Q3 2026 3M Co Earnings Call

October 20, 2026

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

Speaker #1: As a reminder, this call is being recorded on Tuesday, October 20, 2026. I would now like to turn the call over to Chinmay Trivedi, Senior Vice President of Investor Relations and Financial Planning and Analysis at 3M.

Operator: As a reminder, this call is being recorded Tuesday, 20 October 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.

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, then we will take your questions. Please note that today's earnings release and slide presentation accompanying this call are posted on the homepage of our investor relations website at 3M.com. 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. These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties.

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

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

Chinmay Trivedi: 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. These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties.

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: 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 3, and I will hand the call off to Bill. Bill?

Speaker #2: Please note, through our today's presentation, we'll be making references to certain non-GAAP financial measures, reconciliations of the non-GAAP measures can be found in the attachments to today's press release.

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 delivered strong performance in Q3, including organic growth of 3.3%, operating margin of 26.2%, up 110 basis points, earnings per share of $2.50, up 12%, and free cash flow of $1.2 billion.

Bill Brown: Thank you, Chinmay, and good morning, everyone. We delivered strong performance in Q3, including organic growth of 3.3%, operating margin of 26.2%, up 110 basis points, earnings per share of $2.50, up 12%, and free cash flow of $1.2 billion. We returned $600 million to shareholders in the quarter, including $400 million in dividends and $200 million of share repurchases. These results include Madison Fire and Rescue, which is now fully consolidated into our financial reporting and reflect a change in acquisition amortization reporting. Our updated guidance for the year incorporates both items, and Anurag will provide additional details later in the call. Based on our Q3 performance and continued strong order trends, we remain confident in achieving organic growth of greater than 3.5% this year. The progress we are delivering reflects the disciplined execution of the strategy we have been implementing over the last two years.

Speaker #3: We returned $600 million to shareholders in the quarter, including $400 million in dividends and $200 million of share repurchases. These results include Madison Fire and Rescue, which is now fully consolidated into our financial reporting, and reflect a change in acquisition amortization reporting.

Speaker #3: Our updated guidance for the year incorporates both items, and Anurag will provide additional details later in the call. Based on our Q3 performance and continued strong order trends, we remain confident in achieving organic growth of greater than 3.5% this year.

Bill Brown: Our updated guidance for the year incorporates both items, and Anurag will provide additional details later in the call. Based on our Q3 performance and continued strong order trends, we remain confident in achieving organic growth of greater than 3.5% this year. The progress we are delivering reflects the disciplined execution of the strategy we have been implementing over the last two years.

Speaker #3: The progress we're delivering reflects the disciplined execution of the strategy we've been implementing over the last 2 years. As we've discussed, a value creation framework is centered around three phases: building the foundation, driving transformation, and accelerating performance.

Bill Brown: As we've discussed, our value creation framework is centered around three phases, building the foundation, driving transformation, and accelerating performance. Our results today are clear evidence that we're making progress across all three. We're strengthening the foundation of the company and rebuilding critical capabilities to position 3M for long-term success. We've invested in salesforce effectiveness and AI-enabled tools. We've sharpened our focus on priority verticals where we can win and improved how we allocate R&D resources. Operationally, we're delivering on our goals to improve productivity, quality, and supply chain performance. In the quarter, we launched 87 new products, up 24%, and we're on track to exceed our target of 350 this year. Year-to-date, five-year new product sales are up 34% versus last year to nearly $3 billion, resulting in new product vitality in the mid-teens from a low of 11% in 2024.

Speaker #3: Our results today are clear evidence that we're making progress across all three. We're strengthening the foundation of the company and rebuilding critical capabilities to position 3M for long-term success.

Speaker #3: We've invested in Salesforce effectiveness and AI-enabled tools. We've sharpened our focus on priority verticals where we can win and proved how we allocate R&D resources.

Bill Brown: We've sharpened our focus on priority verticals where we can win and improved how we allocate R&D resources. Operationally, we're delivering on our goals to improve productivity, quality, and supply chain performance. In the quarter, we launched 87 new products, up 24%, and we're on track to exceed our target of 350 this year. Year-to-date, five-year new product sales are up 34% versus last year to nearly $3 billion, resulting in new product vitality in the mid-teens from a low of 11% in 2024.

Speaker #3: Operationally, we're delivering on our goals to improve productivity, quality, and supply chain performance. In the quarter, we launched 87 new products, up 24%, and we're on track to exceed our target of 350 this year.

Speaker #3: Year to date, sales of 30 new products are up 34% versus last year, reaching nearly $3 billion. This has resulted in new product vitality in the mid-teens, up from a low of 11% in 2024.

Speaker #3: Selling is also gaining traction, with 140 million dollars in book to date, and another 120 million dollars in the pipeline, well ahead of our original 100 million dollar 3-year goal.

Bill Brown: Cross-selling is also gaining traction, with $140 million in wins booked to date and another $120 million in the pipeline, well ahead of our original $100 million three-year goal. In today's higher inflation environment, our price execution has been particularly strong and fully offsets material and oil cost pressures. Across our manufacturing supply chain network, productivity improvements, including procurement savings, higher asset utilization from increased throughput and lower downtime, and improved quality drove gross margins up 230 basis points year over year. Cost of poor quality improved by 40 basis points, and overall equipment effectiveness improved by 20 basis points. We continue to see meaningful opportunities to further simplify and standardize, reshape the portfolio, reduce risk, and improve enterprise resilience and predictability.

Speaker #3: And in today's higher inflation environment, our price execution has been particularly strong and fully offsets material and oil costs. Across our manufacturing and supply chain network, productivity improvements—including procurement savings, higher asset utilization from increased throughput and lower downtime, and improved quality—drove gross margins up 230 basis points year over year.

Speaker #3: Cost of poor quality improved by 40 basis points, and overall equipment effectiveness improved by 20 basis points. We continue to see meaningful opportunities to further simplify and standardize reshape the portfolio reduce risk, and improve enterprise resilience and predictability.

Speaker #3: We've closed 16 manufacturing sites and distribution centers year to date, and are taking action on 10 more in the next 12 months. Supporting further gross margin improvement beyond 2027.

Bill Brown: We've closed 16 manufacturing sites and distribution centers year to date, and are taking action on 10 more over the next 12 months, supporting further gross margin improvement beyond 2027. The Madison Fire & Rescue acquisition, which is now combined with our SCBA business and reported as a separate division within SIBG, is off to a good start. The JV delivered high single-digit pro forma growth and operating margins out of our deal model and 3M overall. Integration is well underway to capture synergies across distribution, international expansion, and operational performance. We continue our efforts to address litigation risk and are actively working with a court-appointed mediator for the AFFF personal injury MDL, and more information is available in our quarterly filing. Moving to slide 4, I'll provide a bit more color on our end market performance.

Speaker #3: And the Madison Fire and Rescue acquisition, which is now combined with our SCBA business and reported as a separate division within SIBG, is off to a good start.

Speaker #3: The JV delivered high single-digit pro forma growth and operating margins ahead of our deal model and 3M overall. Integration is well underway to capture synergies across distribution, international expansion, and operational performance.

Speaker #3: And we continue our efforts to address litigation risk and are actively working with the court-appointed mediator for the AFFF personal injury MDL. More information is available in our quarterly filing.

Speaker #3: Moving to slide 4, I'll provide a bit more color on our end-market performance. We continue to see strong momentum in general industrial and safety, with second-half growth accelerating to high single digits, above our prior expectations.

Bill Brown: We continue to see strong momentum in general industrial and safety, with H2 growth accelerating to high single digits above our prior expectations. In electronics, we're seeing increasing strength in semiconductors and data centers, which is partially offsetting a weaker consumer electronics market, especially in LCD displays. Auto OE and aftermarket is trending in line with prior expectations, with a modest improvement from down low single digits in H1 to about flat in H2, and with OE a bit softer and aftermarket a bit better. The consumer business, which contributes about 20% of sales, improved sequentially to about flat in H2 as modest improvement in consumer POS spending is partially offset by channel inventory adjustments at a few specific retailers. Net net, we still see sales accelerating the H2 and our full year above 3.5% organic. Turning to slide 5.

Speaker #3: In electronics, we're seeing increasing strength in semiconductors and data centers, which is partially offsetting a weaker consumer electronics market, especially in LCD displays. Auto OE and aftermarket is trending in line with prior expectations, with a modest improvement from down low single digits in the first half to about flat in the second, and with OE a bit softer and aftermarket a bit better.

Speaker #3: The consumer business, which contributes about 20% of sales, improved sequentially to about flat in the second half as modest improvement in consumer POS spending is partially offset by channel inventory adjustments at a few specific retailers.

Speaker #3: Net-net we still see sales accelerating the second half and our full year above 3.5% organic. Turning to slide 5, over the medium to long term, accelerating innovation across our frontier verticals, including aerospace, data centers, and others, will be an important driver of growth.

Bill Brown: Over the medium to long term, accelerating innovation across our frontier verticals, including aerospace, data centers, and others, will be an important driver of growth. Space materials is a great example how we can take differentiated 3M technologies and extend them into entirely new markets. As shown on the left side of the slide, we are combining our capabilities in films, adhesives, and others to solve light, thermal, energy, and weight challenges across multiple parts of a spacecraft, from the satellite chassis to solar arrays. Our current pipeline supports opportunities from low earth to geosynchronous orbits and across a range of commercial and government customers. In Q3, we launched a lightweight reflective film for a commercial constellation to reduce light scattering toward earth and address light pollution concerns. We plan to launch another product in Q4 to provide a moisture-resistant barrier for solar panels.

Speaker #3: Space materials is a great example of how we can take differentiated 3M technologies and extend them into entirely new markets. As shown on the left side of the slide, we're combining our capabilities in films, adhesives, and others to solve light, thermal, energy, and weight challenges across multiple parts of a spacecraft, from the satellite chassis to solar arrays.

Speaker #3: Our current pipeline supports opportunities from low Earth to geosynchronous orbits, and across a range of commercial and government customers. In Q3, we launched a lightweight reflective film for a commercial constellation to reduce light scattering toward Earth and address light pollution concerns.

Speaker #3: And we plan to launch another product in Q4 to provide a moisture-resistant barrier for solar panels. We have more than 10 other projects in development and pre-pipeline stage that will follow in the next few years.

Speaker #3: And on the right side of the slide, there's been a lot of interest in expanded beam optics and the opportunity ahead of us. And in light of an AK filing and press release last year, I wanted to take a minute to highlight the progress we're making.

Bill Brown: We have more than 10 other projects in development or in pre-pipeline stage that will follow in the next few years. On the right side of the slide, there has been a lot of interest in expanded beam optics and the opportunity ahead of us. In light of an 8-K filing and press release last evening, I wanted to take a minute to highlight the progress we are making. As a reminder, EBO's patented ferrule technology enables faster installation, greater durability, and higher density optical connections for AI infrastructure. The technology is particularly valuable in scale out and scale across applications, including optical backplanes, where connectors at the back of a server rack can be difficult to access, install, and maintain.

Speaker #3: As a reminder, EBO's patented ferrule technology enables faster installation, greater durability, and higher-density optical connections for AI infrastructure. The technology is particularly valuable in scale-out and scale-across applications, including optical backplanes, where connectors at the back of a server rack can be difficult to access, install, and maintain.

Speaker #3: We previously announced a partnership and deployment with Microsoft, and said we were also engaged in proof-of-concept work with five additional global hyperscalers, one of whom was Amazon Web Services.

Bill Brown: We previously announced a partnership and deployment with Microsoft and said we were also engaged in proof of concept work with five additional global hyperscalers, one of whom was Amazon Web Services. Last evening, we filed an 8-K stating we issued a warrant to Amazon to purchase up to 3.2 million shares, or approximately 0.6% of 3M common stock, based upon the achievement of $6 billion in cumulative sales of optical connectivity and other data center-related products over the next seven years and other event-based milestones. We also announced that we signed a contract manufacturing agreement with Genius Electronic Optical Company, or GSEO, and acquired a 4.7% stake in the company in a private placement to cement our strategic partnership.

Speaker #3: Last evening, we filed an AK stating we issued a warrant to Amazon to purchase up to 3.2 million shares, or approximately 0.6% of 3M common stock, based upon the achievement of 6 billion dollars in cumulative sales of optical continuity and other data center-related products over the next 7 years, and other event-based milestones.

Speaker #3: We also announced that we signed a contract manufacturing agreement with Genius Electronic Optical Company, or GSEO, and acquired a 4.7% stake in the company in a private placement to cement our strategic partnership.

Speaker #3: GSEO is a credible and proven supplier of premium consumer device components, and they will help us rapidly advance technology development and scale EBO manufacturing, on top of our internal capacity expansion plans.

Bill Brown: GSEO is a credible and proven supplier of premium consumer device components, and they will help us rapidly advance technology development and scale EBO manufacturing on top of our internal capacity expansion plans. As we previously said, success in this space requires building a robust ecosystem of partners. We are actively supporting industry standardization through the EBO Multisource Agreement, which started with 17 members and is now up to 63. This MSA brings together hyperscalers, connectivity providers, and chip designers under a common framework to establish industry standards and certify practitioners. EBO was highlighted by many of these ecosystem partners at last week's Open Compute Project Global Summit, including by one other hyperscaler demonstrating EBO in a next gen rack design running live traffic, and it was headlined in a recent article by SemiAnalysis, a well-respected trade journal.

Speaker #3: But as we previously said, success in this space requires a robust ecosystem of partners. We're actively supporting industry standardization through the EBO multi-source agreement, which started with 17 members and is now up to 63.

Speaker #3: This MSA brings together hyperscalers, connectivity providers, and chip designers under a common framework to establish industry standards and certify practitioners. EBO was highlighted by many of these ecosystem partners at last week's Open Compute Project Global Summit, including by one other hyperscaler, demonstrating EBO in a next rack design running live traffic.

Speaker #3: And it was headlined in a recent article by Semianalysis, a well-respected trade journal. We believe the combination of industry collaboration through the MSA, growing ecosystem adoption, and differentiated 3M know-how positions us well to benefit as EBO becomes a larger part of next-generation AI infrastructure.

Bill Brown: We believe the combination of industry collaboration through the MSA, growing ecosystem adoption, and differentiated 3M know-how positions us well to benefit as EBO becomes a larger part of next generation AI infrastructure. Overall, we have made meaningful progress in reinvigorating our innovation engine over the last two years. Success requires speed and precise execution, and we are building a stronger, faster, more innovative, and more resilient 3M. As this company-wide effort evolves, I am confident it will translate into faster growth, higher margins, and stronger free cash flow over time. With that, I will turn it over to Anurag to share the details of the quarter. Anurag?

Speaker #3: Overall, it makes meaningful progress in reinvigorating our innovation engine over the last 2 years. Success requires speed and precise execution, and we're building a stronger, faster, more innovative and more resilient 3M.

Speaker #3: As this company-wide effort evolves, I'm confident it will translate into faster growth, higher margins, and stronger free cash flow over time. With that, I'll turn it over to Anurag to share the details of the quarter.

Speaker #3: Anurag?

Speaker #2: Thank you, Bill. Turning to slide 6, we delivered another strong quarter across all financial metrics. Solid organic growth, 110 basis points of margin expansion, double-digit earnings growth, and robust free cash flow all reflecting execution against our strategic priorities.

Anurag Maheshwari: Thank you, Bill. Turning to slide 6, we delivered another strong quarter across all financial metrics. Solid organic growth, 110 basis points of margin expansion, double-digit earnings growth, and robust free cash flow, all reflecting execution against our strategic priorities. Starting with the top line, we delivered organic sales growth of 3.3%, driven by general industrial and Safety, both of which performed better than expected on successful execution of our commercial excellence initiatives, including pricing. We also saw continued strong double-digit growth in Semiconductors and Data Centers as we gain traction from new product launches and good customer positioning. Together, these more than offset a weaker consumer electronics market. Notably, the orders trend that we have seen through the year continues and grew high single digits in the quarter, led by industrials, Safety, data centers, semiconductors, and aerospace.

Speaker #2: Starting with the top line, we delivered organic sales growth of 3.3%, driven by general industrial and safety, both of which performed better than expected on successful execution of our commercial excellence initiatives, including pricing.

Speaker #2: We also saw continued strong double-digit growth in semiconductors and data centers, as we gained traction from new product launches and good customer positioning. Together, we raised more than offset a weaker consumer electronics market.

Speaker #2: Notably, the order strength that we have seen through the year continues, and grew high single digits in the quarter, led by industrials, safety, data centers, semiconductors, and aerospace.

Speaker #2: This resulted in backlog growth of high teens over last year, positioning us well for the fourth quarter. By geography, US and Canada grew approximately 7%, the highest we have seen since the pandemic, industrials grew double digits as we executed well on pricing, cross-selling, and sales effectiveness in a constructive market, which more than offset a soft consumer market.

Anurag Maheshwari: This resulted in backlog growth of high teens over last year, positioning us well for Q4. By geography, US and Canada grew approximately 7%, the highest we have seen since the pandemic. Industrials grew double digits as we executed well on pricing, cross-selling, and sales effectiveness in a constructive market, which more than offset a soft consumer market. Latin America grew high single digits with broad-based growth across all three businesses. It was encouraging to see Europe grow for a second consecutive quarter despite a soft auto market. In Asia, we had positive growth and saw another double-digit quarter in India as we increased penetration in automotive, industrial, and a growing consumer market. Overall, we grew in all regions except China, which was down high single digits on weak consumer electronics demand.

Speaker #2: Latin America grew high single digits, with broad-based growth across all three businesses. It was encouraging to see Europe grow for a second consecutive quarter, despite a soft auto market.

Speaker #2: In Asia, we had positive growth and saw another double-digit quarter in India, as we increased penetration in automotive, industrial, and a growing consumer market.

Speaker #2: Overall, we grew in all regions except China, which was down high single digits on weak consumer electronics demand. As Bill mentioned, starting this quarter, we now exclude amortization of intangibles from adjusted results to better reflect the underlying performance of the business.

Speaker #2: Historically, we casted financials for 25 and first half 26 are shown on slide 13, and as you can see, have an impact of about 40 basis points to margin rate and 4 cents to EPS per quarter.

Anurag Maheshwari: As Bill mentioned, following the acquisition starting this quarter, we now exclude the amortization of intangibles from adjusted results to better reflect the underlying performance of the business. Historical recasted financials for 2025 and H1 2026 are shown on slide 13, and as you can see, have an impact of about 40 basis points to margin rate and $0.04 to EPS per quarter. For Q3, adjusted operating margin was 26.2%, up 110 basis points, with the three business groups up 140 basis points, partially offset by 30 basis points from corporate as expected. Operating profit increased $140 million, with $260 million from sales growth and productivity, particularly in supply chain, partially offset by about $120 million of stranded costs and investments.

Speaker #2: For Q3, adjusted operating margin was 26.2%, up 110 basis points, with the three business groups up 140 basis points, partially offset by 30 basis points from corporate as expected.

Speaker #2: Operating profit increased 140 million dollars, with 260 million dollars from sales growth and productivity, particularly in supply chain, partially offset by about 120 million dollars of stranded investments.

Speaker #2: The 27 cents of EPS growth was driven by 22 cents of operating profit growth, and 5 cents of below-the-line items including a lower share net of a higher tax rate, resulting in adjusted EPS of $2.50, up 12% year on year.

Anurag Maheshwari: The $0.27 of EPS growth was driven by $0.22 of operating profit growth and $0.05 of below-the-line items, including a lower share count net of a higher tax rate, resulting in adjusted EPS of $2.50, up 12% year-on-year. Q3 GAAP EPS was $2.63, up 70% 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. Free cash flow was $1.2 billion in the quarter, as higher earnings were offset by working capital timing, which we expect to reverse in Q4. Turning to the next slide, I will provide a quick overview of our growth performance for each business group.

Speaker #2: Q3 gap EPS was $2.63, up 70% 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: Free cash flow was 1.2 billion dollars in the quarter, as higher earnings were offset by working capital. Which we expect to reverse in the fourth quarter.

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 another standout quarter with 7% organic sales growth, driven by the continued expansion of commercial excellence initiatives and the ramp-up of new products.

Speaker #2: Electrical markets division continued to grow double digits, as they deepened penetration with key customers in the data center market. Safety, industrial adhesives, abrasives, and industrial specialties collectively grew high single digits, driven by targeted commercial initiatives to reduce customer churn, expand sales coverage, increase sales effectiveness, and drive cross-selling.

Anurag Maheshwari: Safety and Industrial delivered another standout quarter with 7% organic sales growth, driven by the continued expansion of commercial excellence initiatives and the ramp-up of new products. Electrical Markets Division continued to grow double digits as they deepened penetration with key customers in the data center market. Safety, industrial adhesives, abrasives, and industrial specialties collectively grew high single digits, driven by targeted commercial initiatives to reduce customer churn, expand sales coverage, increase sales effectiveness, and drive cross-selling. Though repair claims market remains soft, auto aftermarket grew mid-single digits, driven by the new products and wins with large multi-shop operators. Year to date, SIBG sales are up 6.1%, and importantly, orders and backlog are up double digits, giving us good visibility into Q4. Turning to Transportation and Electronics, Q3 sales grew 0.5% due to weaker than expected consumer electronics, which was down mid-teens.

Speaker #2: Door repair claims market remains soft. Auto aftermarket grew mid-single digits, driven by new products and wins with large multi-shop operators. Year-to-date, SIBG sales are up 6.1%, and importantly, orders and backlog are up double digits, giving us good visibility into the fourth quarter.

Speaker #2: Turning to transportation and electronics, third quarter sales grew 0.5% due to weaker than expected consumer electronics, which was down mid-teens. Outside of consumer electronics, the business grew about 5% across semiconductors, aerospace, commercial branding, and auto.

Speaker #2: In addition to data center and semiconductor, aerospace grew double digits, driven by continued strength in defense, sustained civil aviation bill rates, and growing demand for space films.

Anurag Maheshwari: Outside of consumer electronics, the business grew about 5% across semiconductors, aerospace, commercial branding, and auto. In addition to data center and semiconductor, aerospace grew double digits driven by continued strength in defense, sustained civil aviation build rates, and growing demand for space films. Commercial branding continued its H1 momentum, growing mid-single digits driven by graphics and personal auto demand, while auto was down mid-single digits on softer builds. Despite the weak consumer electronics and auto market for the first nine months, TEBG sales grew 2.1% with orders up high single digits and backlog up double digits, supporting acceleration in Q4. SIBG and TEBG, which together represent 80% of our business, delivered about 4% growth in the quarter and 4.5% year-to-date. Finally, consumer was flat in the quarter, improving sequentially as the rate of decline in the US moderated while international continued to grow mid-single digits.

Speaker #2: Commercial branding continued its first half momentum, growing mid-single digits, driven by graphics and personal order demand, while auto was down mid-single digits on softer bills.

Speaker #2: Despite the weak consumer electronics and auto market, for the first nine months, TEBG sales grew 2.1%, with orders up high single digits and backlog up double digits, supporting acceleration in the fourth quarter.

Speaker #2: SIBG and TEBG, which together represent 80% of the business, delivered about 4% growth in the quarter and 4.5% year to date. Finally, consumer was flat in the quarter, giving sequentially as the rate of decline in the US moderated, while international continued to grow mid-single digits.

Speaker #2: US point-of-sale grew over 2% through the quarter, but continued inventory adjustments at a few large retailers resulted in US selling being down, low single digit.

Speaker #2: As retailer inventory stabilized and POS continues to show positive momentum on the back of NPI and retailer-specific programs, we expect the growth trend to improve in the fourth quarter.

Anurag Maheshwari: US point of sale grew over 2% through the quarter, but continued inventory adjustments at a few large retailers resulted in US sell-in being down low single digit. As retailer inventory stabilize and POS continues to show positive momentum on the back of NPI and retailer-specific programs, we expect the growth trend to improve in Q4. Overall, we are delivering on a commitment with strong year-to-date results, including organic sales growth of 3.3%, operating margin expansion of 60 basis points to 25.2%, earnings growth of 12%, and free cash flow of $3.1 billion. Year to date, we returned $4.4 billion to shareholders, including $1.2 billion in dividends and $3.2 billion in share repurchases. Please turn to slide 8 for an update on our 2026 guidance.

Speaker #2: Overall, we are delivering on our commitment with strong year-to-date results, including organic sales growth of 3.3%, operating margin expansion of 60 basis points to 25.2%, earnings growth of 12% in free cash flow of 3.1 billion dollars.

Speaker #2: Year to date, we returned $4.4 billion to shareholders, including $1.2 billion in dividends and $3.2 billion in share repurchases. Please turn to slide 8 for an update on our 2026 guidance.

Speaker #2: Auto momentum, a healthy backlog, and easier comparisons give us confidence in organic growth of just over 4% in the fourth quarter, keeping us on track for more than 5% for the full year.

Speaker #2: On the back of strong year-to-date performance, continued momentum, and focused productivity, we are raising earnings guidance from a range of $8.95 to $9.10 on the new basis, to a range of $9.10 to $9.15, or $0.10 above the midpoint, resulting in growth between 11% and 12% for the year.

Anurag Maheshwari: order momentum, a healthy backlog, and easier comparisons give us confidence in organic growth of just over 4% in Q4, keeping us on track for more than 3.5% for the full year. On the back of strong year-to-date performance, continued momentum, and focus on productivity, we are raising our earnings guidance from a range of $8.95 to $9.10 on the new basis to a range of $9.10 to $9.15, or $0.10 above the midpoint, resulting in growth between 11% and 12% for the year. On oil, we now estimate the inflation impact at $185 million up from the $150 to $175 million range we communicated in July. We expect to fully offset the increase through disciplined execution of the pricing actions we implemented in Q2. While this dilutes margin rate by about 20 basis points, we will mitigate through better productivity.

Speaker #2: On oil, we now estimate the inflation impacted $185 million, up from the $175 to $180 million range we communicated in July. We expect to fully offset the increase through disciplined execution of the pricing actions we implemented in the second quarter.

Speaker #2: While this dilutes margin rate by about 20 basis points, we will mitigate through better productivity. For the year, we expect a margin of about 24.6% on the new basis, in line with our prior expectations.

Speaker #2: Free cash flow remains at approximately $4.8 billion, and the adjusted tax rate at about 20%. Turning to slide 9, we will provide formal 2027 guidance in January, but our framework to drive profitable growth remains consistent, and we are confident that we will exceed all of our Investor Day targets.

Anurag Maheshwari: We expect to fully offset the increase through disciplined execution of the pricing actions we implemented in Q2. While this dilutes margin rate by about 20 basis points, we will mitigate through better productivity.

Anurag Maheshwari: For the year, we expect margin of about 24.6% on the new basis in line with our prior expectations. Free cash flow remains at approximately $4.8 billion and adjusted tax rate at about 20%. Turning to slide 9, we will provide formal 2027 guidance in January, but our framework to drive profitable growth remains consistent and are confident that we will exceed all of our Investor Day targets. We expect good growth in line with our H2 exit rate, with more contribution coming from new product launches as we sustain commercial excellence, including pricing discipline. Alongside growth, we will continue to drive productivity largely from supply chain and transformation actions as we more than offset investments and stranded costs, resulting in margin rates exceeding our Investor Day target of 25.4% on the new basis.

Speaker #2: We expect good growth in line with our second half exit rate, with more contribution coming from product launches, as we sustain commercial excellence, including pricing discipline.

Speaker #2: Alongside growth, we will continue to drive productivity largely from supply chain and transformation actions, as we more than offset investments in stranded costs resulting in margin rates exceeding our investor-day target of 25.4% on the new basis.

Speaker #2: For EPS, we expect operational performance to be the primary driver of earnings growth, like this year. Non-operational performance will be influenced by changes in interest rates and FX, while the tax rate should remain stable and share buybacks will continue to be accretive.

Speaker #2: Finally, we expect robust free cash flow driven by earnings growth and working capital improvements, and will continue disciplined cash flow deployment. Having returned $9.3 billion since the start of 2025, we are well on our way to exceeding the $10 billion target.

Anurag Maheshwari: For EPS, we expect operational performance to be the primary driver of earnings growth like this year. Non-operational performance will be influenced by changes in interest rates and FX, while the tax rate should remain stable and share buybacks will continue to be accretive. Finally, we expect robust free cash flow driven by earnings growth and working capital improvements and will continue disciplined capital deployment. Having returned $9.3 billion since the start of 2025, we are well on our way to exceeding the $10 billion target. Before we open the call for questions, I would like to thank the 3M team for their commitment, resilience, and responsiveness to drive value to all our stakeholders. Our performance to date and opportunities ahead provide us with increased confidence in delivering on our updated 2026 guidance and exceeding the commitments we laid out at Investor Day.

Speaker #2: Before we open the call for questions, I would like to thank the 3M team for their commitment, resilience, and responsiveness to drive value to all our stakeholders.

Speaker #2: Our performance to date and opportunities ahead provide us with increased confidence in delivering on our updated 2026 guidance and exceeding the commitments we laid out in yesterday.

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 1 on your telephone keypad. If your question has been answered and you would like to withdraw, please press star 2.

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

Anurag Maheshwari: With that, let's open the call for questions.

Speaker #1: Our first question today comes from the line of Scott Davis, Amelius Research. Please proceed with your question.

Operator: Ladies and gentlemen, if you would like to register a question, please press *1 on your telephone keypad. If your question has been answered and you would like to withdraw, please press *2. If you are using a speakerphone, please lift up your handset before entering your request. Please limit your participation to one question and one follow-up. Our first question today comes from the line of Scott Davis with Melius Research. Please proceed with your question.

Speaker #3: Hey, guys.

Speaker #4: Morning, Scott.

Speaker #3: I want to I want to ask about, Amazon in a second, but before I do that, you mentioned price several times, and, and is it easier to get because inflation is so well telling that the customer is extremely well aware of what's going out there, or, or is it the new introduction side of it that is kind of driving that?

Speaker #3: and you still seem to be a little bit I mean, behind PPI, so do you see an acceleration there?

Speaker #4: So, so Scott, I mean, we, you know, first of all, it is pretty well publicized in the marketplace around what's happening in oil and gas prices and general inflation.

Scott Davis: Hey, good morning, guys.

Bill Brown: Morning, Scott.

Scott Davis: I want to ask about Amazon in a second, but before I do that, you mentioned price several times. Is it easier to get because inflation is so well telegraphed that the customer is extraordinarily well aware of what is going on out there, or is it the new product introduction side of it that is kind of driving that? You still seem to be a little bit behind PPI, so do you see an acceleration there?

Speaker #4: I think that's well covered. But I think our ability to drive price right now is partly from the new product. I think, importantly, it's from just, significantly better responsiveness, service, delivery rates, product availability that we're delivering to our customers.

Speaker #4: And I think that is that's a very important part of it. And I wouldn't discount that, you know, we're being I'd say a bit more, aggressive here on price, holding our ground on this one.

Bill Brown: Scott, good question. First of all, it is pretty well publicized in the marketplace around what is happening in oil and gas prices and general inflation. I think that is well covered. But I think our ability to drive price right now is partly from the new products. I think importantly, it is from just significantly better responsiveness, service delivery rates, product availability that we are delivering to our customers. I think that is a very important part of it, and I wouldn't discount that we are being, I would say, a bit more aggressive here on price, holding our ground on this one. I think all of those things come together in what is driving price. We will see ourselves for the year to be slightly above 1.5 percentage points. We were saying last time about 1.5%. It will be a little bit better than that because oil price continues to come up.

Speaker #4: So so I think all of those things come together in what's what's driving price. So you know, we'll see sales for the year. To be slightly above a point and a half, we were saying last time about 1.5%.

Speaker #4: It'll be a little bit better than that because oil prices continue to come up. Back half of the year will be slightly above 2; front half was 1.

Speaker #4: So we're we're doing better. We're executing well on price. We're covering material and oil oil cost inflation. And we feel pretty good trajectory we're on right now on pricing.

Bill Brown: I think that is a very important part of it, and I wouldn't discount that we are being, I would say, a bit more aggressive here on price, holding our ground on this one. I think all of those things come together in what is driving price. We will see ourselves for the year to be slightly above 1.5 percentage points. We were saying last time about 1.5%. It will be a little bit better than that because oil price continues to come up.

Speaker #3: Okay. That's helpful, Bill. look, it wasn't clear to me in the 8K what, Amazon is, I mean, we know the investment they're making, but are they helping to pay for, capacity, you know, or, or, take or pay contracts, anything that kind of locks them in to, to, to de-risking a bit of, your capacity adds?

Bill Brown: H2 of the year will be slightly above 2 percentage points. H1 was 1 percentage point. We are doing better. We are executing well on price. We are covering material and oil cost inflation, and we feel pretty good about the trajectory we are on right now on pricing.

Speaker #4: So it look, this is a very, very important step we've taken here with Amazon. You know, there's no disclosure right now on other parts of the commercial agreement, but it's been you know, in, in the works for some time.

Scott Davis: Okay. That is helpful, Bill. Look, it wasn't clear to me in the 8-K what Amazon is. We know the investment they are making, but are they helping to pay for capacity or take-or-pay contracts, anything that kind of locks them in to de-risking a bit of your capacity adds?

Speaker #4: It's a very important, strategic commercial relationship. I do believe it's it's a validation technology. It's a important milestone in this broader relationship that we've had with Amazon.

Speaker #4: You know, it's it's very clear in the agreement that, you know, it's for optimal connectivity, EBO, and other data center-related products. They they do have faith in our broader science capabilities for acoustics, vibration, thermal kind of things inside a data centers.

Bill Brown: Look, this is a very important step we have taken here with Amazon. There is no disclosure right now on other parts of the commercial agreement, but it has been in the works for some time. It is a very important strategic commercial relationship. I do believe it is a validation of the technology. It is an important milestone in this broader relationship that we have had with Amazon. It is very clear in the agreement that it is for optical connectivity, EBO, and other data center-related products. They do have faith in our broad material science capabilities for acoustics, vibration, thermal kind of things inside the data centers. We are very excited about where we happen to be. As you note, there is at least something in the 8-K. Its cumulative $6 billion is where the warrant vests over 7 years. It is in increments.

Speaker #4: And so we—we’re very excited about where we happen to be. You know, as you note, it’s—you know, there’s at least something in the 8-K.

Speaker #4: It's cumulative—$6 billion is where the warrant vests over seven years. It's an increment. It'll start to ramp towards the back end of next year, is what our expectation happens to be.

Speaker #4: And become more meaningful as we get into '28. But, you know, as far as we sit here today, that's—that's as far as I think we'll be able to disclose.

Speaker #4: This is continues to ramp. What's important right now is execute well. We scale well here with, with Amazon. We build out the ecosystem, which other scalers believe is very important.

Speaker #4: So very important step is is combining that with the GSCO announcement where we solidify the the supply side, the the you know, the ramp-up we expect to get, to support Amazon and other hybrid.

Bill Brown: They will start to ramp towards the back end of next year is what our expectation happens to be, and become more meaningful as we get into 2028. As we sit here today, that is as far as I think we will be able to disclose as this continues to ramp. What is important right now is we execute well, we scale well here with Amazon. We build out the ecosystem, which they and other hyperscalers believe is very important. So a very important step is combining that with the GSEO announcement, where we have solidified the supply side to cut the ramp up we expect to get to support Amazon and other hyperscalers. Collectively, we think it is a very important milestone that we are at today on EBO.

Speaker #4: So, collectively, we think it's a very important milestone that we're at today on EBO.

Speaker #3: Makes sense. Thank you. Best of luck, guys. I'll pass it on.

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

Speaker #5: Thanks, operator. Good morning, everybody. Bill, you know, the the the trajectory of organic growth, has been good. You know, plus 1 in 24, plus 2 in 25, plus 3 and a half at least this year.

Speaker #5: You're making a lot of progress on pricing and NPI, and now you're maybe leaning into some growth verticals through these sort of creative solutions, which is fantastic.

Scott Davis: Makes sense. Thank you. Best of luck, guys. I will pass it on.

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

Speaker #5: but I guess the question that everybody's asking is, where do you think this ultimately goes to from a through-cycle growth perspective? Because you've got a consumer business that's a little bit more difficult, T&E is obviously a little bit difficult.

Amit Mehrotra: Thanks, operator. Good morning, everybody. Bill, the trajectory of organic growth has been good, +1% in 2024, +2% in 2025, +3.5% at least this year. You are making a lot of progress on pricing and NPI. Now you are maybe leaning into some growth verticals through these sort of accretive solutions, which is fantastic. I guess the question that everybody is asking is, where do you think this ultimately goes to from a through-cycle growth perspective? Because you have a consumer business that is a little bit more difficult. T&E is obviously a little bit difficult. Maybe just talk about not just 2027, but if you want to talk about 2027, great, but sort of where you think structurally you are taking the growth algorithm for this business over the next one, two, three years.

Speaker #5: Maybe just talk about not just 27, but if you talk about 27, great. But sort of where you think structurally you're taking the growth algorithm for this business over the next 1, 2, 3 years.

Speaker #4: So, Ahmed, you went through some of the numbers. I appreciate you doing that and recalling the trajectory we're on. It's a pretty broad portfolio.

Speaker #4: Not everything kind of flows positive every quarter, but, you know, you've laid out appropriately the steps that we're taking to drive, you know, organic growth in the company.

Speaker #4: Something I think we struggle to do over time. It comes back with, you know, the back to what we were focused on very originally around re-innovating, innovation and driving new products to the marketplace.

Speaker #4: And we continue to progress that very, very well. And it's becoming more impactful. You know, we're clearly driving a lot of commercial excellence activities, improving our capability at the front line, building a better relationship with our channel partners, more cross-selling, better performance.

Bill Brown: Amit, you went through some of the numbers. I appreciate you doing that and recalling the trajectory we are on. It is a pretty broad portfolio. Not everything flows positively every quarter, but you have laid out appropriately the steps that we are taking to drive organic growth in the company, something I think we struggle to do over time. It comes back to what we were focused on very originally, was around re-innovating innovation and driving new products to the marketplace, and we continue to progress that very well, and it is becoming more impactful. We are clearly driving a lot of commercial excellence activities, improving our capability at the front line, building a better relationship with our channel partners, more cross-selling, better performance, so we have less churn, pricing. All these things come together to make this machine run better, and you went through the numbers.

Speaker #4: So we have less churn, pricing. I mean, all these things come together to kind of make this machine, run better. And and you you went through the numbers.

Speaker #4: So we'll end the back half of the year. You know, we'll be, you know, close to 4%. You know, Q4 will be touching or just over 4%.

Speaker #4: You know, as we look into '27, we continue to see growth momentum here. You know, there are some economic tailwinds here on the industrial side.

Speaker #4: We feel pretty good about that. But more importantly, this is a self-help story. You know, we're showing that we can grow organically, even in a choppy macro environment, you know, and drive margin expansion quite substantially.

Speaker #4: So the combination of what we're trying to do, I think, is what's really turning this 3M Company around. And, you know, I'm very, very excited about what the future holds here.

Bill Brown: We will end the back half of the year, we will be close to 4%. Q4 will be touching just over 4%. As we look into 2027, we continue to see growth momentum here. There are some economic tailwinds here on the industrial side. We feel pretty good about that. More importantly, this is a self-help story. We are showing that we can grow organically, even in a choppy macro environment, and drive margin expansion quite substantially. The combination of what we are trying to do, I think, is what is really turning this 3M company around, and I am very excited about where the future holds here.

Speaker #5: Okay. Thank you, Bill. And then Anurag, if I could just have a follow-up, because if if we go back to investor day, there might be sort of 4 to 5 hundred million dollars of extra costs that you guys have incurred since investor day, whether it's tariffs or oil puts.

Speaker #5: And and here we are, not only are you offsetting that with price, but there's obviously clearly productivity there because margin you're raising the margin, guidance for longer term, you know, next year.

Speaker #5: So can you just talk about productivity? Because the 27 framing is helpful, but it's a little bit vague relative to what you did did last year.

Amit Mehrotra: Okay. Thank you, Bill. Anurag, if I could just have a follow-up, because if we go back to Investor Day, there might be $400 to $500 million of extra costs that you guys have incurred since Investor Day, whether it is tariffs or oil inputs. Here we are, not only are you offsetting that with price, but there is obviously clearly productivity there because you are raising the margin guidance for longer term next year. Can you just talk about productivity? Because the 2027 framing is helpful, but it is a little bit vague relative to what you just did last year. Are we going to get $500, $600 million more of net productivity next year? Do you still expect 35% incremental margins on the growth you expect to achieve? Maybe fill in some of that color for us, please.

Speaker #5: Are we going to get $500 million, $600 million more of net productivity next year? Do you expect 35% incremental margins on the growth you expect to achieve?

Speaker #5: Maybe fill in some of that that color for us, please.

Speaker #4: Okay, great. Yeah, thanks, Ahmed. And you're absolutely correct. You know, at the investor day, what we laid out was that we had about $300 million of stranded costs.

Speaker #4: At that point in time. But since then, tariffs of about $280 million; we have oil now, which is $185 million. We obviously were able to offset all of that, plus more, which is why we are ahead in terms of our margin expansion so far, and will be next year as well.

Speaker #4: So, you know, as Bill mentioned, we're going to exit the year close to about 4% in terms of organic growth. And as we go into next year, that will accelerate because of new products, commercial excellence, and pricing, which we've done a very good job on this year and continue to kind of sustain that next year and drive for more pricing to offset oil.

Anurag Maheshwari: Okay, great. Thanks, Amit, and you are absolutely correct. At the Investor Day, what we laid out was that we had about $300 million of stranded costs at that point in time. But since then, we have had tariffs of about $280 million. We have oil now, which is $185 million. We obviously were able to offset all of that, plus more, which is why we are ahead in terms of our margin expansion so far, and will be next year as well. As Bill mentioned, we are going to exit the year close to about 4% in terms of organic growth. As we go into next year, that will accelerate because of new products, commercial excellence, and pricing, which we have done a very good job this year and continue to sustain that next year and drive for more pricing to offset oil.

Speaker #4: So with the volume growth on the margin side, we have good incrementals. Historically, we said it's between 30 to 40%. I think we are clo more closer to the 40% right now in incrementals.

Speaker #4: given the progress that we made over the past couple of years. combine that with productivity on both supply chain as well as some of the transformation actions we are taking.

Speaker #4: And we'll continue at the same rate at as as it has over the past couple of years. And while we drive volume with high incrementals, productivity, we'll much more than offset the step-up in investments and stranded costs.

Speaker #4: So expect good margin expansion as we go into next year, and be very confident that we'll be ahead of the 25.4%, the new Investor Day target, despite all the other headwinds we had.

Anurag Maheshwari: With the volume growth on the margin side, we have good incrementals. Historically, we said it is between 30% to 40%. I think we are more closer to the 40% right now in incrementals, given the progress that we made over the past couple of years. Combine that with productivity on both supply chain as well as some of the transformation actions we are taking, and it should continue at the same rate as it has over the past couple of years. While we drive volume with our incrementals, productivity will much more than offset the step-up in investments and stranded costs. So expect good margin expansion as we go into next year, and feel very confident to be ahead of the 25.4%, the new Investor Day target, despite all the other headwinds we had. So feeling pretty confident.

Speaker #4: So feeling pretty confident.

Speaker #5: Got it. Great. Thank you very much. Appreciate it, guys.

Speaker #1: Our next question comes from Joe O'Day with Vertical Research Partners. Please proceed with your question.

Speaker #6: Hi. Good morning. I wanted to start on just sizing of EBO. Can can you talk a little bit about where you expect the revenue to be this year?

Speaker #6: How much revenue can your current capacity support? And then, with the manufacturing collaboration that you've announced, how much revenue altogether do you think that will be able to support?

Speaker #4: So, Joe, for this year, EBO is in the 40 million dollar range plus or minus. We've got another quarter to go here. We do expect that to ramp considerably next year.

Amit Mehrotra: Got it. Great. Thank you very much. Appreciate it, guys.

Speaker #4: likely we'll we'll double. could be maybe a little bit better than that depending upon partners through the year. You know, internally, you know, we have we have doubled our manufacturing capacity.

Operator: Our next question comes from Joe O'Dea with Vertical Research Partners. Please proceed with your question.

Joe O'Dea: Hi. Good morning. I wanted to start on just sizing of EBO. Can you talk a little bit about where you expect the revenue to be this year, how much revenue your current capacity can support, and then with the manufacturing collaboration that you have announced, how much revenue altogether you think that will be able to support?

Speaker #4: So, we'll be we'll be north of 10 million ferrules a year. It'll be, you know, a little bit better than that. We expected, increase that over over time.

Speaker #4: You know, the contract manufacturing agreement with GSCO, given their size and what they currently do for consumer devices and similar spaces, you know, they do potentially multiples of that a month.

Bill Brown: Joe, for this year, EBO is in the $40 million range, plus or minus. We have got another quarter to go here. We do expect that to ramp considerably next year. Likely will double. Could be maybe a little bit better than that, depending upon progress through the year. Internally, we have doubled our manufacturing capacity. So we will be north of, say, 10 million ferrules a year. It will be a little bit better than that, and we expect to increase that over time. The contract manufacturing agreement with GSEO, given their size and what they currently do for consumer devices and similar spaces, they could do potentially multiples of that per month. I believe, if we scale them as we know we will over the course of the Q4 into early next year, that we will see our ability to actually satisfy the market demand.

Speaker #4: So I believe you know, if we scale that, we know we will over the course of the fourth quarter into early next year. You know, we will see our our ability to actually satisfy the market demand.

Speaker #4: So, hopefully, it's not capacity issue. It becomes more in comfort of hyperscalers. It's developing the ecosystem. And I just want to reiterate one of the key factors here is is making sure we have diversity of supply.

Speaker #4: Not just from 3M and other partners here, because that's going to be quite important for hyperscalers to sell on, to sign on. So I believe with GSCO, we'll be in pretty good shape to scale to the market requirements as we see them now.

Speaker #6: Just current demand tracking—can you talk a little bit about what you saw over the course of the quarter, and into this month, with respect to acceleration?

Bill Brown: Hopefully it is not a capacity issue. It becomes more in comfort of hyperscalers. It is developing the ecosystem, and I just want to reiterate, one of the key factors here is making sure we have diversity of supply, not just from 3M but other partners here, because that is going to be quite important for hyperscalers to sign on. I believe with GSEO, we will be in pretty good shape to scale to the market requirements as we see them now.

Speaker #6: Any caution? There's a tremendous amount of focus out there, just given kind of all the all the headlines. and and any risks that that poses for for policies.

Speaker #6: And so, just kind of overall macro, you know, how you've seen demand trends? o-over the course of the last several months.

Speaker #4: Okay. So so look, you know, for for us, I mean, our rates have been pretty good. You know, we you know, for the quarter, you know, they were up about 7%.

Speaker #4: We see good backlog going into the fourth quarter, year to date. You know, a little bit better than eight. You know, it's better on the industrial side.

Joe O'Dea: On just current demand tracking, can you talk a little bit about what you saw over the course of the quarter into this month, with respect to acceleration, any caution? There is a tremendous amount of focus out there, just given all the headlines, and any risk that that poses for pause. Just kind of overall macro, how you have seen demand trends over the course of the last several months.

Speaker #4: But but generally, good order trends, good momentum here as we head into the back end of the year. So from from just from a macro perspective, you know, we continue to see the broader industrial markets improving, especially in the in the US.

Speaker #4: And then, I know that part of it is driven by data centers, but there are quite a lot of other factors that go behind that.

Speaker #4: You know, auto build rates are likely to be down. They're down modestly in the quarter, and likely for the year as well.

Speaker #4: You know, we see the consumer electronics space, you know, worsening a little bit in the back end of the year. You know, more like down means from the consumer mar consumer electronics market.

Bill Brown: Okay. Look, for us, our order rates have been pretty good. For the quarter, they were up about 7%. We see good backlog going into the Q4 year to date, a little bit better than 8%. It is better on the industrial side, but generally good order trends, good momentum here as we head into the back end of the year. Just from a macro perspective, we continue to see the broader industrial markets improving, especially in the US. I know that is part of it is driven by data centers, but it is quite a lot of other factors that go behind that. Auto build rates are likely to be down. They are down modestly in the quarter and likely for the year as well.

Speaker #4: you know, those are the broader pieces, you know, IPI, you know, is about where we were before, slightly better, globally. You know, US IPI, US GDP is slightly better from where we we thought in in July.

Speaker #4: So that's getting, I I'd say, a little better. You know, and you know, those are the key pieces. The US consumer, you know, is sort of still a little bit soft, although what I would say is we continue to see good US growth, which is sell out for us.

Speaker #4: You know, it's north of 2% growth on POS, which is pretty good. You know, so I feel like it's getting at least more stability in the US consumer behavior.

Bill Brown: We see the consumer electronic space worsening a little bit in the back end of the year, more like down mid-teens from the consumer electronics market. Those are the broader pieces. IPI is about where we were before, slightly better globally. US IPI, US GDP is slightly better from where we thought in July. That is getting, I would say, a little bit better. Those are the key pieces. The US consumer is still a little bit soft, although what I would say is we continue to see good POS growth, which is sellout for us. It is north of 2% growth on POS, which is pretty good. So I feel it is getting at least more stability in the US consumer behavior, if not maybe a little bit of improvement. Overall, I would say the industrial is pretty good, kind of mixed outside of that.

Speaker #4: If not, maybe a little bit of improvement. So overall, you know, I'd I'd say the industrial is pretty good. You know, kind of mixed you know, outside of that.

Speaker #6: Thank you.

Speaker #1: Our next question comes from Julian Mitchell with JPMorgan. Please proceed with your question.

Speaker #7: Hi. Good morning. maybe just wanted to follow up on the TEB revenue outlook, because that's where you've seen I suppose the most volatility in recent quarters.

Speaker #7: You know, strong growth Q2. It evaporated in Q3. You're talking about a re-acceleration in the fourth quarter. Despite a worsening consumer electronics market backdrop, I think you said down, you know, mid-teens, so.

Speaker #7: Please sort of flesh out a little bit the the confidence in that TEBG acceleration and is it something just month to month that the numbers are kind of swinging around in that business.

Joe O'Dea: Thank you.

Operator: Our next question comes from Julian Mitchell with J.P. Morgan. Please proceed with your question.

Speaker #4: Sure. So, you know, as we exited the third quarter, Julian, you know, the backlog in TEBG was up quite double digits. So that gives us good visibility as we go into the fourth quarter.

Julian Mitchell: Hi, good morning. Maybe just wanted to follow up on the TEBG revenue outlook, because that is where you have seen, I suppose, the most volatility in recent quarters. Strong growth Q2, it evaporated in Q3. You are talking about a re-acceleration in the Q4 despite a worsening consumer electronics market backdrop. I think you said down mid-teens. So please sort of flesh out a little bit the confidence in that TEBG acceleration, and is it something where it is just month to month that the numbers are kind of swinging around in that business?

Speaker #4: You are correct about the consumer electronics being pretty in between third and fourth quarter. But where we do see is the good backlog getting converted plus continued strength in aerospace defense, semiconductor, and data center to accelerate in the fourth quarter, plus all the commercial excellence that we are driving in the commercial branding business.

Speaker #4: This along with, you know, auto, we've had some couple of good wins in auto as well. That kind of coming through, I think, gives us confidence that we will accelerate in the fourth quarter from third quarter in TEBG.

Speaker #7: Thanks very much. And then just my follow-up, I think Anurag and Bill, you know, your tone on the margin expansion is very confident, I think.

Anurag Maheshwari: Sure. As we exited Q3, Julian, the backlog in TEBG was up quite double digits, so that gives us good visibility as we go into Q4. You are correct about the consumer electronics being pretty consistent between Q3 and Q4. But where we do see is the good backlog getting converted, plus continued strength in the aerospace defense, the semiconductor, and data center, which continues to accelerate in Q4, plus all the commercial excellence that we are driving in the commercial branding business. This along with auto. We have had some couple of good wins in auto as well, that kind of coming through, I think gives us confidence that we will accelerate the growth in Q4 from Q3 in TEBG.

Speaker #7: you know, looking at slide nine and and you're talking about, you know, very likely exceeding that 80 basis points of of sort of margin expansion.

Speaker #7: next year, that's guided on that slide nine. And that's even with what's going on with cost inflation and and everything else. so I suppose i-is the sense that, you know, I think right now in the second half, operating margins are growing about 100 basis points year on year in the guide.

Speaker #7: Is your sense that that's a fairly sensible sort of run rate for the time being, given inflation, productivity, and strength of cost, and so forth?

Speaker #7: There's nothing sort of one-time benefiting the degree of margin expansion you're seeing today.

Julian Mitchell: Thanks very much. Just my follow-up. I think, Anurag and Bill, your tone on the margin expansion is very confident, I think. Looking at slide 9, and you are talking about very likely exceeding that 80 basis points of margin expansion next year that is guided on that slide 9, and that is even with what is going on with cost inflation and everything else. I suppose is the sense that, I think right now in H2, operating margins are growing about 100 basis points year-on-year in the guide. Is your sense that that is a fairly sensible run rate for the time being, given inflation and productivity and stranded costs and so forth? There is nothing one time benefiting the degree of margin expansion you are seeing today?

Speaker #4: Correct. There is no one-time benefit in terms of the margin expansion. It's all about controlling our cost base and driving productivity across both supply chain and G&A.

Speaker #4: Bill did mention in his prepared comments about, you know, gross margin being up 230 basis points. Really good work around all the buckets, including the cost of poor quality, which was better by 40 basis points, driving productivity and automation in the countries that we have today.

Speaker #4: And even in this environment, driving procurement. So, drivers in terms of expanding our margins. as we go into next next year, you are right, we we said 300 million dollars of stranded cost.

Speaker #4: you know, we at 100 last year, 150 this year, incremental 50 next year. But on where we are in the momentum in terms of supply chain and making some structural cost changes, I think we are confident continuing the productivity into next year as well.

Anurag Maheshwari: Correct. There is no one-time benefit in terms of the margin expansion. It is all about controlling our cost base, driving productivity across both supply chain and G&A. Bill did mention in his prepared comments about gross margin being up 230 basis points. Really good work around all the buckets, being the cost of poor quality, which was better by 40 basis points, driving more productivity and automation in the factories that we have today. Even in this environment, driving procurement drivers in terms of expanding our margins. As we go into next year, you are right, we said we had $300 million of stranded costs. We had 100 last year, 150 this year, incremental 15 next year.

Speaker #7: Yeah, Julian, I think the I think the thing to keep an eye on is is as we keep talking about transformation and the changes that we're making, a lot of this this year has been around GNA.

Speaker #7: There's been investment to, you know, transform the G&A functions. It's starting to occur within our supply chain network and data center, and distribution center network as well.

Speaker #7: I talked a little bit about some of the changes there that's going to be impacting us into 2027, and certainly with the factory consolidation. Given a typical payback would be 3, 4, 5 years, that'll start to become more meaningful in 2028.

Speaker #7: So when you take a step back and think about all of the the the work that we've done, you know, we've seen, you know, gross margins come up from the low 40s to now touching close to the the mid mid-40s.

Anurag Maheshwari: Just on where we are in the momentum in terms of supply chain and making some structural cost changes, I think we are confident on continuing the productivity into next year as well.

Speaker #7: You know, again, you know, up to prote potentially the high 40s over the next four or five years, through some of the the transformation that's happening.

Bill Brown: Yeah, Julian, I think the thing to keep an eye on is as we keep talking more about transformation and the changes that we're making, a lot this year has been around G&A. There's been investment to transform the G&A functions. It's starting to occur within our supply chain network and data center and distribution center network as well. I talked a little bit about some of the changes there. That's going to be impacting us into 2027, and certainly with the factory consolidation, given they typically would be three, four, five-year payback, that'll start to become more meaningful in 2028. So when you take a step back and think about all of the work that we've done, we've seen gross margins come up from the low 40s to now touching close to the mid 40s.

Speaker #7: Great. Thank you.

Speaker #1: Our next question comes from Andrew Oben with Bank of America. Please proceed with your question.

Speaker #5: Hey guys, good morning. How are you?

Speaker #7: Good morning, Andrew.

Speaker #5: just a question on Madison Fire. just are we putting and now that it's organic, are we putting any accretion into 20 on that? Just from modeling perspective, do I need to sort of put something in?

Speaker #4: Yeah, it's EPS-neutral to us. It does grow higher than the company average, and margins are better, but given the size of the business, it doesn't really move the needle much on the top line.

Speaker #4: There obviously comes with operating profit. But there's a step up in interest because of the leverage and NCI. So overall, it's EPS neutral for this year and next year.

Bill Brown: Again, up to potentially the high 40s over the next four or five years through some of the transformation that's happening.

Speaker #5: Thank you. And just going back to sort of optical and data centers, the headline numbers I think in 8K are pretty robust and you're saying you have multiple other hyperscalers that you're talking to.

Julian Mitchell: Great. Thank you.

Operator: Our next question comes from Andrew Obin with Bank of America. Please proceed with your question.

Andrew Obin: Hey, guys. Good morning. How are you?

Bill Brown: Good morning, Andrew.

Speaker #5: Just order of magnitude, relative to what you have, how big would that be? And just remind me overall, what was your exposure to data centers last year, and what is it this year?

Andrew Obin: Just a question on Madison Fire. Are we putting, now that it is organic, are we putting any accretion into 2020 on that, just from modeling perspective? Do I need to sort of put something in?

Speaker #5: Thank you.

Speaker #4: So just on that last part, for me, data center is about $700 million. Last year, it was around $50 million, in that range.

Anurag Maheshwari: Yeah. It is EPS neutral to us. It does grow higher than company average and margin is better, but given the size of the business, it does not really move the needle much on the top line. That obviously comes with operating profit, but there is a step up in interest because of the leverage and NCI, so overall, it is EPS neutral for this year, next year.

Speaker #4: You know, part outside, the bigger part would be outside. So electrical connections and part is inside, around optical connections, copper, other parts, within—inside of the data center.

Speaker #4: But most of it was on the outside. You know, yeah, there's been a lot of conversations with, you know, really all of the other hyperscalers.

Andrew Obin: Thank you. Just going back to optical and data centers. The headline numbers, I think in 8-K, are pretty robust, and you are saying you have multiple other hyperscalers that you are talking to. Just order of magnitude relative to what you have, how big could that be? Could you also remind me overall, what was your exposure to data centers last year, and what is it this year? Thank you.

Speaker #4: Obviously, Amazon is, you know, substantial in that space. So that's a very important one. You recall last quarter we talked about a strategic partnership.

Speaker #4: We announced with with Microsoft, where they'll be using EBO and Azure data centers, you know, these things are continued to evolve. You know, again, we've got a continued to, you know, work the ecosystem, scale, you know, continue to advance the technology.

Speaker #4: Because each hyperscaler has some uniqueness in their configuration and architecture, there's some work that has to happen there. But I think we have very, very good margin here.

Bill Brown: So just on that last part, data center this year will be about $700 million. Last year was around $550 million, in that range. Part outside, the bigger part would be outside, so electrical connections in. Part is inside around optical connections, copper, other parts with inside the data center. But most of it was on the outside. There has been a lot of conversations with really all of the other hyperscalers. Obviously, Amazon is quite substantial in that space, so that is a very important one. You recall last quarter, we talked about a strategic partnership we announced with Microsoft, where they will be using EBO in Azure data centers. These things are continued to evolve. Again, we have got to continue to work the ecosystem, build the scale, continue to advance the technology because each hyperscaler has some uniqueness in their configuration and architecture.

Speaker #4: I think this is a a very important step that we've taken in the last couple of days with with Amazon. And I hope in the in the coming months others will will follow suit.

Speaker #5: Thank you.

Speaker #1: Our next question comes from Joe Ritchie with Goldman Sachs. Please present your question.

Speaker #6: Hey guys, good morning. So, Bill, I just wanted to follow up on that thread. The warrants are a pretty unique structure.

Speaker #6: I'm just, I'm just curious—how did that even come about? And then also, I think you just mentioned that you're hoping that potentially some of the other hyperscalers will follow suit.

Speaker #6: Just, just any other clarification around that would be helpful.

Speaker #4: You know, so at the

Speaker #7: at this conference last week, it's the open compute project, which is in San Jose. I I was out on the West Coast. I happened to had a chance to walk around the show for a few hours.

Bill Brown: So there is some work that has to happen there. But I think we have very good momentum here. I think this was a very important step that we have taken in the last couple of days with Amazon, and I hope in the coming months, others will follow suit.

Speaker #7: And there were many other hyperscalers and a lot of ecosystem partners that were there. There was a lot of conversation around EBO, how it can be used, and how it could be scaled.

Andrew Obin: Thank you.

Speaker #7: how do we manufacture it? Partners that want to be part of it. So it's there's a there's a ton of activity happening there. So it's it's pretty broad-based.

Operator: Our next question comes from Joe Ritchie with Goldman Sachs. Please proceed with your question.

Speaker #7: But again, it's a it's evolving. I mean, each quarter, each month, you know, we're taking steps forward here. We have to keep executing and doing all the things that have been very carefully talking about around scaling and technology development and ecosystem.

Joe Ritchie: Hey, guys. Good morning.

Bill Brown: Morning, Joe.

Joe Ritchie: So, Bill, I just wanted to follow up on that thread, right? The warrants are a pretty unique structure. I am just curious, how did that even come about? I think you just mentioned that you are hoping that potentially some of the other hyperscalers will follow suit. Any other clarification around that would be helpful.

Speaker #7: All of these things are are critically important. You know, for for for look, I think the warrants conversation is really important because it cements what I believe as a very strong strategic partnership we have with with Amazon.

Bill Brown: At this conference last week, it is the Open Compute Project, which is in San Jose. I was on the West Coast and had a chance to walk around the show for a few hours, and there were many other hyperscalers and a lot of ecosystem partners that were there. There is a lot of conversation around EBO, how it could be used, how it could be scaled, how do we manufacture it, partners that want to be part of it. There is a ton of activity happening there. It is pretty broad-based, but again, it is evolving. Each quarter, each month, we are taking steps forward here. We have to keep executing and doing all the things that I have been very carefully talking about around scaling and technology development and ecosystem. All of these things are critically important.

Speaker #7: And you know, it's an agreement. It's a it's a union, if you will, with Amazon where we both see you know, win-win. We see opportunities to drive.

Speaker #7: you know, the warrants are going to be you know, a creative to significantly a creative to the company. So you know, we thought that was prudent and the right thing to do.

Speaker #7: Again, it's about 0.6% of our of our shares. So it's not hugely meaningful, but in terms of it's very symbolic in terms of the overall relationship we have with with Amazon.

Speaker #6: That's helpful, Bill. And then I guess just my following question. You gave some some parts of the framework for for for 2027. Just the the expectation for the there for at least the 8 points of margin expansion.

Speaker #6: Is there a volume that you're embedding? I know that you guys will kind of model to trends. Just any expectations on volumes already for next year?

Bill Brown: For Amazon, look, I think the warrants conversation is really important because it cements what I believe is a very strong strategic partnership we have with Amazon. It is an agreement, it is a union, if you will, with Amazon, where we both see win-win. We see opportunity to drive. For us, the warrants are going to be accretive to, significantly accretive to the company. So we thought that was prudent and the right thing to do. Again, it is about 0.6% of our shares, so it is not hugely meaningful, but in terms of it is very symbolic in terms of the overall relationship we have with Amazon.

Speaker #4: Yeah, I yeah, Joe, absolutely. As I was mentioning when Amit was asking the question, that you know, the volume which has been a 30 to 40% incrementals for us is now getting closer to the 40% incremental.

Speaker #4: So there will be uplift from volume, productivity, and both of them combined will drive the margin expansion for next year.

Speaker #6: Okay, thank you.

Speaker #1: Our next question comes from Nigel Coe with Wolf Research. Please proceed with your question.

Speaker #5: Great. Thanks for the question. So just going back to the Amazon agreement—so is this, you know, is this a framework agreement, Bill, that's structured as a minimum? The $6 billion is very specific.

Joe Ritchie: That is helpful, Bill. I guess just my follow-on question, Anurag Maheshwari, you gave some parts of the framework for 2027. Just the expectation for at least 80 basis points in margin expansion. Is there a volume assumption that you are embedding? I know that you guys typically will kind of like model to trends. Just any expectations on volumes already for next year?

Speaker #5: So is that a minimum purchase agreement over that seven-year time frame? And you seem to indicate that next year is more like a $100 million or so, of revenues from EBO.

Speaker #5: Should we then expect that to step up to close to a billion dollars in 2028? Just trying to sort of frame expectations here.

Speaker #4: So look, I think we'll we'll sort of get through the quarter here and then we'll go through next year. I your your numbers next year, you know, roundabout about right?

Anurag Maheshwari: Yeah, Joe. Absolutely. As I was mentioning when Amit Mehrotra was asking the question, that the volume, which typically has been a 30% to 40% incrementals for us, is now getting closer to the 40% incremental. So there will be uplift from volume plus productivity, and both of them combined will drive the margin expansion for next year.

Speaker #4: I mean, it's sort of 80, 100 million dollars of EBO. I mean, again, look, we've got to execute in and scale here. we're not going to size it beyond that.

Speaker #4: But you know, when we talked last time, we said the total addressable market here for for EBO is is around $2 billion in the 28 time period.

Joe Ritchie: Okay. Thank you.

Speaker #4: You know, that this year will do, again, $40 million roughly. this is an important initiative for us. We're maturing the technology. You know, I think, you know, this step with Amazon last quarter with Microsoft, others that are in conversation, you know, gives us a greater right to win in that.

Operator: Our next question comes from Nigel Coe with Wolfe Research. Please proceed with your question.

Nigel Coe: Great. Thanks. Thanks for the question. Just going back to the Amazon agreement. Is this a framework agreement, Bill, that is structured as a minimum? The $6 million is very specific, so is that a minimum purchase agreement over that seven-year timeframe? You seem to indicate that next year is more like $100 million or so of revenues from EBO. Should we then expect that to step up to closer to $1 billion in 2028? Just trying to sort of frame expectations here.

Speaker #4: So I feel better about, you know, our ability to go after that market. You know, we believe it will continue to grow over time.

Speaker #4: As people get comfortable with EBO, with contactless, you know, sort of connection device, as opposed to physical contact, point-to-point devices today.

Speaker #4: So I think it's going to continue to evolve, but won't comment on anything beyond 27. But I do believe it's going to continue to grow and grow meaningfully.

Bill Brown: Look, I think we will sort of get through the quarter here, and then we will go through next year. Your numbers next year roundabout are about right. It is sort of $800 million of EBO. Again, look, we have got to continue to execute and scale here. We are not going to size it beyond that. But when we talked last time, we said the total addressable market here for EBO is around $2 billion in the 2028 time period. This year will do, again, $40 million roughly. This is an important initiative for us. We are maturing the technology. I think this step with Amazon, last quarter with Microsoft, others that are in conversation gives us a greater right to win in that space.

Speaker #4: Otherwise, we would have talked about where we happen to be with Amazon and the size of the contract manufacturing agreement with GSC. All of these are very important to us.

Speaker #5: Yeah, yeah. $6 billion will develop at seven, close to a billion dollars. That's why I just sort of throw that out there. And then—

Speaker #4: No, there's no point in there's no volume commitments here. It's a we're going to we got to earn a right to that. It's going to happen over time.

Speaker #4: You know, but that's what they—you know, that's what they put out there as what is expected over the course of the next seven years.

Speaker #4: So, we think that's an important target for us.

Speaker #5: Okay. Thanks, Bill.

Speaker #6: Mm-hmm.

Speaker #5: And then just, Anurag, maybe for you—the SNI margins were very strong this quarter. Looking at the NCI line, it looks like the contribution from Madison Fire was very strong.

Bill Brown: I feel better about our ability to go after that market, we believe it will continue to grow over time as people get comfortable with EBO, with a contactless sort of connection device, as opposed to physical contact point-to-point devices today. I think it is going to continue to evolve, but will not comment on anything beyond 2027. I do believe it is going to continue to grow and grow meaningfully. Otherwise, we would not have talked about where we happen to be with Amazon and the size of the contract manufacturing agreement with GSEO. All these are very important to us.

Speaker #5: this quarter. I'm I'm getting to, you know, math close to the 100 million 100 million dollars of EBITDA contribution, which feels too high. But just just wondering, what kind of margin Madison Fire is coming in at and what's what's the good what's a good number for 2027?

Speaker #4: Yeah, so Nigel, I would say the number is not as high as you're citing it to be. The margins—we finished the quarter at 26.2% margins.

Speaker #4: They are a little bit higher than that, I would say, but that does get offset on the NCI line. So overall, it was EPS neutral to us.

Speaker #4: So the NCI was just a couple of pennies compared to last year. So it was not close to that. And as you move into next year, I would say it's again going to be EPS neutral.

Nigel Coe: Yeah. $6 billion, so develop at $7 billion, close to a billion dollars. That is why I just thought I would throw that out there. Then just on the S&I.

Bill Brown: There are no volume commitments here. We got to earn a right to that. It is going to happen over time. That is the number they put out there is what is expected over the course of the next seven years. We think that is an important target for us.

Speaker #4: there will be incremental million dollars of revenue coming from Madison. You can assume margin rate higher than the company and the offset will be high interest and NCI.

Speaker #5: Okay. Thank you.

Nigel Coe: Okay. Thanks, Bill. Then Anurag, maybe for you, the S&I margins were very strong this quarter. Looking at the NCI line, it looks like the contribution from Madison Fire was very strong this quarter. I am getting to math close to the $100 million of EBITA contribution, which feels too high. Just was wondering what kind of margin Madison Fire is coming in at, and what is a good number for 2027?

Speaker #1: Our next question comes from Steve Toussa with Wells Fargo. Please proceed with your question.

Speaker #5: Hey, good morning, guys.

Speaker #4: Hey, good morning, Steve.

Speaker #5: as far as the fourth quarter is concerned, can you maybe I know it's it's a couple of these businesses you said are going to accelerate and that that's great color.

Speaker #5: But maybe just how you're seeing things play out versus normal seasonality. Maybe seasonality really is like there is no normal seasonality with the last few years.

Anurag Maheshwari: Yeah. So Nigel, I would say the number is not that high as you are citing it out to be. The margins are. We finished the quarter at 26.2% margins. They are a little bit higher than that, I would say. But that does get offset on the NCI line. So overall, it was EPS neutral to us. The NCI was just a couple of pennies compared to last year, so it was not close to that. As you model into next year, I would say it is again going to be EPS neutral. There will be incremental $200 million of revenue coming from Madison. You can assume a margin rate higher than the company, and the offset will be high interest in NCI.

Speaker #5: But how you're thinking those kind of daily sales trends and then just lastly on that, the the backlog. You mentioned the backlog was up maybe just a little more color.

Speaker #5: I think you gave some on the second quarter.

Speaker #4: Yeah. So look, you know, Q4 typically is a is a lighter quarter. But you know, there's nothing unusual about seasonality here in fourth quarter.

Speaker #4: We do see it being with the, you know, 4%. That guess would get you to greater than 3.5% for the year, so it's got to be more than 4.

Speaker #4: You know, again, it's off of a a bit of a easier compare. You know, the prior year in Q4 was a little bit softer as opposed to Q3.

Speaker #4: Had a tougher compare in Q3, but it gets a little bit better in Q4. Look, we've had, you know, again, very good quarter trends.

Nigel Coe: Okay. Thank you.

Operator: Our next question comes from Steve Tusa with Wells Fargo. Please proceed with your question.

Speaker #4: You know, the backlog going into the into the quarter is up about about 18%. So it's high 10% year over year. Going into the quarter, you know, we have about 25 revenue that's in backlog, which is which is pretty good and a little bit better than we we typically see.

Steve Tusa: Hey, good morning, guys.

Bill Brown: Hey, good morning, Steve.

Steve Tusa: As far as the Q4 is concerned, can you maybe, I know a couple of these businesses you said are going to accelerate, and that's great color, but maybe just how you're seeing things play out versus a normal seasonality. Maybe seasonality really is like there is no normal seasonality with the last few years, but how you're thinking about those kind of daily sales trends. Then just lastly on that, the backlog. You mentioned the backlog was up, maybe just a little more color. I think you gave some on the Q2.

Speaker #4: So, but again, you know, based on where we see it today, we feel pretty good about coming in north of 4% and more than 3.5%.

Speaker #5: And just on Stranded, is it still an investment? Is it still $375 for the year? And does that step a little bit?

Speaker #5: I know it was up $0.17 in the quarter. Does that step up a bit in the fourth quarter?

Bill Brown: Yeah. So look, Q4 typically is a lighter quarter, but there's nothing unusual about seasonality here in the Q4. We do see it being up with the 4%. That I guess would get you to greater than 3.5% for the year, so it's got to be more than 4%. Again, it's off of a bit of a easier compare. The prior year in Q4 was a little bit softer as opposed to Q3. We had a tougher compare here in Q3, but I think it's a little bit better in Q4. Look, we've had just, again, very good order trends. The backlog going into the quarter's up about 18%, so it's high teens percent year-over-year going into the quarter. We have about 25% of the revenue that's in backlog, which is pretty good and a little bit better than we typically see.

Speaker #4: Yeah, so I believe when you said $375 million, you meant $225 million of investments and $150 million of stranded cost for the year, Steve. That's probably what you're referring to.

Speaker #5: Correct. Yes, correct.

Speaker #4: And it is still the same. And in the fourth quarter, you'll have probably $125 million of that because of the $50 million of stranded cost and $75 million of investment.

Speaker #4: So no real change from the cadence that we had laid out from the beginning of the year. And that stranded cost next year is 50 million dollars.

Speaker #4: It goes from 150 to.

Speaker #5: Great.

Speaker #4: Incremental 50.

Speaker #5: Great. Thank you so much. Really appreciate it.

Speaker #4: Thanks, Steve.

Speaker #1: Next question comes from Andy Capowitz with Citigroup. Please proceed with your question.

Speaker #6: Hey, good morning, everyone.

Speaker #4: Good morning, Andy.

Speaker #6: Bill, can you give a little more of an update on your overall progress in innovation as we start thinking about 27? I think you previously had mentioned your cycle time of innovation target is at least 20% better.

Bill Brown: But again, based on where we see it today, we feel pretty good about coming in north of 4% and more than 3.5% for the year.

Speaker #6: But can you use tools such as AI to drive greater innovation much faster, and with better margin? I think you'll do greater than 350 new products you just mentioned.

Steve Tusa: And then just one last one on stranded cost still. Is it still an investment? Is it still $375 million for the year? Does that step up a little bit? I know it was up $0.17 in the quarter. Does that step up a bit in Q4?

Speaker #6: But you've also said that 3M used to do 7,800 per year. Can you get back to those levels faster than you thought, and with greater improvement in the cost?

Speaker #4: So look, I fir first of all, yeah, I'm I'm very pleased with what's happening right now on in innovation. We're creating you know, I gave you know, some of the numbers here, you know, about 87 in the quarter, about 24%.

Anurag Maheshwari: Yeah. So I believe when you said 375, you meant $225 million of investments and $150 million of stranded costs for the year, Steve.

Steve Tusa: Correct.

Anurag Maheshwari: That is probably what you are referencing.

Steve Tusa: Yes, correct.

Anurag Maheshwari: It is still the same. In Q4, you have probably $125 of that because of the $15 million of stranded cost and $75 million of investment. So no real change from the cadence that we had laid out from the beginning of the year. That stranded cost next year is $15 million. It goes from 150 to-

Speaker #4: For the year, we'll be we'll be at 350 or more. So that would be up up 23%. Year over year, you know, early last year, the investor day would be 1,000 products over three years.

Speaker #4: And you know, we should be you know, above that, you know, with what my expect expectation would be. You know, I think what's important is we've seen the funnel remain very very healthy.

Steve Tusa: Great

Anurag Maheshwari: incremental 15.

Steve Tusa: Great. Thank you so much. Really appreciate it.

Anurag Maheshwari: Thanks, Steve.

Speaker #4: So we're bringing more projects into the funnel, into our development pipeline, than we're launching. I think that remains very, very encouraging. Cycle time has been pretty good, actually.

Operator: Our next question comes from Andy Kaplowitz with Citigroup. Please proceed with your question.

Andy Kaplowitz: Hey, good morning, everyone.

Bill Brown: Morning, Andy.

Speaker #4: You know, we are you know, we we will be down 20%. You know, it'll move around a little bit. You know, but I think we've already proven that so far.

Andy Kaplowitz: Bill, can you give a little more of an update on your overall progress and innovation as we start thinking about 2027? I think you previously have mentioned your cycle time of innovation target is at least 20% better, but can you use tools such as AI to push greater innovation much faster and with better margin? I think you will do greater than 350 new products, you just said. But you have also said that 3M used to do 700 to 800 per year. Can you get back to those levels faster than you thought, and with greater improvement in design to cost?

Speaker #4: But as we bring more class fours and class fives into the funnel, which will drive more incremental growth over time, they're a bit of a longer development cycle.

Speaker #4: So that could push things a little bit in the other direction. But the cycle time continues to come down. Our on-time launch attainment remains around 80–81%.

Speaker #4: So that's all very, very good. You know, as you mentioned about AI, I do believe that this is going to be a meaningful way for us to accelerate innovation.

Bill Brown: So look, first of all, I am very pleased with what is happening right now in NPI innovation. We are accelerating. I gave some of the numbers here, about 87 in the quarter, up about 24%. For the year, we will be at 350 or more, so that would be up 23% year-over-year. Early last year, the Investor Day, we said we would be 1,000 products over three years and we should be above that, is what my expectation would be. I think what is important is we have seen the funnel remain very healthy. So we are bringing more projects into the funnel, into our development pipeline that we are launching. I think that remains very encouraging. Cycle time has been pretty good, actually. We will be down 20%.

Speaker #4: You know, again, from 20% compression on cycle time, you know, just by bringing AI in, you know, your ideating faster, your your eliminating some of the steps of developing and and and making prototypes in labs, getting out to a factory, so you instead of doing physical prototypes, you can do you know, virtual modeling and simulation.

Speaker #4: All those opportunities are happening now, so that could confer further compressed cycle time. What that means is we should be accelerating the number of new product launches without accelerating the cost to go and make that happen.

Speaker #4: So I'm very encouraged. We're working very hard on this. A lot of the effort to date has been codifying this vast treasure trove of information that remains at 3M, in terms of all of the patent information, all the technical papers, all the material specs.

Bill Brown: It will move around a little bit, but I think we have already proven that so far. As we bring more Class 4s, Class 5s into the funnel, which will drive more incremental growth over time, they are a bit of a longer development cycle, so that could push things a bit in the other direction. But the cycle time continues to come down. Our on-time launch attainment remains around 80%, 81%, so that is all very, very good. As you mentioned about AI, look, I do believe that this is going to be a meaningful way for us to accelerate innovation. Again, from 20% compression on cycle time, just by bringing AI in, you are ideating faster, you are eliminating some of the steps of developing and making prototypes in labs, getting out to a factory. So instead of doing physical prototypes, you can do virtual modeling and simulation.

Speaker #4: Safety sheets, all of this information on process informatics, all the how you make it, all needs to be codified. That's now being done. And when you have all that and you lay AI on top of it, it can really accelerate our journey in bringing new products to market.

Speaker #4: So, you know, I'm encouraged about the progress we're making here. And, you know, to your point, I think there's a great opportunity to accelerate that into '27 and beyond.

Speaker #5: It's helpful, Bill. And maybe just delving a little bit more into consumer. I know you said point of sales is continuing to improve, but consumer, as you know, has been a bit slow to turn.

Speaker #5: Do you see a more definitive turn coming in that business, or can increased self-help drive a more definitive turn? And you mentioned still some slight retail de-stocking.

Speaker #5: So maybe a little more comment on what you're seeing there.

Bill Brown: All those opportunities are happening now. So that could further compress cycle time. And what that means is we should be accelerating the numbers of new product launches without accelerating the cost to go and make that happen. So I am very encouraged. We are pushing very hard on this. A lot of the effort to date has been codifying this vast treasure trove of information that resides at 3M in terms of all of the patent information, all the technical papers, all the material specs, safety sheets, all of this information, process informatics, all the how you make it. It all needs to be codified. That is now being done. And when you have all that and you lay AI on top of that, it can really accelerate our journey in bringing new products to market. So, I am encouraged about the progress we are making here.

Speaker #4: So, yeah. I mean, consumer, we expect, will turn slightly positive in the back end, in the fourth quarter of the year. Of course, you know, we thought Q3 was going to be positive.

Speaker #4: It didn't happen. But but we're we're on the right trajectory here. It's not necessarily going to be a big driver of of growth for the company given you know, its size and where we expect it to be in the fourth quarter.

Speaker #4: You know, but the trends are positive. You know, POS was kind of you know, basically up a a little bit in in Q1, you know, improved a bit more in Q2 around 2 2.2%, a little bit better in Q3.

Speaker #4: You know, POS has been pretty good. You know, what happened over the course of this year is the inventory in the channel, especially with a couple of retailers, has been pulled down a little bit.

Speaker #4: About half a week in Q3; it was about half a week in Q2. You know, we find that to be stabilizing here a little bit going into the fourth quarter.

Bill Brown: To your point, I think there is a great opportunity to accelerate that into 2027 and beyond.

Speaker #4: But again, you know, you know, these are it's hard to predict what what some of these retailers are going to do. But you know, when we take a step back and look at the way the portfolio is evolving, you know, we we see it to be you know, slightly better in Q4.

Andy Kaplowitz: It's helpful, Bill. Maybe just delving a little bit more into consumer. I know you said point of sales continue to improve, but consumer, you know, has been a bit slow to turn. Do you see a more definitive turn coming in that business, or can increased self-help drive a more definitive turn? You mentioned still some select retail destocking, so maybe even a little more color on what you're seeing there.

Speaker #4: But again, not a big, meaningful driver for the growth as a company. You know, one of the things that's interesting is—I mean, international's been pretty good.

Speaker #4: So even while the the business is mostly US, about 70%, but international for us has been up mid-single digits. And the trends there continue to be to be pretty strong.

Bill Brown: Yeah, consumer we expect will turn slightly positive in the back end, in Q4 of the year. Of course, we thought Q3 was going to be positive. It didn't happen, but we're on the right trajectory here. It's not necessarily going to be a big driver of growth for the company, given its size and where we expect it to be in Q4. But the trends are positive. POS was kind of basically up a little bit in Q1, improved a bit more in Q2, around 2% to 2.2%. A little bit better in Q3. So POS has been pretty good. What happened over the course of this year is the inventory in the channel, especially with a couple of retailers, has been pulled down a little bit. About half a week in Q3. It was about a half a week in Q2.

Speaker #4: So, I think if we put it all together, we—U.S. can improve, and international holds in at mid-single digits. We can actually be positive in the fourth quarter.

Speaker #5: Appreciate all the color.

Speaker #1: We'll go next to Varun Govindaraj with Bernstein. Please proceed with your question.

Speaker #3: Morning, everyone. Thanks for the question. A quick one from my end. You've got a leadership change on the R&D side, with John retiring and Tushar coming in.

Speaker #3: How are you driving continuity in the R&D strategy with that change? Because, I mean, these kinds of changes during transformations are tricky.

Speaker #3: So, I'm curious how you're handling it.

Speaker #4: So, Varun, thanks for the question. I mean, look, John was here for a number of years, close to 30, and was CTO for quite a long time.

Bill Brown: We find that to be stabilizing here a little bit going into Q4. But again, it's hard to predict what some of these retailers are going to do. But when we take a step back and look at the way the portfolio is evolving, we see it to be slightly better in Q4, but again, not a big meaningful driver for the growth as a company. One of the things that's interesting is the international has been pretty good. The business is mostly US, about 70%, but international for us has been up mid-single digits, and the trends there continue to be pretty strong. So I think if we put it all together, US can improve and international holds in at mid-single digits. We can actually be positive in Q4.

Speaker #4: And was a fantastic partner to me. And in reestablishing, reinvigorating innovation, Tushar, you know, has been with the company for 25 years. You know, he's a PhD.

Speaker #4: He's got a lot of experience both running a business as well as, you know, developing technology—more than 40 patents to his name. And I like the combination.

Speaker #4: He's been running the IATD business within SIBG for the last number of years. You know, leaning forward on AI, digital tools. I think that combination is going to be very important.

Speaker #4: So I said, you know, having somebody that knows the players internally, know the technology, importantly knows our customers, you know, that combination I think will drive you know, good continuity in what we're trying to do on innovation at at 3M.

Andy Kaplowitz: Appreciate all the color.

Operator: We'll go next to Varun Govindaraj with Bernstein. Please proceed with your question.

Speaker #3: Super helpful—thanks for the color. And then, just as a quick follow-up: we've talked a lot about EVO sizing, but you've also flagged stuff like the Nextel ceramic fibers. Space got a lot of real estate in today's presentation.

Varun Govindaraj: Morning, everyone. Thanks for the question. Quick one from my end. You've had a leadership change on the R&D side with John retiring and Tushar coming in. How are you driving continuity in the R&D strategy with that change? Just because these kinds of changes during transformations are tricky, so curious how you're handling it.

Speaker #3: Do you have any rough sense of how creative that could be—either next year, or do we sort of expect that to come in more 2028 onwards?

Speaker #4: No. We I mean, we think 27 will be will be a step up on that. You know, so it's a couple of different things.

Bill Brown: Varun, thanks for the question. Look, John was here for a number of years, close to 30, and was CTO for quite a long time and was a fantastic partner to me in reestablishing, reinvigorating innovation. Tushar has been with the company for 25 years. He's PhD. He's got a lot of experience both running a business as well as developing technology, more than 40 patents to his name. I like the combination. He's been running the IETD business within SIBG for the last number of years, leaning forward on AI, digital tools. I think that combination is going to be very important to us, and having somebody that knows the players internally, know the technology, importantly knows our customers. That combination, I think will drive good continuity in what we're trying to do on innovation at 3M.

Speaker #4: We continue to see very good growth in our electrical markets division with connectors meeting voltage connection coming into into data centers. You know, that that has been a good grower for us all year.

Speaker #4: You know, double-digit. We continue to see that continuing into next year. But there are a lot of other different technologies. You point out Nextel, which goes into a couple of different behind-the-meter type solutions.

Speaker #4: Outside of data center. And, you know, we continue to have momentum there. We're expanding capacity to meet the demand of that space.

Speaker #4: So I think that could be a step up into '27 and perhaps even better than that in '28. So I think very good momentum both inside as well as outside the data center room.

Speaker #3: All right, appreciate it. All the best for the rest of the year.

Speaker #4: Thank you.

Speaker #1: Our next question comes from Brandon Knutson with Morgan Stanley. Please proceed with your question.

Varun Govindaraj: Super helpful. Thanks for the color. Then just as a quick follow-up. We've talked a lot about EBO sizing, but you've also flagged stuff like the Nextel ceramic fibers. Space got a lot of real estate in today's presentation. Any rough sense of how accretive that could be either next year or do we sort of expect that to come in more 2028 onwards?

Speaker #5: Hey, good morning. Thanks for taking the question. You guys have been highlighting new product introductions. Can you quantify for us a little bit how much better pricing or margins are on these new products?

Speaker #5: How do you think you can get that MPVI over time?

Speaker #4: So, we haven't really talked much about what we do on— I mean, sometimes, when you bring new products, it is creating a new space.

Bill Brown: No. We think 2027 will be a step up on that. It is a couple of different things. We continue to see very good growth in our Electrical Markets Division with connectors, medium voltage connection coming into data centers. That has been a good grower for us all year, double digit, and we can see that continuing into next year. There is a lot of other different technologies. You point out Nextel, which goes into a couple of different behind the meter type solutions outside of the data center. We continue to have momentum there. We are expanding capacity to meet the demand of that space. I think that could be a step up into 2027, perhaps even better than that in 2028. I think very good momentum both inside as well as outside the data center room.

Speaker #4: So you really don't have a good vantage point. But I think our ability to drive value-based pricing is becoming a lot better.

Speaker #4: We see it across a number of different part product portfolios. So you know, I would say when we bring in new products to the marketplace, once you start to hit volume ramp, you know, we do see you know, margin those those products generally.

Speaker #4: Margin accretive to the company. So price is is an important part of that.

Speaker #5: Great, thank you. And then, last one—just on data center EPOs. There's been a lot of focus. I know the production capacity has been important there in the GSEO deal.

Speaker #5: We'll help with that significantly. What else is key to the ecosystem to drive growth here? And then, outside of EBO, how do you see your other DC content scaling?

Varun Govindaraj: All right. Appreciate it. All the best for the rest of the year.

Speaker #4: So, we provide, you know, we manufacture a ferrule. Fibers have to be terminated into the ferrule; they have to be put into a connector.

Bill Brown: Thank you.

Operator: Our next question comes from Brandon Knutson with Morgan Stanley. Please proceed with your question.

Speaker #4: You know, and then installed in a data center. So all of those pieces are quite important. But, you know, hyperscalers have an important—they do, they design their own architecture.

Brandon Knutson: Hey, good morning. Thanks for taking the question. You guys have been highlighting new product introductions. Can you quantify for us a little bit how much better pricing or margins are on these new products, and how high you think you can get that NPVI over time?

Speaker #4: The server menu designer, server manufacturer—you know, have views of where they're taking their product line, how they're shifting from copper to optics over time.

Speaker #4: So all of those various pieces, you got to work with that broad set of players to establish EBO, and then to grow it.

Bill Brown: We haven't really talked much about what we do on pricing. Sometimes when you bring new products, it's creating a new space, so you really don't have a good vantage point. But I think our ability to drive value-based pricing is becoming a lot better. We see it across a number of different product portfolios. So, I would say when we bring in new products to the marketplace, once you start to hit volume ramp, we do see those products generally being margin accretive to the company. So price is an important part of that.

Speaker #4: So you know, that's what the MSA is really for. It's developing standards and then certifying players in the space to install EBO. So you know, that needs to happen side by side with technology development and scaling.

Speaker #1: Our next question comes from Nicole DePlace with Deutsche Bank. Your line is now open.

Brandon Knutson: Great. Thank you. And then last one on just data center. EBO's gotten a lot of focus. I know the production capacity has been important there, and the GSEO deal will help with that significantly. What else is key to the ecosystem to drive growth here? And then outside of EBO, how do you see your other DC content scaling?

Speaker #6: Yeah. Yeah. Good morning. Thanks for being here, guys. maybe I'll just ask one since I know we're at time. Just wanted to dig in a little bit more on consumer electronics and, you know, understand what's going there with respect to me going on there with respect to memory.

Speaker #6: But I guess, Bill, when you kind of look out into 2027, are there any green shoots that make you feel like maybe this business could turn positive again, or am I being too optimistic?

Bill Brown: We manufacture a ferrule. The fibers have to be terminated into the ferrule. They have to be put into a connector, and then installed in a data center. So all those pieces are quite important. But hyperscalers have an important. They design their own architecture. The server design or server manufacturers have views of where they're taking their product line, how they're shifting from copper to optics over time. So all of those various pieces, you've got to work with that broad set of players to establish EBO and then to grow it. So that's what the MSA is really for, is developing standards and then certifying players in the space to install EBO. So that needs to happen side by side with technology development and scaling.

Speaker #6: Thank you.

Speaker #4: Yeah. No. So so consumer electronics, yeah, it was we've seen some pressure here in in the quarter. We'll see some additional pressure going into into Q4 as well in consumer electronics.

Speaker #4: I mean, we do, in consumer electronics, we provide films primarily for LCD displays. We do conductives. We do OCA e-bonding a lot for phones and tablets.

Speaker #4: Notebooks, etc.—you know, we're primarily a premium player here. So, roughly 70% of our business is with premium device manufacturers. Overall, I'd say we're tracking kind of in line with, or maybe slightly better than, the market.

Speaker #4: We've seen pressure in two particular areas. One is in LCD displays—you know, that's one area. And the other is with China OEMs.

Speaker #4: Not a very big part of our business, but that market is down quite substantially in the quarter and then for for the year. So but we're we're performing very well with premium device manufacturers where you know, performance, where thermal management, for AI devices, for foldable devices, for all these new new innovations, we're performing very very well there.

Operator: Our next question comes from Nicole DeBlase with Deutsche Bank. Your line is now open.

Nicole DeBlase: Yeah. Good morning. Thanks for squeezing me in, guys. I will just ask one since I know we are at time. I just wanted to dig in a little bit more on consumer electronics and understand what is going on there with respect to memory. I guess, when you kind of look out into 2027, are there any green shoots that make you feel like maybe this business could turn positive again, or is that being too optimistic? Thank you.

Speaker #4: You know, and as I look forward, you know, that kind of innovation you know, with those premium manufacturer, I think we'll we'll allow us to you know, return to growth going into next year and beyond.

Bill Brown: Yeah. Consumer electronics, we have seen some pressure here in the quarter. We will see some additional pressure going into Q4 as well in consumer electronics. In consumer electronics, we provide films primarily for LCD displays. We do conductives, we do OCA bonding a lot for phones and tablets, notebooks, et cetera. We are primarily a premium player here, so 70% of our business roughly is with premium device manufacturers. Overall, I would say we are tracking kind of in line with or maybe slightly better than the market. We have seen pressure in two particular areas. One is in LCD displays. That is one area. The other is with China OEMs. Not a very big part of our business, but that market is down quite substantially in the quarter and then for the year.

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

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

Speaker #7: Hey, good morning, all. I wanted to come back to slide five. So, on the space portfolio, I was hoping you could put a finer point on the TAM or anything you can share regarding content opportunity per satellite.

Speaker #7: And if there are any constellation or customers you're currently spec'ing on or working on designs.

Speaker #4: So so we can't talk about the latter part of that, which is you know, who we're getting spec in on. But but I was very careful and I said, you know, it's it's a pretty broad space.

Speaker #4: It's it's it's Leo and Geo. It it's you know, low Earth orbit, you know, geosynchronous orbit, commercial customers, you know, some government contracts we're working on.

Speaker #4: But it's it's a broad opportunity for us. You know, and you can see some of the challenges here. You know, it's around how do you lightweight you know, satellites build more capability, bring more protection.

Bill Brown: We are performing very well with premium device manufacturers where performance, where thermal management for AI devices, for foldable devices, for all these new innovations, we are performing very well there. As I look forward, that kind of innovation, with those premium manufacturers, I think will allow us to return to growth going into next year and beyond.

Speaker #4: So there's no you know, light reflecting back to the Earth. you know, removing a glass solar panel as they get bigger. With the replaced it with films that allows it to work to be a lot lighter.

Speaker #4: So, there's a lot of capability here. You know, our content is growing in that space. Our innovation, I think, is quite important.

Speaker #4: But you know, we expect that that's going to grow over time, which is why we want to keep highlighting it.

Speaker #4: So we we don't want to say too much more than that, but it's a it's a great opportunity for us to grow our business.

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

Operator: Our next question comes from Brett Linzey with Mizuho. Please proceed with your question.

Speaker #7: I appreciate the detail. And just a quick follow-up on the $185 million of oil inflation—you said fully offset by price. Is there carryover lag into '27 we should be thinking about or modeling?

Brett Linzey: Hey, good morning, all. Wanted to come back to slide 5, so on the space portfolio. Was hoping you could put a finer point on the TAM or anything you can share regarding content opportunity per satellite, and if there's any constellations or customers you're currently spec'd in on or working on designs.

Speaker #7: And then, how much of that price is go get versus in the market, a little bit more surgical?

Speaker #3: Yeah. so yeah, we should we we implemented the price increase starting May this year. And we started seeing the increase in our cost by probably a a month earlier than that.

Bill Brown: We can't talk about the latter part of that, which is who we're getting spec'd in on. But I was very careful, and I said it's a pretty broad space. It's LEO and GEO. It's low Earth orbit, geosynchronous orbit, commercial customers, some government contracts we're working on. But it's a broad opportunity for us. You can see some of the challenges here. It's around how do you lightweight these satellites, build more capability, bring more protection, so there's no light reflecting back to the Earth. Removing a glass solar panel as they get bigger, replacing it with films that allows it to work, can be a lot lighter. So there's a lot of capability here. Our content is growing in that space. Our innovation, I think, is quite important.

Speaker #3: So, you should see about how we are going into next year, definitely on the oil cost piece. And at the same time, you should also see the price carryover.

Speaker #3: So we will be neutral. I between price and oil cost, for next year. And the strategy was actually to be a little bit more surgical.

Speaker #3: It wasn't peanut butter spread across the entire businesses. It was looking at areas where we there was either higher cost or where all some of the peers were going out with price increases.

Speaker #3: And that's what the team did. And I think we did a very very good job by offsetting it last year tariff. We did not offset the entire price increase, but over here we did.

Speaker #3: And the discipline has been really, really good.

Speaker #7: Thanks for the detail.

Speaker #3: Yeah.

Bill Brown: But we expect that that's going to grow over time, which is why we want to keep highlighting it. We don't want to say too much more than that, but it's a great opportunity for us to grow our business.

Speaker #1: Our last question comes from Jeff Reeve with RBC Capital Markets. Please proceed with your question.

Speaker #7: Good morning. Thanks for squeezing me in. I'll I'll keep it to one question. And on on the EBO business, so if the four hyperscalers currently in proof of concept convert, is the combined internal plus GSEO manufacturing footprint sufficient?

Brett Linzey: I appreciate the detail. Just a quick follow-up on the $185 million of oil inflation you said fully offset by price. Is there carryover lag into 2027 we should be thinking about or modeling? Then how much of that price is go get versus in the market a little bit more surgical?

Speaker #7: Or should we expect further capacity investments?

Speaker #4: No. It it should be sufficient. But again, it gets back to this diversity of supply. So we are scaling internally, but we'll we'll never be able to within three years to be able to accommodate the market demand.

Anurag Maheshwari: Well, we implemented the price increase starting May this year, and we started seeing the increase in our cost probably a month earlier than that. So you should see some carryover going into next year, definitely on the oil cost piece. At the same time, you should also see the price carryover. So we will be neutral between price and oil cost for next year. The strategy was actually to be a little bit more surgical. It wasn't peanut butter spread across the entire businesses. It was looking at areas where there was either higher cost or where some of the peers were going out with price increases, and that's what the team did. I think we did a very, very good job by offsetting it. Last year, tariff, we did not offset the entire price increase.

Speaker #4: You know, GSEO has an incredible capacity. You know, but likely, over time, there may be other players here, other manufacturing sources, to just give that satisfaction of diversity of supply.

Speaker #4: So, we're confident we can ramp with GSEO, but you know, there may be others that we'll have to bring on board over time.

Speaker #7: Great. Thanks.

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.

Speaker #4: Okay. So thank you everybody. And I know we're we're over a little bit. Appreciate everybody joining the call today. And I want to thank again all the 3Mers for delivering another strong quarter.

Anurag Maheshwari: But oil, we did, and the discipline has been really, really good.

Brett Linzey: Thanks for the detail.

Anurag Maheshwari: Yeah.

Operator: Our last question comes from Jeff Reeves with RBC Capital Markets. Please proceed with your question.

Speaker #4: Of great execution. You know, great value to customers and our shareholders. You know, I'm proud of what we've achieved together. And I'm excited for what the future holds at 3M.

Jeff Reeves: Good morning. Thanks for squeezing me in. I will keep it to one question. On the EBO business, if the four hyperscalers currently in proof of concept convert, is the combined internal plus GSEO manufacturing footprint sufficient, or should we expect further capacity investments?

Jeff Reive: Good morning. Thanks for squeezing me in. I will keep it to one question. On the EBO business, if the four hyperscalers currently in proof of concept convert, is the combined internal plus GSEO manufacturing footprint sufficient, or should we expect further capacity investments?

Speaker #4: Thank you all, and have a good day.

Bill Brown: No, it should be sufficient. It gets back to this diversity of supply. We are scaling internally, but we will never be able to, within 3M, to be able to accommodate the market demand. GSEO has an incredible capacity, but likely over time, there may be other players here, other manufacturing sources that just give that satisfaction of diversity of supply. We are confident we can ramp with GSEO, but there may be others that we will have to bring on board over time.

Jeff Reeves: Great. Thanks.

Jeff Reive: Great. Thanks.

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: Okay. Thank you, everybody, and I know we're over a little bit. I appreciate everybody joining the call today. I want to thank again all of the 3M-ers for delivering another strong quarter of great execution, great value to customers and our shareholders. Proud of what we've achieved together, and I'm excited for what the future holds at 3M. Thank you all, 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.