All right, moving along here, we have 3M CFO Anurag Maheshwari, as well as CEO Bill Brown. I'll kick it over to you guys to open it up with a bit of a State of the Union, and we'll go from there. Thanks for, thanks for coming.
Great. Good morning, everybody, and thanks, Steve. We're coming off of, I think, a very good productive investor day a couple of weeks ago. We took the opportunity to give investors a sense of what our outlook is over the next several years. You know, I spent quite a bit of time talking about what I call sort of the new 3M, a 3M with a little bit more of an edge, a little more of a focus on performance, a little more focus on operational execution. Talked about our new culture in the organization. It starts with a big focus on the customer, of course, the expectations of all of our team and building talent, holding people to their objectives, et cetera, with a core of focusing on safety, ethics, and compliance. That's always very important to us.
Safety's been sort of top of my list within the company. Our performance and safety has not been, you know, where we should be, you know, and we're really focused on that. We have a journey to zero program across the company where our focus is around zero injuries, zero spills, zero incidents in the company. It's been a big focus, and we're starting to make some progress there. I laid out our, you know, and our performance culture expectations of our leadership team about being accountable, being ambitious, being involved, driving, challenging the status quo. We've got a lot of set of good leaders at 3M who have been in the company for quite some time. Part of what I'm challenging people to do is not treat today like yesterday or tomorrow like today.
The environment outside really forces us to really push on that, on that dimension. We're on the verge of breaking out here in terms of what's happening with the people in the organization, and we brought in some new folks on the team as well. It's been a pretty good start. I described in a little bit more detail our priorities. They remain the same from when I started at 3M and the very first investor day I had. You know, it's a focus on top-line growth around innovation and what we're doing to reinvigorate top-line through driving more products out of our R&D, commercial excellence. You know, we talked a lot about driving operational performance across the enterprise and our new operating system, which we call 3M Excellence.
The core of that is around KPIs, you know, rigorously tracked data focus, relentless CI, all of their various things that drive sort of an OpEx system. I've done it before. I know what they could do, and I think it'll be an important part of our 3M, you know, future here. That was, that was quite important. It led into a discussion on our medium-term targets. Of course, in 2025, you know, we see earnings per share up 4%-8%. There's no change. It's $7.60-$7.90. You know, it's on an adjusted EPS basis. All you can assume everyone's going to talk about is going to be adjusted, but that's kind of where we're at, this year. That earnings per share growth accelerates to high single digits in 2026 and 2027.
I laid out some markers, some important steps for investors to track our progress, including, you know, a thousand new product introductions over the next three years. You'll recall last year we did 169, which was a positive surprise for us in some ways, up 32% from the prior year. You know, we see it coming up again this year to around 215. Run the math, it's 27%, growing another 40-45-50% next year and then the following year. And so far in Q1, we're actually tracking pretty well on NPI. I'm pleased to say that we'll say more about this at the earnings release, but we're out of the gate pretty quickly here on driving NPI. We talked about a billion dollars of cost out in that productivity in our supply chain.
You know, that's an important marker, to put down a billion dollars of sales above the macro through the initiatives around innovation and commercial excellence. It's going to be key pieces of that. Then $10 billion of cash return to shareholders through dividends and repurchases over the next three years cumulative, roughly half repos and half dividends. I made a point at the meeting to link it to our long-term incentive program, which I think is quite important. I won't go through the metrics again, but you'll hear more about that when you see the proxy come out. It's very consistent with what I laid out for investors just a couple of weeks ago. You know, overall, I think it was a very successful investor day, and we got some good feedback.
Again, those are great forcing mechanisms for the team to put our thoughts together and put it on paper about what we're trying to do and what we're trying to do on behalf of shareholders. That was a few weeks ago. A lot of discussion on sort of the medium-term outlook, if you will. Coming back here to 2025, just to re-ground you, we said we would grow this year 2-3% organic, again, 4-8% on earnings per share. You know, in our commentary at the Q1 earnings release, we said Q1 would likely be similar to Q4 in terms of organic sales growth. So I'd have a two-handle on it. We said the earnings per share in Q1 would be similar to prior year. You'll recall last year our stock comp expense was in Q2.
It got moved forward this year to Q1. It puts a little bit more pressure on us this year in Q1. We said it would be similar. As we went through February, we see, we saw good order trends continue right up until the end of February. In fact, the February month was up year over year in terms of orders really across the businesses. You know, our backlog from end of January, from the beginning of the year and through February continues to build. Our backlog from the beginning of the year is up mid-single digits. We are seeing good order patterns, but what we are seeing now is a bit of more of an elongation in the sellout. A lot of orders are coming in and more for sales into the second quarter. The good news is we actually started the year anticipating some challenges.
We put in really tight cost controls. While we're seeing our sales be a little bit light in the quarter, our earnings per share should be slightly better than what we previously expected. You know, it's because of the efforts of the team to really tighten down on spend. Again, that means earnings per share a little bit better this year in Q1 than we had anticipated. Margins will be a little bit better, of course, with revenue being a little bit lighter than we expected. Probably more in the 1-1.5% organic as opposed to the two-handle that we talked about, which would have been similar to last year in Q4. You know, in a nutshell, that's how we stack up. The environment, as you all are seeing, is pretty uncertain.
and we just managed through it by managing the things that we can. It's our spend, our cost, our productivity, all the things that we're trying to do, including, you know, setting ourselves up for growth through new product introductions and commercial excellence. In a nutshell, that's kind of where we stand. Steve, I'll turn it back to you.
Lots to chew on there. So about a 75 basis point difference by segments, which are the ones that you're seeing this process play out the most in?
You know, we saw first really in the consumer side. Really, again, through most of February, we were tracking pretty well until in the last couple of days. Last week, we saw just the orders start to stretch out a little bit. That is kind of what we are seeing. A little bit in the consumer side, auto, as we knew was going to be a little bit challenging coming to the year. We continue to see that, you know, but it is really across the board. When I look at one, a point to point and a half organic in the quarter, all three businesses are really in that range.
The consumer side probably at the bottom end of that range, the industrial businesses, so SIBG, TEBG, more towards the higher end of that range, but all in that 1-1.5% is our estimate right now for the quarter.
Is it a, you're saying from a, your sales perspective, and that's kind of a POS commentary, like is there some destocking? Customers are just pulling back a little bit. Like how do you, in your diagnosis, what do you think? Obviously there's a lot of uncertainty. Just curious as to the mechanics of how that's translating.
You know, we're not, the POS looks okay. The channel inventory looks okay, from what we can tell so far. My commentary really is, is sell in and sell out to the wholesalers, sell out to our distributors. As you know, in SIBG, we go mostly to the market through distribution. We're seeing again, orders remaining pretty resilient, but the delivery time requested is shifting out longer than what we typically would expect. Typically at this point in the year, in this point in the quarter, we'd start to see more book and ship activity, certainly in the shorter cycle parts of our business. Some of those deliveries are just being pushed out into April.
We're working with our distributors, working with the end customers, you know, trying to understand, you know, what is it that they're seeing and why out in April. They're still confident enough to place orders, but looking for delivery out, you know, into April and into May. We're trying to understand that part, but from all we can tell, the inventory and the channel still looks pretty good. Certainly on the industrial side, it looks pretty reasonable.
Do you think that stem getting out in front of, you know, getting out in front of any kind of like price increase related to tariffs?
It's, it's, it could be that for sure. You know, we've signaled that. We've talked to people that as tariffs start to take hold. Of course, you know, we know that China's in place, you know, 20%. We know that tomorrow we get some aluminum and steel tariffs. It actually happens as I expect it would. You know, that should go into place tomorrow. You know, Mexico and Canada was early February, then it was early March. Now it might be early April. There's other things coming in early April. You know, there's, there's a lot of concern on the horizon about tariffs and people like us are talking about what we're going to do in terms of pricing, you know, and we've signaled that to distributors. There could be some pre-buy that's happening. I'm not sure that's the primary driver.
I do believe it's just general caution across our consumer base in placing orders given what might be happening in the macro.
What is the, sorry, you gave us the near-term update. I'm just going to, you know, talk for a while on this. We're all trying to figure it out. We're like stumbling in the dark here a little bit. What, what's the most interesting thing that's happened and which part of the business is that? Like what's the one that you look at? It's obviously maybe immaterial to you guys, but what's kind of the most interesting thing you've seen, you know, you get the report and you're like, that's interesting. Which, you know, micro business is maybe the most interesting or are they all kind of trending in this direction?
No, I mean, there's some businesses that remain pretty resilient, you know, in our SIBG business. You know, we still see pretty good trends in our electrical markets business where it's bigger and chunkier. We're seeing, you know, good performance there in our adhesives and tapes business. We sell quite a bit in China in that market. Interestingly enough, China for us is remaining pretty resilient. It's still in the mid-single digit growth, and that's been pretty healthy for us. The parts that go into the manufacturing channel, like abrasives, have been a bit softer. Our auto aftermarket, which is for auto repair, has been a bit softer. That's really across the industrial business, SIBG. In the transportation business, we're seeing consumer electronics remain okay. It's sort of like in the low to mid-single digits in that range. Aerospace has been an important business for us.
We see continued good growth in the aerospace business. Not like last year. It was much higher. So far this year, it's good, but not, not quite like last year. In that business, it's really auto. You know, you can watch the IHS builds. I think in the middle of February, some of the macro data I think is a bit, is a bit dated at the moment, but in auto builds, it actually, it became a little less negative in February from middle of January, still down, but not as negative. You know, we are not seeing an improvement in auto build trends for us. You know, we are more biased, I'd say, to Europe and U.S. manufacturers than China. So auto has been, you know, more of a concern for us.
On the consumer side, we're seeing sort of low single-digit growth across parts of the portfolio, but in the office channel, which is really, you know, our packaging expression business, which is Post-it, it's Scotch tape, things like that. That business continues to be a bit weak. It was weak last year. We see that continuing here into the first quarter. There are pockets of that are going okay, but there are certain pieces of each of the portfolios that are a bit weaker.
Sorry, I'm going to go here, but roofing granules, what are you guys seeing on the resi side in roofing granules?
It's still, it's still in that mid-single digit growth range. It's been reasonably resilient. Again, a lot of that's for replacement in that there's a replacement cycle. So that's still been pretty resilient. Sometimes you run into an issue with, you know, our own queries. It could be something with freight or with a customer. It's pretty concentrated with a couple of end customers, you know, but that business has been pretty resilient again, mid-single digits.
Okay. sorry.
No, Steve, as I was just saying, as Bill is saying, you know, it's the revenue is getting elongated, from the orders. If you look at the order flow, it's actually good across the board, across all the three businesses. It's just more some of the revenue is flowing through to the second quarter.
Is the order growth in that 2% range or is it a little better than that?
In February, it's probably a little bit better than that. Yeah.
Okay. Got it. Okay. On the other topic of tariffs, you guys, I believe, are a net exporter, but there's a lot going on. You guys have a decent amount of European exposure. Maybe we'll touch on that just geographically in a second, but maybe just check the box on tariffs and any further detail you, you'd want to, you know, disclose here on any exposures that you may have and anything you've learned in the last couple of weeks.
We are, as you just mentioned, we are a net exporter. We import, we export about $4 billion. We import about $1.6 billion. You know, roughly of the $1.6 billion, there are about, so about half is Mexico and Canada, you know, so that we'll see what happens as we turn into April, you know, and whether it's, if their USMCA product is exempt or not from the tariffs. I think that's sort of been in some dynamic, with coming out of the White House. We have about 10%. It's coming from China. You know, right now it's a 20% tariff. So we're seeing that hit, you know, that's on the order of $30 million-$35 million for us. And that's on a gross basis. That's in our numbers, but we, we're taking actions against that. I mentioned pricing a couple of minutes ago.
We're capturing some of that back through pricing, some of that back through cost control. When you think about, you know, $30 million-$35 million, it's sort of four or five cents, but it's, it's for us, it's going to be negligible this year because we're taking actions against that. Tomorrow we see steel and aluminum going into effect unless something changes in the next 24 hours, you know, and that may have maybe a $30 million impact on us gross before any actions. Again, the steps that we're taking and pricing we're putting in place, four cents that we, we could absorb that. We can offset that through cost and price action. All of the things we've seen so far really don't take us off track for the year.
As I mentioned, even in the first quarter, we're actually looking a little bit better than last year. As we get into April and we see what happens in Mexico and Canada, you know, we'll have more to say at the next earnings release, but, you know, obviously that's a much bigger piece of what we're actually importing into the U.S.
How are you approaching all of this uncertainty? You guys are already like on the horse when it comes to all these productivity initiatives and you're actioning a decent amount of what would be kind of a lower volume environment playbook. Is there anything incremental you're doing? You know, what's the, how are you and your, how are you and your board talking through what's going on here?
If we have a board meeting every day to talk about tariffs, we'd have something new to say every single day. You know, but look, you know, we, you know, we're a good sized company. We have a lot of levers that are controlled in terms of the cost side. You know, look, even though we are driving productivity over the long term, you know, as we talk quite extensively at the investor day, we are making investments in the business, investments in commercial excellence, investments in new product introductions, investments in building capability across the company to drive a long-term productivity agenda. Those investments can be metered. We talked about just on the productivity side, $250 million investment over three years. It's $80 million per year. We sort of can throttle that and change that and adjust that.
You know, I think we're being pretty nimble making sure that, you know, we're pacing how we invest in the external environment. The other side of this is how we're really thinking about pricing. You know, we started to push on this quite a bit in the middle of last year. I think we have a much better understanding of where we can price, how we can price, how we can govern price differently. Every business unit, you know, across the company is taking a slightly different approach to how they price. A little bit harder to push out price in consumer all that they are. In TEBG, it's more of a spec in business. So a little bit harder to push out price. A little bit different in SIBG.
There's an opportunity to adjust our pricing and we are going forward with doing that. Sometimes it's in the price itself. Sometimes it's a surcharge, you know, and every business is taking a slightly different approach, but you know, we're being, you know, on our front foot around time what we're trying to do on pricing so we protect our earnings. The big question is making sure that as we get further into the year, it doesn't affect volume so that a price increase actually works against us. We're trying to be smart about how we do this. That's why we're pulling the cost lever pretty, pretty aggressively right now.
When you look across your businesses, I think, you know, one thing that we heard at dinners last night is just this is, everybody's got this pricing muscle, so they're all going to react very quickly, but you know, not everybody has uniform, manufacturing footprints. And so when you look at your, kind of competitive set, are you advantaged, disadvantaged when it comes to like where your footprint is? I mean, you're already, you like you said, you're a net exporter, so you're, you've got a pretty good footprint already. Are there any opportunities versus your competition where they're kind of stuck with offshore, manufacturing? This is stuff that's pretty easy to import, I'm sure a lot of it. So, and anywhere you're kind of, you think you're advantaged?
It's a good, good question because we have about 45 factories in the U.S. We have, as you know, 110 factories globally, about 45, and then the bigger ones are in the U.S. We have a very substantial footprint in the U.S. Just for perspective, we have three factories in Mexico, mostly for consumer products. Those can flex up or down, move back and forth to the U.S. You know, we, as you know, we talked about this at the investor day. We talked about, you know, effectively our utilization, we call it OEE, operating equipment efficiency. You know, it's been running in the low 50s. We have an opportunity, you know, across the U.S. to drive more volume across these assets. We have an opportunity if we need to bring more back to the U.S.
You know, it depends in some parts of our business, you know, where we manufacture in Mexico and we compete against people who actually manufacture in the U.S. Those are going to be a little bit more challenged, but net, net generally speaking, I think we're advantaged with the factories we have and the footprint we have here in the U.S. It's not just the factories, the supply chain is where we invest in technology, you know, all of those pieces, you know, but the company can be pretty nimble. You know, it's not just bringing things back to our own factories. It's also using contract manufacturers. You know, we have quite a few contract manufacturers we use globally and we can flex them up or down to move volume around as we need to.
Exactly. As you know, Bill spoke about the price volume trade-off. You know, when the tariffs come in effect, we obviously have deployed different playbooks depending upon the businesses. Some is price increases, some are price surcharges, but the other aspect we're looking at is the volume that we can gain because of the competitive advantage that we have in some of these sectors. Yeah.
I guess that's the advantage of having 50% equipment utilization.
There's an upside to that.
Yeah, plenty of, plenty of capacity when the tariff, when tariffs come in, in good position. From a, from a top line perspective, it's always hard with 3M to, you know, since the LCD craze went away, to pinpoint, you know, what the kind of two or three really interesting growth drivers are. I'm sure that's still the case, but anything stand out to you that's of size out of that, you know, kind of billion dollars of outgrowth that, you know, we should be, we should be watching that's interesting.
Look, you know, in a billion dollars above the macro, it's roughly split between half coming out of new product introductions. I mean, I, we went into a lot of depth here, so I don't want to repeat all the story we talked about at the investor day, but you know, at one point in time, we launched a thousand products or more at 3M. You know, back in 2023, we launched 128. You know, it came down quite a bit. We still spent $1 billion. The $1 billion was shifted around a little bit more to PFAS, a little more to supply chain resiliency, you know, but we were launching fewer products.
You know, I think, you know, I've said one of the worst jobs in 3M right now is a salesperson because the salesperson's out there trying to chase sales with an older portfolio and trying to drive price with material inflation coming, coming up. It's, you know, it's a tough position to be. By the way, we weren't delivering on time in full. When you, that, that's a tough position to be. We are really focused on turning around, you know, what, what comes out of our new product pipeline. Last year 169, it was, it was quite positive, not anywhere near where we could or should be, but it's a, it's a step up. First time we've seen a step up of that magnitude in the last decade, you know, at 3M. Again, this year we're targeting 215.
The first quarter looks to be up 40-50% on new product introduction. So we're really off to a good start. It's really, the team is really, you know, pushing on this quite, quite hard. As you look at the next, you know, next several years, that's an important driver. The billion over macro, about half is going to come from new product introductions. You know, we launch, you know, most of what we're going to do, 75-80% are what we call class three products, class three, class four. They're more for replacement or to keep ourselves relevant in a marketplace, maintain our share, but critically important to, to provide the salesperson some opportunity to go out and, and sell more into a customer.
About 20% are going to be what we call class four, class five, class six products, which are new to the world that can drive incremental growth. It really is across the portfolio. We have a great set of things in the pipeline across industrial, across transportation. One of the things that Wendy spent some time laying out is how we're pushing hard to really develop better top-to-top innovation strategic partnerships with some of our larger OEMs. We have a very important one with a very large consumer electronics device manufacturer. We got to do a lot better on that, not just on one or two, but more like a hundred. We're pushing very, very hard on that.
I think a lot of the things we're doing on films, micro lubrication, you know, for different types of devices that are coming onto the market, you know, not just consumer devices, but all the electrification and displays and cars, that has tremendous relevance across all of those different portfolios. There is a lot, it's interesting there. The other half of this billion dollars above the macro is going to come from just being better at the customer interface, you know, and we went through a couple of levers here. They're relatively simple and basic, but when you put them together, they will be meaningful for 3M. You know, it starts with the salesperson, you know, making sure we have the right coverage. We're going to add salespeople over the next three years.
It's better management of the salesperson, tighter control, if you will, over how we set quotas, how we measure other progress over the course of the year, how we train those salespeople. It's also with our channel partners and customers. We talk quite a bit about cross-selling. Cross-selling is going to be a very important opportunity for us. We're making very good progress on this. Despite it being a pretty simple step, we've not pushed on that in the past. For SIBG, that's going to be meaningful. You know, we now are close to 50 product pairs that we're pushing out to the channels. We have about 60 channel partners signed up. I think Chris the other day talked about 15 or 20 that we had at the end of fourth quarter. We were pushing that pretty aggressively.
The big dimension here is we call it customer loyalty, but it really starts with making sure that we deliver product on time and full to customers. It sounds, again, very, very basic, but it is fundamental. We ended last year at 88%. We were up three points from the beginning of the year, about eight points from a couple of years before, making further progress as we get into the first quarter here. All of those dimensions together, I think are important to reinvigorating the top line. Those things will pay back over time. We're seeing a little bit of a pressure here in the quarter just because of some of the environment, environmental noise, but over time, these are going to be important, revenue drivers for the company.
I guess on the margin side, just stepping back, how are you managing to deliver, you know, a bit better margins this quarter? Is that just, you know, some, a bit of a hedge in the numbers? Is it a mixed dynamic? What, what's the, how are you able to, you know, to beat the EPS with, with the sales, you know, sales miss?
It's not so much mix. It's mostly just tight control of spending. You know, we had come into the quarter, into the plans, into the guidance thinking, okay, things could be okay and we're going to continue to make some investments, you know, into the business and we throttle back on that. You know, that's an important dimension for it. We're driving our productivity agenda pretty heavily. I mean, I'd say, you know, a good finance person would be a good finance person with a little bit of a hedge, you know, and, so there's a little bit in that as well, but I think it mostly comes from spending.
Yeah, I would say it's a combination of really good progress on the productivity, some spending control, a little bit, which is more permanent and some which we are deferring to the future quarters because we had for the guidance for the year, about $225 million as investments. We always said we were going to meter the investments depending upon how the situation plays out. It's a combination of both productivity and the way we're metering our investments.
I think, a former multi-industry legend, you say a hedge for bad things to happen.
Yeah, right.
Remember that, remember that pretty clearly as a, just starting out as an analyst in the late 1990s.
I think he said bad stuff, but maybe I'm wrong.
Yeah, and as far as price cost is concerned, anything moving around there on the year?
No, it's typically the same as what it's been for the past couple of years. Just to ground everyone, material inflation is about 2%. It's about on $6 billion. And the price that we take out in the market is to cover the material inflation, which is about 40-50 basis points. So pretty consistent to what we've been doing over the past few years.
Can we just step back and talk about PFAS?
Sure.
Seemingly kind of fading a bit from investor focus. Any changes in the landscape with the new administration? I have not seen too many tweets on it, but anything there?
No, it's still, it's still an important topic for us, even though the administration has changed. A lot of the activity that's happened, it's happening because law is in place or it's happening at the state level. You know, just to reground you, because it's all written very, very clearly and carefully by lawyers in our Qs and Ks. We just put our K out about a month ago. There's several things that are on the horizon. As you all know, the personal injury cases in the MDL, you know, are tracking for a trial date sometime in October. You know, there's a number of disease states that the judge is working on. We're coordinating with the plaintiff's counsel on this. There's four, there's going to be a bellwether case. There's four disease states that they're investigating today. They'll choose one.
The judge will choose one for trial in October. There is just a lot of work that is happening in the background on that, but that is certainly on the horizon. You know, we have most of the AG cases in the MDL. They are in the MDL because they are AFFF, so they are firefighting foam based. That day would be in the MDL. There are some that are outside of it because they are independent of AFFF, New Jersey being one. New Jersey has a trial date in the middle of May. As I mentioned at the investor day, you can see very clearly in the K and the Q, you know, we are in mediation with the state of New Jersey that is active. You know, we will say more when we can say more, but again, there is a trial date out in May.
The one behind it is Vermont. It's another AG case outside of the MDL. That's in August. There are things happening in the background. You know, we should not, and investors should not read a change in the administration that there's, you know, material change in the outlook for us as a company around PFAS. There remains to be litigation risks here. You know, again, we'll talk more about this as we conclude things or as we have events that happen that are meaningful.
How did you evaluate this risk coming in as, you know, you didn't have to come to 3M?
Yeah.
I would assume that, you know, if you thought that there was something that was going to come down the pipe that was pretty big, like you do all this work, you drive productivity, you get a billion dollars, and all of a sudden there's a $40 billion announcement of a PFAS settlement. Like, how did you, how did you evaluate that risk?
It's, you know, obviously I spent a lot of time doing what you all as investors have done, which is look to the Ks and the Qs. And, you know, I had an opportunity to actually talk, you know, to the management team and to our General Counsel and outside counsel to understand a little bit more about what's happening there. At the time, and even today, you know, there's still a lot of uncertainty and what's going to happen and when it might happen and what might happen internationally. The way I looked about this is, look, there's a, at the time, I think our stock on an adjusted basis, now it's obviously post the spin, we're sort of like in the $80-$90 range.
I looked at it and I thought we were as a company highly undervalued. I thought we had focused a lot of time and effort over the last five years, maybe even longer, focusing on litigation and not much else. I think when I looked at that, you have 62,000 people in the company. There's probably a couple hundred that focus on, maybe not that many, focus on liability management and transitioning, you know, PFAS related or enabled products to something other than PFAS. You have another 61,000 and change that ought to be focusing on making 3M great in terms of innovating, driving commercial excellence. I looked at it and I thought, you know, we could do a much, much better job in just driving, you know, rigorous operational execution, things that I've done multiple times in my past.
That's actually what I see happening and playing out. I looked at this and I said, if I can just contain the PFAS liability, you know, to even what was embedded in the stock and what the market has been embedding, but then drive the upside through all these other things that I've done before, you know, there's an upside case to be made here. That at the end of the day was my logic. I wasn't pulled by the minus 15 degree temperatures in Minnesota from Florida or 10% state tax or the other things that are going on there. I also saw it as a great opportunity to engage with this great iconic company called 3M and try to help make it great again. It's been encouraging. I really enjoy it. There's going to be setbacks.
Look, you know, I know I've been in the seat before. Things happen, but that was my logic. I thought we could, if we can contain the liabilities, I knew it wasn't going to be zero, and then drive all these other parts of the agenda and energize and motivate the team to go and push that. I thought there was upside. I think I've seen it. I think actually investors have seen it as well.
It's a lot of M's, MAGA. Make 3M great again.
Yeah, right. Yeah.
and I assume you still feel positive about the stock now that it's, even though it's up, you know, 50% or.
I do. I do. Look, I'm longing the stock and as you all know, we're out there, we bought back a lot of stock as a company last year, as I said before, $10 billion to repo in the next three years, half is going to be coming from buyback. I think we as a team and we as a board think very optimistically about the stock. This is not a short-term gain, it's a long-term thing. Stocks move up and down, environments change, we get all that. I couldn't be clearer internally and with investors about the upside and the opportunity I see ahead of us.
I see it, I saw it two weeks ago and talked about it, this is the investor day and I see it today. That, that's not changing. I, and what's interesting and you won't see it, maybe some that came to the investor day and saw the energy of the team the night before and the Tech Tech Expo and the energy of the leadership team. You know, people are very, very motivated to drive 3M to a different spot. I notice it every single day. The enthusiasm, the encouragement, the inspiration that people have to do things differently is there. This will be a much better entity for sure. I think the path is pretty clear to me.
Any questions? Right here. Let's go there first. Mic's coming around. Right there. Just in back . Yep.
Hi. You talked about how much you import versus you export, and you talked about if tariffs come in and, you know, how you can in the short run.
Yeah.
take price to, to offset that. Then you also talked about your underutilized manufacturing capacity. How long would it take you, to go from we're just going to put price in to cover this to doing what those tariffs hypothetically are supposed to do, which is incentivize you to put the manufacturing back in the U.S.?
We have a, you know, there's some short, medium, and longer-term decisions we've got to make on the sourcing side. It's not going to happen overnight. You know, we are incrementally driving our equipment utilization up, but as I mentioned before, we're in the low 50s, 52% across all assets, 54% on the bigger ones, which we really track, daily. You know, we're up a couple hundred basis points last year. We're up a little bit more this year. You know, this year we expect to be in the high 50s in terms of utilization. There's still upside of opportunity there, but we can, we can move those assets a little bit and flex there. You know, we also have a pretty robust network of contract manufacturers we can rely on.
There are going to be a little bit easier, but you're talking sort of in quarters, not in days or weeks. Things could happen by the end of the year to move things around. There's probably a little bit of an opportunity moving out of Europe and back into the U.S. if that, as whatever happens in the Europe tariffs. It might take, you know, six months, a year, sometimes a little bit longer than that, but it's in that timeframe.
If you step out of your own world a little bit, do you think that's true for a lot of U.S. industrial companies?
Every company is going to be somewhat unique in terms of their own utilization, their asset footprint, you know, the robustness of their supplier network, the flexibility of the suppliers to move up or down, even the complexity of the product offering. I'll give you an example. There are some products we manufacture that are highly regulated, you know, and in order to change source of supply, even a supplier going from A to B, you're going to have to go back through the certification program, either with the OEM you're selling to or with a regulator. Some are longer cycle. Ours, there are, and we do have products that fall into that category, but primarily we're more short of cycle and can move things around a little bit more nimbly. I think everyone's going to be a bit different.
Thank you.
A lot of our companies have been at, you know, they've been, this, the warning shot was fired in 2018. So they've.
Right. They've seen it.
Yeah. They've been working hard at it already to a degree. One more here.
You said that raw materials are roughly 26% of your cost of goods sold. As you move utilization from mid 50s to some higher number, are there incremental margins? 70% on that. The second question is, do we need 110 factories and just closing the factories?
Yeah.
Is that a margin tailwind?
I, you know, let me take the second one. I'll ask Anurag and talk about the first part about, look, no, we don't need 110 factories. I mean, it's pretty clear, especially if they're running 52% utilization or 54%. It's too much. I think we talked a lot about the 1,000 interplant lanes we have and 88 DC. You know, when I look at this over the long term, the network will be smaller and simpler is my guesstimation here. But there's so much we can do, as much we have to do right now to just lay the found work of actually getting to that. You can't think about asset rationalization in my mind until you really understand how your assets are performing today.
If you want to put two machines together, the capacity, you have to understand what the utilization happens to be and make sure you have enough flex capacity as demand moves up and down. That is a long-term opportunity for us, meaning outside of the three-year window here. Near term, there is just so much we can do in terms of just sourcing and negotiation, value engineering, quality improvement, logistics improvements. There are just so many different levers to pull here. It is a longer-term opportunity, but not something in the near term.
Great. Yeah. Raw materials is not the only variable cost we have. We also have direct labor, freight, logistics, and so on. Our incrementals today are roughly about 35%. To answer your question, as we drive productivity in the factory and as we make our sales organization more scalable, the incrementals should go up in the medium term from 35%-40% and plus. Right. You should see that trend. Yeah.
Great. Thanks guys. Really appreciate it.
Thank you. Thank you.