3M Company

Ladies and gentlemen, thank you for standing by. Welcome to the 3M first 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, April 22, 2025. I would now like to turn the call over to Chinmay Trivedi, Senior Vice President of Investor Relations and Financial Planning and Analysis at 3M.

Thank you. Good morning, everyone, and welcome to our first quarter earnings conference call. With me today are Bill Brown, 3M's Chairman and Chief Executive Officer, and Anurag Maheshwari, our Chief Financial Officer. Bill and Anurag will make some formal comments, then we will take your questions. Please note that today's earnings release and slide presentation accompanying this call are posted on the homepage of our investor relations website at 3M.com. Please turn to slide two and take a moment to read the forward-looking statements. During today's conference call, we'll be making certain predictive statements that reflect our current views about 3M's future performance and financial results. 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-K, lists some of these 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 will hand the call off to Bill. Bill? Thank you, Chinmay, and good morning, everyone.

We had a strong start to the year with first quarter adjusted earnings per share of $1.88, up 10% versus last year and above expectations. Organic sales growth was 1.5% with all business groups posting positive growth. Operating margins increased 220 basis points year over year through productivity and cost controls while we continued to invest in growth initiatives. And free cash flow was solid at about $0.5 billion as we benefited from strong earnings, working capital improvements, and disciplined capital expenditures. These results were achieved during a dynamic macro environment and demonstrate the performance culture that's starting to take hold at 3M. The urgency and operating rhythm the team exhibited, along with the round-the-clock interactions with customers and suppliers, drove a strong finish to the quarter, and I'm really proud of the resilience and persistence of all three Emers. We're exercising a new commercial excellence muscle with a much tighter alignment across the supply chain, and we're institutionalizing the March up-tempo to execute at that pace in every month of the quarter and every week of the month. In this environment, it's critical for us to focus on what we control and remain deliberate in executing on the three priorities we discussed at our recent investor day, driving sustained top-line organic growth, improving operational performance across the enterprise, and effectively deploying capital. Central to top-line growth is increasing the cadence of new product launches. In Q1, we launched 62 new products, up about 60% year-on-year, on top of a 32% increase in 2024, and we achieved more than 70% on-time launch attainment, up from 56% a year ago. Our new product pipeline health continues to improve, and we're on track to launch 215 new products this year and 1,000 over the next three years. We've bottomed out and turned the corner on five-year new product sales, with Q1 up 3% and tracking well toward the target of growing sales from products launched in the past five years by more than 15% by year-end. The pace of innovation is accelerating at 3M, and our teams are operating with greater urgency and focus than ever before. A few notable new products introduced in Q1 include Scotch Blue ProSharp Painter's Tape with EdgeLock technology for sharper lines and less paint bleed-through, a low-sparkle optical film with enhanced brightness for the mainstream notebook market, and a new Solid State Drive Connector for the data center market. We're making progress on our commercial excellence objectives with standardized operating rhythms, improved target setting and performance measurement, and tighter pricing governance. We tripled the number of structured sales manager and sales rep reviews in the first quarter and completed more than 100 joint business plans with our largest customers to align on growth opportunities and capture plans. One area of particular focus is cross-selling. We now have more than $40 million of opportunities in our pipeline across 23 product pairs, tracking well against the $100 million and 50 pair goal through 2027 that Chris described that investor day. And finally, we're laser focused on customer retention and reducing churn, and we've begun deployment of a predictive analytics tool to flag at-risk accounts to proactively address the primary drivers of customer attrition. These initiatives are foundational to building a more commercially driven, customer-focused company. As a result of these targeted actions, we saw solid order momentum in the quarter across all of our business groups. Our average daily order rate is up over 2% for the quarter, accelerating in March and driving company-wide backlog up low teens since the beginning of the year. And we continue to execute well on our key operational performance metrics, including leveraging our new 3M Excellence Operating Model. On-time in full, or OTIF, increased 3.5 percentage points versus last year, and about one point sequentially to 89%, the best quarter we've had in the past five years. Consumer and transportation electronics performed again above 90%, and safety and industrial was up two points to about 82%, is on a steep climb to achieve 90% by year-end. Our metric for equipment utilization, or OEE, was up four percentage points sequentially to 58% and is now deployed on 191 key assets across our 38 largest factories, a 10x increase over this time last year and covering about 50% of production volume. Having a robust baseline on underutilized capacity will help us adjust our sourcing strategy more readily to the changing trade landscape. And finally, safety performance continued to trend in the right direction with our incident rate down 25% in the quarter following a similar improvement last year as we continue on our journey to an injury-free workplace. During the first quarter, we refinanced $1.1 billion in debt, returned $1.7 billion to shareholders, and raised our dividend by 4%. In Q1, the Board approved the share repurchase authorization of $7.5 billion, and we now expect repurchases to be about $2 billion, up from our prior expectation of $1.5 billion. We continue to advance our portfolio-shaping efforts with one small divestiture recently signed and others progressing more slowly in view of trade policy uncertainty. Our guidance for the year remains $7.60 to $7.90 adjusted earnings per share before the impact of tariffs and offsetting cost, sourcing, and price actions. we are not flowing through the upside in our Q1 results to our full-year outlook, given the uncertain macro environment with recent data reflecting some softening in GDP, IPI, and global auto build. Tariffs are going to be a headwind this year, but we thought it would be prudent to hold the impact outside of our full-year guidance while we digest the new policies and fully develop and qualify mitigation plans. With the significant footprint we have in the U.S. and the flexibility of our global network, we're identifying a number of ideas to adjust product sourcing and logistics flows to mitigate at least a part of the impact, some of which are no-regret moves regardless of where trade policies eventually settle. Overall, we have a solid game plan. We're executing well against our strategic priorities, and we're focused on long-term value creation for shareholders. And with that, I'll hand it over to Anurag to talk through the details. Anurag.