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 one 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 Company. 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, and we will take your questions. Please note that today's earnings release and slide presentation accompanying this call are posted on the homepage of our investor relations website at 3M.com. Please turn to slide two and take a moment to read the forward-looking statements. During today's conference call, we will be making certain predictive statements that reflect our current views about 3M's future performance and financial results. These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties. 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 will be making references to certain non-GAAP financial measures. Reconciliations of the non-GAAP measures can be found in the attachments to today's press release. With that, please turn to slide three, and I will hand the call off to 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 3Mers. We're exercising a new commercial excellence muscle with a much tighter alignment across the supply chain, and we're institutionalizing the March opt 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. 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 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 painters tape with edge lock 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 at 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 upload 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 1 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 2 points to about 82%. It's on a steep climb to achieve 90% by year-end. Our metric for equipment utilization or OEE was up 4 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 continues 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%. And 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 costs 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 I digest the new policies and fully develop and qualify mitigation plans. With the significant footprint we have in the US, 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.

Thank you, Bill. Turning to slide four, we had a strong start to the year, performing ahead of expectations on margins, earnings, and cash. On sales, we delivered a second consecutive quarter of positive organic growth across all three business groups, performing at the high end of the 1% to 1.5% range we provided in March. We saw strength in several of our key end markets and divisions, including electrical markets and industrial adhesives and tapes in SIBG, aerospace in TEBG, and consumer safety and well-being in CBG. And we continue to see softer trends in auto, abrasives, and packaging and expression. Geographically, all regions grew year on year, with the exception of Europe. China was up mid-single digits with strength in the industrial business and electronic bonding solutions, driven by share gains with key accounts and increased orders ahead of tariff actions. The US was up low single digits despite the challenging macro backdrop with continued high demand for cable accessories and strength in aerospace, partially offset by weakness in auto. And Europe was down low single digits due to the continued weak environment, including a high single-digit decline in auto builds. On orders, we saw good momentum through the quarter, and our daily order rate grew by over 2% resulting in a robust ending backlog that provides close to 25% of coverage as we enter the second quarter. Adjusted operating margins were 23.5%, up 220 basis points year on year. The operating income growth of $150 million at constant currency was driven by benefits from growth, lower restructuring cost, productivity, and TSA cost reimbursement, which was partially offset by our continued growth investments, timing of equity-based compensation, and stranded cost. SIBG and CBG margin rates were up year on year while TEGG was down as expected due to a challenging prior year comparison and inclusion of incremental stranded costs from the exit of PFAS manufacturing. The strong operational performance contributed $0.23 to earnings, which was partially offset by $0.06 of non-operational headwinds including FX, resulting in adjusted EPS up $0.17 or 10% versus last year to $1.88. Relative to our initial expectation of flat earnings growth in Q1, this $0.17 outperformance was driven by $0.10 of G and A efficiency, while maintaining our growth investments, and $0.07 of timing benefits related to spin and cost containment actions in the current quarter. We expect this $0.07 of timing items to be earnings neutral for the first half of the year. Free cash flow of approximately $500 million came in stronger than expected on the back of better earnings and disciplined capital expenditure spending. And we continue to have a balanced capital deployment including returning $400 million to shareholders via dividends and $1.3 billion in gross share buybacks partially offset by higher than expected stock option exercise. I will provide a quick overview of our growth performance for each business group on slide five. Safety and Industrial Organic sales grew 2.5% in the first quarter. This growth was broad-based with five out of seven divisions posting positive growth. We saw particularly strong demand for cable accessories, driven by construction of data centers and renewable energy projects. We also saw strength in industrial and electronics bonding solutions driven by continued share gains focus on pipeline management driving higher closed won. We also saw good momentum in personal safety as they continue to win key government contracts in the US and Europe. Auto aftermarket was down low single digits on the back of a market where collision repair claim rates are down high single digits to the year-to-date. Transportation and electronic adjusted sales were up 1.1% organically in the first quarter. Aerospace delivered another quarter of double-digit growth from commercial aircraft and defense-related business, our strong value proposition in portfolios like films and bonding and joining, and advanced materials grew high single digits driven by key project wins. The electronics business grew low single digits, softer than expected, driven by lower device demand. Our auto OEM business was down mid-single digits reflecting continued weakness in auto builds, particularly in Europe and the US, which were each down high single digits year on year. Finally, the consumer business was up 0.3% organically in Q1. Growth investments and new product innovation drove strength for filter eat filters, respiratory products, pain protection, and Maguire's Auto Care, partially offset by soft consumer spending principally in command and packaging expression. I will now share an update on our 2025 outlook trends on slide six. Starting with the macro environment, we see a softer outlook than at the start of the year. In Market forecasts have been lowered reflecting weaker consumer spending, and lower demand in industries such as auto and electronics. The blended GDP, IPI, 2025 growth was estimated to be 2.1% and has since come down to 1.8% for the year. We continue to believe we can grow above macro due to progress on all our commercial excellence initiatives and focus on new product introductions. However, due to the softer market, we're trending to the lower end of a 2% to 3% range. On operating margins, due to the Q1 performance, we see upside to the midpoint of our margin and earnings guidance range. In terms of non-operational drivers, FX has been more favorable than expected; however, it is offset by share option exercise and a higher net interest. We expect the operational cadence of sales and EPS to be split equally between the first and second half in line with historical performance. On cash, we continue to expect approximately 100% adjusted free cash flow conversion. Additionally, to offset higher than expected share option exercise, we're increasing our gross share repurchases in 2025 to $2 billion versus the $1.5 billion discussed previously. As Bill pointed out, we have bought authorization for $7.5 billion of repurchases, and we are prepared to be opportunistic in response to market conditions. As you know, we are dealing with tariffs, and it will provide a quantification of the tariff sensitivity on slide seven. Looking from left to right on the slide, our January guidance was for earnings of $7.60 to $7.90. As I earlier mentioned, given the Q1 strength, we are trending about $0.10 better operationally while our non-operational is balanced between FX and below the line items. Our intention is to continue to drive our results, but we are early in the year, and given the current environment, we are taking a $0.10 contingency and maintaining our $7.60 to $7.90 EPS guidance. On the right, I provided a tariff sensitivity. I wanted to quantify the impact as we see it right now and outline our mitigation plan. As we have mentioned before, we import $1.6 billion into the US and export $4.1 billion from the US. China is approximately 10% of the imports and slightly more on exports for a total trade flow of approximately $600 million between the US and China. These flows at the current tariff rates of 125% imports into China from the US and 145% from China into the US will equate to approximately $675 million of potential annualized tariff impact after anticipated exemptions. In addition, tariffs on products not qualified under USMCA, along with aluminum steel, and other reciprocal actions had an approximately $175 million impact, a total annualized impact of approximately $850 million before any mitigation actions. Given that most of the tariffs were enacted recently, and we typically carry 90 days of inventory, we expect only half of this impact this year, which is approximately $400 million or approximately $0.60 of EPS before any offsets. The team has responded quickly and is working on a number of mitigation plans including cost and productivity initiatives, optimizing production and logistics, including leveraging our US footprint and selective price increases where feasible. We believe we can partially offset the impact for an estimated 2025 net impact of $0.20 to $0.40. We will keep you updated as the situation evolves. In the meantime, we are controlling what we can, and focus on growth acceleration, strong margin expansion, and delivering strong shareholder returns in 2025. I want to take a moment to thank the 3M team for remaining resilient through this environment. With that, let's open the call for questions.

Thank you. Ladies and gentlemen, if you would like to register a question, please press speakerphone, please lift up your handset before entering your request. Please limit your participation to one question and one follow-up. Go first to Jeff Sprague at Vertical Research Partners. Thank you. Good morning, everyone. Thanks for all that color.

Maybe we could start, again, maybe a little bit on the macro side. Interesting commentary about the March exit rate but obviously kind of post liberation day, all eyes are on what know, what happened in April. I assume that's encompassed in how you've guided here this morning, but maybe give us some color if you could on how things progressed as you moved out of the quarter into Q2 and whether that March activity you saw maybe felt or looked like some pre-buy sort of actions by your customers.

Good morning, Jeff. It's Bill. I mean, first on the pre-buy, we saw maybe $10 million move from Q2 into Q1, primarily in China. So it was fairly minimal from our assessment. On that part of the question. On just the trends you know, as we mentioned in the prepared comments, our Q1 order rates were up a little more than 2%. We ended backlog at the end of March up low teens. As Anurag mentioned, we have 25% of our revenue in Q2 covered. As we turn the corner into April, we're seeing continued momentum in our industrial business in SIBG. Order rates are pretty similar to where they were in March, which is a bit higher than they were for the overall quarter. So they had that ended March pretty good, and it continued into April. A little bit softer on TEBG. Again, it's a little bit early in the quarter, maybe a little bit softer. You know, consumer, it typically starts a little bit weak. You know, it's the start of a quarter the retailers closed the books at the end of April, so it's typically a slower month for us. But generally speaking, industrial in line with March you know, just a tad softer in the other two businesses.

Great. And then just back to the tariffs, appreciate that kind of build-up to what the gross impact was. That's some great color. Just when we think about Bill, the levers you're gonna pull here on the mitigation side, Maybe just a little bit more color there, how much might be priced, the ability for the market to actually take price And I wonder if you could just elaborate a little bit more on some of the moves you're making and some of the things you kinda characterize as no regrets sort of moves. Yeah.

So yeah, there are several things. I put it in maybe three buckets. One is and we referenced this at kind of high level in the call here, The first are on sourcing and logistics actions. As you know, we've got 110 factories, 88 distribution centers. And at my comments, I talked about being at 58% utilization. So, you know, I guess the positive side of that is we have a lot of flexibility to move those assets up and down and move things across our network. So within sourcing and logistics, you know, we can change our sources supply fairly quickly. And we're looking at those kinds of things. We're adjusting our trade flows, logistics flows, leveraging more bonded facilities, free trade zones, a little bit more point-to-point shipments on our logistics you know, that we might have done before in terms of hub and spoke. We're optimizing where value add occurs across our network. So where we might have been shipping finished goods, we may now ship semi-finished goods and do finishing in a different market, different country. And we're looking at alternative production sites with different countries of origin to try to optimize the network and minimize, you know, the tariff impact on our business. So there's a bunch of things from a sourcing perspective that we're looking at. There are certain things we can do relatively quickly within the first couple of months. Some of the things actually are in flight today or have been enacted. You know, there's others that won't take investment but just take a little bit of time to qualify something. You know, there's others that might take a little bit of investment, a little bit more time. You know, that's likely to be more a 2026 help for us if we go forward with that. But several things we can do, some of which are being actioned today. The second big block is around discretionary cost actions we can take, and there's a number of things that we're doing like we did in Q1. But still protecting the growth investments we're trying to make in the business. And then the third is selected surgical price actions that could be in the form of surcharges depending upon the customer, could be list price changes that might go window effect. They're gonna be a bit more limited. But when I put those three pieces together, we talk about our $0.20 to $0.40 offsetting mitigating actions. You know, at the high end of that range, it's probably about 50-50 between cost sourcing and pricing. At the low end, assumes some of the pricing doesn't stick. But we continue to work on that. Those are all the things I think we're doing from a defensive perspective, but I'd remind you there's some offensive opportunities here as well. You know, we've got a very, very large US footprint. We can bring more things into the US. You know, there are certain products that we compete against that come in from other regions around the world, and perhaps there's an offensive opportunity to take some share here. And we're looking very carefully at that as well, Jeff.

Great. Thanks for all that color. Sure.

Thank you. We go next now to Scott Davis of Melius Research.

Hey. Good morning, guys.

Good morning, Scott.

I guess another way to kind of follow on to Jeff's question, I think there'll be lots of questions related, is just you feel like you're more or less exposed than your kind of average competitor to the tariff risk and perhaps that, you know, informs the ability to maybe get price or, you know, if everybody's in the same boat and similarly exposed and maybe it's a little bit easier to get price versus, you know, the alternative. But do you have any feel for that generally? I know it's I know that you sell a lot of SKUs in a lot of different markets and a lot of different competitors, but is there a general what do you think about that?

No. It's a good question, Scott. Look. We compete against different competitor different companies across all of our business groups and across all of our divisions within business groups. So it's gonna be fairly mixed. You know? Obviously, we do export, you know, $4 billion as Anurag mentioned, election electronics chain, but it's also for some domestic consumption as well. I wouldn't say it's any better or worse than where our competitors happen to be, but there's certain things that we can do with the flexibility of our network that we can take advantage of, cost and sourcing actions. And then move strategically on what we try to do on pricing. We do see some of our competitors, some things have moved on the consumer side outside of the US, primarily China sourced. You know, we walked away from some of that business. Some of that might be private label today. And there might be some opportunities to pull back on this. But, you know, to push pricing is gonna be different in every business I work in. We have to make an assessment of the competitive nature of the business, how differentiated our product happens to be. And we're working very, very closely with all of our partners. This is a we, not us versus them, but we're working together on what do we do to mitigate the impact that's hitting all of the companies. So a bit of a mixed bag, Scott, but I think in general, I think we're probably a little bit better positioned than a lot of our competitors.

Okay. And then as a natural follow-up, I mean, you know, 3M is a global company, but it's a very American brand, at least that's the perception. Have you seen any kind of anti-American behaviors, purchasing behaviors from your customers and biases to perhaps go in a different direction in certain areas? Or is that just something that we read about in the papers that's not a real thing yet?

Well, Scott, we haven't seen it yet. I mean, it's still early days, but we've not seen that. I'm not sure we're necessarily anticipating that. We do have very strong brands, very global brands. You know, as you mentioned, a very strong position in the US. We've got 50 factories here and a big chunk of our supply base, and we do a lot of R&D here. But we've not seen so far any sort of any risk coming on us because of us being a US-based manufacturer, US-based brands?

Okay. Helpful. That's a lot this year, guys. Thank you. Good luck.

Thank you. We go next now to Julian Mitchell of Barclays.

Hi. Good morning. Maybe I just wanted to follow-up on the organic sales outlook first off. So I think you mentioned early on that maybe you're looking at around sort of 2% organic growth for the year in the current guide. And just wondered sort of when we're thinking about the balance of the year, are you assuming kind of steady organic growth around that sort of 1.5% to 2% range each quarter through the rest of the year, or do you think we see sort of a dip this quarter and then some improvement in the back half Any color on that and by the sort of segments would be interesting.

Okay. Hey. Thanks, Julian. Anurag here. So just to start off with, what we said is we're trending towards the lower end of the range. Right now. But if you look at it through the course of the year, I think it's gonna be pretty stable. So let me first probably just talk about the first half, and then we can talk about sequentially. So as I said in my prepared comments, we expect the operating cadence to be split equally between the first and second half. So on the sales side, this would actually imply that Q2 would be at or slightly better than Q1. And as we move into the second half, we should see a little bit of take. So I think it's pretty balanced between the two. You know, as Bill mentioned, on the industrial side, we are seeing good growth momentum. We saw that in Q1, and that should continue through the rest of the year. On the electronics, there are a couple of pockets of weaknesses around the macro side on electronics and auto. We saw that in the first quarter, so that could be a little bit lower than what we thought at the beginning of the year. And consumer is, you know, it's Q1 was kind of 0.3% of flattish growth, but we expect that to pick up through the course of the year. So to answer your question, not seeing a dip in the second quarter. On the back of the backlog coverage, we have the orders on the industrial side. We should kind of see this momentum continue through the course of the year.

That's very helpful. Thank you. And then just my second question around the tariffs impact. So I think it's sort of in the in-year framework, it's sort of $0.60 gross headwind, $0.30 net headwind. Potentially at the midpoint of that framework you gave. Any more details you could give us, you know, if it is around that middle of the middle type number, How do we think about the phasing of that $0.30 net headwinds through the year? And also any color you could give on the impact by segment? Is it sort of better or worse in every in any division?

Yeah. Julian, again, listen, as we said, the tariffs started in February with non-USMCA aluminum steel, but the ones with the biggest impact started in April, particularly with between US and China. And as I mentioned, we typically carry about 90 days of inventory. So we will see this impact mainly in the second half of the year. For the second quarter, we may see a couple of pennies here and there, small impact, but that's within the guidance range of $7.60 to $7.90. So you'll see this impact in the second half of the year. Now regarding the businesses and the segments, we'll probably give more color as we kind of go around here. What the team is more importantly, if you take a step back, is working on actions very quickly across the buckets that Bill mentioned. And what we can control. So, obviously, on the cost side, you'll see us control a little bit faster. Price will come in. And then the offensive strategy, you'll see more of the benefit come through towards the end of the year or next year. So you will see us mitigating this impact more as we go along the course of the year into next year.

Thanks. Good morning. Anurag, just following up on the cadence maybe with respect to EPS as opposed to the organic sales? And last couple of years, we've seen, you know, 10% or so sequential uplift in EPS. So there's a lot of moving parts in terms of stock comp. I know there was a timing in terms of 1Q, 2Q stock comp. Obviously timing of other costs, and then tariffs, but I guess tariffs for more second half given the inventory. Could you just help us think about, you know, the cadence in light of all those moving parts we think about EPS moving from 1Q into 2Q in the rest of the year?

Sure. Yeah. Absolutely, Amit. I mean, I already touched upon the sales, so I'll go more on the earnings side. So first, let me do the year over year between for Q2, and then I'll come to the sequential because as you correctly said, there are a lot of moving pieces there. So the EPS growth year over year should be about $0.15 to $0.20 on the operational side. Because of the benefits from volume, restructuring costs, productivity, the lower equity comp that you referenced to, But as I mentioned in my prepared comments, there was some Q1 timing events, so that'll be partially offset. Increase in investments where you see a big step up in Q2 relative to last year because we only started making investments in the second half of last year. And the PFAS stranded cost. But operationally, you should see be up $0.15 to $0.20 on EPS. But on the non-op side, have a total headwind of about $0.10. And large part of that is driven by net interest as the cash balance last year in second quarter was over $10 billion. And now we're returning back to more normal cash levels. So we will have some impact in non-op pension as well, but all of that will be offset by lower share count. But if you take the net interest pension offset by the lower share count, it's about a $0.10 headwind year over year. So you put that together, we should grow EPS by about $0.05 to $0.10 year over year. Now sequentially, you're correct. It's seasonally, you know, revenue should be up about $300 million should come with good flow through. But as I said, there is some offsets around the timing of Q1 items. There is some step up in the investments. So what you will see is about $0.05 to $0.10 again operationally. It should be good, and $0.05 benefit from a little bit below the line. So sequentially also, we should see about $0.10 to $0.15 benefit on the EPS. So overall, if you put all of that together for the first half, our EPS will grow about $0.22 to $0.27, which is actually pretty much 50% of the growth of what we expect for the full year. And second half should kind of mirror that too.

Okay. Very helpful. Thank you. And then I guess maybe one for Bill in terms of you you obviously have a lot of efficiency actions that the company is pursuing. I wonder if what's happening now gives you an opportunity to accelerate some of those actions. If you can just talk about the opportunity that you see there, that'd be helpful. Thanks.

So it's a good question, Amit. I mean, look. This is a challenging situation that we happen to be in. The environment's moving pretty quickly, but, you know, the team has responded very, very well. The actions that I've talked about I talk about it in very large buckets, but the reality is this has to be done down at an SKU by SKU level. Based on a customer, a flow, a factory to a region. You know, it's a very discrete analysis, and, you know, it's really helping us get into the sort of the bowels, if you will, of how we actually run the business. So it's pointing out some good opportunity to do some things differently and better. You know, we have been focused on driving operational performance operational excellence across the whole enterprise, including on our operation. I went through some of the metrics that we're focused on here. You know, there's an environment that we're in which trying to figure out a way to offset some of the tariff effects. But a lot of the things that we're doing are just running our game plan. It's driving on time and full up. We I talked about that pretty extensively here, driving, you know, OE or operational equipment effectiveness, improving that, driving productivity, driving cost per quality downers. All of these various initiatives just put a lot more focus and attention on. So is there more we can do? There might be simply because we're getting deeper into a deeper understanding of the trade flows and what's happening. But I think we've got a good game plan. It's executing well. You know, you saw the margin improvement in Q1. It's also pointing out good opportunities to tighten down on G and A. So, you know, look, we're trying to make the best of the situation we're in and drive performance.

No. Very good. Thank you very much. Appreciate it.

Thank you. We go next now to Steven Tusa of JPMorgan.

Hi. Good morning.

Good morning.

So you guys had previously said, I think, negative $0.20 on Forex. What specifically are you now assuming for Forex year over year?

Hey. Good morning, Steve. Anurag here. So we are expecting $0.15 right now. Of $0.05 of net. Of headwind. From a $0.20 headwind to a $0.15 headwind.

On forex? Correct.

Yeah.

What are you using for your euro rate?

Okay. So we snapped it at the end of March. Okay. So that was around a 1.08, 1.09 level. Right? It has moved up since then. I guess where you're going is that, you know, with FX moving at this rate, why is there only $0.05? So maybe let me just kind of take a step back and say, you know, when we gave the guidance in January, we said, operationally, we'll go $0.85 at the midpoint, and we had $0.40, broken $0.20 between FX and $0.20, which was non-op. On the FX, as you said, we assume about $0.20. Over there. Now we rerun the forecast at the end of the quarter. And now the FX headwind on the revenue from 2% has become 1.5%. Which translates into $0.15 of headwind. But if the US dollar continues the way it is, this headwind should definitely reduce. But as you know, you know, not all FX rates move in the same direction. And in actually, in some cases, we are net cost position. But if they continue to go where they are, we should see upside in the FX. And that is the reason why we split the operational and the nonoperational, which includes FX, in our earnings bridge because we want to drive on the operational side of the business. And if there is upset on FX, you know, we'll share it as we go along.

Right. And so I guess on the non-op side, the non-op, non-FX then there's really not much change there because there's really not much change in the FX as underlying FX assumption.

That is the point. Yeah. That is the point. There's a penny two here in each of the items, but not material change. For example, an interest rates, right, we had assumed about, you know, two cuts this year. There could be three or four cuts, is what we are hearing. So we kind of calibrated for that, which is low in interest income. On pension, there's a penny or two here. On because the stock option exercise, share count's a penny or two. So it's not very material, but the $0.05 that we have assumed in the FX improving is probably mitigated by these other items. But if FX continues the way it is, there should be net upside below the line.

Yep. Okay. And then just lastly on China. Could you just are there sales there that you could just know, walk from? I mean, they you know, I know you guys export a decent amount there, obviously. I just don't know how, like, critical those are to your to your customers. I mean, is that is that like an option? For the exports from the US to China? I don't know how much a part of that eight the $850 that actually is, but you know, is there an option just walk from those sales?

I don’t think walking away from sales is an option. We have a strong business in China, serving both domestic and export customers. We have opportunities to adjust our network to bring products into China from regions with lower tariff effects. For instance, we currently ship products from the U.S. to China, but we could also source them from Europe. This would allow us to then redirect the volume we would have sent to China back to the U.S. factories that supply those products. There are ways we can mitigate the impact while maintaining our valuable business relationship in China. It's an important market for us, representing 10% of our company, with strong growth last year and solid performance in Q1. We are committed to supporting our international customers as they decide whether to manufacture in China or shift to other regions. We are exploring options on our end in terms of sourcing to help lessen any potential impact.

Alright. Makes a ton of sense. Thank you.

We'll go next now to Nigel Coe of Wolfe Research.

Thanks. Good morning. Hate to be a bore, but a few more tariff questions. Are there any purpose impacts as a result of these excessive China tariffs So, you know, the this increasing concerns around supply chain sort of impact here. Shipping's not being made, so it'll be imposed in lieu of, you know, kind of news flow. Is there any risk that, you know, your supply chain could be impacted by you know, shippers just not making their shipments because of the tariffs?

You know, Nigel, we've not seen anything like that yet we haven't heard any word of that. You know, we've seen no disruption, no supplier hesitant at the moment to ship to us. We've not actually seen much push onto us in terms of pricing.

You know, these things will evolve over the balance of the year, but

I've read a lot about what you're suggesting. We have not yet seen that in our business.

Okay. That's good news. And then, I don't know, just to double confirm, the 50-50 comment on EPS is based on the $7.75 midpoint, and then the second half would be whatever lands in terms of net tariffs. Is that right?

Yeah. Yeah. That is correct.

Okay. And then just a quick one on cash flow with again, with the tariffs. You know, does that put a more of a back end load on cash flow because you have to pay the tariffs on day one?

No. Not really. I mean, if you look at a cash flow, we actually did quite well for the first quarter as well. You know, typically, it's a low quarter for us. Net income's about a billion dollars. Consume about $300 million of working capital as we build up inventory. We enter Q2, which is seasonally high quarter, and then we have bonus payments, AIP payments, about $300 million. So that gets about $400, but we did better. Because of disciplined CapEx spending and receivables. What we're seeing going out is in terms of areas we are definitely focusing is on the DS and the AP payments as well. And right now, we're not really seeing a material change in that. We're going to manage it. So there will I don't expect to be a little more pressure in the second half of the year, and we'll probably have a good cadence on cash flow growth as we go through the close of the year.

That's great. Thank you.

Thank you. We go next now to Andrew Oben of Bank of America. Please proceed with your question.

Yes. Good morning.

Good morning.

Just another question on tariffs. Are you modeling any demand destruction related to tariffs? In your core guide? Are the right? Because, you know, as prices go up, you know, as you need to substitute things, that sort of drives economic model will tell you what drives some demand destruction.

On the margin. Are you thinking about it, or you're just sort of modeling the volume based on your kinda economic forecast? Yeah. And, Rana, here. Yeah. So the tariff impact is all about the tariff cost impact sensitivity that we've shown. Obviously, because of the tariffs, the market's been a little bit weaker, so we that's why we said we're trending lower. On that range. But other than that, no, we have not modeled anything more.

Yeah. And we look we but, Anne, just to be clear on the pricing, we're trying to be pretty smart, strategic, and surgical about this. And we're not doing this without interaction with our customers. In many cases, when we put out a surcharge, it's through consultation with a distributor or a customer. There's some receptivity to a certain amount based upon the individual customer. For a period of time. You know, there's an understanding that that volume won't deteriorate. You know, if we start to get to a point later in the year where we feel like we ought to be pushing price out to accommodate or to offset more of the tariff. Risk and there's a volume impact, we're gonna have to sort of take that under consideration. But you know, the team has been very smart and surgical about how we do this. So so we outside of the macro erosion, you know, we're not expecting much demand deterioration from a volume perspective. Because of the way we're being smart about pricing.

And just a follow-up question on buybacks. Seems that you know, the buyback is there because folks are exercising their options. Why not be more aggressive? You know, you're doing a lot of good stuff operationally. It seems you know, a lot of momentum that's long term underway. Why not just take it, mention the stock weakness and be more aggressive? On stock buyback? What's the board's and your thinking on that?

Yeah. It was and run the wrong here. It was just a little bit more on the timing side. Let me give you some colors. So know, as we ended last year, two out of the ten past two years out of the ten of the past ten years, options went the money. As and the 2015 options, which expired this year, were not in the money. And in February, they came into the money, so that was an that was a one distinct exercise incident that happened. And a couple more which came in the money. So it was more around that as opposed to we seeing accelerated options being exercised. It was more timing of the 2015 options.

But I think to your point, Andrew, I think I think, you know, Anurag mentioned in his remarks, we have a $7.5 billion authorization, went from a billion five to two, and we've the optionality to go bigger than that if we need to in the back half of the year based on the situation we happen to have in our business. So I don't know I'll go make the right call as we as we get out of the quarter into later on in the year.

Appreciate that, sir. Thanks so much.

Go next now to Nicole DeBlase of Deutsche Bank. Please proceed with your question.

Yeah. Thanks. Good morning, guys.

Good morning.

Just a couple on the outlook within the margin puts and takes. Have you guys actually shifted the G and A productivity expectation for the full year? And same question on growth investments. And any anything major to highlight on the timing of those if they've shifted at all between quarters?

Yeah. So first thing on the growth investments, I think we're keeping track. You know, we said we're gonna increase by $225 million first quarter was around $50 million and this big step up in the second quarter. And we are maintaining that cadence as we go along. And you can see that actually in the R and D numbers for the first quarter. As a percentage of revenue last year, was 4.2%. This year's 4.8%, so you see a step up of 60 basis points. And all the other initiators that Bill was talking about in commercial excellence we are funding that. On the G and A side, listen. I mean, if you roll through our Q1 performance, which we said, you know, $0.17 more than what we expect $0.07 of that was G and A, and the revenue part was timing. That was more structural and permanent. Right? In the Investor Day, we spoke about we have $2 billion of G and A. Outside that, we also have indirect expense. You know, late last year, we started doing a lot of these external, like, external services, for example, were done locally. We pulled it centrally. Try to see if they're aligned with the strategic priorities, if yes, if not, we don't spend. If they do align, then how can we leverage Global Buy to get a better rate? We saw some benefit of that in the first quarter, and we kind of expect that to move probably increase as we move through the course of the year. So, you know, we have taken a little bit of a hedge in our guide as you can see, the Q1 has upside, but we've taken a $0.10 hedge. If you were not to have the $0.10 hedge, then I would say that you would should see at least the $50 million of G and A improvement in Q1 throughout the rest of the year.

Okay. Got it. Thanks, Anurag. That's clear. And just a follow-up on a couple of your market expectations because there's a lot of, you know, movement in these two in particular. What are you guys thinking for auto builds and electronics for 2025?

So right now auto builds, it came down very recently in the recent IHS data. It's down, I think, 1.8%. Global auto builds now. I think it's down about 9% in the US, so pretty, pretty big erosion for that from the middle of March. I think middle of March, it was, like, 4.5%. It's down 9 now with the latest estimate for the year. Europe is down around 4 or 5% for the year. I think China's up modestly. That's for the full year. I think if I from what I heard, recently, about 1.5 million units came out of the full year auto build forecast, and that's what's reflected under numbers. We expect our auto OE business to be down mid-single digits both in the quarter and for the year. So that's already modeled into our expectations. Consumer electronics, you know, we think is probably gonna be up low single digits. It was that's kinda where we're at in Q1. We think it's about that flat to up low single digits for the year. There might have been a little bit of stockpiling in the channel in Q1, but the reality is we see that to be a kind of modest growth flattish to modest growth for us for this year.

Thanks, Bill. I'll pass it on.

Go next now to Andy Kaplowitz at Citi. Please proceed with your question.

Hey, good morning, everyone.

Good morning.

I just wanted to ask you about TEGG margin. In Q1, it still looked like it was under a bit of pressure as it was in Q4. I know you said that that's a segment that's absorbing PFAS stranded cost but you also said you expect to grow margin. I think in all three segments, at least before the tariff impact. So maybe you can give some more color into what's happening in that segment with the issue, just the lower electronics volume or something else?

Yeah. Thanks for the question. So we do expect all three business groups to expand their margins for 2025. In the first quarter, we did expect TBG to be lower. You got the drivers correct. The biggest one is the PFAS stranded cost and higher investments that we made, but also it was mix. If you look at Q1 last year, electronic sales, which is a higher margin business, was quite good in TPG for the first quarter of last year, and that obviously mix has shifted. So it was a little bit of a mix impact more in the quarter, but as we go through the year, we do expect all three business groups margins to expand. Like, we looked at this quarter, for example, SIBG and very healthy margin expansion, so that's CBG, and that should continue.

It's helpful. And I think that we're all trying to figure out sort of what's going on in the MAC and you mentioned your industrial businesses are holding up reasonably well in terms of order growth. Through April so far, you know, kinda in line with March. So as you know, some of the recent regional manufacturing surveys have started to look a little weaker. It doesn't seem like you're seeing it. I just trying to your thoughts talking to customers, you still expect things to hold up even with these surveys starting to look a little weaker?

So it's still very early in the quarter. And all of the conversations our teams are having with their customers, distributor, channel partners, you know, things to be seems to be reasonably solid, at least through the beginning part of April. It's continuing from where we were in the month of March. We're watching a lot of these regional indicators like you are. And, clearly, things are softening. You know, but it's interesting when we talk to our channel partners about inventory in the channel, generally speaking, it's fairly normalized. You know, we've not seen anything kinda moving from Q2 into Q1 in terms of adding to inventory, adding to stocks. It's fairly normal. So we don't think there's correction that's happening. The sort of the elongation of orders that we had articulated about a month ago, we see that continuing here in the month of April. So what might have been a 45 or 50 day sort of cycle time is now stretching out a little bit longer. You know, that's one of the things that impacted us in Q1. We saw in February orders that were just pushing out into Q2. We still see a bit of that activity, but, you know, the indicators, the macro indicators that we're seeing still look okay for the industrial business. But, again, we're watching it very carefully.

Very helpful. Thank you.

We'll go next now to Joe O'Dea with Wells Fargo. Please proceed with your question.

Hi. Good morning.

Good morning, Joe.

Can you just talk about kind of tactically how you approach imports from China and when you think about that $160 million or so, I think, that you're talking about, Just the timing of that. You've got some inventory that you're sitting on. Are you sort of pausing orders right now, kind of waiting for better information just given the fluid nature of we're seeing on the tariff pipeline front.

Yeah. So Joe and Rogier, no. We're not pausing any orders or any shipments right now. We have 90 days of inventory, so which will bleed through by the end of June, and then you'll start seeing the impact of the tariff on the imports after that. So we're not slowing down anything on the business side. What we are looking at is, you know, as Bill earlier mentioned around sourcing, logistics, discretionary cost, as well as pricing. So that's the way we are tactically approaching down on pricing. For example, in some cases, you can put a surcharge. In some cases, need to come up with a new list price. So we're working depending upon the situation. Keeping in mind that, you know, we still the business is going on as it was. Yeah. A lot of it is coming in from China.

for consumer that that passes through the channel to some pretty large retailers, and we're having lots of conversations with them on that. But we're not, no, at the moment, pausing or stopping any imports from China. And I don't anticipate doing that.

And just your comment there to to make sure I understood it correctly, there would be kind of a higher weighting of exposure on those imports from China to the consumer side?

Of the business. On that on that element of the tariff impact that we articulated, yes. It would be more on the consumer business. Correct.

And then just one on the guidance side. Of the corporate and unallocated and other items for operating profit. I think corporate unallocated initially $25 to $50 million loss. Other $50 to $100 million income. The quarter think, looked a little better than we anticipated. On the corporate side. But any updates or any changes to that initial expectation on those items?

Yeah. It's probably trending more towards the higher end. And because corporate just to take a step back, contains obviously the enterprise governance related costs. So there's G and A cost. There's also the Solventum transition agreements that are sitting in there. So on the G and A side, clearly, there were some areas that we did in the first quarter, so that helps her to go towards the higher end of the range. But on the on the spin related items, it's mainly timing between Q1 and Q2.

Got it. Thank you.

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

Well, thank you everybody for joining us today. I want to thank again all the 3Mers for their continued hard work and their dedication delivering value for our customers. Customers and our shareholders. I know we covered, you know, a lot of moving parts today, but we're focused on executing against our key priorities. And we're gonna update you on our progress at the next earnings release in July. So thank you very much, 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 at this time.