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spk06: Ladies and gentlemen, thank you for standing by. Welcome to the 3M Third Quarter Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you do have a question, please press star 1 on your telephone keypad. As a reminder, this call is being recorded Tuesday, October 22, 2024. I would now like to turn the call over to Bruce Germeland, Senior Vice President of Investor Relations at 3M.
spk12: Thank you and good morning, everyone, and welcome to our third quarter earnings conference call. With me today are Bill Brown, 3M's chief executive officer, and Anurag Maheshwari, our chief financial officer. Bill and Anurag will make some formal comments, then we'll take your questions. Please note that today's earnings release and slide presentation accompanying this call are posted on the homepage of our investor relations website at 3M.com. Please turn to slide two. Please take a moment to read the forward-looking statement. During today's conference call, we'll be making certain predictive statements that reflect our current views about 3M's future performance and financial results. These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Item 1A of our most recent Form 10Q 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'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. With that, please turn to slide three, and I'll hand the call off to Bill. Bill?
spk16: Thank you, Bruce, and good morning, everyone. First, I'd like to take a moment and welcome Anurag to his first 3M earnings call. Anurag recently joined 3M in early September after serving as CFO of Otis. I've had the pleasure of working with Anurag off and on over the past 20 years and look forward to his leadership and partnership as 3M's CFO. Earlier today, we reported strong third quarter results with non-gap earnings per share of $1.98, up 18% on 1% organic revenue growth. Our overall company margins increased 140 basis points to 23%, and free cash flow was $1.5 billion, with conversion of 141%. and we returned $1.1 billion to shareholders during the quarter via dividends and share repurchases. These results extend our strong 2024 operating performance with non-GAAP earnings per share over the first three quarters up 30% on 1% organic revenue growth. As a result of the team's strong operational performance and disciplined capital deployment, We raised the bottom end of our full year earnings guidance by 20 cents to a range of $7.20 to $7.30 versus a prior range of $7 to $7.30 per share. During our Q2 earnings call, I described our top three priorities. Number one, driving sustained top-line organic growth through both reinvigorating innovation and improving commercial excellence. two, improving operational performance across the enterprise, and three, effectively deploying capital. As I mentioned in July, getting more productivity out of our R&D investments is going to take some time, but we're beginning to make progress on both R&D effectiveness and efficiency. A lot of our recent efforts have focused on the basic blocking and tackling and improving the fundamentals of our R&D and commercialization processes. For example, we've taken actions to improve enterprise-wide visibility on specific investments in our product development pipeline, and we're driving a new rigor and discipline into product launch calendars and raising accountability for post-launch sales performance. We're fast tracking projects for low-risk product line extensions, eliminating non-value-added activity from our engineers' workload by offloading or outsourcing administrative tasks, and increasing pipeline velocity through efforts as simple as reducing the time to set up an SKU from 100 days on average last year to about 60 days this year. And to address bottlenecks and drive productivity in the product development process, we're shifting capital spending within our existing budget to fund upgrades of R&D facilities to allow us to scale rapidly from lab to pilot to manufacturing. And finally, we're shifting about 100 people within R&D to focus on new product development, including those who are rolling off PFAS-related projects. and adding more than 50 new engineers in the fourth quarter to high-priority focus areas such as specialty materials and films for the automotive, aerospace, electronics, and semiconductor markets. After a decade-long slide in new product introductions, we bottomed out and are starting to turn the corner with new product launches expected to be up about 10 percent this year with a further acceleration next year. I recognize these are only initial steps on a long journey toward bending the organic growth curve. And in the meantime, we have to improve how we execute at the customer interface. We're working through the details of how we staff, train, and incentivize our sales force, price our products, leverage our distribution network, and capture cross-sell opportunities. And we'll share those details as they evolve. but one area where we've seen continued progress is delivering on on-time in full, or OTIF, to our customers. I know we've lost business and have paid fines due to poor delivery performance, and I'm encouraged by the steady improvement we're making, ending Q3 at 89% OTIF, up five points since the beginning of the year, and 10 points above Q4 of 2022. As we push harder on OTIF, we're getting more visibility on the weak links in the value chain, from the performance in our factories to our suppliers and to our logistics providers. In our factories, we're looking harder at the reliability of our assets and our capacity to surge, and we've now implemented a common metric to measure operating equipment efficiency, or OEE, across the major assets in our 38 largest facilities. Utilization on these machines going back to the beginning of the year averages around 50%, well short of best-in-class companies, and pointing to opportunities to free up capacity to better respond to quick-turn orders by optimizing changeovers and improving maintenance practices. When it comes to our suppliers and contract manufacturers, we're implementing more rigorous standards and expectations for on-time performance, which has been running in the low 60% range for the past few years and is now in the low 70s. A common theme in all of these discussions is the need for significantly higher demand visibility and forecast accuracy, which has been running in the mid 60 percent range, 10 to 15 points below expectation and well below best in class companies. We recently kicked off a project to redesign our forecasting process, and we're in the early stages of a 15-week sprint to test and tune our demand plan for two large divisions using different analytical tools. Initial results through the new model show a lot of promise in improving forecast accuracy, which will allow us to level out our factories, reduce inventory throughout the value chain, and improve on-time delivery to customers. As I mentioned in July, this is a back to basics, focus on fundamental approach that lays the groundwork for a more holistic look at network complexity. While we've closed facilities in the past and have a few more in flight today, gaining maturity in our OE metric will allow us to take a fresh look at consolidation opportunities at both the site and the work cell level over time. A critical enabler of our OPEX agenda is the depth and capacity of our operations leadership team, and we continue to onboard new talent, particularly in the areas of quality, materials planning, and continuous improvement. These efforts are all part of a broad operational transformation at 3M, the foundation of which is a safety-first culture. While our injury rate has improved versus last year, it's not where we want it to be. Earlier this month, we launched a company-wide campaign called Journey to Zero that engages every employee in our drive towards an injury-free workplace. Turning to capital deployment, through nine months, we've generated $3.5 billion of adjusted free cash flow with conversion of 102% after investing $1.7 billion in R&D and CapEx. We've returned $2.7 billion to shareholders, including share repurchases of $1.1 billion. Our balance sheet remains strong, and we're actively reviewing our portfolio with a few small businesses now in the early stages of a sale process. So overall, we're making progress on the three priorities that I've laid out, and I'm encouraged by the energy and desire of our team to win by delivering for our customers and creating value for our shareholders. With that, let me turn it over to Anurag to provide more details on the quarter and our updated guidance. Anurag?
spk00: Thank you, Bill. Starting with overall company third quarter performance on slide four. Total adjusted sales were $6.1 billion, with organic growth up 1% or up 2%, excluding geographic prioritization and product portfolio initiatives. These results reflect end-market trends that were largely in line with expectations, including mixed industrial markets, strong growth in electronics, a decline in automotive OEM bill rates, and continued softness in consumer retail discretionary spending. Looking geographically, adjusted organic growth was led by Asia Pacific up mid-single digits, driven by our electronics business. The U.S. was flat, with strength in home improvement and commercial branding in transportation, offset by a tough comp in personal safety as self-contained breathing apparatus benefited from significant supply recovery last year. and EMEA was down low single digits due to the decline in global car and light truck bills. Adjusted operating margins expanded 140 basis points to 23%, driven by benefits from improved organic growth, continued productivity, and restructuring. This strong operating performance, along with benefits from below-the-line items, resulted in adjusted EPS of $1.98, up 18%, or 30 cents. Turning to revenue by business group on slide five. Safety and industrial sales were $2.8 billion, with organic growth of 0.9%. The growth was primarily driven by the industrial adhesives and tapes division, which saw particular strength in bonding solutions for electronic devices. In addition, we saw growth in roofing granules and electrical markets, while the balance of the divisions was down slightly due to ongoing market softness and unfavorable prior year comps. Transportation and electronics adjusted sales were $1.9 billion, up 2% organically. Our electronics business delivered high single-digit organic growth as consumer electronics OEM customers ran production volumes ahead of the upcoming holiday season. Automotive and aerospace division organic growth was down mid-single digits in the third quarter. The auto OEM business declined in line with global car and light truck builds, while aerospace delivered strong growth driven by bonding and acoustic solutions. Year-to-date, our total auto OEM business was up 4% versus a 2% decline in global car and light truck build rates. We continue to gain penetration with adhesives, tapes, display films, and electronic materials on multiple new auto OEM platforms. Looking at the rest of the transportation electronics, Advanced materials grew high single digits with strong glass bubble demand for lightweighting applications in transportation and oil and gas markets. Commercial branding in transportation was up low single digits, driven by demand for graphics and pavement markings. Finally, the consumer business sales were $1.3 billion. Organic sales declined 0.7%, which included a 2.3 percentage point headwind from portfolio prioritization. Home improvement delivered mid-single-digit growth, driven by new products in our command portfolio introduced for the back-to-school and holiday seasons. The remaining divisions within the consumer business declined due to portfolio prioritization actions, as well as retail customers continuing to be price sensitive and value focused. Through the course of the year, the consumer business has improved, and we expect the trend to continue in the fourth quarter. Turning to slide six. As mentioned, on an adjusted basis, we delivered Q3 operating margins of 23%, up 140 basis points, and earnings per share of $1.98, or an increase of 30 cents. Operational performance, including organic growth, along with ongoing benefits from productivity and restructuring, contributed 160 basis points to margins, while foreign currency was a headwind of 20 basis points. These items, combined with acquisition and divestiture impacts, contributed 14 cents to earnings. The remaining 16 cents of EPS growth was driven by last year's high tax comp, along with benefits from net interest and a lower share count. Turning to cash, we generated solid adjusted free cash flow of $1.5 billion in the quarter, driven by strong income generation and positive working capital flows, while continuing to invest capital to support growth and sustainability. Conversion for the quarter was 141%. Overall, we have had very strong year-to-date operating performance. We have expanded margin 380 basis points, grew EPS by 30% on 1% organic growth, and generated $3.5 billion of free cash flow with conversion of 102%. Based on this performance, we are updating our full year 2024 guidance on slide 7. We expect a full year adjusted organic growth to be approximately 1% with business group estimates unchanged, with safety and industrial flat to up low single digits. Transportation and electronics up low single digits and consumer down low single digits. Full year adjusted operating margins are expected to be up 250 to 275 basis points versus the prior range of 225 to 275 driven by continued momentum from productivity. The operational benefit combined with lower net interest expense and share count gives us confidence to raise the lower end of our EPS guidance by 20 cents to a range of $7.20 to $7.30. Finally, our expectation is that we will continue to deliver robust cash flow with strong working capital performance in the fourth quarter. With year-to-date conversion at 102%, we expect that the adjusted free cash flow conversion performance will be 100% plus for the full year. Before we turn to Q&A, I want to take a moment to thank the 3M team for the warm welcome. I'm excited for the opportunity ahead of us and look forward to working with the team as we execute the priorities Bill has laid out. With that, let's open the call for questions.
spk06: Thank you. Ladies and gentlemen, if you would like to register a question, please press star 1 on your telephone keypad. If your question has been answered and you would like to withdraw, please press star 2. If you are using a speakerphone, please lift up your handset before entering your request. Please limit your participation to one question and one follow-up. Our first question comes from Scott Davis of Milius Research.
spk15: Hey, good morning, everybody. Bill, Anurag, and Bruce. Morning, Scott. Good morning. And congrats to all on a good start here. Guys, I want to talk a little bit about this operational transformation. It seems like a pretty heavy lift, but obviously you're making some progress. But Last quarter, you spent some time on supply chain, in prepared remarks, not as much this quarter. How big of an opportunity is that kind of step two or step three down the road in kind of getting the supply chain reoriented, and how big of an opportunity do you think that is, Bill, now that you've had a little bit more time in the seat?
spk16: So, Scott, thanks for the question. Look, we continue to make good progress across all of the elements in our operations. You know, our cost of goods sold is $13 billion. A piece of it, a big piece of it is supply chain. So, obviously, that is a high degree of focus. You know, we're looking to drive 2% net productivity, so 2% net of inflation across all those elements, including in supply chain. We have about 25,000 customers. direct suppliers, including 4,000 contract manufacturers. Our teams are working hard to consolidate that, drive performance, and we continue to do a good job on this. I think we're at the front end of what I would say to be a long journey. I think we get a lot of value out of basic negotiations. I think we have a lot more opportunity You know, as we think more about value engineering in our product, that's a relatively small component of our overall supply savings. So the teams are working, I think, very, very hard on this. Again, as they step back across all the $13 billion, you know, if you drive and get 2% net, you know, you're talking $650 million more or less of, you know, $250 million, $260 million worth of net productivity. You know, there's a lot of value there that we can capture year over year. I spent a little time in my prepared remarks talking about one of the key levers, because I think it's both a growth and an operations lever, and that's delivering on time in full. And we're doing a very good job in our factories. The team is performing well, but it's pointing out some opportunities to drive better supplier performance, and we're really, really focused on that. We've seen some improvements over the last year. But I think a lot more to do in terms of driving the full value chain performance improvement, including with our supply base.
spk15: And that's helpful. And, Bill, you talked a little bit about needing to change the incentive structure a little bit. Do you think you'll have a new incentive structure and comp plan in place for 2025? And what does that really mean? Does that mean kind of increasing the variable component? Can you really – dialed in kind of, you know, to where you want it this quickly?
spk16: So good question, Scott. I think, look, before we get to the comp plan, I think what's going to be more important for us is to make sure we have very clear objectives across the management team deep in these organizations so we all understand what we're accountable to achieve to shareholders and to one another. I think that's step one. And I do think we have an opportunity to get a little more crisp on our objective setting process. You know, but of course, the back end of that is comp plans. I think you will see some adjustments in our 25 comp plan. We are out speaking with shareholders about that based on the results we had earlier this year in our AGM report. But, yeah, we'll continue to look at our comp plans, not just at executives, but as it flows into the organization. And importantly, with our between 5,000 and 6,000 salespeople out there, we'll continue to look at do we have the right incentive structure to drive the right behaviors across the full 60,000-plus people in the company. So, Scott, there's going to be changes that are being made. We'll talk more about that as they come to fruition in the coming months.
spk15: Okay. Thank you, Bill. Best of luck, guys. Thank you, Scott.
spk06: We'll go next now to Andrew Obin with Bank of America.
spk09: Yes, good morning. I guess I'll ask two questions, follow up on Scott's questions. Just, Bill, what are your views on centralization inside 3M? I know Mike pushed for a lot of centralization, which was a departure from what his predecessor, Inga Thulin, has done, which ran the company recently. in very, very decentralized ways. So just would love to hear how your operating philosophy has evolved since you joined the company. That's part one. And part two, we're just getting a lot of questions on insurance recovery related to PFAS and combat arms, particularly given the new side of carrier where they indicated that perhaps they could indicate they could recover insurance in excess of their cost. These are public statements. So any sort of publicly available updates on where you are in the process on insurance recovery would be helpful. Thanks so much and congratulations and a good quarter.
spk16: Great, Andrew. Thanks for the questions. I mean, first of all, I think about two and a half years ago, Mike did consolidate all of our factories and supply chains under a common leader, under Peter Givens. I think it was the right thing to do. It allows us to look across 110 plus or minus factories and close to 100, between 80 and 100 distribution centers and really look at performance, performance metrics, how they compare with one another. It's a network. They float together. So artificially separating the map by a business group or by geography did not make a lot of sense. So you'll get the power of the whole by looking at all of the operations together. So if you call it centralization, I call that global coordination. I do think that was the right step, and it was smart to do that. And we're reaping the benefits of that. And I think going forward, you know, the value we'll be able to get out of operations is because of that, that operational, that organizational change. So I think it was the right step. I think the move to globally coordinating business units, depending upon the business, some we run globally, some we run regionally. but all within those three broad business groups. I also think that was good. There'll probably be some adjustments in how we structure the BGs over time, perhaps within the three business groups. You know, there's certain geographies that stand out that we're really focusing heavily on and we'll want to put a little more attention on. But generally, I think Mike was taking the right steps, and particularly in the supply chain area. So that's on that piece on sort of your point about centralization. On insurance recoveries, just quickly, you'll see this in the queue. In Q3, we covered $54 million in insurance recoveries between combat arms and public water suppliers. Year-to-date, it's over $175 million. Recovery efforts continue. I know it's top of mind given what other folks are talking about. We're active in arbitration and litigation. With multiple insurers, you know, we intend to ramp up our recovery efforts in the coming days and weeks. And we do expect our insurance insurers to honor their policy obligations to us in full. You know, the difference with others is our liability that we settle for is quite a bit higher than our insurance, total insurance value. So it's a little bit different than others. But we're ramping up our efforts and we're starting to recover and we'll recover more over time. We'll update investors each quarter and through our queue as we recover more on insurance. Thank you very much. You bet.
spk06: We'll go next now to Nigel Coe with Wolf Research.
spk01: Thanks. Good morning. And, Bill, thanks for the update. These are really helpful. On that insurance point, I just wondered, could you maybe clarify what the total coverage would be from a point of perspective? I understand that you're working on wrapping up the recoveries there. But my first question is really around the two points of net productivity. You've got a lot of initiatives in play here. You've got the supply chain nationalization, OTIF target improvements, OEE improvements, and a lot of other things as well. Any sense on what's more important here? You know, is the supply chain driving the bulk of that two points in the next two or three years? I mean, any sense there? And do we need some heavy lifting structuring to achieve those targets?
spk16: So thanks for the question, Nigel. I don't think I can say much more on the insurance recoveries or how much we're getting, I mean, other than what we've captured to date. So I think we'll update you on that as we go. We expect that to ramp a bit better. But, you know, look, when I step back, I mean, look, $13 billion worth of cost of goods, you know, half of that is going to be roughly is supply chain. So you'd expect you know, the bigger parts of our productivity is going to come out of supply chain. We have seen restructuring benefits flow through on our factories. That is also a factor. We continue, you know, to drive lean activities in our factories. And you're seeing, you know, the benefits of lean production, lean operations across our factory network. We're seeing benefits in our transportation costs and our logistics expenses running through our distribution centers. Last time I spoke quite a bit about the amount of waste we generate in our company or yield loss, however you want to characterize it. It's 5% of cost of goods. So it's quite substantial. We are getting at that. You're not going to get big, big dollars every year. You get it in tens of millions in chunks over time. But we're at it. We're running Kaizen events continuously to go get it. We've more than doubled the number of Kaizen events this year over last, and we expect that to continue going into next year. So all of these pieces will drive that net productivity. The teams are at it. We're pushing hard. I would say stepping back, the biggest part is going to come out of the biggest part of cost base, which is supply chain.
spk01: Okay, Bill, that's helpful. And then maybe Anurag, congratulations on the new role. Just wanted to maybe get a bit more color on 4Q, especially, you know, it looks like 1% organic growth very much on trend, but it looks like the 4Q margins coming in about 20.5% at the high end, quite a big step down, Cuba Qs. Just wanted to make sure that's the right math and any below-line color would be helpful.
spk00: Thanks a lot, Nigel. I think you covered it. The Q4 margins are pretty much in line with what we expected. Sequentially, Q4 has been lighter than Q3 margins by about 300 to 350 basis points due to seasonality, which translates into lower sequential revenue of about $200 million. lower under absorption in the factories due to shutdowns, inventory management and timing of costs and investments. So overall, it's pretty much in line with what we expected. But if you kind of take a step back, we raised the bottom end of the guide by 20 cents or the midpoint by 10 cents. And that is largely because of the focus on productivity. seeing really good progress on that, plus the benefits of share repo and the higher cash flow generation, which is leading to a higher interest income or lower net interest expense. So putting all of that together, you know, making progress across all these areas, and Q4 pretty much in line.
spk01: Great. Thank you.
spk06: We'll go next now to Jeff Sprague with Vertical Research Partners.
spk04: Hey, thanks. Good morning, everyone, and welcome aboard, Anurag. Hey, I just wanted to come back a little bit in the neighborhood of some of these earlier questions. Predominantly, just wanted to get a sense of the fact, you know, we're kind of at the tail end of the prior restructuring. I think you did $165 million of spending in the first half and had something like $110 million to go in the second half. So, I'm trying to get a sense if that is still on track. And then, Bill, of these, you know, very numerous and granular things that, you know, you're laying out here, are we seeing much benefit from that in 2024? Or is this really sort of laying the groundwork for 2025? And a lot of the margin expansion in 2024 is really the underlying prior restructuring plan.
spk16: Hey, Jeff, that's good. Good questions. I mean, first on the restructuring, we are on track. Your numbers are right. One sixty five in the front half and, you know, about one ten or so in the back half to the guidance. So two seventy five for the year. That's that's about where we're at. There's a little bit more that'll tail into next year. you know, to complete the program. You know, and yeah, some of the gross margin and net margin improvements this year are coming from restructuring. You know, they're coming from a lot of productivity programs that have been in flight. Some are ramping up and have more focus and effort in the last five or six months. You know, but a lot of these things are going to be realized over time. This is, you know, the football metaphor. It's a it's a couple of yards in a pile of dust in lots of ways to get ground game going on operations excellence. It's a multi-quarter, multi-year journey. So the way I look at this, I think we're still, Jeff, in the early innings of becoming operationally excellent. Excellent. And I think the bulk of the opportunities are ahead of us, which is why I think as I look out the next one, two, three years, you know, we should continue to see margin growth coming out of a lot of what's happening across our factory network. There's a lot of levers to pull. You know, there's no big winners, no big hitters here that drive a big one timer in a particular quarter. but it's getting better at all of these things you know every quarter quarter after quarter and then extending that sort of philosophy on operational elections across the rest of the enterprise there's no reason why being good and and reducing waste and improving throughput doesn't extend to how we run r d how you run a legal function hr function finance and i think when you do across it across the whole enterprise you you really start to become a much better company And I think between now and then we've got a lot of room to go and a lot of opportunity ahead of us.
spk04: Great. Understood. And then just thinking about, you know, kind of the capital deployment question, you know, you stepped up on buyback a bit in the quarter, you know, in spite of writing a sizable liability check. You know, how should we think about just managing, you know, kind of the outflow of cash on you know, repo and or dividend against the backdrop of, you know, sort of the schedule of liability payments. I mean, maybe it's kind of a question about, you know, what's the comfort level on minimum cash or something like that as you're operating going forward.
spk16: So I'll start in this, Jeff, and I'll turn over to Anurag as the new CFO to offer his thoughts, because I know he's been putting a lot of time on this. But yeah, I mean, we did step up here in Q3 on repurchases, you know, at about $700 million. You know, it's $1.1 billion year to date. You know, look, we're generating good cash flow. You know, we don't see, you know, on the horizon going out through next year, you big liability payments that aren't already on our balance sheet. So we've got an opportunity to deploy capital. I think we were smart in doing that here in Q3. We've got capacity. We end at Q3 with pretty hefty cash balance. Our leverage ratios remain pretty attractive. We've got an open authorization from the board. So look, we took advantage of that here in the third quarter. We've got more capacity to do more. And You know, so I feel pretty good about where we stand today. But maybe Anurag, as the new CFO, can comment on his thoughts on just the strength of the balance sheet.
spk00: Sure. Jeff, I really believe that our capital structure is actually solid from a cash balance, leverage, cash flow generation, and optionality perspective, which allows the optimal capital deployment and allocation. As Bill mentioned, we have a very hefty good cash balance. We ended the third quarter at $7.3 billion, which is more than 2x of the working capital requirements of the business. On leverage, it was a net leverage of 0.8x at the end of the third quarter, and more importantly, maintaining a strong investment grade rating with ratings of A3 or A-minus. And as we've seen through the quarter and the course of the year, the cash flow generation has been robust. For the first nine months, we generated $3.5 billion of cash flow, and that's after investing $1.7 billion on R&D and CapEx. And we do expect in years to come, as earnings grow, we make progress in working capital, especially in the area of inventory. This will increase our cash flow and keep the conversion higher than 100%. Also, we have optionality in terms of the 19.9% stake in Solventum and any other future portfolio reshaping we do. So putting all of that together, it's a strong capital structure. We have optionality, flexibility to invest in the business to drive growth, and also to return capital to shareholders. You know, it's an active discussion we're having, and we'll probably come more about it, talk more about it over the next few months.
spk04: Great. Appreciate the call. Thanks a lot, guys.
spk06: We'll next now to Julian Mitchell with Barclays.
spk11: Thanks. Good morning and welcome, Anurag. Bill, a lot of very good color on some specific sort of tools around driving operational excellence. But maybe trying to tie it together, I think at a conference forum about six weeks ago or so, you talked about getting gross margins for 3M into the high 40s. Right now, you're sort of 42-ish or so rate, including some charges. So is the right way to think about the medium term maybe sort of 400 or 500 points of gross margin uplift on the sort of total enterprise level and then operating expense? inclusive of SG&A and R&D, that sort of staying relatively stable in the low 20s as a share of sales as you sort of squeeze out more efficiency and returns from the R&D.
spk16: Yeah, so, Julian, it's a good question. And we are running kind of in the low to mid 40s right now on gross margin in the 43, 44 percent range, plus or minus. There are points in time in the past where we were, you know, high 40s. You know, that's excluding health care. So in the way we have our business structure today, it's certainly achievable. As I laid out sort of the math there and earlier in this conversation, $13 billion worth of cost of goods. If we do 2% net productivity, it's more or less $260 million. If we did that every year, it's sort of a point a year of gross margin. Of course, there's lots of dynamics here. You've got mix happening in the business. You have new products coming in. You know, we've got to kind of as next year, middle of next year as we exit PFAS manufacturing, you have some under-absorbed costs within those factories we've got to take care of. you know eventually solventum is going to move some of their production away or and the tsa's will run down we've got to absorb that so there's going to be lots of puts and takes so it won't be a linear journey over the next number of years at growing uh gross margin but but i do see that that's that's a big focus of ours we've got to be really pushing that hard to drive gross margin improvement over time You know, our R&D level is about 4.3%, 4.4%. I mean, it could drift up, could drift down a little bit into tenths of basis points. It's not in – or tenths of basis points. It's not, you know, a big mover. You know, SG&A could see some leverage over time just based on volume. But I think the bigger driver in the future is going to be coming out of gross margin. And I remind you, I'm focusing on growth and margin expansion for sure, working the paddles across both of them. But – But as I step back, driving growth is also a margin driver because of the high drop through we get on incremental volume. So that's kind of the way I see the future playing itself out. I don't think today I'll get much more specific. We'll lay this out a little bit more clearly to investors as we turn the corner in 25 and come back and host an investor day towards the end of February. I think we'll have a little more clarity in laying this out a lot more clearly to investors at that point. But anyway, that's the math as I see it today, Julian.
spk11: That's helpful. Thank you. And just circling back on your top-line comment just there, so you're moving at about sort of a point of organic growth through the second half year on year. Just wondered how you're looking at the overall sort of demand environment into next year. And when we think about the netting off of NPIs picking up, versus your pruning efforts, you know, about 100 points this year. How are we thinking about the net of those two items over the next 12 months?
spk16: Well, look, 1% organic this year isn't what we should be aspiring to. Again, it's the middle of the range we set, you know, a couple of months ago. You know, it's traveling in the order of where the market happens to be. IPI is running around 1, 1.1%. It's 1.2 for the year. Steps up a little bit going into next year. You know, GDP is in the 2.5%, 2.7% range. Again, that's kind of in the same line next year. So it's low single digits. And I think overall, you know, we're performing kind of in line with that, including auto build, semis, electronics, all this consumer, all that together. you know, trending in line. I look at NPI, and as that matures, you know, early good signals were up 10% on numbers of launches this year over last. We see that rate accelerating at 25. You know, but stepping back, we're still an order of magnitude less than we were at the peak days in terms of how many products we've launched in the marketplace. So we've got to get that R&D engine moving again. You know, that is going to be essential for to improving on our growth rate and starting to hit and then outgrow the market, that'll start to bear fruit into next year, maybe the end of next year and into 26. And that's why I took a lot of care last time and earlier to say we've got to get better at selling what we have on the market today, which means we've got to work our sales force and all those pieces of it. Do we have gaps in our sales force coverage? Do we have the right incentive structures, the right training, the right people in the field, the right distributors? Are we pricing correctly? Do we have cross-sell opportunities? All of these things will drive growth, and I think we've got to pull all those levers. And it's why I came back earlier on in this conversation. I really doubled down on OTIF because we are losing business if we're not delivering it on time and full to customers. We know it. We see it every single day. So that is the nearest term lever we can pull is getting better on on time and full. And as they step back and you put all that stuff together and turn the quarter into 25, we should see better growth. That would be my expectation. But it's not going to happen overnight. These efforts do take some time. And, you know, we'll lay this out a lot more clearly to investors as we turn the quarter into 25. Great. Thank you.
spk06: You bet. We'll go next now to Nicole DeBlaise with Deutsche Bank.
spk13: Yeah, thanks. Good morning, guys. Morning. Maybe just a little bit more on some of the portfolio review comments you made at the beginning, Bill. I guess any thoughts on like what types of businesses could be considered non-core and if there's anything chunky coming or if these are all kind of like smaller divisions or businesses that you're looking at?
spk16: Yeah, Nicole, thanks for the question. Look, I mentioned last time I did it very purposely that we're going to take a fresh, dispassionate look at the portfolio, as you would expect I would do coming into this new company. But, you know, let me step back. I mean, the lens that I'm looking through is a strategic lens at the moment to think about the portfolio. And it's really on where we can leverage. technology, and innovation to differentiate, to win at the customer interface. When it came to 3M, it's very clear to me, it's very clear to all those 60,000 people that have been here, that technology is what differentiates 3M. People join the company because of innovation. So I'm really looking through a lens of can we leverage investments and the capabilities we have in material science and technology to make something different versus competitors and solve a need that others can't. And that's the lens that I'm really looking at here. So, you know, we have a few businesses. They're small. If and when we transact on them, you won't notice it in the overall report. You know, there are a couple points of revenue. So it's relatively small, you know, but it's a start. It's the things that I thought were near term and the ones that you know, we could take advantage of today. But our evaluation continues. You know, again, as I turn next year, we come up in front of investors. You know, I'm expecting that I'll be standing there talking about a matrix which has something looking like what parts of our portfolio, you know, perhaps don't fit to us over time. And at the same time, it's not for today. But looking at, well, what other things, you know, do belong with us that aren't currently owned by 3M? So it's a pretty holistic assessment. We're in the very, very early days, Nicole. You know, but the couple of deals that we're pushing on right now, early stages, but it's the direction we want to head in over time.
spk13: Okay, got it. That's clear. Thanks, Bill. And then maybe just on the business trends, what did you guys see in China in the quarter? And any thoughts on 3M's ability to benefit from stimulus activity happening there?
spk16: So China, China for us is a pretty good sized market. It's about 10 percent of our sales year to date. We're up. We're up about 11 percent, more or less a little bit higher than that in the first half. A lot of driven by automotive, you know, up mid single digits here in in the third quarter. You know, pretty much in line with, I think, where the market is in China. So we feel pretty good about what's happening there. Again, a lot of it's driven by automotive. Roughly half of what we do in China is for export, export out of the country, and roughly half stays within China. And both are performing reasonably well. You know, we'll see as we get into next year, you know, the outlook for the overall economy. You know, we can read where the GDP happens to be forecast for next year. But there's a lot of stimulus activity, a lot of conversations around geopolitical issues. You know, we'll see as we turn the corner where China is going to be. But we're bullish on the economy there. We're bullish on our team there, our ability to compete. We have more than 5,000 people on the ground, seven factories. And I think we have a good ability to be a strong participant over time in China.
spk12: Hey, Nicole, just to clarify. Thank you. Nicole, just to quickly clarify, the strength has been in electronics in China, not automotive. All in, we're up about 11% year-to-date. Ex-electronics, we're up roughly about 3% organically.
spk13: Thanks, Bruce. I'll pass it on.
spk12: Yep.
spk13: Okay.
spk02: Sorry, didn't come through very clearly. Can you hear me now?
spk12: Yep. Yeah, we hear you Steve.
spk02: Hey. Sorry about that. Anurag, thanks. Congratulations. And looking forward to working with you here. Just wanted to delve into price a little bit more. In this algorithm of, you know, productivity and gross margin, where does price play into that? And are you expecting to get back to that kind of a positive margin price-cost spread going forward?
spk16: We'll see. That's a good question. I mean, this year we are seeing positive price. It's about half our organic growth, more or less, you know, plus or minus 5% or thereabouts. We are covering material inflation, you know, this year. We're back to where we were. Kind of pre-pandemic level is a little bit higher than that in during pandemic because, you know, obviously inflation was spiking there. But as I step back on this, we should get we should get pricing, particularly as we drive new product introductions and bring differentiated products into the marketplace. We do expect that. You know, I see it in two pieces. One is, you know, we have an opportunity to get better at at more surgical pricing. So pricing to volume generated. I made a comment last time that, you know, we've we've got some opportunities to tie volume rebates, discounts, et cetera, to to to price. And that's something that we're working very, very hard on. as well as tightening down on what we call gross to net, you know, and all the pieces between that, volume discounts, market development funds, rebates, those kinds of things, you know, that can be quite substantial. And I think we just have a better opportunity to get pricing. But as I look forward to next year, you know, we should continue to be able to cover at least the material cost inflation in our price.
spk00: And just to add to that, Steve, as Bill mentioned, price should cover cost and inflation for us, inflation and the cost going forward. The one way to kind of think about the margin expansion moving forward, clearly volume is the biggest driver for us in terms of operating leverage that we have and the net productivity that we are driving. So volume and net productivity should be the critical margin expansion drivers.
spk02: And you view price-cost as separate from that productivity, I would assume? Yes, correct. in the bridge. So then I'm just wondering, if you've got all these good guys going your way, and assuming the economy doesn't go to hell, what is the R&D is flat, you should get SG&A leverage, you're talking about this productivity, price-cost is not a headwind. What is the headwind to margins going forward? What's the negative?
spk00: So the negative is essentially inflation that we will see over there, which is a wage inflation moving forward. But besides that, you shouldn't see any more. Of course, FX is there, which we don't know which way that could move. But if you look at overall margin, even for the year, right, it's basically four pieces. It's a quarter of volume. A quarter of the restructuring cost, which came down lower compared to last year, it's a quarter of the TSA reimbursement and a quarter of net productivity. If you go into next year, there will be a little bit lower on the restructuring cost charges. But, again, it's going to be more volume and it's going to be more on the productivity side with the biggest headwind being on inflation and potentially FX. Depends which way it goes.
spk02: Sorry, one last one. How much is labor as a percentage of your cost again?
spk00: Labor as a percent of our cost is close to $10-ish billion, yeah, $8 to $10 billion, yeah.
spk02: $8 to $10 billion, okay.
spk06: All right. Thanks a lot. We'll go next now to Andy Kapowitz at Citi.
spk14: Hey, good morning, everyone. Good morning. Could you give us a little more color into your consumer business? I think you talked about that it's getting a bit better. Could you elaborate on what you're seeing there? I think that business tends to be first in, first out in historical cycles, and I know you're focused on pricing in that segment. Maybe that segment could be the most competitive in terms of pricing. Can you make the pricing improvement you need in that segment?
spk16: So on consumer, we were down about 3% in the first half, down about 70 basis points in the third quarter. But keep in mind, it has about 230 basis points of headwind associated with some of the portfolio prioritization efforts that the team is working on. And if you go back Q1 to Q2 to Q3 and then head into Q4, it is becoming less negative in terms of organic growth. And it's trending to, you know, perhaps be positive in the fourth quarter for the full year, you know, down low single digits. You know, for the overall, it's mostly a USAC business, a USAC retail business. So USAC retail sales growth. You know, is down about 50 basis points, you know, for the year down about 80 basis points. So it's sort of trending in that in the line with where USAC retail sales happen to be. You know, when you look at the parts of the portfolio in the quarter, we had we had pretty good growth in our command strips, home improvement, but command strip business. You know, that was up as partly due to some new product introductions in that space. And they're performing pretty well there. The other parts of the portfolio were a bit weaker, were flat to down. So they offset the positive trend in home improvement. But we see we see good improvement trends going into into the fourth quarter. All depends upon what happens in the holiday season as we get through the next couple of months. But the trend line is is moving up in terms of its organic growth rate.
spk14: It's helpful. And then, Bill, maybe just stepping back, you've talked a lot about growth through innovation, but how, after all, are you pushing 3Mers to focus their innovation on maybe what I would call the right markets? Because it strikes me that there are just a few big global markets that are driving growth right now.
spk16: So, yeah, we're spending a lot of time thinking about where we spend our precious billion dollars in R&D for sure and making sure it's going after the right areas as part of our overall governance process and how we're developing our strategic plan. You have to focus on those markets where we have a right to win, where we can actually win. you know, earn value. We have a strong return on investment in the spaces. And, look, the team is pushing on this, and this is a big focus of mine. It's a big focus of the team. So more to come on that, but, you know, it's certainly part of the lens and the calculus that we're looking at on where we're spending, you know, investing our R&D dollars.
spk06: Thanks. We'll go next now to Brett Lindsey with Mizuho Securities.
spk03: Hi, good morning, all, and welcome to Anurag. Just wanted to come back to the rationalization efforts. I think it was a point of drag in the quarter, a point for the year, perhaps just isolating rationalization and leaving out some of the new product launches and other growth. Should we be thinking about another point of headwind next year as you continue the simplification efforts, or is it something less as we proceed and advance forward here?
spk16: No, Brett, it should be declined substantially going into next year. I mean, we'll lap the year, so there'll be a little bit of drag on effect for things that happen in the course of 24. But, you know, we shouldn't see significant headwind from portfolio or geographic prioritization going into next year. Our intention, and Anurag, I haven't talked about this, but our intention would likely be to not speak so much about that in our 25 results. It's something that really people do, companies do, just out of normal practice as you continue to look at your portfolio. And you add some things, you take some things out, you replace things. And I would expect that going into next year to be less part of our conversation than this year.
spk03: All right, makes sense. And then just a follow-up on MPI and the launching of the new products, 10% growth next year. Just wanted to better understand the associated costs and where those introductions are aimed at the segment level. Should we be thinking of a commensurate level of R&D step-up, or are you able to achieve this with repurposing the spending base?
spk16: No. So it's within the existing spending base. As we go into 25, we'll come back and talk more about where we see R&D. But a couple of things are happening. One is just it's a shift within where we spend our R&D. It really comes in kind of three buckets. I mean, it's about a third that goes into corporate research, longer term horizon things, basic technologies. There's kind of a third that's at incremental line extensions, new product introductions. There's a third that that's going after cost reduction, PFAS fixes, all those kinds of things. So there's going to be some shift that's going on between those pieces. That middle bucket used to be around 40%. It dropped below 30%. That piece is coming back up. It's now around third, around 32%, 33%. But that middle bucket on new products, new product line extensions, is where we're shifting money to drive new product introductions. To be clear, the number of new product introductions this year in 24 is up 10% over last year, and we expect that that 10% will accelerate, you know, in 2025 through those pieces I just mentioned a couple of minutes ago. You know, the large part of our investment in new product introduction is going to be mostly in our you know, safety and industrial business and transportation electronics business. There is some that goes into the consumer business. You'll see more going into next year. We see more introductions coming out of new product investment. But the lines part of it is really in those other two businesses. And that's where a lot of the launches that I talked about a minute ago are occurring. You know, we'll share more information as we get into next year, not just the numbers, but where we're investing, what verticals we're investing, where we're going to prioritize our spend in the future and why, why we think we can win. And we'll lay that out very clearly with investors as we get into February.
spk03: Great. Congrats on the performance. Thank you.
spk06: We'll go next now to Joe O'Day with Wells Fargo Securities.
spk05: Hi, good morning. Bill, I wonder if you can elaborate a little bit more on the operating equipment efficiency comments you made and when you talked about 50% utilization well short of best-in-class, just in terms of any clarification of what kind of best-in-class would look like as well as what your targets are over, call it, the next six or 12 months there.
spk16: Sure. Yeah. Look, operating equipment efficiency is really it's a fundamental metric. You know, companies that do manufacturing have implemented this over many, many years. It's a it's a relatively new concept. We have 38 large factories. It's about 75 percent of our volume. In about 140, about 80% of the assets that are in those factories, we implement it OEE. I mean, you can implement it, but to actually build it into the way the machine runs, it takes some time to do that. So it's not a manual process. It's actually built into the way the machine runs. And, look, if it's running 50%, you know, the reality is we should be running best-in-class companies are in 80% range or north of that. So we're well short of that. So the implication of this is that, first off, what's driving that underutilization? Is it a lot of changeovers because that's idled capacity? Is it poor maintenance practices when the machine is down? Is it volume or capacity? But it's sort of fundamental to figuring out how do you handle surge volume? And longer term, once that metric gets matured and we come back and talk about a more holistic look at our network and the complexity we have in our network, you know, it'll allow us to say, well, where can we consolidate sites or cells or assets in our factories based on the utilization that happens to be out there? You know, it's also... more than theoretically possible, you were spending capital for capacity expansion, you know, yet we're running 50 percent utilization on certain assets. So longer term, we should also be looking at this as a way to make sure we're spending capital in the right places. So it's really fundamental. We're started. You know, we've got a metric measure for where we've been year to date. And it'll mature as we get into 25, probably be 80% done by as you get to, you know, second quarter of next year. But it's a fundamental way of looking at how you're performing, you know, and I'm really proud of what the team has done in the last couple of months to drive that into our factories.
spk05: And then also just wanted to ask on electronics demand trends, I think commented that organically up high single digits. So earlier in the year, some, some spec, in tailwinds, but it seems like still growing at a good clip as you move later into the year. And so any color there, whether what you're seeing is trending with the market, if you're seeing any sort of share gain or taking advantage of pricing opportunities out there with the electronics growth.
spk16: Yeah, so electronics was up pretty good year to date in the quarter. We did have some spec in winds. I think we're going at slightly higher than the market. We're watching pretty carefully what happens in the holiday trends here and what happens in the fourth quarter going into next year. So so we're pretty pleased with where we've been so far. It comes from, you know, a lot of the sophisticated films that we've created that are going into a variety of electronic devices. They're very sophisticated things, you know, multilayer optical films, you know, optical adhesives, things that allow, you know, LCDs to look like OLEDs in terms of screen performance. It gives you privacy and other things that you can then extend into the larger screens, larger displays in cars. That's what drives our auto e-business. So it's a pretty important technology. It's allowing us to perform well in electronics as a whole. So we like the trends. We're watching what happens in the holiday season, and we'll see what happens going into next year. So Doing pretty well actually in semiconductors as well. It's, you know, we're growing way above the market. You know, that's been a pretty important trend for us this year. Doing pretty well in data centers. Not a big part of our business at the moment, but pretty pleased with that. But specific to electronics, outgrowing the market, and it's because of the spec and wins in technology we have.
spk05: I appreciate it. Thank you.
spk06: Our next question comes from the line of Joe Ritchie of Goldman Sachs. Please proceed with your question.
spk08: Thanks. Good morning, everyone, and welcome. Bill, I think you mentioned earlier that you were honing in on, you know, redesigning your forecasting and demand planning across, I think, two of your businesses. I'm just curious, like, what are some kind of initial thoughts on improvements you think you can make? And then why not focus a little bit more holistically across the entire portfolio at this point?
spk16: Well, this will eventually go across the entire portfolio. But, you know, like stepping back, you know, we are sitting there where we're not delivering to where we want to be on time and full to customers. We're proud of where it's gotten to, but it's not where it needs to be. So we've got we're not delivering on time, yet we're sitting on 100 days of inventory, you know, at the same time. And so how do you fix this? And we're looking at the assets in our factories, you know, on average and the ones we're measuring at running at roughly 50 percent utilization across the largest ones. And you run that calculus and there's something wrong in this whole value chain. And I go back to suppliers. Suppliers delivering on time in full to us. We're running in the low 60s now in the low 70s. But there's a range. That's an average. So it's below 50 to up to 80 percent. And what's happening is it's just how you manage the flow through that through that supply chain. You know, it starts with the front end of it starts with the demand signal. So. What are we using to tell the factory what to produce at a skew level? And then how does that translate based on stock on hand to what you tell the suppliers to do based on their OTIF performance, the lead time on logistics? This whole chain has to work incredibly smoothly because it's very complicated. So it really comes back to this fundamental of what is that forecast demand signal? And the reality is, as we've dug into it in a couple of divisions where we struggled to With on time in full, our forecast accuracy is not very good. You know, so there are analytical tools that are available that we are starting to look at. It takes some time to implement them. You've got to data cleanse. You've got to look at what are the right parameters. You ought to be building into the model. You know, is there a manual overlay or not based on unique circumstances having for a SKU? You know, that whole process has to run well. And if your forecast accuracy is not good, you cannot run your factory very well. Your inventory will be high. Your suppliers won't perform. Your logistics providers won't be available. So it has to run like a like a smooth running clock. And, you know, it's clear we have opportunity to do better here as we refine the model. Yeah, we'll roll that out to the rest of the business as appropriate. But this is really looking at two big divisions where we need a really high degree of focus early on. So it'll roll out over time as we get success here.
spk08: Yeah, that's super helpful, Bill, and detailed. I'm curious, do you think that by February you'll have some kind of sense for what type of opportunity this presents for the organization?
spk16: Yeah, you know, we'll certainly know by February, you know, the results of the couple of divisions. You know, but we can estimate from that. We could probably estimate what's going to happen as we roll it out to other divisions. So, yeah, we can sort of lay out a lot more where I think you want to go, which is it's nice to talk about forecast accuracy, but tell me a little bit about how it's going to affect, you know, delivery performance, cost performance, inventory level. And I think we can kind of connect the dots on this, you know, as we get further mature on this particular area, Joe. Okay, great. Thank you. You bet.
spk06: Our next question comes from the line of Chris Snyder of Morgan Stanley. Please proceed with your question.
spk10: Thanks for getting me in here. You know, Bill, on the last call, you talked about how you believe the business should be growing in excess of GDP. And I think to a prior question, you talked about, you know, better growth maybe into the back half of 25 and into 26. So, you know, is that just simply a function of the investments that you guys are making and innovation is going to allow you to start outgrowing the end market and it just takes time? Or is there also an assumption that maybe the consumer, just the served end markets get better into the back half of 25 as we kind of see that pick up in growth?
spk16: So, Chris, our crystal ball is not going to be any better than what the, you know, various prognosticators out there are looking at in terms of what happens with industrial production, GDP, consumer behavior. You know, I look back at the end of last year for what was predicted on IPI this year, and I think it was predicted 1.7 at 1.2. So, you know, I'm not sure these indicators are all that powerful to predict what might happen in the market or the macro year out or year and a half out. Look, first off, we've got to grow with the market, and I think we're doing a good job with doing that this year at about 1%. As I said last time, and I think at your conference, the 1% is not where we want to be. To actually grow that and be performing better without putting a timeframe on it, it comes in these two levers. We've got to get this R&D machine running. As I mentioned then, I'll say it again today, that's going to take time. You know, our dwells time, our development cycle is a year or more on developing and commercializing, launching a new product. So there's a timeframe that that's going to take to turn that piece around. But there's some initiatives that we've got to get at today, and that's a lot more aggressiveness at the customer interface, selling, pricing, these other things, which has a nearer-term effect. When you put all that stuff together, is it growing GDP or more than that? We'll describe that more over time. I want to sort of walk before I run here, and that's kind of where I'm standing as we speak today, Chris. Yeah.
spk00: Yeah. And just just to add, right, we've grown three quarters consistently. One percent, as Bill said, will give more color as time goes by over there. You know, to Steve's question earlier, we said, you know, we can grow operating margin at a pretty healthy clip given all the levers we have. As we go into next year, as you're aware, we do have certain headwinds from higher pension expense, lower interest income. Of course, we mitigate that through share repurchase. But that's a 30 cents headwind that we see from below the line items. But if I kind of look at what's been driving in terms of all the discussion we just had around, the factory, the supply chain, looking at the indirect cost and all the productivity along with that, along with the tailwind, we can see with the reduction in restructuring charges. It gives us confidence to expand operating margins next year while driving top-line growth, and we'll get more specific details next year.
spk10: I appreciate that. And if I could just follow up on maybe some of the portfolio pruning. You know, is it fair to assume that whatever business the company decides to leave, you know, they will get paid for it? I mean, you know, no more organic exits or at least nothing, you know, very sizable in terms of organic exit. I understand maybe certain SKUs or product lines can come and go.
spk16: Yeah, look, I think there's going to be over time natural portfolio pruning in terms of SKUs. As you bring new products on, you know, it may obsolete other things that need to go out. That churn, that part of that's a normal part of business. And that should all be sort of absorbed within your normal organic growth. contributions that we should be growing at the market for. So that is, as you just pointed out, Chris, distinct from, you know, selling a business, which, you know, we're going to look at. That's an inorganic exit. You know, we'll look hard at cash all those pieces. We'll make sure we get paid more value for that business than we would have assumed today within 3M. But I think your question was really on organic. And as I turn next year, like I said, I think we'll probably talk less about kind of the portfolio shifting that's going on inside the company on SKUs and geographies and things like that. Appreciate that. Thank you. You bet.
spk06: And our last question comes from the line of Dean Dre of RBC Capital Markets. Please proceed with your question.
spk07: Thank you. Good morning, everyone. Thanks for fitting me in, and welcome to Anurag. Bill, this came up in the local paper, but it would be interesting to hear your thoughts on the challenges you're facing, both operationally and culturally, to get the 3M employees back to the office. You all have been fully remote for longer than most companies. I know you've been out some initiatives, but would love to hear some color there.
spk16: Well, so, look, I mean, it's, you know, we need to grow our business. We need to innovate. Part of that is we need to solve problems for customers. I do think that you problem solve, innovate better in person. We're going to maintain flexibility in our workforce. What we've done is for our largest sites that are most senior people, We've asked those individuals to be on the site wherever they report on Tuesday through Thursday with some flexibility on Monday and Friday. You know, this is a an opportunity for us to continue to build our culture, build our relationships, problem solve as a team. And I think it's the right step. I know a lot of our customers have moved in this direction in the past. Maintaining some flexibility in our workforce is really important to me. It's important to our employees, and we're allowing that. But it gives us an opportunity to be able to look across the table from one another and really dig in and problem-solve in a better way than I think you can over Teams or Zoom or some other format like that. So that's why we're leaning in a little bit more on bringing people back at our larger sites, including here at 3M Center.
spk07: Got it. And then just a last question. A lot of discussion today about new product introductions, efficiencies in R&D. Will you be bringing back the new product vitality index? Is that one of the measures? And 3M had it one time, but then went away from it. What's your thought there?
spk16: No, I'm happy to talk about it. I know there was reasons why we pulled away from it. We don't want to get that to be oversold or built into a comp metric or whatever. But the reality is it's an important metric, you know, because we've You know, we've pulled back from introducing new products to the marketplace. We know that. I talked at some detail as to how many NPIs have come down over time and where we were at last year, going up 10% this year. You know, the net effect of that is our product portfolio in the marketplace is aging for sure. Our NPVI, you know, on a five-year basis is running just over double digits, 10%, 11%. We used to be 25%, 30%. For the more super innovative companies, they're in that range. I'm not going to say when we get back there, but it's one that's on my mind. We need to have more fresh offerings on the marketplace. So we ought to be better than low double-digit in terms of vitality index. And I'm happy to talk about that over time in terms of the metric, what's happening to it, why I think it's important. But I don't want to overuse it. you know, with investors or here with employees, you know, because there's lots of other metrics, a lot of measures that drives are we becoming effective at driving innovation in the company. That just happens to be one of them.
spk06: Thank you. You bet. And 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.
spk16: Well, thank you very much to all of the analysts for joining today and asking a number of very, very good questions. I want to importantly thank all three embers for their dedication, their hard work on behalf of our customers and our shareholders throughout the quarter, throughout the year. And I look forward to speaking with all of the investors as we get into late January, issue our Q4 results. And in late February, probably the last week of February, as we host an investor day, likely here in Minneapolis. Have a very good day, everybody. Thank you so much.
spk06: Thank you, ladies and gentlemen. This does conclude today's conference call. We thank you for your participation and ask that you please disconnect your line at this time.
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