3M Company

In 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-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'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. Good morning, everyone. We delivered solid results in Q4, including organic growth of 2.2 percent, operating margin of 21.1 percent, earnings per share of $1.83, and free cash flow conversion of over 130 percent. These results kept a strong year with organic sales growth exceeding 2%, outperforming the macro environment and accelerating from 1.2% organic growth in 2024 and negative growth in 2023. This growth was underpinned by the strong commercial excellence foundation we've established and our focus on reinvigorating innovation. We delivered significant margin expansion with full year adjusted operating margin of 23.4% up 200 basis points year on year at the high end of our guidance range and on top of over 200 basis points expansion in 2024. Adjusted EPS grew double digits to $8.06 and free cash flow conversion was slightly above 100% for the year. Our 2025 financial results reflect the progress we're making and we're tracking ahead of the medium-term commitments we made at the investor day last year. 2025 was an important year for 3M where we implemented fundamental changes in the company, building a foundation for our future growth through commercial excellence and innovation. We previously described the three pillars of commercial excellence, improved sales effectiveness and pricing governance, stronger collaboration with channel partners, including joint business planning and cross-selling, and increased customer loyalty. And we're making progress across all of them. We've implemented greater rigor across our sales force and sales management, tightened pricing controls, and developed over 600 joint business plans and closed on nearly $50 million of annualized cross-selling wins with a robust pipeline of opportunities. Innovation is the lifeblood of the company, and we successfully launched 284 new products in 2025, up 68% versus 2024, exceeding our initial target and more than double the launches in 2023. We expect this growth to continue with 350 launches in 2026. These new products are vital for our long-term growth and are already contributing to our top line. Sales from products launched in the last five years were up 23% in the full year, exceeding our high teens target, and exit Q4 at 44%, giving us momentum into 2026. Our new product vitality index, or NPVI, a measure of the freshness of our portfolio, ended at 13%, about two points above where we started the year. It was also a year where we saw operational excellence become embedded across the enterprise as we drove better service levels for our customers and stronger operating rigor in our factories and across our enterprise functions. And I've been describing our performance across three important metrics, OTIF, OEE, and cost support quality. OTIF ended the year above 90%, 300 basis points above the prior year and the best we've achieved in decades, and we sustained that rate for seven months in a row. This improvement is translating into a better customer experience that's helping us win shelf space and reduce churn. OEE, our asset utilization metric, ended the year at about 63%, up over 300 basis points across assets covering 70% of production volume. Cost per quality also improved considerably last year and is now at 6% of cost of goods, down 100 basis points year on year. We're focused on key areas of inefficiency like frequent or ineffective changeovers and late detection of material defects, leading to raw material yield loss, scrap, and quality credits issued to customers. We're leveraging Kaizen events, visual inspection systems, automation solutions, and AI-enabled models to optimize changeovers to improve quality with a target of 5.4% cost of quality in 2026 and less than 4% over time. Meanwhile, we continue to deploy capital effectively for our shareholders, returning $4.8 billion through dividends and buybacks in the year, progressing well in our commitment to return $10 billion to shareholders as part of our multi-year capital allocation strategy. The key to making this all work in the long run is our relentless focus on building a performance culture and delivering excellence everywhere, every day. This means greater speed and urgency, a deeper sense of accountability, challenging the status quo, and finding ways to get better every day in the spirit of continuous improvement. Our performance is a direct result of the cultural and operational changes we're driving across the enterprise that improve how we develop, produce, and deliver products and build a strong foundation for the future. Slide 4 is a chart we've used for the past few quarters connecting macro trends to our organic growth. The macro remains soft and largely unchanged from Q3, but due to our strong execution, we've outperformed. General industrial, safety, and electronics, collectively about 65% of our business, came in better than expected with exceptional year-on-year strength in the second half in electrical markets, aerospace, and self-contained breathing apparatus, all of which were up low double digits. Abrasives, industrial adhesives and tapes, and electronics were all up mid-single digits, abrasives accelerating from low single digits in the first half, IATD holding steady through the year, and electronics not softening as previously anticipated. Auto and auto aftermarket remained soft as expected, while our consumer segment and roofing granules business were weaker than expected. Despite the macro headwind, organic sales growth accelerated to 2.7% in the second half from 1.5% in the first, due to the breadth of our portfolio and our strong execution. Turning to our outlook on slide five, our team's constancy of purpose and execution rigor allowed us to finish 2025 strong, and we're carrying that momentum forward into 2026. This year, we expect organic sales growth of approximately 3%, adjusted operating margin expansion of 70 to 80 basis points, and earnings per share of $8.50 to $8.70, and free cash flow conversion greater than 100%. We're planning for the macro to be similar to 2025, but it's still early to put too much weight on market forecasts. We expect most of our industrial businesses to continue to perform well in 26 with watch items, including the pace and timing of a U.S. consumer recovery, auto build rates, especially in geographies where we have higher content, and consumer electronics. While we will closely monitor macro trends, we're going to continue to execute our game plan and control the controllables. Lastly, I want to turn your attention to slide six, which is the framework by which we'll create value for shareholders over time. The three phases aren't meant to be sequential, but evolve together with shifting emphasis. They build on what we outlined at Investor Day and reflect how we view these elements as interconnected and essential to building a stronger company operationally and financially. It started with a back to basics, focus on fundamentals approach, which is all about building a sustainable foundation. I've been talking to you about these initiatives and how we track them since I joined 3M 21 months ago and did so again today. These core elements are focused on commercial and innovation excellence, operational excellence, and reinvigorating our culture with accountability and agility, creating a solid platform from which to grow. As we've gained confidence in our execution in this foundational stage, we're beginning to shift our emphasis to the next phase of value creation, which is more transformational in nature. Like we previewed at Investor Day, this phase includes reengineering the structural cost base that underpins our supply chain network and business processes, simplifying and standardizing core activities and embedding an AI-first mentality as we shift from a holding company model to an integrated operating company. We described this program at a high level last quarter as a thoughtful, strategic, long-term effort paced at the ability of the team to execute well. Transformation also includes proactive steps on risk reduction and effectively managing the litigation docket. Anytime we can take care of risk at an appropriate price and with suitable protections, we'll be prepared to act like we did last year with the state of New Jersey. And as our organic machine begins to turn faster and our risk profile comes down, we'll be prepared to execute on our portfolio management strategy to pivot the company towards higher growth and margin potential priority verticals that help us accelerate value creation for the company. This is a multi-year journey, and progress won't be linear. But with a successful 2025 behind us, we're accelerating the transformation of 3M and building the runway for performance beyond 2027. The 3M team is energized and motivated, and I want to thank them for the dedication and focus on delivering improvement day after day. And with that, I'll turn it over to Anurag to share the details of the quarter. Anurag?

Thank you, Bill. Turning to slide seven, we had a strong finish to the year across all financial metrics. We delivered another quarter of sales growth above macro, continued margin expansion, strong earnings growth, and robust cash flow generation. Starting with top line, in a continued muted environment, we delivered organic sales growth of 2.2% driven by our commercial excellence initiatives and new product launches. The growth was driven by strength in safety, electronics, and general industrial, which more than offset the softness in consumer, roofing granules, and auto markets. All three of our business segments delivered sustained auto momentum, which contributed to a higher ending backlog compared to last year, giving us confidence as we go into 2026. Fourth quarter adjusted operating margins were 21.1%, up 140 basis points, and operating profit increased double digits, or $125 million, driven by continued disciplined operational performance. This included a $275 million benefit from volume growth, broad-based productivity, and lower restructuring costs, partially offset by approximately $50 million of growth investments and headwind of $100 million from gross tariff impact and stranded costs. Collectively, this contributed $0.17 to earnings, which was partially offset by $0.02 from non-operational below-the-line items. Our strong operating performance resulted in adjusted EPS of $1.83, an increase of 9%, and exceeded the top end of a guidance range. I also want to mention that we took a $55 million charge in the quarter. as we continue to make transformation investments to redesign our manufacturing, distribution, and business process services and locations. Similar to last quarter, these charges will be excluded from our adjusted results. Adjusted free cash flow in the quarter was $1.3 billion, with a conversion of approximately 130% as we benefited from strong earnings growth and working capital efficiency. Turning to slide 8, I will provide an overview of our business group performance for both the fourth quarter and full year 2025. First, in safety and industrial, we delivered another quarter of strong organic growth as we continued to gain traction on commercial excellence initiatives and realized benefits from new product launches. Fourth quarter organic sales increased 3.8%, driven by strong performance and safety, which grew high single digits through enhanced channel engagement and new product launches. Industrial adhesives and tapes growth accelerated to high single digits as we continue to win share globally in electronics and general industrial from new product introductions and improved manufacturing throughput. Abrasives continue to improve, delivering another quarter of mid-single-digit growth, benefiting from sustained focus on sales force effectiveness. Collectively, this strong growth more than offset known weakness in automotive aftermarket and incremental weakness in roofing granules due to the slow housing market and weak consumer sentiment. For the full year, SIBG grew 3.2%, with growth accelerating from 2.5% in the first half to 3.9% in the second half on the back of strong execution. Turning to transportation and electronics, fourth quarter organic sales increased 2.4%, driven by continued momentum in electronics and aerospace. These gains more than offset weakness in auto, which in our organizational structure includes commercial vehicles, which was down high teens in the quarter. Electronics continue to gain share, supported by commercial excellence initiatives and strong demand for our film technologies and optically clear adhesives. We also expanded our presence in the mainstream market by partnering with leading consumer electronic brands to deliver solutions aligned with their portfolio needs. Aerospace delivered another strong quarter, given by growing demand for space materials and continued strength in defense-related markets. We have seen sustained growth in this portfolio, where sales have doubled over the last four years. For 2025, transportation and electronics grew 2%, with second-half growth of 3% versus the first-half growth of 1%, driven by continued focus on commercial excellence and the ramp-up of new product launches. Finally, consumer fourth-quarter organic sales were down 2.2%. For the first nine months of the year, the business was up 0.3%, and we had expected the fourth quarter to be similar. But weaker consumer sentiment and sluggish retail traffic in the U.S. resulted in lower point-of-sale trends on discretionary categories where we compete. This market weakness was partially offset by new product introductions, increased advertising and promotional investments in the U.S., and overall business growth in Asia and Latin America. As a result of the fourth quarter weakness, CBG revenue declined by 0.3% for the full year. On slide nine is a summary of the full year 2025 performance. Overall, a strong fourth quarter capped a successful 2025 with organic sales growth of 2.1%, margin expansion of 200 basis points, an EPS increase of 10%, and free cash flow slightly above 100%. Sales growth strengthened from 1.5% in the first half to 2.7% in the second, exceeding the 2.5% we mentioned in our July earnings call. This momentum underscores the impact of our commercial excellence initiatives, enhanced service levels, and successful new product launches, positioning us well to accelerate our performance going forward. By geography, all areas delivered growth in the year. China grew mid single digit from strength in general industrials and electronics bonding solutions, supported by a strong focus on key accounts. This momentum more than offset the fourth quarter shift in smartphone manufacturing from China to other parts of Asia. In the rest of Asia, we grew low single digit, led by strong performance in India, which grew mid-teens on account of progress in commercial excellence across all businesses. After a couple of years of decline, Europe grew low single digits due to strength in general industrial and safety, which more than offset the weakness in consumer and auto aftermarket. Despite soft consumer and auto aftermarket, the U.S. grew low single digit for the year on the back of commercial excellence initiatives in the general industrial and safety businesses. Productivity initiatives drove strong margin expansion every quarter in 2025, resulting in full-year operating margins of 23.4%. Operating profit growth of approximately $650 million at constant currency was driven by $200 million from volume growth and $550 million of net productivity across supply chain and G&A. This was partially offset by $100 million in headwinds driven by $185 million in growth and productivity investments, in addition to ongoing stranded costs and tariff impacts with year-on-year lower restructuring costs. The strong operational performance contributed 96 cents of earnings, which was offset by approximately 20 cents of non-operational items for a total EPS of $8.06. This 10% EPS growth was better than our expectations and above the initial guidance at the start of the year. And we returned $4.8 billion to shareholders in 25, including $1.6 billion in dividends and $3.2 billion through gross share repurchases. Overall, 2025 laid the foundation for a strong operating culture. grounded in excellence, accountability, and a faster operating tempo, enabling us to overcome external factors to drive profitable growth. We have momentum as we enter 2026, and I will walk you through the guidance on slide 10. We expect organic sales growth to be approximately 3%, earnings per share ranging from $8.50 to $8.70, and free cash flow conversion of greater than 100%. We expect sales to accelerate for all business groups. SIBG and TEBG grew 2.7% combined in 2025, and we expect this growth rate will accelerate in 2026, supported by ongoing commercial excellence initiatives, strong service levels, and continued new product introductions. And we expect consumer to return to growth in 2026. The business groups combined will expand margins over $450 million or 100 basis points, including $875 million from volume growth and net productivity across supply chain and G&A. This will be partially offset by headwinds from PFAS stranded costs and tariff impacts, as well as an increase in growth and productivity investments to $225 million. This is on top of the incremental investment over the past two years, bringing the total investment from 2024 to over half a billion dollars. Corporate and other income will be lower by $50 to $75 million, or 20 to 30 basis points, largely from wind-down of transition services agreements related to Solventum. Overall, we expect total company income to grow by $400 million at the midpoint of our 70 to 80 basis points margin expansion guide. Adjusted free cash flow conversion is expected to be greater than 100% driven by strong operating income growth and a focus on working capital management. And we plan to deploy capital effectively, including a gross share repurchase of approximately $2.5 billion in 2026. Slide 11 provides a look at earnings growth drivers, which is primarily driven by strong operations consistent with our 2025 performance. Regarding cadence, we expect the rate of sales growth to increase through the year, with margin and EPS equal between the two halves. In the first quarter, the sales growth in SIBG and TBG combined is expected to be higher than 3%, and we will continue to monitor the recovery in our consumer business. Volume, productivity, and slight favorability in FX will more than offset the stranded costs, gross tariff impact, and increase in investments, resulting in high single-digit year-on-year earnings growth. Before we open the call for questions, turning to slide 12, I want to take a minute to highlight the progress we have made so far. We are trending ahead of our investor day targets we laid out a year ago. Our organic sales growth is accelerating due to our investment in growth and commitment to commercial excellence and innovation. Our relentless focus on operational excellence is resulting in strong operating margin expansion and sustained earnings growth despite pressures such as soft macro, tariffs, and stranded costs. We continue to be a consistent generator of cash that allows us to effectively return capital to shareholders while maintaining a healthy balance sheet. Not too long ago, our growth rates were trailing the macro, and now we are progressing ahead of our medium-term commitments of $1 billion growth over macro and a 25% operating margin by 2027. While we are focused on executing these commitments, we are also broadening our horizons to the out-years. Ensuring our transformation efforts position the company not only for the short term, but for sustained profitable growth well past 2027. This strong performance is a credit to the expertise and the commitment of the 3M team, and I thank them for the hard work and dedication. With that, let's open the call for questions.

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

Hey, thank you. Good morning, everyone. I guess two for me, one longer term and one shorter term. Hey, Bill, just back to your slide six, as you said, you know, all these things are going on to varying degrees simultaneously. But the pivot to priority verticals, you know, sort of jumps out to me, obviously not the first time we've heard that. But I just wonder if you could put into context how much of that pivot is sort of addition by subtraction versus sort of investment focus growing and bulking up. sort of the areas that you view as the priority and maybe sort of what percent of your current revenue base or business base would you say is in that priority bucket?

So good morning, Jeff. Great, great question. So we've been talking about our priority verticals going back a year, actually, to February of last year. You know, it's a little bit north of 60 percent. It's growing, you know, frankly, because of the investments we're making. And I put it in two pieces. One, you know, we spent the last year and a half focusing a lot of our internal investment dollars on the priority verticals. And now probably 80 percent of what we spend on R&D is aligned to NPI verticals. In the priority verticals, of course, they are defined as ones that are growing faster, where we have good margin potential as well in the business, where technology brings differentiation or right to win. And that's been the pivot in the organization. You know, over time, as we as we think about what the portfolio is going to look like for us to get to a much better sustainable organic growth rate for the overall company, we've got to structurally adjust the portfolio, which means some pieces coming out. And we've been talking about some of those pieces we've we've said before, you know, about 10 percent of our company would be. in places that are more commodity-like. And, you know, we'll probably think about what we want to do with those businesses over time. But as we do that, we'll be pivoting both organically as well as inorganically towards those priority verticals, which is the nature of that chart. It shows that that's an evolution over time. And, again, it's not necessarily sequential, but that's kind of the overall flow, how we think about creating value here at 3M.

Yeah, and then just thank you for that. Just on the very near term, you know, the flat view on USIPI, you know, it's kind of a tough slog out there, right? But your industrial businesses, you know, do seem to be performing well, right? Abrasives and some of the adhesives, electrical businesses. So I guess there's some outgrowth there. But I guess just the nature of my question is just a little more color on how you see the year kind of starting out. Anurag gave a little bit of color, but... You know, did we start soft here in January? And, you know, do you see things sort of kind of picking up off a low base here as we exited the year?

Yeah, so last year, I mean, the exit rate was pretty solid, actually, across the industrial businesses. And we, you know, Anurag in his comments talked about the acceleration from about 2% to 3.6% across TEBG and SIBG as we went first half into the second half. You know, yes, IPI is softening both in the U.S. as well as in China. Those are important markets for us, certainly. You know, but we do expect our overall industrial businesses to remain resilient. Pretty solid. I pointed out a couple of watch areas. One is an auto builds. You know, auto builds were around three point eight percent last year. Little weaker in Q4. A lot of it was China. But overall, it'll be says right now down point three percent as as much as you can believe the numbers. you know, and not so good across the, you know, all of the regions. So that auto is a little bit softer. We have to watch that. You know, consumer electronics look a little bit more flattish in terms of the overall macro forecast. Of course, we believe in our business electronics will continue to grow. We still see that to be overall electronics up mid-single digits for the year. You know, of course, you know, we were watching very carefully what happens in the U.S. consumer market. You know, right now it feels subdued. We had a very – Very good December, although Q4 came in down 2.2%. So it dropped the year to being negative for consumer. But December, we typically see the third month pretty good, but it was up double digits over the prior year in December. And early in January, again, it's early this year, we're looking okay. You know, that's sort of the landscape, but I do see that even though IPI is coming down, you know, our commercial excellence initiatives, our NPI initiatives, it's going to allow us to continue to outperform that macro, and we expect that to accelerate in 26 from what we experienced in 25.

Great. Thanks for that. You bet, Jeff.

Sure.

Our next question comes from the line of Scott Davis with Milius Research. Please proceed with your question.

Hey, good morning, guys. Good morning, Scott. Thanks for the detail. Guys, I don't think you mentioned inventory levels, customer inventory levels in the prepared remarks. And just as we exited the 2025, what's your sense of where your customer inventory levels were or are, I guess, now kind of point of reference, kind of pre-COVID, post kind of the new normal versus now? kind of pre-COVID, just a little color around that I think would be helpful.

Sure. Good question. So on the industrial channels, it's pretty normalized. You know, it's in the sort of 60-day range, you know, a little bit more than that. But as we would expect it to be, you know, as we were selling out in Q4, we do watch POS out of our channel partners, and they were selling through. So even though we had good sales into the channel, we also saw good sales out of the channel. So pretty good, actually, on the industrial side. That's good. On the consumer side, you know, on the CBG side, it was a little bit elevated early in the quarter, but we had very strong growth in December. And inventory started to come down and normalize. Still a little bit elevated as we exited the year, but not as concerning as we were sort of at the beginning of the quarter. So overall, industrial, pretty good. Consumer getting normalized as we speak.

Okay, fair enough. And then, guys, what is the pricing strategy right now? I mean, it kind of, when just listening to the prepared remarks, it sounds like new products is where you lean in on price or at least try to get a positive mix shift there. But is there also a pricing strategy around getting an annual bump up, perhaps that maybe you didn't get historically, but going out with price increases on on January 1, particularly where you're going through distribution?

So, yeah, good question. So for the year, we had expected to be about 70 basis points last year, stepping up first half, second half, as we were covering some of the tariff headwind. You know, we saw that in the third quarter. And the fourth quarter was a little bit lighter because of the consumer market and the promos and discounts that we provided there to stimulate that business. So overall, we were a little lighter on pricing last year than we had expected, but still very solid. The place where we get pricing, generally speaking, is in SIBG, and that was solid. That remains strong. We can continue to see good pricing movement here going into 2026. We expect it will be about 80 basis points more or less in 2026. A lot of it is SIBG. There's a couple of threads here. One is we do continue to cover material costs inflation. Two, we continue to tighten down our pricing governance, making sure across all of the industrial businesses that when we give pricing discounts, we get the volume we'd expect in giving those discounts. And then third, as you pointed out, Scott, is the pricing we should expect to get when we're launching new products. This is an area of opportunity for us over the medium-longer term. I think we're okay on this, but we could be a lot better. There's pockets where we are very thoughtful in pricing to value, but I would not say that today that that's over all of the NPI we're launching, and I think it's a long-term opportunity for the company.

All right. Best of luck this year, guys. Thank you.

Thank you. Thank you, Scott.

Our next question comes from the line of Julian Mitchell with Barclays. Please proceed with your question.

Hi, good morning. Maybe, first off, I just wanted to understand the degree to which, if any, there was a back-end loading in the guide. You know, it seems like you're expecting about 6% EPS growth year on year in the first half. So not that different from the full year. Just wanted to check that and how you're starting out in the first quarter. Should we expect the consumer business to still be down, for example, and then that picks up steam through the year?

Thanks, Julian. Anurag here. So I would say in terms of EPS growth, we expect the first half and second half to be equal. So as I said in my prepared comments, the EPS will be equal between the first and second half, which implies a similar growth rate as well. And if you look at, you know, what I said is in the SIBG-TEBG, given the exit rates, we do expect revenue to be over 3% in the first quarter. CBG is an area we'll watch out and we'll probably see that part of the revenue go through the course of the year, but materially do not expect the rate of growth to be significantly different between the first half and the second half. And if I look at productivity as well, it's pretty even loaded across the four quarters. So I think as we sit here today, we feel that it's a fairly even loaded quarterly cadence for both revenue as well as EPS.

That's very helpful. Thank you. And then just my follow-up would be around that sort of interplay, and it's been touched on a couple of times, but between the macro and the self-help initiatives. So I'm thinking about the guidance for a deceleration in IPI in the U.S. this year, but an acceleration somewhat in 3M's own organic growth rate. Is our impression that that's really all self-help initiatives that you mentioned and the outgrowth or the acceleration in the second half of 2025? Is your impression that that was all self-help driven as well with nothing from the macro? Just to understand how much you're sort of putting on your own shoulders versus relying on the external environment for this year.

So, Julian, thanks for the question. Let me maybe frame it by just talking about a little more granularity, the billion dollars over macro. We talked about over at the Investor Day over the next three years, and Anurag mentioned in 2025, you know, our growth came in at 2.1 percent. You know, we look at the overall macro to be around a point and a half. That's IPI, GDP with some sectors that were a bit weaker. You know, it was where we see it. So we saw ourselves with about 60 basis points of outperformance versus the macro. If you just run the math, that gives you about $150 million. So a little bit better than we had expected to be $100 million over macro last year. You know, and the majority of that, probably 75% of it or more, was commercial excellence. You know, less of that was new product introductions. But we did say that that would start to even out and an NPI or innovation would take over in that third year. And that's, in fact, what we're seeing in 2026. So we're guiding here at 3%. You know, we expect the macro in 2026 to be, you know, a little bit better, 1.5, maybe 1.7 range, something like that. So, you know, our outperformance, you know, this year versus the macro is more like $300 million or more. And that's roughly half and half between NPI and commercial excellence. So So that's how we see this playing out. And, you know, yeah, the back half of last year, you know, did show that. We did outperform the macro. A lot of it was, your phrase, Julie, was carrying it on our shoulders. And, you know, we expect to see more of that, you know, coming into 2026. We're launching more projects, which is very good. We're getting a lot more granular tracking the incremental revenue coming from Class 3s, 4s, and 5s. And as we look out into next year, you know, we're pretty confident that those are going to start to move the needle for the company, which is why we feel good about outgrowing the macro here in 26. Great. Thank you. You bet.

Our next question comes from the line of Joe O'Day with Wells Fargo. Please proceed with your question.

Hi, good morning. Thanks for taking my questions. I wanted to start on footprint optimization and if you can give a little color between factories and distribution centers, how you're thinking about targets for footprint reduction or consolidation in 2026. both in terms of kind of number of facilities and as well as out-profit impact and then any color around segments and regions where we would see the biggest impact there.

So, look, it's all part of our broader transformation agenda. We're just starting on that as we speak. We did see some announcements at the back end of last year. We announced one small facility last week in our network. You know, we ended the year around about 108 factories. We have several, about seven coming out with the sale of precision grinding and finishing. So call it about 100 factories. You know, that will come down over time. I can't size that for you today. We will be making some investments in 26 to restructure that network. But keep in mind, these things are changing. three, four, five-year payback. So we'll start on it, you know, accelerate into 26, accelerate into 27. But this is really about building that margin runway to grow beyond 25 percent in 27 in terms of operating margins. So, you know, we will consolidate this network. It'll be factories and distribution centers. We're making some progress on DCs as well. But I won't be able to size it for you today in terms of the specific numbers. But But that's the plan. That's the trajectory we're on here.

And then just wanted to touch a little bit more on consumer. If you could elaborate on kind of what you tracked over the course of the quarter, kind of early into this year, sort of a step down in demand trends versus what maybe was a little bit more transitory and just kind of how that's pacing. And then separately, just with the focus on memory chips out there, I think you said consumer electronics for you expected to be at mid-single digits, but any impact you're seeing in the markets tied to that?

So on the consumer market, as I mentioned earlier, as we entered, first of all, for the first nine months of the year, we're at about 30 basis points of growth in each quarter, which was pretty consistent. And that was above what we saw the macro. It was a good time to return to growth. We felt very positive about that. And we had expected that we would see the similar trajectory going into the fourth quarter. That didn't happen. You know, we saw October and November being a little bit light. You know, sell through the channel was a bit light. POS was light. So inventory started to come up a little bit. We started to see that reverse a little bit in December. So December, you know, orders were okay. You know, growth was double digit over the prior year, December. The holiday season was a little bit muted, I would say. You know, so overall for Q4, we came in at down 2.2%. And as I said, As we turn the corner into, you know, into January, it's very, very early. We're only a couple weeks in. You know, we're trending as we would expect it to be. So I can't really comment too much about that. We'll say more over time. But that's a consumer. Again, I would just characterize it as being, you know, relatively soft, like bumping around, you know, flattish as we ended the fourth quarter. So on electronics, you know, we – Overall, we have – so it's a consumer electronics business. We provide adhesives. We provide films into that area for foldable devices, for debondable devices, a lot of NPI going into that space. We are focusing on growing our position in the mainstream market. 3M as a whole in consumer electronics is more like 80-20 or 70-30 premium to mainstream, and the market's the opposite of that. You know, we do see an opportunity to grow and penetrate mainstream. Some of that is in China, and we're making good progress. So a lot of the NPI that we're launching, we are penetrating into a lot of China OEMs and Asia OEMs in that mainstream market, and I think we're starting to gain some share there. So that's why we see that business for us when we add in semiconductors, data center, all electronics to be up in single digits here coming into 2026, similar to what we saw last year. Thank you.

Our next question comes from the line of Steve Tusa with JPMorgan. Please proceed with your question.

Hi, good morning. Hey, good morning, Steve. Just on that electronics point, so the reported revenues were down sequentially and also year over year. Do we just adjust that back to get to that mid-single digit for the fourth quarter? I mean, you said it was strong, but what was kind of the organic rate of growth? It's tough to tell from the subsegment disclosure.

Yeah, it was in the mid-single digits. You know, what we're looking at in the tables is with PFAS, and we exclude the PFAS out of the results. So when you exclude that, it's mid-single digits.

Okay. And then when you're expanding into this mainstream area, is there any kind of dilutive impact to margins at all, or you kind of make up for it on the other end by being more efficient with some of the initiatives you're working on?

No, we're not seeing it being margin dilutive. As we innovate here, develop products designed to cost, it's an important push that the team is making is designing more cost-effective product. We're not seeing any margin degradation, and so far it's been It's early, but it's the push we're making, and again, a lot of NPI in that space.

Okay, sorry, one more. Just for this year, the $500 million in, I guess, litigation costs in 2025, how do you expect that adjustment to trend in 2026?

It's probably going to be in line with that. I can't really tell you if it's going to be up or down. I mean, it depends on what happens in the overall docket, but I would expect it to be pretty similar to that. Okay, great. Thanks a lot.

Our next question comes from the line of Andrew Obin with Bank of America. Please proceed with your question.

Hey, guys. Good morning.

Hey, good morning, Andrew. So, on SIBG growth in 26, I think last quarter you had the slide five that showed SIVG growth correlation to improving OTIF, new product introduction. And you sort of can see in the fourth quarter on a two-year stack, you know, clearly there is more momentum. So given that comps in the first half are going to be easier than in the second half, but at the same time, we have seemingly good momentum with self-help, should we see first half stronger growth than second half, or should the growth be fairly steady year-over-year throughout the year?

So, Andrea, it's a very, very good question. We do see really good momentum in SIVG as it went from the first half to the second half. And, you know, I could see where you're going, and I'll pass that message on to Chris, who I'm sure he's listening as well. You know, the reality is there's good momentum, really good progress on commercial excellence. We're launching more projects there. You know, the only caveat is, you know, as I talked about earlier, you know, we do see USIPI a little bit softer. We know the roofing business better. You know, experienced a trough really in Q4. It was weaker than we'd expect, quite a bit weaker than we'd expected. You know, and that's a piece of the SIBG business. I'd expect that weakness will drag into the front half of this year. So there's going to be some offsets. But, yeah, I mean, largely I think you're heading in the right direction. I think, you know, SIBG is performing really well. We'd expect to continue that trend here in 2026.

Thank you. And just a follow-up on electronics. You sort of talk about expanding into mainstream and this sort of echoes strategy from the days of George Buckley, the pyramid strategy. Is this just the focus on consumer electronics, or are you thinking of sort of you know, tweaking it and implementing it beyond consumer electronics, this sort of mainstream strategy.

No, I'm speaking today basically on consumer electronics. And, you know, I think you've commented before that this strategy was embarked upon in the past. You know, look, this has to be a very thoughtful way of going at this. We have to make sure that all of our infrastructure, our designs, our sourcing, how we manufacture, how we ship, how we price, all is geared towards consumer going after that segment, which is quite big, but making sure we do it profitably. So it's a bit of a business model shift as well. So I draw you back to what we're trying to do in our transformation agenda. A lot of this business model shift is shifting our cost structure, both G&A as well as on the factory side. And if we do that and we bring that cost out, that does allow us to lower the water level of our cost and attack these interesting and growing segments you know, at profit rates that we have today. So that's where we're going. You know, we're pushing ahead in consumer electronics. Could it go beyond that? We'll see. But right now, the comments are specific to consumer electronics.

No, thank you very much. Nothing wrong with that strategy. Your stock kind of outperformed under George Buckley. Thanks a lot. Yeah.

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

Thanks. Morning, everybody. Good morning, Ahmed. Anurag, I guess I want to just ask about incremental margins for this year. The implied is sort of in the low 40%, which is not that much above the 30% to 40% kind of, you know, core organics on the growth. So I'm just kind of curious, you know, what the productivity assumption is, what the offsets are from stranded costs. Maybe I'm double-counting. Maybe some of that's already included in the 30%, 40%. But if you can unpack that for us, I think that would be helpful. And then on the first quarter specifically, I know you said high single digits. Not to be nitpicky, but are we kind of above $2 per share in one queue? Like any finer point would be helpful.

Okay. Thanks for the question, Amit. Just firstly, if you look at both volume and productivity in 2026, it's going to be higher than what it was in 25. So in 25, between volume and productivity, we had about $750 million of operating income increase, and that was a 2.1% organic revenue growth. With 3% growth, the $200 million of volume will now become closer to $250 million. And productivity actually goes up from $550 to about $600 million. So overall, we're going to see about $125 to $150 million increase between volume and productivity in 26. And the productivity is going up on three real buckets around there. First is on supply chain. We expect half of that to come out of supply chain, which is continued cost of poor quality, bringing it down, procurement, managing a four-wall spend in the factory and logistics. THERE'S ABOUT $150 MILLION OF INDIRECT EXPENSES. WE DID A GOOD JOB IN 25. WE'LL CONTINUE TO DO THAT IN 26. AND ANOTHER $150 MILLION IN GNA EFFICIENCY AS WE LOOK AT OUR PROCESSES OF OPTIMIZATION AND SO ON. SO OVERALL I WOULD SAY THAT THE INCREMENTALS BETWEEN VOLUME BETWEEN PRODUCTIVITY And the volume growth is going to be higher. What's offsetting it in 26 is the half a billion dollar, which is being offset in 26. One is a pickup in investments. Lastly, we did 185. We're going to do an incremental 225 this year. The stranded cost goes up from $100 million last year to $150 million this year. So I would say those are probably the two biggest buckets. Obviously, we have half a year of tariff as well, which is $140 million. So you put these three together, that's half a billion of it. Obviously, as we go into 27, a couple of them will not recur, but the incrementals overall are pretty good for 26. Now, on your first quarter, it is a very specific question that you're asking me. What I would say is that as I spoke about volume and productivity, I said about 875, 900 million dollars for the year. The first quarter is almost 25 percent of that. Right. So if you kind of run the numbers through and, you know, there'll be a little bit of FX favorability in the first quarter, given where we were last year. You run all of that through. It will be high single digit EPS growth.

Okay, thanks. And then just maybe a longer-term question for Bill. You've obviously given us a lot of metrics, whether it's OTIF or OEE, and I'm kind of intrigued by this move to this design-to-cost approach in the R&D function. NPI is helpful, but it doesn't really capture kind of how the addressable market is changing based on the incremental NPI. So I'd be curious, one, how do you hold the R&D function kind of accountable to this cultural shift? And what can you kind of share with us in terms of the NPI coming out, how effective that is in going after the 80 percent of the market that, you know, you're kind of not there at the moment?

So, I mean, good question. I'll just hit it briefly. I think there's two pieces. One is the value engineering efforts that we are stepping up dramatically this year on to take costs out of products that are on the market today, which does require additional engineering work, there's qualification work, there's things that have to happen, generally speaking, to get those initiatives taking hold. We also have to drive that back into the overall design mindset and thinking of cost as we start developing products. And that's the push we're making is thinking about early in the design process, which is the best time to be thinking about that. How we hold people accountable in R&D or anywhere through the company, product leaders, general managers, even me, is the quality of the business cases and making sure that we're The business cases are developed, you know, rigorously from the ground up with a good sense of what the costs happen to be. And you start with a design to cost mentality and holding people accountable to the results of what we're investing in, you know, based on these business cases where we're going to be pushing the company more this year.

Thank you.

Our next question comes from the line of Nicole DeBlaise with Deutsche Bank. Please proceed with your question.

Yeah, thanks. Good morning, guys. Good morning, Nicole. Just wanted to circle back on China. I think you guys have embedded 4% IPI growth in 26, and that compares to like 6% in 25. I know 25 was like a pretty good year for you guys in China, so you could just elaborate a little bit on that. what you're seeing in the region and where that decel is coming from for next year.

So thanks for the question. Yeah, China actually had a very good year for us, a good couple of years. In 24, they're up double digits. Last year, they're up mid-single digits. It was a little bit lighter in Q4, but only because of, as Anurag had mentioned in his prepared remarks, the shift out of China's smartphone production. When you exclude that, the market, you know, the China business for us remained mid-single digits. And as we Turn the corner to this year. Yeah, the macro is softening a little bit is what we're expecting. I think two points down year over year on IPI, at least as we see it today. And, you know, the forecast see it again. This could go in lots of different ways, you know, but but we see that market to be more low to mid single digits this year, still growing. Maybe not as robustly as we saw last year, but still low to mid-single digits. The bottom line is we run China a little bit differently in the company, just like we do India. It's a hybrid model. So we have global business groups and a really strong, dedicated, driven local team. We're driving a lot of localization of R&D, localization of sourcing. We're attacking the market. You know, we've got six factories there, 5,000 people, and we've got people lined up to really drive that business. And I think we are performing well, and I would say we're outperforming it. I expect the same thing here in 26. Thanks, Bill. That's helpful.

And then obviously had quite a bit of new noise from a tariff perspective over the weekend. So can you just confirm the tariffs, Edwin, that you guys are embedding in 2026 doesn't include any of this potentially new tariffs from Europe? Have you guys tried to quantify what that could mean for your business if they are enacted?

Thank you. So, Nicole, great question. So what we're embedding in our guidance is the carryover effect of the 20 cents of gross impact that we saw last year. That's in, and Anurag mentioned, that's mostly in the first half of this year. That's what's in the guidance because that's what's in law. That's what's in practice today, and we're moving. Now, the pieces that at least the president's now talking about relative to Greenland and new different tariffs on taxes, on Europe. It's about eight countries. You know, they talk about 10 percent in February, another 25 percent, you know, mid-year or something like that. For us, the trade flows between U.S. and Europe is around a billion dollars. We're a net exporter. So we export 700 million into Europe. We import back about 250 million. If you just run the numbers at 10% and then growing up to 25%, you can get to something in the order of $60, $70 million. But that's over the course of the year. We'll see some of that going in inventory. We'll see some of that dragging into 2027. So if that plays out exactly as we expect and the trade flows I mentioned, it could be a $30, $40 million impact this year. But again, You know, we're a long way from that becoming an executive order, so we'll see. We're watching it, as everybody else is. That is not yet in our guidance. Thank you, Bill. I'll pass it on.

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

Thank you. I wanted to ask about consumer. Bill, I think you said December was up double digits. So with the quarter down 2%, I guess October, November would be down high single. So really sharp positive rate of change there. I guess, is there anything to call out with the comps? Did December just have a really easy comp? Because it doesn't seem like you guys expect much of that strength to continue into Q1. Maybe one month doesn't make a trend, so too early. But any color there would be appreciated. Thank you.

Yeah, we typically, Chris, we typically see seasonality within the quarter in CBG to be lower in the first couple of months and then higher in in the third month. We saw that pattern play out each quarter last year, including in Q4. This one was a little bit different. It was a little bit weaker in October, November than we would have expected, and then a little bit stronger in December than we would have expected. I think part of it was, you know, the team pushing pretty hard, a lot of really good work that the team did in promotional programs with our large retailers who also were striving to drive their growth. And that combination, I think, paid some dividends in December. So we grew a little bit better than expected in December, a little bit weaker in October, November. You know, I wouldn't read too much into the trend so far in the first couple of weeks. You know, let's see how the next, you know, number of weeks and maybe a couple of months go. But at least it seems to be holding okay to what we had expected in the first couple of weeks. So I wouldn't read too much into that at this moment, Chris. Thank you.

I appreciate that. And then if I could follow up on the US IT assumption. You know, you guys are calling for flat in 26 after 1% growth in 25. You know, when we look at the quarterly U.S. industrial production numbers, they seem to be strengthening as 25 went along. You know, you guys are obviously calling for things to soften. You know, do you see, you know, anything, you know, out there that is softening? You know, is there just some conservatism in that assumption?

Thank you. So you're right. I mean, if you look at IPI through the course of last year, You know, what we're seeing backward looking, it did improve sequentially over the course of the year. It was a little bit stronger in the back half than it was in the front half. You know, according to forecasts, it looks like it's flattish in 2026. So we're reading those numbers. You know, for us, you know, as I mentioned before, we do expect our industrial businesses to continue to perform very well. You know, the two areas within industrial that we're watching, one is an auto aftermarket. Looks like it's still remaining relatively soft or expected to remain soft on car repair claims both in U.S. and Europe, as well as in the roofing granules business because of the housing market, consumers. not looking to replace the roofs right now. You know, that business has been a little bit soft. In fact, it was very soft in the fourth quarter. We expect some softness in the beginning of this year. But again, I just come back to the, with the execution of the team in commercial excellence and NPI, I think they're doing a very good job. I expect it will outperform that industrial macro as we get into 26.

Thank you. I appreciate that.

Our next question comes from the line of Andy Kapowitz with Citigroup. Please proceed with your question.

Good morning, everyone. Hey, good morning, Andy. So, as you said, you originally forecast N25 averaging high-teens growth from that rolling five-year new products, but you averaged closer to mid-20%. It's obviously one of the metrics leading to your market outgrowth, but what could it average in 26, and does it suggest you could get higher than that 300 million or higher, as you just said, in terms of market outgrowth?

So so we we do see a higher in twenty six and twenty five in terms of market outgrowth. And it's exactly from the progress made on innovation and in five year new product sales coming up. You know, again, when we look at the twenty six numbers. You know, we assess the macro as it affects 3M to be on the order of around 1.7%. We're projecting growth of the company, organic growth of 3%. You know, that delta, that outgrowth is over $300 million above the macro. Half of that is coming from new product introductions, both those that were launched at the back end of 25. We had a very good back half, as well as those that we expect will launch in 2026. So I feel really good about the trajectory we're on and the momentum we're building here. This is really, I think, moving the needle. You know, with a little market tailwind, we'll see even greater pickup. But I feel good that we'll outgrow the macro next year, this year, 26, as a result of some of the initiatives we have in place on NPI and commercialization. excellence.

Godman, you were able to essentially hold the line, I think, all year in 25 and consumer in terms of growing margin nicely despite flash sales. And, you know, with the understanding that Q4 organic sales declined, it seemed like you still had a relatively significant degradation in margin performance. So could you give us more color on that? Was it mostly just the increased advertising promos that you talked about? And can you talk about your confidence level in growing consumer margin or at least holding up in 26?

Yeah, so good question. It was the promos and discounts that were offered. I think for the whole year, we did very well. We're up 130 basis points. We're down 110 in the fourth quarter. But again, for the year, really good. The team is doing an excellent job of focusing on the priority brands and appropriately investing in Admirals. The NPI launches in CBG were really good, up double year over year. And I expect margin growth as we get into 26 as well as they really level out the business. So I feel pretty good about the structure that we have in place in CBG and the strategy that's being executed. And with a little bit of consumer recovery, you'll see that coming through in a CBG business this year. So I appreciate that question. Thank you. Thanks, Bill.

This concludes the question and answer portion of our conference call. I will now turn the call back over to Bill Brown for some closing comments.

Well, thank you, everybody, for joining again today. And thanks to all of the 3Mers for their efforts, for their dedication in executing against our priorities and delivering value to both our customers as well as our shareholders. Thank you and have a good day.

Ladies and gentlemen, that does conclude today's conference call. We thank you for your participation and ask that you please disconnect your line.