be successful as a sole provider here. This is about enabling an ecosystem of partners.

Speaker #2: So we formed a multi-supplier agreement. There are 44 players in this agreement, all throughout the ecosystem. There are multiple hyperscalers, chip manufacturers, connector manufacturers. And it's about, how do you enable the whole ecosystem?

Bill Brown: It's been in testing for several years with Microsoft. We're very pleased that they have qualified us as a technology for the Azure data centers. That's very encouraging. The revenue this year is in the $40, $50 million range. We do think it will scale over time. Could be four or 5x that or even more over the next several years, depending upon our progress here, as well as the adoption of optical technologies in data centers as that transitions. A couple of things are happening here.

Speaker #2: So all of those things are in place. We're deep in the trials with other hyperscalers. I won't say much more about that. But the TAM this year for EBO technologies is around $1 billion.

Bill Brown: Could be four or 5x that or even more over the next several years, depending upon our progress here, as well as the adoption of optical technologies in data centers as that transitions. A couple of things are happening here. One, as we continue to develop the technology, each hyperscaler has some uniqueness in their architecture. That's got to be developed. We've got to scale it, both internally and externally. Earlier this year, we announced that we would double our capacity on EBO this year and another doubling over the next year to 18 months. Even that isn't anywhere near the volume demand in the marketplace. We're also working with various contract manufacturers who are pretty developed on one. The third item of this is that we will not be successful as a sole provider here. This is about enabling an ecosystem of partners.

Speaker #2: We think it'll grow to $2 billion by 2028. It could be beyond that over time. But again, we've got to be very successful in how we scale this product and make sure we've got good quality, deliver on time, all those basic pieces.

Bill Brown: One, as we continue to develop the technology, each hyperscaler has some uniqueness in their architecture. That's got to be developed. We've got to scale it, both internally and externally. Earlier this year, we announced that we would double our capacity on EBO this year and another doubling over the next year to 18 months. Even that isn't anywhere near the volume demand in the marketplace. We're also working with various contract manufacturers who are pretty developed on one.

Speaker #2: But we're very encouraged about the progress that we're on, the results that we're seeing. The team's done a great job here, and we're optimistic about the growth in the space.

Speaker #4: Okay. That's helpful. And then just a quick follow-up. I kind of came up on China, but it sounds like China could potentially be a growth engine for you guys again.

Speaker #4: Is that an exaggeration, or how do you view the short, medium, long-term kind of China market today versus maybe when you took over the job?

Bill Brown: The third item of this is that we will not be successful as a sole provider here. This is about enabling an ecosystem of partners. We formed a multi-supplier agreement. There's 44 players in this agreement. All throughout the ecosystem, there's multiple hyperscalers, chip manufacturers, connector manufacturers, and it's about how do you enable the whole ecosystem. All of those things are in place. We're deep into trials with other hyperscalers. I won't say much more about that. The TAM this year for EBO Technologies is around $1 billion.

Speaker #2: Yeah, yeah. Good question, Scott. I mean, look, we've been pretty consistent that China's been a very special market for us. It's performing really well.

Bill Brown: We formed a multi-supplier agreement. There's 44 players in this agreement. All throughout the ecosystem, there's multiple hyperscalers, chip manufacturers, connector manufacturers, and it's about how do you enable the whole ecosystem. All of those things are in place. We're deep into trials with other hyperscalers. I won't say much more about that. The TAM this year for EBO Technologies is around $1 billion. We think it'll grow to 2 by 2028, $2 billion. It could be beyond that over time. Again, we've got to be very successful in how we scale this product and make sure we've got good quality, deliver on time, all those basic pieces. We're very encouraged about the progress that we're on, the results that we're seeing. The team's done a great job here, and we're optimistic about the growth in the space.

Speaker #2: We've got a great team. On the ground, we've organized a little bit differently and uniquely there as well as in India—sort of a hybrid organizational model.

Speaker #2: We have global business groups, but we stood up a team focused on China-based in China. Same thing in India. And we're seeing the results.

Speaker #2: In the second quarter, we were a double-digit growth, first half about 8%. A lot of the performance there, keep in mind, again, we're 50/50 between domestic production and export.

Bill Brown: We think it'll grow to 2 by 2028, $2 billion. It could be beyond that over time. Again, we've got to be very successful in how we scale this product and make sure we've got good quality, deliver on time, all those basic pieces. We're very encouraged about the progress that we're on, the results that we're seeing. The team's done a great job here, and we're optimistic about the growth in the space.

Speaker #2: The domestic economy, from an industrial perspective, remains pretty solid in China, and we're performing well. A lot of it is localizing NPI, and a lot of it is commercial execution on the ground.

Speaker #2: The team is doing a fantastic job. We have more than 5,000 people there, six factories. And again, we're developing more localized technology. The export is the other 50% of the business.

Scott Davis: Okay. That's helpful. Just a quick follow-up. I'd kind of given up on China, it sounds like China could potentially be a growth engine for you guys again. Is that an exaggeration, or how do you view the short, medium, long term China market today versus maybe when you took over the job a few years back?

Speaker #2: That part of the economy has done pretty well. And we feel pretty good about the results. And we'll continue to press it every quarter as we are in Q3 and the back end of the year.

Speaker #2: But long term, we like our position in China. We like the team that's executing in China, the strategy. And we're pretty optimistic about the future in China.

Speaker #4: Sounds good. Best of luck, guys. Thank you.

Bill Brown: Good question, Scotty. Look, we've been pretty consistent that China's been a very special market for us with this performing really well. We've got a great team on the ground. We've organized a little bit differently and uniquely there as well as in India, sort of a hybrid organizational model. We have global business groups. We stood up a team focused on China based in China, same thing in India, and we're seeing the results. In Q2, we were double-digit growth, H1 about 8%. A lot of the performance there, keep in mind again, we're 50/50 between domestic production and export. The domestic economy from an industrial perspective remains pretty solid in China and we're performing well. A lot of it is localizing NPI and a lot of it is commercial execution on the ground. The team is doing a fantastic job.

Speaker #2: Thank you.

Speaker #1: Thank you. Our next question comes from the line of Ahmed Mehrotra with UBS. Please proceed with your question.

Speaker #5: Thanks. Morning, Phil, Anurag. I was just hoping to get a little bit more color on NPI—in terms of when you typically expect these new products to sort of really inflect. I'm sure it takes a few quarters, or maybe a year or two. And then, anything within the NPI in terms of are these truly new products, or increasingly so new products, or, I know what you call class three products or refresh products—any stop there?

Bill Brown: A lot of the performance there, keep in mind again, we're 50/50 between domestic production and export. The domestic economy from an industrial perspective remains pretty solid in China and we're performing well. A lot of it is localizing NPI and a lot of it is commercial execution on the ground. The team is doing a fantastic job.

Speaker #5: And then I think there was this expectation that maybe $600 million of outgrowth next year, on year three of the plan. Is that still the way to think about the outgrowth from a lot of these actions?

Bill Brown: We have more than 5,000 people there, six factories, and again, we're developing more localized technology. The export is the other 50% of the business. That part of the economy has done pretty well, and we feel pretty good about the results, and we'll continue to press it every quarter as we were in Q3 in the back end of the year. Long term, we like our position in China, we like the team that's executing in China, the strategy, and we're pretty optimistic about the future in China.

Speaker #5: Thank you.

Speaker #2: So, Ahmed, a bunch of questions. First, on the last piece around the outgrowth next year. I mean, look, this year, we originally said we would be a billion over the macro, 125, 326, and 627.

Speaker #2: And clearly, last year, we did a bit better than 100. This year, we'll do more than 300 to around 450. So that's continued to ramp.

Speaker #2: So, we'll come back early next year and talk about next year. But clearly, we're performing better than the macro. And it's both commercial excellence as well as in innovation or NPI.

Scott Davis: Sounds good. Best of luck, guys. Thank you.

Bill Brown: Thank you.

Speaker #2: Look, on NPI, the progress has been fantastic. And the chart that we put into the webcast is a very important one. It shows this very deep inflection.

Operator: Thank you. Our next question comes from the line of Amit Mehrotra with UBS. Please proceed with your question.

Speaker #2: And we're clearly on the right track here. Typically, we would launch a product within about 250 days from the beginning of development to launch. This is down substantially from where it was two years ago.

Amit Mehrotra: Thanks. Morning. Phil, Anurag, I was just hoping to get a little bit more color on NPI in terms of when you typically expect these new products to sort of really inflect. I'm sure it takes a few quarters or maybe a year or two. Anything within the NPI in terms of are these truly new products or increasingly still new products or I know what you call Class 3 products or refresh products? Any thought there? I think there was this expectation that maybe $600 million of outgrowth next year on year three of the plan. Is that still the way to think about the outgrowth from a lot of these actions? Thank you.

Speaker #2: By 27, it's going to around 20% reduction in overall cycle time. But there's some nuances in the data here. We're launching more class threes, which are shorter in duration.

Speaker #2: They're more incremental. But the company is pivoting more to what we call class fours and class fives. And class fours are those that move into adjacent markets.

Amit Mehrotra: I think there was this expectation that maybe $600 million of outgrowth next year on year three of the plan. Is that still the way to think about the outgrowth from a lot of these actions? Thank you.

Speaker #2: And Class Fives are completely new products for the markets we're going into. So the team is focusing more on the Fours and Fives. You'll see more impact in the back half of the year, as those products that we started to work on a few years ago start to launch this year and become meaningful in the back half.

Bill Brown: Amit, a bunch of good questions. First on the last piece around the outgrowth next year. I mean look, this year we originally said we would be $1 billion over the macro, $125, $326, and $627. Clearly last year we did a bit better than $100. This year we'll do more than $300 around $450. That continues to ramp. We'll come back early next year and talk about next year. Clearly we're performing better than the macro. It's both commercial excellence as well as in innovation or NPI. Look, on NPI, the progress has been fantastic. The chart that we put into the webcast is a very important one. It shows this very deep inflection and we're clearly on the right track here. We typically would launch a product within about from the beginning of development to launch is running around 250 days.

Speaker #2: There’ll be even more meaningful impact into 2027. But the engine's moving, the momentum is really building, the team is executing, I think, fantastically well across all these various dimensions. They're launching more, but there are more ideas coming into the front end of the funnel.

Speaker #2: So the health of the pipeline is very good. So I think this will continue to build momentum in the back half into next year.

Speaker #2: So it's what we're known for, material science, and and driving using material science to make differences in the world. And I think we're doing a good job with that.

Bill Brown: The chart that we put into the webcast is a very important one. It shows this very deep inflection and we're clearly on the right track here. We typically would launch a product within about from the beginning of development to launch is running around 250 days. It's down substantially than where it was two years ago. By 2027, it's going to around 20% reduction in overall cycle time. There's some nuances in the data here. We're launching more Class 3s, which are shorter in duration. They're more incremental.

Speaker #5: Okay. That's very helpful. Thanks, Phil. And just as a quick follow-up, when we started I remember at the analyst stand, I I mean, the story originally was really about sort of getting the gross margin from the low 40s to the high 40s, where you guys used to be.

Bill Brown: It's down substantially than where it was two years ago. By 2027, it's going to around 20% reduction in overall cycle time. There's some nuances in the data here. We're launching more Class 3s, which are shorter in duration. They're more incremental. The company is pivoting more to what we call Class 4s and Class 5s. Class 4s are those that move into adjacent markets, and Class 5s are completely new products for new markets going into. The team is focusing more on the 4s and 5s. You'll see more impact in the back half of the year as those products that we started to work on a few years ago start to launch this year and become meaningful in the back half. They'll be even more meaningful into 2027. The engine's moving. The momentum is really building.

Speaker #5: And obviously, with tariffs and all the developments that have happened, you've still been able to move the needle on the operating margin line, much to your credit, despite gross margin being sort of stuck in the very low 40s.

Bill Brown: The company is pivoting more to what we call Class 4s and Class 5s. Class 4s are those that move into adjacent markets, and Class 5s are completely new products for new markets going into. The team is focusing more on the 4s and 5s. You'll see more impact in the back half of the year as those products that we started to work on a few years ago start to launch this year and become meaningful in the back half. They'll be even more meaningful into 2027. The engine's moving. The momentum is really building.

Speaker #5: Is there an opportunity do you think structurally, at least, with all that we know now, can still get back to the high 40% margin on gross margin?

Speaker #5: If you can just sort of talk about that, just given all the structural dynamics that have occurred over the last couple of years.

Speaker #2: So, Ahmed, on margins—I mean, you can see the chart—we're up 500 basis points from a couple of years ago. So we are making really strong progress here.

Speaker #2: And it's gross margin, but also, importantly, in SG&A and IT and other kinds of expenses—indirect costs. We've talked about that quite a bit.

Speaker #2: There was more to squeeze in that area, more cost to take out than we'd anticipated. And we've done a good job. On gross margins, we're tracking close to the mid-40s right now.

Bill Brown: The team is executing, I think, fantastically well across all these various dimensions. We're launching more, but there's more ideas coming into the front end of the funnel. The health of the pipeline is very good. I think this will continue to build momentum in the back half and into next year. It's what we're known for, material science and using material science to make differences in the world, and I think we're doing a good job with that.

Speaker #2: I mean, the company has done a good job. Productivity is really solid. We had great productivity in the quarter, and we continue to build momentum.

Speaker #2: I give you sort of the metrics around that. We are reducing our cost per quality. That came down again. Our operating equipment effectiveness is coming up.

Speaker #2: We're driving hard on procurement. We're receiving net savings even after inflation. Four-wall spend—we've doubled the number of Kaizen events inside the company.

Amit Mehrotra: Okay. That's very helpful. Thanks, Phil. Just as a quick follow-up, when we started, I remember at the Investor Day, I mean, the story originally was really about sort of getting the gross margin from the low 40s to the high 40s where you guys used to be. Obviously with tariffs and all the developments that have happened, you've still been able to move the needle on the operating margin line, much to your credit, despite gross margin being stuck in the very low 40s. Is there an opportunity, do you think, structurally at least, with all that we know now, we can still get back to the high 40% margin on gross margin? If you can just sort of talk about that, just given all the structural dynamics that have occurred over the last couple of years.

Speaker #2: Look, there's a ton of opportunity here just running the network—the distribution side—better than as it exists today. The next step, really, as we transform, is simplifying, standardizing, and automating more of our processes, both on our SG&A side.

Amit Mehrotra: Obviously with tariffs and all the developments that have happened, you've still been able to move the needle on the operating margin line, much to your credit, despite gross margin being stuck in the very low 40s. Is there an opportunity, do you think, structurally at least, with all that we know now, we can still get back to the high 40% margin on gross margin? If you can just sort of talk about that, just given all the structural dynamics that have occurred over the last couple of years.

Speaker #2: I talked a little bit about that in the prepared remarks, but also on the factory side, the network side, there's plenty of headroom here in front of us.

Speaker #2: We see ourselves marching ahead with an ability to hit the high 40s over time. But the roadmap is relatively clear; it's along the same lines we've been laying out and talking about over the last couple of years.

Bill Brown: Look, Amit, on margins, you can see the chart. Up 500 basis points from a couple of years ago. We are making really strong progress here, and it's both gross margin, but also importantly in SG&A and IT and other kinds of expenses, indirect costs. We've talked about that quite a bit. There was more to squeeze in that area, more cost to take out than we'd anticipated, and we've done a good job. On gross margins, we're tracking close to mid-40s right now. The company has done a good job. Productivity is really solid. We had great productivity in the quarter. We continue to build momentum. I give you sort of the metrics around that. We are reducing our Cost of Quality. That came down again. Our Operating Equipment Effectiveness is coming up. We're driving hard on procurement. We're seeing net savings even after inflation.

Speaker #2: And as we get into transformation, we'll see margins continue to expand. So, we feel good about the performance and are optimistic about the future on margins.

Speaker #5: Great. Thank you very much. I appreciate it.

Speaker #1: Thank you. We'll go next to the line of Nigel Coe with BULL Research. Please proceed with your question.

Speaker #4: Thanks. Good morning, everyone. So quite a different pick order. I think Bill or Anurag, you mentioned last quarter you started off quite weak and it got better through the through one Q.

Bill Brown: We had great productivity in the quarter. We continue to build momentum. I give you sort of the metrics around that. We are reducing our Cost of Quality. That came down again. Our Operating Equipment Effectiveness is coming up. We're driving hard on procurement. We're seeing net savings even after inflation. Four-wall spend, we've doubled the number of Kaizen events inside the company. Look, there's a ton of opportunity here just running the network, the distribution side better than as it exists today.

Speaker #4: I'm just wondering how the 5.4% looked from April through June. Did we start off stronger, get weaker, any cut out there? And then, any updates on how orders and maybe backlog ended the quarter?

Bill Brown: Four-wall spend, we've doubled the number of Kaizen events inside the company. Look, there's a ton of opportunity here just running the network, the distribution side better than as it exists today. The next step really as we transform is simplifying, standardizing, automating more of our processes both on our SG&A side, I talked a bit about that in the prepared remarks, but also on the factory side, the network side. There is plenty of headroom here in front of us. We see ourselves marching ahead and with an ability to hit the high 40s over time. The roadmap is relatively clear. It's along the same lines we've been laying out and talking about over the last couple of years. As we get into transformation, we'll see margins continue to expand. We feel good about the performance and optimistic about the future on margins.

Speaker #2: Yeah. Hey, good morning, Nigel. It was quite good throughout the course of the quarter. It was more linear than we've typically seen. As you said, we started the quarter with a very good backlog.

Bill Brown: The next step really as we transform is simplifying, standardizing, automating more of our processes both on our SG&A side, I talked a bit about that in the prepared remarks, but also on the factory side, the network side. There is plenty of headroom here in front of us. We see ourselves marching ahead and with an ability to hit the high 40s over time.

Speaker #2: If I look at April and May, it was probably 600 basis points better relative to the other first two months of prior quarters. So it was quite good as we went into the first two months of the quarter.

Speaker #2: And June, the order momentum kind of sustained as well, because we did add price increases, which came into effect from May 1st. But just through the course of the quarter, we saw very good linearity, and the team executed very well to post a 5.4% growth.

Bill Brown: The roadmap is relatively clear. It's along the same lines we've been laying out and talking about over the last couple of years. As we get into transformation, we'll see margins continue to expand. We feel good about the performance and optimistic about the future on margins.

Speaker #2: We did see similar, as I said, order momentum in the second quarter—like the first quarter—which strengthened the industrial side of the business.

Speaker #2: So, orders were up about 10% for the quarter, and backlog was up close to 20% year over year. So, as we get into Q3, we feel good.

Amit Mehrotra: Great. Thank you very much. Appreciate it.

Speaker #2: Visibility for this Q3 and the second half of the year. Obviously, 75% of our business is book and chip. So we have to monetarize as we go along.

Operator: Thank you. We'll go next to the line of Nigel Coe with Wolfe Research. Please proceed with your question.

Speaker #2: But so far, the first two weeks, orders and backlog look good.

Nigel Coe: Thanks. Good morning, everyone. Quite a different pick order. I think, Bill or Anurag, you mentioned last quarter started off quite weak and it got better through Q1. I'm just wondering how the 5.4% looked from April through June. Did we start off stronger, got weaker? Any color there, and any updates on how orders and maybe backlog exited the quarter?

Speaker #4: That's great. That's really encouraging. And my next question is really, you mentioned the consumer channel de-stock in the second half of June. So just wondering, how long do you think this de-stock will happen?

Speaker #4: Any intel on how Nvidia's look for 3M products? And then, any color on how inventory is looking in SIBG and T&E? And selling the sales recovery would be helpful as well.

Anurag Maheshwari: Good morning, Nigel. It was quite good throughout the course of the quarter. It was more linear than we've typically seen. As you said, we started the quarter with very good backlog. If I look at April and May, it was probably 600 basis points better relative to other first two months of prior quarters. It was quite good as we went into the first two months of the quarter. June, the order momentum kind of sustained as well because we did our price increases, which came with effect from 1 May. Just through the course of the quarter, we saw very good linearity, and the team executed very well to post a 5.4% growth. We did see similar, as I said, order momentum in Q2, like Q1, which strengthened the industrial side of the business.

Speaker #2: So inventory levels in SIBG and TEBG are normal. There's no discernible trend one way or another—not a concern. On CBG, I think what was encouraging is to continue to see the point, which is how growth or sell-out growth was around 2.5% in the quarter, which was very positive.

Speaker #2: We felt good about that. It was really isolated to a couple of retailers, and we saw them step back a little bit in the U.S. channel, step back a little bit in terms of weak supply.

Anurag Maheshwari: Just through the course of the quarter, we saw very good linearity, and the team executed very well to post a 5.4% growth. We did see similar, as I said, order momentum in Q2, like Q1, which strengthened the industrial side of the business. Our orders were up about 10% for the quarter and backlog close to 20% up year-over-year. As we get into Q3, we feel good visibility for Q3 and H2 of the year. Obviously, 75% of our business is book and ship, so we have to monitor as we go along. So far, the first two weeks, orders and backlog look good.

Speaker #2: It was about a one-week delta. As we come into July and into Q3, we think this will normalize here, especially as retailers stock for the back-to-school season, but we'll keep monitoring it and communicate with investors as we need.

Anurag Maheshwari: Our orders were up about 10% for the quarter and backlog close to 20% up year-over-year. As we get into Q3, we feel good visibility for Q3 and H2 of the year. Obviously, 75% of our business is book and ship, so we have to monitor as we go along. So far, the first two weeks, orders and backlog look good.

Speaker #2: But we feel it's going to normalize here and help us in the back half. Consumer to be flat and up slightly is what our expectation would be in the back half of the year.

Speaker #4: That's great. Thanks, Bill.

Speaker #1: Thank you. Our next question comes from the line of Chigusa Kotoku with JP Morgan. Please proceed with your question.

Speaker #3: Good morning. Congrats on the great quarter, and thanks for taking my question. My first question is on organic growth. You raised your organic growth guidance nicely, but it still implies some deceleration in the second half from the strong second quarter levels.

Nigel Coe: That's great. That's really encouraging. My next question is really, you mentioned the consumer channel destock in H2 of June. Just wondering how long do you think this destock will happen? Any intel on how inventories look for 3M products? Any color on how inventories are looking in SIBG and T&E, and sell-through color would be helpful as well.

Speaker #3: I think pricing should come through, and you have some EBO delivery schedules on the back end. So what's driving this—is it consumer and electronics, the timing of deliveries, or is this prudence?

Speaker #2: Chigusa, thank you. I mean, look, it's a good question. The fact is, the second half will be accelerating from the first half. You mentioned specifically Q2, but it does continue to accelerate.

Bill Brown: Inventory levels in SIBG and TEBG are normal. There's no discernible trend one way or another. Not a concern. On CBG, look, I think what was encouraging is to continue to see the point-of-sale growth or sell-out growth around 2.5% in the quarter, which was very positive. We felt good about that. It was really isolated to a couple of retailers, and we saw them step back a little bit in the US channel, step back a little bit in terms of weeks of supply. It was about a one-week delta. As we come into July and into Q3, we think this will normalize here, especially as retailers stock for back to school season. We'll keep monitoring it and communicate with investors as we need.

Speaker #2: There are some positives here. We continue to see good momentum in general industrial safety. We see semi, data center, and A&D can remain pretty strong. Anurag communicated about the roofing granules.

Speaker #2: Business is not very big, but we see some improvements in the back half on easier comps, and we do see some tailwind on pricing.

Speaker #2: For the year, we'll be about a point and a half, which implies about two points in the back half. So all those things give us encouragement in the back half.

Bill Brown: As we come into July and into Q3, we think this will normalize here, especially as retailers stock for back to school season. We'll keep monitoring it and communicate with investors as we need. We feel it's going to normalize here and help us in H2 of consumer to be flat to up slightly, is what our expectation would be in H2 of the year.

Speaker #2: Look, the watch items are: number one is going to be consumer electronics. The market data indicates a deteriorating production volume of devices—PCs, tablets—in the back half of the year.

Bill Brown: We feel it's going to normalize here and help us in H2 of consumer to be flat to up slightly, is what our expectation would be in H2 of the year.

Speaker #2: Expected to be down high teens, as lowest than it was in the first half. So that's a watch area. Auto is stabilizing in general for us, but it's still expected to be down on the build rate year-over-year in the back half.

Nigel Coe: That's great. Thanks, Bill.

Operator: Thank you. Our next question comes from the line of Chigusa Katoku with JP Morgan. Please proceed with your question.

Operator: Thank you. Our next question comes from the line of Chigusa Katoku with JPMorgan. Please proceed with your question.

Speaker #2: The auto aftermarket business, we still think, is going to be soft. Repair claims are still expected to be down in the back half of the year.

Chigusa Katoku: Morning. Congrats on a great quarter, and thanks for taking my question. My first question is on organic growth. You've raised your organic growth guidance nicely, but it still implies some deceleration in H2 from the strong Q2 levels. I think pricing should come through when you have some of your delivery schedules on the back end. What's driving this? Is this consumer and electronics or the timing of deliveries, or is this prudence?

Speaker #2: And look, the US consumer remains cautious. As I just commented, we do expect flat to up growth in consumer in the back half, but the consumer remains—those are the things that we're more cautious about.

Speaker #2: But at the end of the day, we anticipated being above five in Q2; rather, we came in above five. We do expect good momentum going into the back half of the year.

Speaker #3: Great, thanks so much for the color. Then, as a follow-up, I just was wondering if you could give a little bit more color on what drove the strength and margins this quarter.

Bill Brown: Chigusa, thank you. Look, it's a good question. The fact is H2 will be accelerating from H1. You mentioned specifically Q2, but it does continue to accelerate. There's some positives here. We continue to see good momentum in general industrial, safety. We see semis, data center, A&D remains pretty strong. Anurag communicated about the roofing granules business, not very big, but we see some improvements in H2 on easier comps. We do see some tailwind on pricing. For the year, we'll be up about a point and a half, which implies about 2 points in H2. All those things give us encouragement in H2. Look, the watch items are, number 1, is going to be consumer electronics.

Speaker #3: Is it mixed price-cost or productivity? You're pretty much at your 2027 margin target right now in the second quarter, so when should we expect to hear about updated targets?

Speaker #2: Okay. Hey, thanks for the question. So, we finished the quarter at a 24.9% margin, which is the highest we've ever been. And this was 40 basis points higher than we thought we would be. A large part of it was the volume performance—relative to the 3%, we came in over 5%.

Speaker #2: But it was also continuation on the productivity side as a combination of both GNA and on the supply chain, which had actually very good productivity for the quarter.

Bill Brown: For the year, we'll be up about a point and a half, which implies about 2 points in H2. All those things give us encouragement in H2. Look, the watch items are, number 1, is going to be consumer electronics. The market data indicates a deteriorating production volume of devices, PCs, tablets in H2, expected to be down high teens is worse than it was in H1. That's a watch area. Auto is stabilizing in general for us, but it's still expected to be down on the build rate year-over-year in H2.

Speaker #2: So, I would say it's broad-based between volume and productivity.

Bill Brown: The market data indicates a deteriorating production volume of devices, PCs, tablets in H2, expected to be down high teens is worse than it was in H1. That's a watch area. Auto is stabilizing in general for us, but it's still expected to be down on the build rate year-over-year in H2. The auto aftermarket business, we still think was going to be soft. Repair claims is still expected to be down in H2. Look, the US consumer remains cautious. As I just commented, we do expect flat to up growth in consumer in H2, but the consumer remains. Those are the things that we're more cautious about. At the end of the day, we had anticipated being. Came in about Q2 rather, we came in about 5%.

Speaker #3: Okay. Great. Thanks for the color.

Speaker #1: Thank you. Our next question comes from the line of Chris Snyder with Morgan Stanley. Please proceed with your question.

Speaker #5: Thank you. I wanted to follow up on the data center conversation, specifically the EBO opportunity. I think you said that this could be a $2 billion market by 2028.

Bill Brown: The auto aftermarket business, we still think was going to be soft. Repair claims is still expected to be down in H2. Look, the US consumer remains cautious. As I just commented, we do expect flat to up growth in consumer in H2, but the consumer remains. Those are the things that we're more cautious about. At the end of the day, we had anticipated being. Came in about Q2 rather, we came in about 5%. We do expect good momentum going into H2.

Speaker #5: I'm just kind of curious, what is the competitive environment here? Just as we try to think about what share of that $2 billion market could accrue to 3M, it feels like a new technology that I would think the company is well positioned for from a share perspective.

Speaker #5: But just any color on that? Thank you.

Speaker #2: Yeah, Chris, look, it's a good question. We do play today inside the data center in a couple of ways. We play on sort of copper networking with our twin-ax product sold into data centers.

Bill Brown: We do expect good momentum going into H2.

Chigusa Katoku: Great. Thanks so much for the color. As a follow-up, I just was wondering if you could give a little bit more color on what drove the strength in margins this quarter. Is it mix, price cost or productivity? You're pretty much at your 2027 margin target right now in Q2, so when should we expect to hear about updated targets?

Speaker #2: There is a gradual transition from copper to fiber that's happening. It's across the data center, across the racks. It eventually will start to move down to the chip, which today is mostly copper-based solutions.

Speaker #2: So we've been playing on the copper side. And optics is going to become a bigger share over time of networking in the data centers.

Anurag Maheshwari: Okay. Thanks for the question. We finished the quarter at 24.9% margin, which is the highest we've ever been. This was 40 basis points higher than we thought where we would be. A large part of it was the volume performance relative to the 3%, it came in over 5%, but it was also continuation on the productivity side as a combination of both G&A and on the supply chain, which had actually very good productivity for the quarter. I would say it's broad-based between volume and productivity.

Speaker #2: Typically, fiber optic connections are point-to-point. It's very difficult to do that. The ends have to be polished—specialized labor. It takes time. It takes effort.

Speaker #2: And when you think about billions of individual fiber strands being connected in data centers, the market is looking for better solutions here, and EBO connections allow them to do this more quickly, seamlessly, and more reliably.

Chigusa Katoku: Okay, great. Thanks for the color.

Speaker #2: And I think that's kind of an important differentiator. As I mentioned earlier, we've got substantial patent protection around the technology, 100 patents today with another 50 that are pending.

Operator: Thank you. Our next question comes from the line of Chris Snyder with Morgan Stanley. Please proceed with your question.

Chris Snyder: Thank you. I wanted to follow up on the data center conversation, specifically the EBO opportunity. I think you said that this could be a $2 billion market by 2028. I'm just kind of curious, what is the competitive environment here? Just as we try to think about what share of that $2 billion market could accrue to 3M. It feels like a new technology that I would think the company is well positioned from a share perspective, but just any color on that. Thank you.

Speaker #2: But we are, we have, and we will continue to license other ecosystem players to manufacture that technology—EBO, expanded beam optics technology—because that's required by hyperscalers.

Speaker #2: There's no one company or supplier that would provide all of the demand for these hyperscalers—whether it be servers, chips, racks, or whatever it happens to be—including EBO connectors.

Speaker #2: So that's the path that we're on. We've got a small share today—again, it's in the $40–50 million range of a billion dollars.

Speaker #2: But over time, given our technology, the momentum we think we're building here and our ability to scale, we think our share in that segment will grow materially.

Bill Brown: Yeah, Chris, look, it's a good question. We do play today inside the data center in a couple of ways. We play on sort of copper networking, with our TwinAx product sold into data centers. There is a gradual transition from copper to fiber that's happening. It's across the data center, across the racks. It eventually will start to move down to the chip, which today is mostly copper-based solutions. We've been playing on the copper side, and optics is going to become a bigger share over time of networking in the data centers. Typically, fiber optic connections are point to point. It's very difficult to do that. The ends have to be polished. It's specialized labor. It takes time. It takes effort.

Speaker #2: And that's what we would expect.

Speaker #5: Thank you. I appreciate that. And then, maybe if I could follow up on price/cost—I would imagine there is some lag in Q2 price/cost just given how quickly the commodities inflated, and then, when we think about the timing of your price actions in April and May.

Speaker #5: Can you maybe just kind of talk about price/cost in Q2? And is it fair to assume that price/cost gets better as we look into the back half?

Bill Brown: Typically, fiber optic connections are point to point. It's very difficult to do that. The ends have to be polished. It's specialized labor. It takes time. It takes effort. When you're thinking about billions of individual fiber strands being connected in data centers, the market is looking for better solutions here, EBO connections allows them to do this more quickly, seamlessly, and more reliably. I think that's kind of an important differentiator.

Speaker #5: Just with the incremental price coming through, and while commodity inflation is still certainly persisting, it does seem like a lot of these petrochemical inputs have eased a bit versus what we saw earlier in the spring.

Bill Brown: When you're thinking about billions of individual fiber strands being connected in data centers, the market is looking for better solutions here, EBO connections allows them to do this more quickly, seamlessly, and more reliably. I think that's kind of an important differentiator. As I mentioned earlier, we've got substantial patent protection around the technology, 100 patents today with another 50 that are pending. We have and we will continue to license other ecosystem players to manufacture that technology, that EBO, Expanded Beam Optics technology, because that's required by hyperscalers. There's no one company or supplier that would provide all of the demand for these hyperscalers, whether it be servers or chips or racks or whatever it happens to be, including EBO connectors. That's the path that we're on. We've got a small share today.

Speaker #5: Thank you.

Speaker #2: Yeah. Look, it's a great question, Chris. Q2, our price was at 1.6%, so it was about in line with what we had expected in the first half.

Speaker #2: It was around 1%. We started the year a little bit lighter. We do see that increasing in the back half of the year to be about 2%.

Bill Brown: As I mentioned earlier, we've got substantial patent protection around the technology, 100 patents today with another 50 that are pending. We have and we will continue to license other ecosystem players to manufacture that technology, that EBO, Expanded Beam Optics technology, because that's required by hyperscalers.

Speaker #2: As Anurag mentioned in his commentary, the impact for us this year embedded in our year is $150 to $175 million from oil-based increases.

Speaker #2: That is up from where we were earlier in the year at 125. So, to your point, there is a bit of a lag in that kind of rolling through the system.

Speaker #2: And we're being adaptable here. We're adjusting as we go. We are trying to offset that dollar-for-dollar. It will impact margins, but we do expect we'll offset the higher price of oil on a dollar-for-dollar basis through pricing.

Bill Brown: There's no one company or supplier that would provide all of the demand for these hyperscalers, whether it be servers or chips or racks or whatever it happens to be, including EBO connectors. That's the path that we're on. We've got a small share today. Again, it's in the $40 million to $50 million range of $1 billion. Over time, given our technology and the momentum we think we're building here and our ability to scale, we think our share in that segment will grow materially, that's what we would expect.

Speaker #2: We're executing this a little bit better. We got on it faster this time. Earlier in the quarter, we're being very careful to watch volume here, but at the end of the day, I think we're capturing it.

Bill Brown: Again, it's in the $40 million to $50 million range of $1 billion. Over time, given our technology and the momentum we think we're building here and our ability to scale, we think our share in that segment will grow materially, that's what we would expect.

Speaker #2: So price cost on oil is sort of neutral overall. With the other price increases, it'll be slightly positive from where we stand today.

Chris Snyder: Thank you. I appreciate that. Maybe if I could follow up on price cost. I would imagine there was some lag on Q2 price cost, just given how quickly the commodities inflated, when we think about the timing of your price actions in April and May. Can you maybe just kind of talk about price cost in Q2? Is it fair to assume that price cost gets better as we look into the back half, just with the incremental price coming through and while commodity inflation is still certainly persisting, it does seem like a lot of these petrochemical inputs have eased a bit versus what we saw earlier in the spring. Thank you.

Speaker #5: Thank you, Bill. Appreciate all of that.

Speaker #2: Sure.

Speaker #1: Thank you. Our next question comes from the line of Nicole DeBlaise with Deutsche Bank. Please proceed with your question.

Speaker #6: Yeah. Thanks. Good morning, guys.

Speaker #2: Good morning, Nicole.

Chris Snyder: Is it fair to assume that price cost gets better as we look into the back half, just with the incremental price coming through and while commodity inflation is still certainly persisting, it does seem like a lot of these petrochemical inputs have eased a bit versus what we saw earlier in the spring. Thank you.

Speaker #6: Maybe just on productivity and stranded costs and growth investments, had anything shifted at all in that outlook? And anything major to highlight as we consider the cadence in those items between the first half and the second half?

Speaker #2: Yeah, overall, Nicole, I would say nothing has changed significantly in terms of the cadence. What's gotten better is productivity, which I'll come to in a second.

Bill Brown: Yeah, look, it's a great question, Chris. Q2, our price was at 1.6%, it was about in line with what we'd expected. In H1, it was around 1%. We started the year a little bit lighter. We do see that increasing in the back half of the year to be about 2%. As Anurag mentioned in his commentary, the impact for us this year, embedded in our year, is $150 million to $175 million from oil-based increases. That is up from where we were earlier in the year at $125 million. To your point, there is a bit of a lag in that kind of rolling through the system, we're being adaptable here. We're adjusting as we go. We are trying to offset that dollar for dollar.

Speaker #2: Just on the stranded cost, it's still $150 million for the year, more in the second half versus the first half. And on investments, we said it's going to be $225 million.

Speaker #2: And the investments are spread over growth, productivity, and foundation stuff of about 225 million. 75 million in the first half, 150 million in the second half.

Speaker #2: So I wouldn't say anything has changed on those two items. But clearly, on the productivity side, as Bill earlier mentioned on supply chain, it's definitely better than what we have seen through the course of the year.

Bill Brown: That is up from where we were earlier in the year at $125 million. To your point, there is a bit of a lag in that kind of rolling through the system, we're being adaptable here. We're adjusting as we go. We are trying to offset that dollar for dollar. It will impact margins. We do expect we'll offset the higher price of oil on a dollar-for-dollar basis through pricing. We're executing this a little bit better. We got on it faster this time, earlier in the quarter.

Speaker #6: Okay. Got it. Thanks, Anurag. And then just I think you guys did like 3 billion of buybacks in the first half and the prior guidance was for 2.5.

Bill Brown: It will impact margins. We do expect we'll offset the higher price of oil on a dollar-for-dollar basis through pricing. We're executing this a little bit better. We got on it faster this time, earlier in the quarter. We're being very careful to watch volume here, but at the end of the day, I think we're capturing it. Price cost on oil is sort of neutral. Overall with the other price increases, it'll be slightly positive from where we stand today.

Speaker #6: So you've already exceeded that. How are you thinking about buyback cadence, if there is any, in the second half of the year?

Speaker #2: Listen, we'll continue to be opportunistic and disciplined in just an overall capital allocation framework, as you correctly said. We started the year at $2.5 billion.

Bill Brown: We're being very careful to watch volume here, but at the end of the day, I think we're capturing it. Price cost on oil is sort of neutral. Overall with the other price increases, it'll be slightly positive from where we stand today.

Speaker #2: We found the opportunity to buy more stock. We've done about 3 billion dollars at an average price of about 153 dollars for the first half.

Speaker #2: And we'll just continue to be opportunistic going forward.

Speaker #6: Thank you. I'll pass it on.

Chris Snyder: Thank you, Bill. Appreciate all that.

Bill Brown: Sure.

Speaker #1: Thank you. Our next question comes from the line of Piyush Avasthi with Citi. Please proceed with your question.

Operator: Thank you. Our next question comes from the line of Nicole DeBlase with Deutsche Bank. Please proceed with your question.

Speaker #3: Good morning, guys. Thanks for taking my questions. I wanted to focus on the Safety and Industrial segment. Growth in Q2 was very strong. Maybe we can dig in a bit deeper on the drivers, like how much is healthy in markets versus your own commercial excellence and innovation initiatives?

Nicole DeBlase: Yeah, thanks. Good morning, guys.

Anurag Maheshwari: Good morning, Nicole.

Nicole DeBlase: Maybe just on productivity and stranded costs and growth investments. Had anything shifted at all in that outlook? Anything major to highlight as we consider the cadence in those items between the H1 and the H2?

Speaker #3: I'm not sure if there was any pull-forward. Ultimately, I want to get a sense of the second-half dynamics. Comms get slightly tough, but do you see a path to sustaining this high single-digit growth?

Anurag Maheshwari: Yeah. Overall, Nicole, I would say nothing has changed significantly in terms of the cadence. What's gotten better is productivity, which I'll come to that in a second. Just on the stranded cost, it's still $150 million for the year, more in the H2 versus the H1. On investments, we said it's going to be $225 million, and the investments are spread over growth, productivity, and foundation stuff of about $225 million, $75 million in the H1, $115 million in the H2. I wouldn't say anything has changed on those two items. Clearly on the productivity side, as Bill earlier mentioned on supply chain, it's definitely better than what we have seen through the course of the year.

Speaker #2: So, just in a nutshell—look, IPI is running around 1.82%. The U.S. is a little bit less than that, just over 1%. So, clearly, we're growing well above the macro.

Speaker #2: So I believe it's the performance of the organization, both in terms of commercial excellence as well as innovation. Anurag went through some of the underlying drivers across the divisions of SIBG.

Anurag Maheshwari: Clearly on the productivity side, as Bill earlier mentioned on supply chain, it's definitely better than what we have seen through the course of the year.

Speaker #2: It was pretty broad-based. It was strong across all of what they're in except for auto aftermarket was a little bit light, which, again, it's a big business.

Nicole DeBlase: Okay. Got it. Thanks, Anurag. Then just I think you guys did like $3 billion of buybacks in the H1, and the prior guidance was for $2.5 billion. You've already exceeded that. How are you thinking about buyback cadence, if there is any, in the H2 of the year?

Speaker #2: So they've had to overcome that. But I think the momentum there is pretty good. To go into the back end of the year, there's nothing that indicates the industrial market is getting softer.

Speaker #2: We feel pretty good. As Anurag said, the orders in Q2 were pretty strong. SIBG was up mid-teens. So the order growth rate there is pretty good. Backlog is up year over year.

Anurag Maheshwari: Listen, we'll continue to be opportunistic and disciplined in just an overall capital allocation framework. As you correctly said, we started the year at $2.5 billion. We found the opportunity to buy more stock. We've done about $3 billion at an average price of about $153 for H1. We'll just continue to be opportunistic going forward.

Speaker #2: So I think the momentum continues. And again, it really is just a balance of really good commercial excellence. Keep in mind, they that team jumped on commercial excellence very early in the process, early into 2024.

Nicole DeBlase: Thank you. I'll pass it on.

Speaker #2: And we have made great progress. I commented earlier about attrition coming down, or churn coming down, which has been great. We're working hard on the sales force.

Operator: Thank you. Our next question comes from the line of Piyush Avasti with Citi. Please proceed with your question.

Speaker #2: Providing sales AI tools, which makes them more effective and efficient. There's a lot of work on cross-selling that's dropping through to the bottom line. So I would characterize this as a lot of really good back-to-base hustle that's happening in SIBG, but also in other businesses.

Piyush Avasti: Good morning, guys, thanks for taking my questions. I wanted to focus on Safety and Industrial segment. Growth in Q2 was very strong. Maybe if you can dig in a bit deeper on the drivers, like how much is healthy end markets versus your own commercial excellence and innovation initiatives. Not sure if there was any pull forward. Ultimately, I want to get a sense of H2 dynamics. Comps get slightly tough, but do you see a path to sustaining this high single-digit growth?

Piyush Awasthi: Good morning, guys, thanks for taking my questions. I wanted to focus on Safety and Industrial segment. Growth in Q2 was very strong. Maybe if you can dig in a bit deeper on the drivers, like how much is healthy end markets versus your own commercial excellence and innovation initiatives. Not sure if there was any pull forward. Ultimately, I want to get a sense of H2 dynamics. Comps get slightly tough, but do you see a path to sustaining this high single-digit growth?

Speaker #2: So we feel good about the momentum, and even with the tough comparisons, we think the second half will show pretty strong growth as well.

Speaker #3: How's both, Bill? And maybe taking a step back, any additional color on how we should think about Q3 and Q4 in terms of top-line growth and operating margin based on your 2026 guidance?

Bill Brown: IPI is running around 1.82%. US is a little bit less than that, around 1%, just over 1%. Clearly we're growing well above the macro. I believe it's the performance of the organization, both in terms of commercial excellence as well as innovation. Anurag went through some of the underlying drivers across the divisions of SIBG. It was pretty broad-based. It was strong across all of what they're in except for auto aftermarket was a little bit light, which again, it's a big business, so they've had to overcome that. I think the momentum there is pretty good. As you go into the back end of the year, there's nothing that indicates the industrial market is getting softer. We feel pretty good. As Anurag said, the orders in Q2 was pretty strong.

Speaker #3: Should we expect normal seasonality? Not sure if there are any other dynamics that we need to be aware of.

Speaker #2: Sure, let me take that question. You should see the normal seasonality through the course of the year as well. Our guide says we're going to be over 3.5% for the year.

Speaker #2: The first half was 3.3%, so clearly there's going to be acceleration in the second half. You should see a lot more coming from productivity as well.

Speaker #2: Both on the supply chain, as well as some of the transformation projects that we have undergoing, we see the benefits of that come through.

Speaker #2: And both of them will more than mitigate the pickup in stranded costs and investments that we are going to make to ensure that this is sustainable for the future.

Bill Brown: I think the momentum there is pretty good. As you go into the back end of the year, there's nothing that indicates the industrial market is getting softer. We feel pretty good. As Anurag said, the orders in Q2 was pretty strong. SIBG was up mid-teens. The order growth rate there is pretty good. Backlog is up year-over-year. I think the momentum continues. Again, it really is just a balance of really good commercial excellence.

Speaker #2: So I would say it's normal seasonality, with the EPS going up by $0.30 in the back half, equal between Q3 and Q4.

Bill Brown: SIBG was up mid-teens. The order growth rate there is pretty good. Backlog is up year-over-year. I think the momentum continues. Again, it really is just a balance of really good commercial excellence. Keep in mind, that team jumped on commercial excellence very early in the process, early into 2024, and have made great progress. I commented earlier about attrition come down or churn coming down, which has been great. Working hard on the sales force, providing sales AI tools, which makes them more effective and efficient. A lot of work on cross-selling, that's dropping to the bottom line. I would characterize this as a lot of really good back to basic hustle that's happening in SIBG, but also in other businesses.

Speaker #3: I appreciate the color on that. Thank you.

Speaker #1: Thank you. Our next question comes from the line of Deandre with RBC Capital Markets. Please proceed with your question.

Bill Brown: Keep in mind, that team jumped on commercial excellence very early in the process, early into 2024, and have made great progress. I commented earlier about attrition come down or churn coming down, which has been great. Working hard on the sales force, providing sales AI tools, which makes them more effective and efficient. A lot of work on cross-selling, that's dropping to the bottom line. I would characterize this as a lot of really good back to basic hustle that's happening in SIBG, but also in other businesses.

Speaker #4: Thank you. Good morning, everyone.

Speaker #2: Hey, good morning.

Speaker #4: Hey. Significant upside in free cash flow, especially compared to your five-year average. Can you talk about any one-timers? There was a reference to benefits of tax timing, but also some nice improvement days in inventory days.

Speaker #4: So, is that also sustainable? And do you have some targets that you can share?

Speaker #2: Yeah, thanks. It is very strong cash flow, just on the back of very strong operational performance. We obviously have good earnings. The cash conversion cycle continues to do better on the back of lower inventory.

Bill Brown: We feel good about the momentum, and even with the tough comparison, we think H2 will be pretty strong growth as well.

Piyush Avasti: Helpful, Bill. Maybe taking a step back and any additional color on how we should think of 3Q and 4Q in terms of top-line growth and operating margin based on your 2026 guidance? Should we expect normal seasonality? Not sure if there are any other dynamics that we need to be aware of.

Piyush Awasthi: Helpful, Bill. Maybe taking a step back and any additional color on how we should think of 3Q and 4Q in terms of top-line growth and operating margin based on your 2026 guidance? Should we expect normal seasonality? Not sure if there are any other dynamics that we need to be aware of.

Speaker #2: Our inventory has improved by seven days year over year. So it's just fundamental, good operational performance that's driving the free cash flow.

Speaker #4: Great. And you didn't call it out exactly, but can you reference any of the impact on memory chip pricing and availability, and how that is rippling through your consumer electronics?

Anurag Maheshwari: Sure. Let me take that question. You should see the normal seasonality through the course of the year as well. Our guide says we're going to be over 3.5% for the year. The H1 was 3.3%, so clearly there's going to be acceleration in the H2. You should see a lot more coming from productivity as well, both on the supply chain as well as some of the transformation projects that we have undergoing. We see the benefits of that come through. Both of them will more than mitigate the pickup in stranded costs and in investments that we are going to make to ensure that this is sustainable for the future. I would say it's normal seasonality with the EPS growing by $0.30 in the H2, equal between Q3 and Q4.

Speaker #2: Well, the consumer electronics was down low single digits in the quarter. And we do expect the market in the back half of the year to be down, I think it was like high teens.

Speaker #2: And I think that's largely related to memory shortages and the high cost of memory. So I think that's rolling through the marketplace. In the quarter, we're performing better than the macro—again, down low single digits versus where the market happens to be.

Anurag Maheshwari: Both of them will more than mitigate the pickup in stranded costs and in investments that we are going to make to ensure that this is sustainable for the future. I would say it's normal seasonality with the EPS growing by $0.30 in the H2, equal between Q3 and Q4.

Speaker #2: We expect to outperform in the back half of the year, but the market is getting weaker because of memory.

Speaker #4: Great. Thank you.

Speaker #2: You bet.

Speaker #1: Thank you. Our next question comes from Brett Lindsay with Mizuho. Please proceed with your question.

Piyush Avasti: Appreciate the color, Anurag. Thank you.

Piyush Awasthi: Appreciate the color, Anurag. Thank you.

Speaker #3: Hey, good morning, all. My question's on utilization and footprint rationalization. So there's a bit of a tug-of-war here, right? You've got the secular and cyclical accelerating, but some other areas are a little bit more cautious.

Operator: Thank you. Our next question comes from the line of Deane Dray with RBC Capital Markets. Please proceed with your question.

Deane Dray: Thank you. Good morning, everyone.

Speaker #3: What's your current capacity utilization across the footprint? And as you look at some of the organic here in the back half, how are you balancing rationalization versus expansion?

Bill Brown: Hey, good morning, Deane.

Deane Dray: Hey. Significant upside in free cash flow, especially compared to your five-year average. Can you talk about any one-timers? There was a reference to benefit of tax timing, but also some nice improvement in inventory days. Is that also sustainable? Do you have some targets that you can share?

Speaker #3: Are you thinking there are further actions as we look into 2026 and 2027, or are you revisiting some of the plans currently, given the improvements?

Speaker #2: So the way we measure utilization across about 300 assets across the organization, we continue to increase that. We're systematically tracking it. That's more than half our volume.

Anurag Maheshwari: Yeah. Thanks. Listen, very strong cash flow just on the back of very strong operational performance. We obviously have good earnings and the cash conversion cycle continues to do better on the back of lesser inventory. Our inventory's improved by 7 days year-over-year. It's just fundamental good operational performance that's driving the free cash flow.

Speaker #2: It's running around 63.5%, 64%. So there's plenty of upside capacity across the overall network in aggregate. As I mentioned in my remarks, there are certain assets in our network that are constrained.

Deane Dray: Great. You didn't call it out exactly, but can you reference any of the impact on memory chip pricing, availability, and how is that rippling through your consumer electronics?

Speaker #2: And I mentioned one in particular in New Holm. There's others. In New Holm, which makes electrical net connectors, that volume is spiking. So we've got to find ways to unlock capacity and a lot of it's kind of basic at how you run the lines and the workflow and material flow.

Bill Brown: Well, the consumer electronics was down low single digits in the quarter. We do expect the market in the back half of the year to be down. I think it was like high teens. I think that's largely related to memory shortages and high cost of memory. I think that's rolling through the marketplace. In the quarter, we're performing better than the macro, again, down low single digits versus where the market happens to be. We expect to outperform in the back half of the year, the market is getting weaker because of memory.

Speaker #2: Over time, there might be some capital there. But overall, utilization is an upside opportunity for us. Fundamentally, understanding utilization—how it's measured across individual assets, across the 100 plants we have in the network—allows us to then start to look at how you consolidate between individual assets, cells within a factory, and factories themselves.

Speaker #2: That is the unlock we call transformation that's going to occur over the next three to five years. It's a longer-term journey, but clearly, as we start to wring out capacity and increase capacity utilization here, we have an opportunity to rationalize the network as well.

Deane Dray: Great. Thank you.

Bill Brown: You bet.

Operator: Thank you. Our next question comes from Brett Lindsey with Mizuho. Please proceed with your question.

Brett Lindsey: Hey, good morning, all.

Brett Linzey: Hey, good morning, all.

Bill Brown: Good morning.

Brett Lindsey: My question's on utilization and footprint rationalizations. There's a bit of a tug of war here, right? You've got the secular and cyclical accelerating, but some other areas a little bit more cautious. What's your current capacity utilization across the footprint? As you look at some of the organic growth potentially accelerating here in the H2, how are you balancing rationalization versus expansion? Are you thinking there's further actions as we look into 2026 and 2027, or are you revisiting some of the plans currently given the improvements?

Brett Linzey: My question's on utilization and footprint rationalizations. There's a bit of a tug of war here, right? You've got the secular and cyclical accelerating, but some other areas a little bit more cautious. What's your current capacity utilization across the footprint? As you look at some of the organic growth potentially accelerating here in the H2, how are you balancing rationalization versus expansion? Are you thinking there's further actions as we look into 2026 and 2027, or are you revisiting some of the plans currently given the improvements?

Speaker #3: Understood, thanks. And then just to follow up on the new product launches: so, 92 in the quarter, on pace for the 350-plus. What portion is incremental share or TAM expansion versus replacing or cannibalizing existing SKUs?

Speaker #3: I guess, is there a metric you guys are looking at that looks at net new contribution internally versus gross MPI, that might help us bridge some of the opportunity here over the next couple of years?

Speaker #2: Yeah. Yeah. Brett, let me look. When we talk about growth above the macro, a lot of it is going to be net new growth.

Speaker #2: And that's sort of what you articulate there. But Class Three for us is running around 75% of the launches. Class Four and Fives, which is more new adjacent markets or new, if you will—new products, new markets—that's running around 25%.

Bill Brown: Look, the way we measure utilization is across about 300 assets across the organization. We continue to increase that we're systematically tracking. There's more than half our volume. It's running around 63.5% and 64%. There's plenty of upside capacity across the overall network in aggregate. As I mentioned in my remarks, there are certain assets in our network that are constrained. I mentioned one in particular in New Ulm. There's others in New Ulm, which makes electrical connectors. That volume is spiking. We've got to find ways to unlock capacity. A lot of it's kind of basic at how you run the lines and the workflow and material flow. Over time, there might be some capital there. Overall, utilization is an upside opportunity for us.

Speaker #2: Over time, that goes up to 30, maybe a little bit better than that. It'll be a little bit higher in the industrial side. So we do expect TEBG and SIBG to get to 40 or beyond 40%.

Speaker #2: Class 4s and 5s. But we're still running as a company around 25% today. You bet.

Speaker #3: Thanks, Bill. Congrats on the quarter.

Bill Brown: We've got to find ways to unlock capacity. A lot of it's kind of basic at how you run the lines and the workflow and material flow. Over time, there might be some capital there. Overall, utilization is an upside opportunity for us. Fundamentally understanding utilization, how it is measured across individual assets, across the 100 plants we have in the network, allows us to then start to look at how do you consolidate between individual assets, cells within a factory, and factories themselves.

Speaker #1: Thank you. Our last question today comes from Laurence Alexander at Jefferies. Please proceed with your question.

Speaker #3: Can you give a high-level assessment of the margin profile in the new product mix relative to your core businesses? It used to be that there was a significant gap.

Bill Brown: Fundamentally understanding utilization, how it is measured across individual assets, across the 100 plants we have in the network, allows us to then start to look at how do you consolidate between individual assets, cells within a factory, and factories themselves. That is the unlock, what we call transformation that is going to occur over the next three to five years. It is a longer-term journey, clearly, as we start to wring out capacity, increase capacity utilization here, we have an opportunity to rationalize the network as well.

Speaker #3: And I'm curious if the gap is stable—that is, as your overall margins are rising, is the margin embedded in the new products pipeline also rising?

Speaker #3: Or should we think about it more as, over time, you're just having a mixed shift where the higher mix is what's driving the margin lift? But eventually, those two would converge to some equilibrium.

Bill Brown: That is the unlock, what we call transformation that is going to occur over the next three to five years. It is a longer-term journey, clearly, as we start to wring out capacity, increase capacity utilization here, we have an opportunity to rationalize the network as well.

Speaker #2: So, looking in a nutshell, we expect and do see that margins on new products, over time, raise the overall margin threshold. As they start at launch with lower volumes, you'll see just absorption, or maybe they may not come in at the higher margin initially, but they do over time because new features can drive better pricing.

Brett Lindsey: Understood. Thanks. Then just to follow up on the new product launches, 92 in the quarter on pace for the 350+. What portion is incremental share or TAM expansion versus replacing or cannibalizing existing SKUs? Is there a metric you guys are looking at that looks at net new contribution internally versus gross NPI that might help us bridge some of the opportunity here over the next couple of years?

Brett Linzey: Understood. Thanks. Then just to follow up on the new product launches, 92 in the quarter on pace for the 350+. What portion is incremental share or TAM expansion versus replacing or cannibalizing existing SKUs? Is there a metric you guys are looking at that looks at net new contribution internally versus gross NPI that might help us bridge some of the opportunity here over the next couple of years?

Speaker #2: Also, new products can come into the marketplace at a lower cost. One of the things the team is really focused on is design to cost.

Speaker #2: So, we are looking to both bring new features, which help us drive price, but also drive cost down in the designs themselves. And that combination should allow us to unlock— and does allow us to unlock—margins through new product introductions.

Bill Brown: Yeah, Brett. Look, when we talk about growth above the macro, a lot of it is going to be net new growth, and that is sort of what we articulate that. Class 3 for us is running around 75% of the launches. Class 4s and 5s, which is more new adjacent markets or new products for new markets, that is running around 25%. Over time, that can go up to 30%, maybe a little bit better than that. It will be a little bit higher in the industrial side, so we do expect TEBG and SIBG to get to 40% or beyond 40% Class 4s and 5s. We are still running as a company around 25% today.

Speaker #3: Thank you.

Speaker #1: Thank you. 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.

Bill Brown: Over time, that can go up to 30%, maybe a little bit better than that. It will be a little bit higher in the industrial side, so we do expect TEBG and SIBG to get to 40% or beyond 40% Class 4s and 5s. We are still running as a company around 25% today.

Speaker #2: Well, thanks, everybody, for joining us today. And thanks again to all the 3Mers for really, truly delivering another outstanding quarter of great execution and delivering value for our customers and our shareholders.

Brett Lindsey: Thanks, Bill.

Brett Linzey: Thanks, Bill.

Bill Brown: You bet.

Brett Lindsey: Congrats on the quarter.

Brett Linzey: Congrats on the quarter.

Speaker #2: And I want to thank them all for all their efforts. Thank you for joining the call, and have a good day.

Operator: Thank you. Our last question today comes from Laurence Alexander with Jefferies. Please proceed with your question.

Laurence Alexander: Can you give a high-level assessment of the margin profile in the new product mix relative to your core businesses? Used to be that was a significant gap. I'm curious if the gap is stable. That is, as your overall margins are rising, is the margin embedded in the new product pipeline also rising? Should we think about it more as over time, kind of you're just having a mix shift where the higher mix is what's driving the margin lift, but eventually the two would converge to some equilibrium?

Bill Brown: Look, in a nutshell, we expect and we do see that margins on new products over time raise the overall margin threshold. As they start, they launch lower volumes. You'll see just absorption may not come in at the higher margin, but they do over time because new features can drive better pricing. Also, new products can come into the marketplace at lower cost. One of the things the team is really focused on is design to cost. We are looking to both bring new features, which help us drive price, but also drive cost down in the designs themselves. That combination should allow us to unlock, and does allow us to unlock margins through new product introductions.

Bill Brown: We are looking to both bring new features, which help us drive price, but also drive cost down in the designs themselves. That combination should allow us to unlock, and does allow us to unlock margins through new product introductions.

Laurence Alexander: Thank you.

Operator: Thank you. 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.

Bill Brown: Well, thanks everybody for joining us today. Thanks again to all the 3Mers for really, truly delivering another outstanding quarter of great execution and delivering value for our customers and our shareholders. I want to thank them all for all their efforts. Thank you for joining the call, 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.

Q2 2026 3M Co Earnings Call

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