3M (MMM) Q1 2026 Earnings Call Transcript

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DATE

Tuesday, April 21, 2026 at 9 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Bill Brown
• Chief Financial Officer — Anurag Maheshwari

TAKEAWAYS

• Earnings Per Share (EPS) -- $2.14, increasing by 14%, or $0.26 per share, with management attributing the gain to "strong volume and broad-based productivity."
• Operating Margin -- 23.8%, rising by 30 basis points, including a 100 basis point negative impact from tariffs year over year.
• Free Cash Flow -- $540 million, rising by 10% with "improvement in inventory—a decrease of three days—while maintaining service levels of greater than 90%."
• Shareholder Returns -- $2.4 billion returned, splitting $400 million to dividends (with a 7% per-share increase) and $2 billion to share repurchases.
• Organic Sales Growth -- 1.2% reported, driven by strength in Safety and Industrial, while Consumer segment sales decreased by 1%.
• Order Growth -- Orders rose slightly over 10%, with Safety and Industrial plus Transportation and Electronics showing mid-teens order growth; backlog increased 20% year over year and 35% sequentially.
• New Product Launches -- 84 new products launched, up 35%, with a goal of 350 product introductions this year, trending ahead of the 1,000-product target through 2027.
• Manufacturing Footprint -- Total facility count reduced to below 100, including sale of the Precision Grinding and Finishing business (seven factories) and announced closures of four sites.
• Productivity Initiatives -- On-time-in-full (OTIF) service levels held above 90%; inventory reduced by three days; delivery lead time cut by 25%; overall equipment effectiveness (OEE) rose over 100 basis points; cost of poor quality declined by about 100 basis points.
• Transformation Investment -- Over $250 million to be invested across three years in automation of plant and distribution center operations targeting material handling, slitting, and visual inspection, with automation at one facility producing a 30% productivity gain.
• Strategic Acquisition -- Madison Fire and Rescue acquired and combined with Scott Safety, creating an $800 million revenue fire and safety business "growing at a high single-digit growth rate."
• Data Center and Utility Business -- Segment revenue at approximately $600 million, with $100 million from data center activities and $500 million from power delivery; introduction of expanded beam optics (EBO) product targeting the copper-to-fiber market transition.
• 2026 Guidance Reaffirmed -- Management reiterated organic sales growth of about 3%, EPS in the $8.50 to $8.70 range, and free cash flow conversion above 100% for the year.
• Price Increases -- Approximately 1.3% price increase expected for the year, with 50 basis points linked to oil-derived input cost inflation of about $125 million, and timing of implementation varying by geography.
• Backlog Coverage -- Provides 400 to 500 basis points incremental quarterly revenue coverage, with 75% of company revenue typically "book-and-ship."

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RISKS

• Management cited "industry-driven softness" in approximately 40% of the portfolio, specifically noting electronics (consumer electronics weakness) and consumer discretionary as pressure areas.
• Team flagged continued exposure to oil price inflation, stating, "about $125 million of cost increase, which we are offsetting through pricing," but also described resulting macro uncertainty and embedded contingency of $0.05 to $0.15 in annual EPS guidance.
• "we are not really a backlog-driven business," so the current backlog spike may be partly attributable to pre-buy behavior, which could "wash out in Q2," potentially causing volatility in quarterly sales.
• Auto market volumes pressured by a 3% global and 10% China build rate decline during the quarter.

SUMMARY

3M Company (NYSE:MMM) outlined significant operating discipline in the quarter, evidenced by margin gains, cost control, and accelerated inventory efficiency. The company emphasized broad portfolio shaping through divestitures and targeted acquisitions, highlighted by the Madison Fire and Rescue deal, while actively resizing the manufacturing footprint to below 100 facilities. Management reported strong order momentum and backlog growth that they expect to drive a step-up in sequential sales growth, reaffirming full-year guidance despite volatile macro and input cost conditions. The company detailed new commercial excellence initiatives supported by AI-driven sales tools, aggressive NPI cadence, and over $250 million committed to automation.

• Management expects all business groups to report higher organic growth in the second quarter, with Safety and Industrial and Transportation and Electronics projecting further acceleration above Q1 trends.
• "expanded beam optics" technology received hyperscaler validation and is seeing material customer adoption, with 3M Company investing to double capacity as data center demand rises.
• First half EPS is expected to outpace second half performance due to built-in contingency against oil price and macro risks.
• Price increases will roll out across key markets beginning in May, aiming to offset roughly $125 million in new raw material costs.
• In Consumer, seven of eight weeks of positive point-of-sale momentum was achieved, and management expects "normalized inventory levels" to support growth stabilization in Q2.
• Approximately 10% of the portfolio remains "commodity-like" and subject to further review for potential divestiture as the company focuses investment on verticals with higher structural margin and growth potential.

INDUSTRY GLOSSARY

• SIBG: Safety and Industrial Business Group – encompasses industrial abrasives, safety products, adhesives, tapes, and related segments.
• TEBG: Transportation and Electronics Business Group – includes transportation- and electronics-focused business units.
• CBG: Consumer Business Group – covers 3M Company’s consumer-facing products and retail segment.
• OEE: Overall Equipment Effectiveness – a manufacturing productivity metric tracking uptime, speed, and output quality.
• OTIF: On-Time-In-Full – logistics and supply chain measure of product delivery reliability relative to customer expectations.
• EBO: Expanded Beam Optics – a high-performance optical connector technology designed for fast, reliable data center fiber installations.
• PG&F: Precision Grinding and Finishing business – 3M Company’s former business unit recently divested.
• SCBA: Self-Contained Breathing Apparatus – critical safety equipment for fire and rescue markets.
• NPI: New Product Introduction – launch and commercialization of newly developed products.
• USAC: United States and Canada – geographic region classification used internally by 3M Company.

Full Conference Call Transcript

Bill Brown: Thank you, Chinmay, and good morning, everyone. We delivered solid operating performance in Q1, with earnings per share of $2.14, up mid-teens versus last year. Operating margin increased 30 basis points to 23.8%. Free cash flow was over $500 million, up double digits. During the quarter, we returned $2.4 billion to shareholders, including $400 million in dividends and $2 billion of share repurchases. We had a light start to the year on the top line with organic growth of 1.2% driven by pockets of macro pressure, but we saw encouraging order trends that support our outlook for acceleration in the balance of the year. Looking forward, we remain confident in achieving our full year 2026 guidance despite the volatile environment.

Our performance reflects strong execution on productivity, cost discipline, and commercial rigor. We are building a stronger foundation based on commercial, innovation, and operational excellence underpinned by a relentless focus on strengthening our performance culture. In commercial excellence, we are seeing benefits from improved sales effectiveness and lower customer attrition, and we continue to make progress on cross-selling opportunities. To date, we have closed on approximately $80 million of new business against a three-year $100 million target we laid out at Investor Day, with a pipeline of $85 million of additional cross-sell opportunities.

We have introduced AI tools to drive growth, reduce churn, and automate manual work, including an agent that analyzes our sales and opportunity pipeline data to develop customized coaching plans for sales managers to help reps meet their targets. And we believe digital tools like Ask 3M Company, a new AI-powered digital assistant that helps customers find solutions to design challenges using 3M Company products, allow us to reach a broader population of customers. Our pace of new product introductions is accelerating, with better on-time performance, reduced cycle times, and clearer governance and accountability across R&D. We launched 84 new products in Q1, up 35% versus last year, and we are on pace to launch 350 in 2026.

This will put us ahead of our Investor Day target to launch 1 thousand new products through 2027. We have maintained OTIF service levels above 90% while at the same time reducing inventory by three days and delivery lead time by 25%, improving our competitiveness with customers. OEE improved over 100 basis points year on year as we optimize asset run length, run time, and changeovers, creating a stronger foundation for sustained productivity and fixed cost leverage. And cost of poor quality decreased by approximately 100 basis points versus Q1 last year, driven by more structured root cause analysis, significantly increased kaizen activity, and tighter process controls. What matters is that these are not isolated wins.

They collectively reflect greater execution discipline and constancy of purpose. And that consistency and momentum gives us confidence that we can meet or exceed the medium-term goals we outlined at our Investor Day last year, even in an uncertain macro environment. While we continue to strengthen our foundation and shift from a holding company to an operating company model, we are beginning a broad-based transformation of the company—simplifying and standardizing processes, reducing complexity, reshaping our portfolio, and improving resilience and predictability. We see substantial opportunities to streamline operations and consolidate facilities.

The transformation includes both deliberate footprint actions as well as targeted investments in manufacturing and process technology—for example, transitioning from solvent to solvent-free coating, which brings cost, capital, and environmental benefits. Earlier this month, we closed on the previously announced sale of our precision grinding and finishing business within SIBG, which reduced our footprint by seven factories, and we closed one factory and announced three other full or partial closures, bringing our total projected manufacturing site count to below 100. At the same time, we are investing more than $250 million over the next three years in standard, easy-to-replicate automation across our plants and distribution centers.

By automating material handling in our warehouses, replacing manual slitters with automated systems, and automating our current manual visual inspection processes, we are improving safety, reducing labor costs, increasing yield, and putting ourselves in a better position to support demand as volumes recover. To illustrate the opportunity, we have 7 thousand material handlers and over 600 operators performing manual visual inspections across our network, and about 500 manual slitters. When we automated the slitting operation at our Innoventive facility late last year, we achieved a 30% increase in square yards per hour productivity. Over time, this transformation will allow us to accelerate towards a structurally higher growth, higher margin potential portfolio of priority verticals.

Slide four provides a more detailed view of growth and orders by end market. When you look across our portfolio, roughly 60% of our businesses showed relative strength in Q1, including general industrial and safety. Importantly, we also saw strong orders in these markets, which gives us visibility and reinforces that the demand environment in these verticals remains healthy. At the same time, we experienced macro- and industry-driven softness in about 40% of the portfolio that we have been highlighting as watch areas. In electronics, we delivered flat year-over-year growth in Q1 versus mid-single digits last year.

Our performance in semiconductor and data centers was very strong, while consumer electronics was soft due to industry-wide memory chip issues, which is impacting demand. Electronics orders were up double digits due to significant activity in semis and data centers, which will convert to revenue in Q2 and the second half. In automotive, the market was soft as expected in the first quarter. Global IHS build rates were down about 3% overall and 10% in China, which pressured volumes. And in consumer, we continue to see soft U.S. consumer discretionary spending, with a few pockets of strength in categories with recent new product introductions.

POS trends in the U.S. improved over the course of the quarter and were positive in seven of the last eight weeks, providing some encouragement heading into Q2. Overall, orders were up slightly over 10% in Q1, and backlog grew double digits both sequentially and year over year, giving us momentum into Q2. This strength reflects the combined impact of our new product introductions, continued progress in commercial excellence, and orders for longer lead-time products, with some additional benefit from pre-buying ahead of recent price actions. It is encouraging to see order strength continue into the first few weeks of April.

Turning to Slide five, as part of our ongoing focus on portfolio shaping, last month we announced the acquisition of Madison Fire and Rescue, which will be combined with our Scott Safety business to create a leading global fire and safety business. The combination of Scott Safety's premium self-contained breathing apparatus with Madison Fire and Rescue's premier portfolio in rescue technology and fire suppression creates an $800 million revenue business growing at a high single-digit growth rate. This strategic transaction broadens our safety portfolio—one of our priority verticals—by expanding our market reach and building scale for future growth. It positions us to maintain above-market growth, enhance margins, and drive strong free cash flow generation.

I also want to highlight our growing data center and associated power utility business with current revenue of approximately $600 million—$100 million inside the data center, and about $500 million bringing power to the facility. This is a priority vertical space where we are introducing new products like EBO, or expanded beam optics, a high-performance optical connector engineered to improve installation speed, reliability, and operations within data centers. EBO builds on our existing twinax copper connector for high-speed data transmission and positions us well for the copper-to-fiber transition underway. With hyperscaler validation, a significant order in hand, and a billion-dollar-plus addressable market, we are investing to more than double our capacity to support growing AI demand.

We see additional opportunities here as demand expands to ceramics, silicon photonics, and on-chip optical connectors. We have strong IP to support this evolving market and a clear roadmap to develop new products that further drive growth. Overall, I am pleased with our progress this quarter—encouraged by the pace, op tempo, and executional rigor of the 3M Company team. We are on a multi-year journey and progress will not be linear, but we are building the capability to execute consistently, to innovate with purpose, and to allocate resources toward the parts of the portfolio that deliver the most value. I am grateful to the 3M Company team for their commitment, hard work, and focus as we deliver progress every day.

With that, I will turn it over to Anurag to share the details of the quarter. Anurag?

Anurag Maheshwari: Thank you, Bill. Turning to Slide six, we had a good start to the year, performing ahead on orders, margins, earnings, and cash. Starting with top line, we delivered organic sales growth of 1.2%. SIBG showed continued momentum and grew over 3%, slightly better than expectations. TBG was flat, lighter than expectations, due to ongoing weakness in certain end markets like consumer electronics and auto, as well as late timing of order intake within the quarter. In CBG, we did not see the expected recovery in the U.S. consumer market, resulting in organic sales down 1%. Notably, we saw significant strength in orders this quarter driven by progress in commercial excellence and NPI.

Overall orders grew slightly more than 10%, with SIBG and TBG growing mid-teens driven by industrials, safety, data center, semiconductor, and aerospace. The order momentum accelerated through the quarter, resulting in backlog growth of 20% over last year and 35% sequentially, positioning us well for the second quarter. First quarter adjusted operating margins were 23.8%, up 30 basis points year on year, driven by strong volume and broad-based productivity, which more than offset approximately $145 million of tariff impact, stranded costs, and investments.

Operating income from the three business groups was up $85 million with 60 basis points of margin expansion, driven by supply chain productivity—including improvements in cost of quality and procurement and logistics—and continued focus on structural G&A reduction. Corporate was a 30 basis point headwind from planned wind down of Solventum transition services agreements. Our sustained operational performance of driving growth and productivity led to EPS improvement of $0.26, or 14%, to $2.14. In addition, we benefited from lower share count, timing of tax benefit, and FX, offsetting tariffs, stranded costs, and investments.

Adjusted free cash flow was $540 million in the quarter, or up 10%, from strong earnings growth and improvement in inventory—a decrease of three days—while maintaining service levels of greater than 90%. In addition, we returned $2.4 billion to shareholders in the first quarter, including approximately $400 million in dividends, reflecting a 7% increase per share, and $2 billion through opportunistic share repurchases. Turning to Slide seven, I will provide an overview of our business group performance for the first quarter. First, Safety and Industrial had another quarter of 3% plus growth as we continue to gain traction on commercial excellence initiatives and realize benefits from new product launches.

We delivered mid-single-digit growth across Industrial Adhesives and Tapes, Safety, Electrical Markets, and Abrasive Systems driven by continued share gains from new product introductions and targeted commercial initiatives to reduce customer churn, strengthen sales coverage, and increase cross-selling. Collectively, this growth more than offset continued weakness in roofing granules as the housing market and consumer sentiment remained soft. Even though auto repack claims were down mid-single digits, it was encouraging to see our auto aftermarket business be flat to slightly up, after a couple of years of decline, from good execution of the key account strategy. Turning to Transportation and Electronics. While growth was flat, orders were up low teens, accelerating through the quarter, resulting in backlog up about 30%.

Approximately half the business delivered mid-single-digit growth, including double-digit growth in semiconductor and data center, driven by continued market demand and ramp up of EBO that Bill referenced earlier. In addition, we saw growth in aerospace and commercial branding from better sales effectiveness. This was offset by the other half of the business which is exposed to consumer electronics and auto, where the market was down. Finally, Consumer first quarter organic sales were down 1% driven by weakness in USAC as we did not see the expected pickup in retail traffic in the early part of the quarter. We did see pockets of strength—Scotch-Brite grew approximately 10% on the back of new product launches.

We also saw good traction in international markets, especially in China and Asia. But it was not enough to offset the impact of USAC, which makes up the majority of the CBG revenue. By geography, in China, we again grew mid-single digits despite soft auto and consumer electronics end markets, as we executed on our key account strategy and launched local NPIs in a relatively strong industrial market. USAC was up slightly, with mid-single-digit growth in industrials being offset by softness in Electronics and Consumer. Asia had another quarter of good growth, with India in the high teens, as we drove higher sales coverage across the country. EMEA was down about a percent due to market weakness in auto.

Moving to Slide eight. Though the macro remains uncertain, given our good performance in the first quarter, we are reiterating our guidance for the year: organic sales growth of approximately 3%, earnings per share ranging from $8.50 to $8.70, and free cash flow conversion of greater than 100%. For sales, the strong backlog combined with continued strength in orders in the first three weeks of April gives us confidence that all three business groups will accelerate growth in the second quarter through the balance of the year. On margins, we had a solid start with the three business groups growing 60 basis points despite 100 basis points year-on-year tariff impact.

As we lap tariff pressure in the second half, the continued momentum on productivity and volume acceleration gives us confidence in our expectation of approximately 100 basis points margin expansion for business groups this year. On non-operational, we expect positive trends driven by a $2 billion share repurchase in the first quarter and lower net interest expense. Overall, we are maintaining our EPS guidance which includes a contingency, and we will go through the components of the earnings bridge on the next slide. Given the strong earnings growth and good progress on working capital, particularly inventory, and continued CapEx efficiency, we believe our free cash flow will be more than $4.5 billion for the year and greater than 100% conversion.

Slide nine shows the trend of key earning elements and the current guidance. We are trending $0.05 to $0.15 higher on earnings from momentum on productivity and lower share count and interest expense. We are facing higher input costs due to the recent increase in oil price but have implemented targeted price increases to mitigate the impact at the current levels. Given that we are early in the year and we are operating in a volatile macro environment, we think it is prudent to keep a contingency till we have more clarity about the rest of the year. Overall, we are moving with determined pace and will continue to calibrate as the year progresses.

Regarding cadence, we expect sales growth to accelerate in Q2 and the back half of the year. Backlog conversion and continued order strength is expected to support growth momentum in both SIBG and TEBG in the second quarter. We anticipate Consumer to improve as point of sale is on an upward trend, resulting in normalized inventory levels. On EPS, given the contingencies for the second half, we expect the first half EPS to be higher than the second half. Our 2026 financial outlook puts us on pace to exceed our medium-term financial commitments that we laid out during Investor Day around growth, margin, and cash.

And on capital allocation, we have already returned over $7 billion of the $10 billion shareholder returns that we had committed to. Before we open the call for questions, I want to take a minute to thank the team for a strong start to the year and for being proactive in this environment to mitigate risks, control the controllables, and for the commitment to strengthen the foundation and drive profitable growth. With that, let us open the call for questions.

Operator: Ladies and gentlemen, if you would like to register a question, please press star 1. If your question has been answered and you would like to withdraw your request, please press star 2. Please limit your participation to one question and one follow-up. Our first question comes from the line of Jeff Sprague with Vertical Research. Please proceed with your question.

Jeff Sprague: Good morning, everyone. Hey, Bill or Anurag. Just trying to dig into the order commentary a little bit more. Maybe you could give us a little more perspective on the pre-buy—the size of it, if you could. And I guess the pre-buy would imply getting ahead of price increases and the like. So maybe a little bit of color on how much additional price is now embedded in your organic growth forecast? And just also on these backlog numbers—obviously, deltas sound great—but it is not really a backlog business. So is it the law of small numbers on those deltas, or is there actually significant visibility that you can anchor to as you look into Q2?

Bill Brown: Hey, Jeff. Good morning. Thank you for the question. I will start and then pass on to Anurag on the backlog point. As we said, we had very good orders in the first quarter, up double digits, which was very good. And you are right, we are not really a backlog-driven business, but backlog was very strong coming out of Q1 and continues to build into Q2. Over the course of the quarter, we saw good order growth in January and February—up single digits—but it accelerated quite a bit in the month of March to well over the double-digit number for the whole quarter, and it continues into April, which I think is very encouraging. Now how much is price?

The reality is we do a price increase every year on April 1, so it is hard to discern how much was a pre-buy. We think there is some of it. We have signaled to customers that we are going ahead with a price increase on top of what we went out with April 1, associated with the price of oil coming up, so that could cause a little bit of a pre-buy. But again, it is hard to discern exactly how much that would be. You asked about price for the year. For the year, we had guided before about 80 basis points. We came in a little bit below that in Q1.

We still see, outside of oil-based increases, around 80 basis points. But if we add in expected price increase from oil, it could be around an extra 50 basis points, is what we are thinking at the moment—so price for the year around 1.3 points. I will let Anurag share a little bit about the backlog.

Anurag Maheshwari: Yeah, thanks, Bill. You are right that we are largely a book-and-ship business. We have about 75% of our revenue in a quarter coming from book-and-ship. But we do get backlog coverage as we enter the quarter. The numbers that we mentioned—about 35% up sequentially and 20% year over year—provide us about 400 to 500 basis points of additional coverage as we enter into the quarter, which is not insignificant given the growth acceleration that we expect from Q1 into Q2. So it is really good to see that we are starting with very good backlog coverage for the quarter.

Combined with the order momentum that Bill spoke about in the first three weeks of April, it gives us confidence for acceleration of growth through the second quarter. Typically, we do not talk about orders versus sales because, as a book-and-ship company, they converge. But this time, you could see the big spike. As Bill mentioned, part of it could be pre-buy, but a lot of it is commercial excellence, NPI, and other initiatives that we are driving, which resulted in order acceleration.

Jeff Sprague: Great. And then maybe just a quick follow-up. On the comment about accelerating into the remainder of the year, do you mean each quarter will be a faster growth quarter than the one that preceded it even though comps are getting tougher in the back half of the year?

Bill Brown: We see Q2 being better than Q1, and we see the second half being better than the first half. That is the way we are currently looking at it, Jeff.

Jeff Sprague: Great. Thank you very much.

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

Scott Davis: Good morning, everybody. Just to follow up on Jeff's question—are customer inventories low and there is a little bit of a restock occurring, or are they balanced? How do you see that element right now?

Bill Brown: We track it pretty carefully. On the Safety & Industrial business group, distribution inventory is relatively normal—maybe a tick below what we typically would see. We would typically see 65 to 70 days, and it is a bit below that. On the Consumer side, it is about normalized from where we were last year, around 13 weeks of supply. Coming into the year it was a bit higher—maybe 13.5—but right now around 13. So on Consumer, fairly normal. On Safety & Industrial, I would say normal to maybe a bit light in the channel.

Scott Davis: Okay. Helpful. I think you mentioned your factory footprint is down, like, 10%. Is there another 10%? Do you have a view on where the endpoint on that journey is?

Bill Brown: We keep talking about this with investors as we go forward. At the end of last year, we were a little over 100. We sold and closed on PG&F, the Precision Grinding and Finishing business, which was seven factories—scattered across Europe, one in Asia, a couple in the U.S. It was not a large business, but a big factory footprint. So that brought it down by seven. We closed one in the first quarter. We announced a couple of others. Those will close over the course of this year into next year. So that puts us below 100. The number will be below where we happen to be today.

We will continue to look at that and size it for investors as we go. Clearly, the footprint at just under 100 is bigger than we really need today.

Scott Davis: Makes sense. Okay. Best of luck, guys.

Bill Brown: You bet.

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

Julian Mitchell: Hi, good morning. Could you give any color around the second quarter dynamics in a bit more detail? I understand the organic sales growth accelerates year on year from the 1% in Q1. Also, I think, Anurag, you said first half EPS more than second half because of the contingency. How much sequentially or year on year could EPS grow in Q2, and what is the sort of margin embedded in that guide?

Anurag Maheshwari: Sure, Julian. On revenue growth, because of the good backlog and the order momentum, we expect organic growth in the second quarter to be higher than 3%, with all three BGs accelerating—SIBG, which was at 3.2%, going higher than that; TBG low single digits; and CBG flat to positive. That will come with high flow-throughs. The productivity that we delivered in the first quarter will continue in the second quarter. Between volume and productivity, we will offset the last quarter of the tariff year-over-year impact for us, plus a pickup in stranded costs and investments. Operationally, it is going to be a solid margin—about 24.5%—and good EPS flow-through coming from that.

Below the line, we will see a couple of pennies of headwind relative to last year. Last year in the second quarter, we had a divestment of an investment that we had in India—it was about $0.08 to $0.10—then you see a little bit of tax, which was favorable in Q1, normalizing in Q2. Those are two headwinds. Of course, they will be offset by the share buyback we did in the first quarter, which helps us in the second quarter, plus a little bit on the non-op pension side.

Putting it together, we should grow more than a nickel in the second quarter, which for the first half would put us at about 30% plus of EPS growth, which is more than half if you include the contingency for the full year. The contingency, as I mentioned, we kept for the second half of the year depending on how things evolve.

If we continue performing the way we do—revenue grows over 3% in the second quarter, which is a good exit rate as we enter into the second half—and if it continues at that or a little bit better, with good volume flow-through and no tariff headwind, the margins in the second half could be much higher than the first half.

Julian Mitchell: Appreciate all the color. Just one very quick follow-up on the pre-buy dynamics. Credit for calling that out, but trying to understand what you are assuming for how much that reverses, because you have organic sales growth accelerating in Q2. Maybe flesh out that pre-buy dynamic over the balance of the year.

Bill Brown: It is hard to discern exactly how much is pre-buy. Orders coming in were quite strong. We are seeing much better traction on new product introductions and a lot of momentum building on commercial excellence. Keep in mind, part of what was driving Q1 growth, including into early April, are some longer-lead products that will go into semis and, more importantly, into data centers, delivering in Q2 and the back end of the year. When I step back and look at the full year, as we said, we will see acceleration into Q2 and then in the back half as all these pieces come together.

Any pre-buy that happened will wash out in Q2, but we do see acceleration in the back half on the back of core operating fundamentals around NPI and commercial excellence.

Julian Mitchell: Great. Thank you.

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

Joe O'Dea: Hi, good morning. On the $0.05 to $0.15 of contingency tied to oil and macro uncertainty, can you outline roughly how you think about the split on the demand side versus the cost side of that in your planning assumptions? And any color on the oil exposure across the business and where that contingency could flow through if you need to use it?

Anurag Maheshwari: Let me start with the contingency. The $0.05 to $0.15 we kept is actually across the two buckets you mentioned. We expect second quarter to be above 3%, which is a good exit rate as we go into the second half. If there is a little bit of an impact on the volume piece because of macro—which we are not currently seeing—or a little bit of input cost goes up, it gets spread between the two, Joe. Our objective is to continue driving what we control—NPI and commercial—to continue to outperform the macro and drive more productivity so that we do not have to use the contingency in the second half.

Bill Brown: On oil price, we look at it in two pieces—supply side and demand. On the supply side, about 45% of our cost of goods is raw materials, and about a third of that—so roughly $6 billion of raw material spend, with about a third—is based in polychems: ethylenes, propylenes, esters, acrylates, and so on. We are seeing some upward cost pressure there. What we have seen so far and expect is about $125 million of cost increase, which we are offsetting through pricing. That is why I mentioned earlier we expect about a 50 basis point uplift on price coming from that oil-based exposure.

How that affects the overall macro—consumer spending, auto—is still unfolding as we speak and depends on what happens in the Middle East, but that is our current assumption.

Joe O'Dea: Got it. And then on the Transportation & Electronics commercial excellence program, where are you on that trajectory? Any quantification of how you are thinking about commercial excellence contributing to better T&E growth as you move through the year?

Bill Brown: They are falling right behind what we have done in SIBG, which has been very successful. I am pleased with the traction on the sales force, pricing discipline, cross-selling, and churn reduction—looking hard at attrition with the predictive AI models we have in place. The TBG team is doing the same sorts of things. The cross-sell opportunity is not going to be as robust, but they moved aggressively on improving the sales force—better incentives, better targeting, more closed-won targets. They are tracking attrition rates, have predictive models tailored for TEBG. It is rolling out over the balance of the year.

A key focus is ensuring the right mix and focus of our sales reps versus application engineers, and calling at the right level in the customer—for example, in automotive, at the OE versus the tiers. It is a bit different than SIBG, but they are working it hard, and you are going to see the back end of the year show improvements in TBG coming from that commercial excellence work.

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

Andrew Obin: Good morning.

Bill Brown: Good morning.

Andrew Obin: On Transportation & Electronics, you also noted double-digit orders. There were a lot of questions in the quarter about weakness in consumer electronics. Does that mean that weakness is being offset into the second half?

Bill Brown: Yes, Andrew. That is exactly what has happened and will happen. In TEBG in Q1, they were flattish, but half the business was up mid-single digits and half was down mid-single digits. You can isolate that in auto—auto OE and commercial vehicles—and consumer electronics. We show in our slides that electronics as a whole is flattish. What you see is very strong semiconductor and data center business offsetting weaker consumer electronics business. As we look at the balance of the year, we see electronics starting to get modestly positive. Consumer electronics may soften a little bit, but we are seeing a better trajectory and growth in the data center and semiconductor business.

Andrew Obin: And at CES you showcased some pivot in strategy on consumer electronics. You also talked at your first Analyst Day about the need to rebuild the R&D pipeline, particularly on the electronics side. How are these two internal initiatives impacting your growth over the next 12 months?

Bill Brown: We are putting a lot of time and effort into making sure we have good new product introductions in consumer electronics, both for the premium segment and the mainstream segment. We are seeing good traction. Unfortunately, the market is not cooperating—there is a greater downturn in CE, which is where our strength happens to be. But we do see a lot of innovation in this space. We are gaining some share modestly in the mainstream side. Looking at content per device, three or four China OEMs have increased their content per device in the first quarter, and a fourth saw a pretty good order for us. We are making progress here.

This comes on the back of a lot of NPI work in TEBG, and there is more to come.

Operator: Our next question comes from the line of Andy Kaplowitz with Citigroup. Please proceed with your question.

Andy Kaplowitz: Can you give more color on what you are seeing in Consumer? You talked about share gain actions—maybe elaborate on what you are doing there. How much discounting do you have to do to get there, and can Consumer margins continue to be pressured this year?

Bill Brown: I am pleased with what is happening in Consumer. For us, it is 70% U.S., so really focused on the U.S. consumer; we sell a discretionary product. We had a couple of pockets of strength from NPIs. The team has gotten back to basics—focusing on priority brands and starting to innovate again. We went a lot of years without many NPIs. Many are class 3—incremental—some are class 4, but we are being more aggressive on NPIs. We are holding our own and starting to gain back shelf space because we have new product coming into the marketplace. It is not a segment where we see upward movement on price; we are trying to contain discounting.

For the year, we expect some growth—positive, but it will not be a meaningful driver of overall 3M Company growth this year. We were down 1.3% in Q1, down a bit more than that in Q4. We were up modestly for the first nine months of last year at 0.3 points. They are hanging around flat to up a little bit. When the consumer starts to spend more, we will have the right products, good innovation, and strong commercial excellence, and we will see the business return to growth.

Andy Kaplowitz: Maybe more thoughts about portfolio management. You opted for a JV structure with the purchase of Madison despite leaning into safety as a priority. Why choose the JV structure? And stepping back, can you update how you are thinking about the overall 3M Company portfolio? You said in the past 2% to 3% is actionable for divestitures, 10% is commodity-like—still the right numbers?

Bill Brown: I am pleased with the structure and conclusion of the Madison–Scott SCBA joint venture. We are 51% owner and will consolidate. It is a strategic bolt-on in a priority vertical. It strengthens our SCBA business. It is a great brand; we have been innovating in this space. This also creates scale by putting the business together for future organic and inorganic opportunities. Madison’s fire and rescue products have been performing very well. They bring a terrific management team. They are growing double digits. Margins are coming up. Bain Capital is our partner at 49%.

We know them well; they are very good at post-merger integration and bring operating rigor and expertise on driving incremental M&A while we focus in other areas. It gives optionality over time. It will be accretive to growth, margins, and earnings over time. We closed on PG&F, the Precision Grinding business, on April 1. It was not very big, but businesses that do not perform can be difficult to transact on; I am pleased that one got over the line. We continue to look at the rest of the portfolio. Yes, around 10% of our businesses are more commodity-like, where we do not have a clear right to win or a lot of technology differentiation.

We said 2% to 3% was in flight; PG&F was part of that. We will continue to evaluate this and talk to investors as we go. The Madison–Scott transaction is an important strategic signal around reshaping our portfolio toward structurally higher growth and higher margin potential.

Operator: Our next question comes from the line of Chigusa Kotoku with JPMorgan. Please proceed with your question.

Chigusa Kotoku: Hi, good morning. Thanks for taking my question. First, can you recalibrate us on the outlook for U.S. IPI and electronics you are embedding in your assumptions for the full year? I think it was U.S. IPI flat, electronics up mid-single digit last quarter.

Bill Brown: Sorry, Chigusa—you are talking about IPI, the macro?

Chigusa Kotoku: Yep, the U.S. IPI.

Bill Brown: Thanks for the question, and congratulations in the role—welcome to the call. In terms of the macro, as we came to Q1, we saw similar trends to 2025 continue. Relative to where we were in January, the global IPI is still around 2%—it has not moved much. The U.S. is up a little bit better; EMEA is down a little bit; China is still mid-single digits. Interestingly, those trends are exactly what we saw in our business through Q1—U.S. up a little bit, Europe down a little bit, China mid-single digits. GDP is still around 2.5%. Auto builds are floating around between flat to down 1%.

It is early in the year; that tends to be a backward-looking indicator, but right now it is flat to down a little. U.S. retail is flattish. The place we are watching is consumer electronics, where the outlook is for a little more softness as we get into the back end of the year. Overall, the macro is trending about where we saw it in January and through last year.

Chigusa Kotoku: Thanks. And on the contingency, what would it take for you to remove this? You have been seeing good order trends and are operationally raising guidance by about $0.025, and without this contingency it would have been a $0.10 raise. What would it take for this to be removed?

Anurag Maheshwari: Thank you for the question, Chigusa. We will probably give you an update on our next earnings call. Over the next couple of months, we are confident with the backlog and order momentum on Q2 revenue—we will see how that plays out. We have a very good playbook we adopted from the tariffs last year in terms of working with customers and pushing out price increases. That is an area we will monitor on yield over the next couple of months, plus where oil stabilizes. If we continue performing the way we did in Q1—both on productivity and operational excellence—come July we will give you an update on where we stand for the full year.

Operator: Our next question comes from the line of Nigel Coe with Wolfe Research. Please proceed with your question.

Nigel Coe: Thanks. Good morning. Going back to the pre-buy comments—why do you think there may have been a pre-buy? Is it because you are trying to rationalize the strong orders, or is there something else you are hearing from customers? And on the 50 basis points of incremental price, is that in the form of a surcharge that rolls back as oil comes down? Would that hit in Q2, or is that more in the back half?

Bill Brown: Thanks, Nigel. It is hard to avoid the fact that we are pushing pricing a little more aggressively. We know there is an inflationary environment. We know oil is going to go up and its impact on our company. We know what we did four or five years ago—maybe not moving as quickly on pricing when oil came up—which we are correcting for. We are being more attuned to what is going on in the macro, and we are enforcing it better. If a shipment goes out beyond a date, that shipment will have a price increase associated with it.

Customers have seen and heard that, and putting it together gives us a sense that perhaps there is some advanced buying ahead of these price increases. We will know more in the next month to six weeks how much might be pre-buy as we watch orders through the balance of the quarter into May. On pricing, we see about $125 million of cost impact which we are relaying into pricing, translating to about 50 basis points. That is factored into the guidance of about 3% organic for the year.

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

Chris Snyder: Thank you. I wanted to also follow up on pricing and price/cost. When do these price increases take effect? I would imagine some point in Q2. And it seems like the $125 million of cost inflation and the 50 bps of price—your plan is to be neutral on price/cost. If I remember a year ago, you were EPS negative on the tariff inflation. Just want to make sure I have that neutral view right.

Bill Brown: Chris, we have learned. Yes, we are moving a lot faster than we did last time on tariffs. Tariffs came on and we were a little tentative upfront, but we ended up offsetting a good part of the tariffs on cost and price. We are trying to be careful on that. We will offset cost increases associated with oil through price increases—that is the assumption. Historically, we have covered material cost inflation with pricing. Historically, with a 2% material inflation, that would translate into roughly 50 basis points of price. For the year, we are guiding to about 80 basis points—lighter in Q1, but inflation in Q1 came in a little lighter as well.

With oil coming in, that is driving an incremental 50 basis points of price—so total about 1.3 points for the year on pricing. It is not a surcharge; the price increases are embedded into the pricing of our products, depending on product and geography—generally built into the underlying price.

Anurag Maheshwari: And in terms of the rollout and timeline, we have already started in April in a couple of countries in Asia. In the United States, it starts on May 1, and Europe as well. It is imminent, with all the letters going out to customers on when the oil price increase is going to impact them.

Chris Snyder: Thank you. And any color on how firm or flexible delivery dates are for orders in the backlog? I remember a year ago there was elongation tied to some preordering ahead of tariffs. Is that a potential risk into Q2?

Anurag Maheshwari: Delivery is limited to the lead times that we have. It is not like an order can be placed for six or twelve months of delivery. It is within the prescribed time frame.

Chris Snyder: Thank you.

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

Analyst: Good morning. This is Neil on for Amit. I know we just got first quarter results, but could I ask about the growth algorithm into 2027? The outlook suggests meaningful improvement in trends exiting this year. If I look at new product introductions, these are accelerating, and if we add maybe two points of macro growth to new product introduction, would that imply 3% to 4.5% organically next year?

Anurag Maheshwari: Thanks for the question. We said this year that we will grow about $330 million above macro. As we get into the second half of the year, from the exit rates, we will be north of 3.5%, which would imply we would be above where we are in the first half and above the full-year average. We feel very good as we enter into next year with what we are doing on NPI and commercial excellence and how that is translating. First, we have to grow in the second quarter above 3%. If we grow above 3.5% in the second half, it gives us good momentum to accelerate growth into 2027.

It is a little early to talk specifics; we will provide more color as we go through the year.

Analyst: Great. Thank you.

Operator: Our next question comes from the line of Deane Dray with RBC Capital Markets. Please proceed with your question.

Deane Dray: Thank you. Good morning, everyone. Hoping we can address the point-of-sale momentum. That is a surprising number—up seven out of the last eight weeks—given pockets of macro pressure. Is this consumer driven? Is it more on the commercial side? Context on the momentum into April?

Bill Brown: It is consumer driven, in the Consumer business group. It is very encouraging for us to see POS up—sell-out up seven of eight weeks—which makes us feel better going into Q2 and about that business stabilizing and perhaps growing a little in Q2 and the balance of the year. It reflects the team’s aggressive efforts on promotions, gaining shelf space, driving NPI, hustling at the customer interface, and maintaining good on-time performance in the 94.5% to 95% range. Anurag talked about a couple of pockets growing better, but it is fairly broad-based. We see good trajectory through Q1 into Q2 in the clubs channel, which is not surprising given where consumers are today.

We feel good about the trends and outlook for Q2 so far.

Deane Dray: Good to hear. I would love to hear more about the expanded beam optics opportunity. Where do you stand competitively? How quickly can you ramp? Any question of manufacturing capacity, given the fast take rate in data centers?

Bill Brown: That is exactly why we are so optimistic and talking more about it. We have robust IP around the technology. Expanded beam is not a traditional point-to-point fiber connection; it is more like an easy click between two pieces of multi-fiber devices (ferrules) that come together. We can put that together at 80% less time, with less trained technician effort, better reliability, and operation in a dusty environment, which is driving take rate. We have validation by at least one hyperscaler; a second one is in testing and we expect that to be positive. We had a fairly large order in Q1 related to the hyperscaler that certified it.

We are in ramp-up mode and will double capacity towards the back end of the year. We are investing significantly to expand capacity. We are also working with partners—hyperscalers will not go with a single source—so we need dual source capability, either multiple factories or with a manufacturing partner. The ecosystem is coming together. The pace is very encouraging. This is a polymer EBO; as it moves to ceramics—more fiber-to-the-chip—it opens up a lot more with other players. It is encouraging, which is why we wanted to share it today.

Deane Dray: Great. Thank you.

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

Nicole DeBlase: Good morning, and thanks for fitting me in. Just on the margin puts and takes—have you made any changes to your full-year productivity assumption or stranded costs or growth investments? Was any of that front-loaded into the first quarter? How should we think about phasing throughout the year of those three items?

Anurag Maheshwari: Thanks for the question, Nicole. We said that we have a contingency of $0.05 to $0.15—let us say midpoint $0.10. About half of that is productivity, and most of that was in the first quarter. The only two changes from our previous guidance are: $0.05 from very good productivity—both on the supply chain side and G&A—much of it seen in Q1 and we will continue the momentum; and $0.05 at the midpoint from active capital deployment—$2 billion of share buybacks in the first quarter of $2.5 billion planned—which gives us accretion through the year, plus active cash management.

We are not changing our productivity guidance; stranded cost guidance at $150 million and tariffs assumptions all stay the same as in January.

Nicole DeBlase: Got it. Thanks, guys. I will pass it on.

Operator: Our final question comes from the line of Laurence Alexander with Jefferies. Please proceed with your question.

Laurence Alexander: Good morning, and thanks. Very quickly, can you address what your customers are saying about potential supply chain bottlenecks in the sulfur, helium, and methanol derivatives chains? Are those factored into your contingency, and do you see ways to work around those shortages if they develop in the back half of the year?

Bill Brown: It is a good question. That is probably affecting some of the pre-buy activity perhaps. We are all working through this. We are in direct contact with suppliers, trying to manage sources and ensure we have a variety of players we can go to. It is on our minds and on theirs, and it is going to affect behavior as we go through the next several months as we watch what is happening in the Middle East and through the Strait of Hormuz. We will keep you updated, but it is certainly a factor on everyone’s mind today.

Operator: 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.

Bill Brown: We are a couple of minutes late, but thank you all for joining today. I want to thank again all of the 3M Company team for their efforts, dedication, and execution against our priorities—strengthening the foundation, controlling the controllables, and delivering value to our customers and shareholders. Thank you for joining today. Have a good day.

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

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