3M (MMM) Q2 2025 Earnings Call Transcript

Image source: The Motley Fool.

DATE

• Friday, July 18, 2025 at 9 a.m. ET

CALL PARTICIPANTS

• Chairman and Chief Executive Officer — Bill Brown
• Chief Financial Officer — Anurag Maheshwari
• Senior Vice President, Investor Relations and Financial Planning and Analysis — Chinmay Trivedi

Need a quote from one of our analysts? Email pr@fool.com

RISKS

• Anurag Maheshwari indicated that the delta between the two shows that as volume picks up, productivity should perform well in the second half. It's essentially the tariff impact that is being seen in the second half, which is more than 120, 130 basis points, along with a pickup in investments and stranded costs."
• Bill Brown acknowledged Auto builds in Europe and North America are expected to decline in the back half of 2025. marking Europe remains a watch area for us in auto during the back half of 2025.
• Bill Brown commented on consumer electronics trends, stating, "everything is sort of softening towards the back end of the year," indicating expected deceleration in that segment.
• Outstanding PFAS litigation remains a potential overhang, with Bill Brown stating, "just over 30 other states, AG cases both within the MDL and some outside of the MDL" remain unresolved, and personal injury cases are scheduled for trial beginning October 20.

TAKEAWAYS

• Adjusted EPS: $2.16 adjusted EPS, up 12% year over year (adjusted, non-GAAP), exceeding management’s expectations, driven primarily by operational improvements.
• Organic Sales Growth: 1.5%, with positive contributions from all three business groups for the third consecutive quarter.
• Operating Margins: Increased by 290 basis points year-over-year (adjusted), reaching an adjusted operating margin of 24.5%, supported by productivity gains and cost controls.
• Free Cash Flow: Free cash flow was $1.3 billion, with a 110% conversion rate, 10% higher than last year
• New Product Launches: 64 in the quarter, up approximately 70% versus Q2 2024, supporting 9% five-year new product sales growth in the first half of 2025
• Guidance Update: Full-year non-GAAP EPS guidance raised to a $7.75–$8.00 range, inclusive of anticipated tariff impact, and organic growth guidance at approximately 2% for the full year.
• Return to Shareholders: $3 billion returned in H1 2025 through dividends and share repurchases, including $1 billion in gross share buybacks in Q2.
• Business Group Performance: Safety and Industrial organic sales grew 2.6% in Q2. Transportation and Electronics adjusted sales were up 1% organically in Q2, and Consumer business was up 0.3% organically in Q2.
• Geographic Performance: China up mid-single digits, the US grew low single digits, while Europe was flat in Q2.
• Service and Quality Metrics: On-time and full metric reached 89.6% in Q2, and cost of poor quality declined to 6.1% in Q2, down 90 basis points year over year in Q2.
• Operating Leverage: Incremental operating leverage is about 35% as of Q2, with management expecting leverage to increase if volumes improve.
• Backlog Coverage: Backlog provides 20%–25% coverage for Q3 sales, with Sequential backlog growth of approximately 1% in Q2.

SUMMARY

3M (NYSE:MMM) management attributed margin expansion to balanced G&A and supply chain productivity, which together contributed about half a billion dollars of productivity for the year, and substantial G&A savings from IT optimization and reduced indirect expenses. The company implemented a commercial excellence initiative in Safety and Industrial, now replicated in other segments, using advanced analytics to drive sales effectiveness and reduce churn. The initiative, first launched in Safety and Industrial, was expanded to other business groups in Q2 2025. Cash deployment remained disciplined, with a recent New Jersey PFAS settlement spreading payments over 25 years and ongoing management of remaining legal exposures. Guidance for 2025 assumes the majority of the tariff impact will be mitigated by cost controls and pricing, amid a stable macro environment and segment-specific end-market variations.

• Bill Brown noted, We now have 48 cross-selling pairs identified, about double since Q1 2025, with a pipeline value of over $60 million and $10 million in new orders booked to date. highlighting cross-segment sales progress.
• aided by an estimated 40 basis points of pricing in the second half and supported by new product introductions and commercial execution.
• Anurag Maheshwari provided that the full-year foreign exchange headwind is about $0.05 to EPS, with minimal impact on revenue due to prior year hedge benefits.
• Stranded costs are projected to total $100 million, with $70 million in the second half,
• Management confirmed no significant footprint consolidation or one-time operational headwinds in the second half, aside from previously noted tariff, stranded cost, and investment impacts.
• Guidance embeds a deceleration in China growth for the back half, after mid-single-digit outperformance in the first half, and anticipates continued auto market weakness in Europe and North America.

INDUSTRY GLOSSARY

• PFAS: Per- and polyfluoroalkyl substances -- synthetic chemicals used in manufacturing with pending environmental litigation implications for 3M Company.
• OTIF: On-Time In-Full -- logistics and delivery metric referring to the percentage of customer orders delivered both on time and in full quantity.
• SCBA: Self-Contained Breathing Apparatus -- fire safety equipment referenced as a target area for new product launches.
• MDL: Multidistrict Litigation -- consolidated federal legal cases, in this context relating to PFAS liabilities.
• SIBG: Safety and Industrial Business Group -- one of the primary 3M Company business segments.
• TEBG/TPG: Transportation and Electronics Business Group -- 3M Company business segment.
• CBG/CVG: Consumer Business Group -- another 3M segment focused on consumer-facing product lines.
• Five-Year New Product Sales: Revenue generated from products launched within the past five years, tracked as a metric of innovation success.
• Stranded Costs: Ongoing expenses remaining after the exit from certain operations or portfolio changes, in this case referencing costs post-PFAS manufacturing exit.
• Operating Leverage: The rate at which operating income increases relative to sales growth, indicating productivity of fixed costs.
• Daily Order Rate: Internal sales activity metric tracking average daily customer orders to signal short-term demand trends.
• OEE: Overall Equipment Effectiveness -- manufacturing metric measuring efficiency, availability, and quality; used to assess productivity improvements.

Full Conference Call Transcript

Operator: Please standby. We are about to begin. Ladies and gentlemen, thank you for standing by. Welcome to the 3M Second Quarter Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you do have a question, please press star one on your telephone keypad. As a reminder, this call is being recorded Friday, July 18, 2025. I would now like to turn the call over to Chinmay Trivedi, Senior Vice President of Investor Relations and Financial Planning and Analysis at 3M. Thank you. Good morning, everyone.

Chinmay Trivedi: And welcome to our quarterly earnings conference call. With me today are Bill Brown, 3M's Chairman and Chief Executive Officer, and Anurag Maheshwari, our Chief Financial Officer. Bill and Anurag will make some formal comments, then we will take your questions. Please note that today's earnings release and slide presentation accompanying this call are posted on the homepage of our Investor Relations website at 3M.com. Please turn to slide two and take a moment to read the forward-looking statements. During today's conference call, we will be making certain predictive statements that reflect our current views about 3M's future performance and financial results.

These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Item 1A of our most recent Form 10-Q lists some of the most important risk factors that could cause actual results to differ from our predictions. Please note that today's presentation will be making references to certain non-GAAP financial measures. Reconciliations of the non-GAAP measures can be found in the attachments to today's press release. With that, please turn to slide three, and I will hand the call off to Bill. Bill?

Bill Brown: Thank you, Chinmay, and good morning, everyone. We had another quarter of strong performance with second quarter adjusted earnings per share of $2.16, up 12% versus last year, and above expectations. Organic sales growth was 1.5% with all three business groups reporting positive growth for the third quarter in a row. Operating margins increased 290 basis points year on year through productivity and cost controls, while we continue to invest in growth initiatives. And free cash flow was solid at $1.3 billion for the quarter and 110% conversion.

Our performance reflects the culture of excellence we are building inside the company, as we continue to drive the rigor and opt tempo necessary to deliver on our strategic priorities in this uncertain macro environment. As part of our commitment to innovation excellence, we are increasing the cadence of new product launches. In Q2, we launched 64 new products, up about 70% versus last year, which puts us at 126 launches for the first half and on track to exceed our target of 215 for the year. The pipeline remains healthy, and there is more rigor and discipline in the process with better business cases and higher launch schedule attainment.

And most importantly, five-year new product sales bottomed last year and were up 9% in the first half, accelerating from Q1 into Q2 and tracking well to be up more than 15% for the year. With 64 launches in the quarter, there are a lot of exciting new products to discuss, but let me take a moment to highlight just a few. In our fire safety business, we launched a low-profile rugged air pack with updated electronics to enable telemetry and connectivity that has been well received by our largest firefighting customers, especially those who value compactness and maneuverability in small spaces.

In our consumer business, we have been building around the Filtrete platform with four new product launches in the last six months, including one with a reusable filter frame that can be refilled by a collapsible deplete filter, analogous to a razor-razor blade model. This innovative design reduces shipping costs and saves retailers' storage and shelf space. At the same time, we are continuing our focus on commercial excellence as we drive increased Salesforce performance, capture higher cross-selling opportunities, improve price discipline, and reduce churn. You will recall that our team in Safety and Industrial launched the program in the US late last year and has now expanded this effort into Europe and Asia.

We have trained over 400 sales managers and see early results through higher closed-won opportunities and improved order rates. We now have 48 cross-selling pairs identified, about double since Q1, with a pipeline value of over $60 million and $10 million of new orders booked to date. We are tightening pricing controls by reducing price deviations and focusing on bigger deals with strategic customers. And we are reducing customer churn by leveraging our predictive analytics model to identify and win back customers at risk. SIBG has been first out of the gate on the commercial excellence initiative, and we are seeing promising early results with average daily order rates up low single digits in Q2. Our strategy is working.

And we are now extending this 3M enterprise-wide commercial excellence model across the organization with transportation, electronics, quickly leveraging the learnings and best practices from SIBG, while adapting it to the unique nature of a more spec-in type business. Our second priority is operational excellence. In the second quarter, we have made good progress on several fronts, including service, asset utilization, and quality. On service, our on-time and full metric reached 89.6%, the highest quarterly performance we have achieved in nearly six years. And we exited June at just over 90%. Consumer and TEGG remain consistently above 90%, and SIBG was 83% for the quarter, improving more than 300 basis points year on year.

Our overall equipment effectiveness metric was 59%, showing continued improvement both year on year and sequentially, with a lot of runway ahead of us. We are now at the point where OEE is improving on a consistent basis through better tracking and deeper root cause analysis, and it is highlighting potential capacity consolidation opportunities. For example, a core manufacturing process at 3M is adhesive coating, and we have about 250 different types of coders throughout the network, some quite old and all expensive to replace. One of our larger coders is in Knoxville, Iowa, making fiber adhesive tapes.

Through an extensive effort to reduce changeovers, increase operating speed, and improve machine uptime, the team drove a 12-point improvement in OEE and freed up enough capacity to retire two 70-year-old coders at another facility. This is just one example of the broader opportunity at 3M to use a rigorous methodical approach to get more production out of our higher capacity assets and proactively decommission aging, less productive assets in the network. This thinking can be extended to all of our core manufacturing processes making, coating, slitting, packaging, and over time, more holistically, to the design of our future network. We are also making progress on quality.

In the second quarter, our cost of poor quality was 6.1%, down 30 basis points sequentially and 90 basis points year over year. We are using AI-enabled models to optimize machine settings for more efficient changeovers, leading to better utilization and higher yield. Quality is a core element of our enterprise-wide 3M excellence operating model, and we are extending our efforts to improve quality in every function and everything that we do. Our third priority is effective capital deployment. In the first half of the year, we returned $3 billion to shareholders via dividends and share repurchases. And we will continue to be opportunistic on buybacks in the second half of the year while preserving balance sheet flexibility.

In May, we announced a settlement with the state of New Jersey on PFAS claims, taking the opportunity to settle both site-specific and statewide claims with broad protections against future litigation and cash payments spread over 25 years. We continue to manage other state, federal, and international matters, all of which are extensively covered in our 10-Q. On the back of the progress we are making on our priorities and the strong results in the first half, we are increasing our earnings guidance to a range of $7.75 to $8.00, now inclusive of the anticipated impact of tariffs. We expect organic growth to be approximately 2% for the year, reflecting the current macro environment as we see it today.

Slide four highlights several of the key macro trends we are tracking and their impact on 3M.

Chinmay Trivedi: We

Bill Brown: All metrics on the left reflect a global economy that remains sluggish and moving laterally, not materially improving or worsening. Our safety and general industrial businesses were up low single digits in the first half and are both beginning to see a pickup due to our commercial excellence initiatives. Auto will be flattish in the second half, a step up from the decline in the first half, due to share gains in new models. While consumer electronics is likely to soften a bit in the back half due to slower demand for premium devices. Auto aftermarket will remain challenged, and consumer will likely follow a similar pattern to the first half due to the subdued US retail environment.

As we navigate these uncertain times, we are focused on what we control, solving customer problems through innovation excellence, delivering high-quality products on time to customers, and driving efficiency and waste elimination. All with a renewed sense of urgency that defines our new performance culture. And with that, I'll turn it over to Anurag to share the details on the quarter. Anurag?

Anurag Maheshwari: Thank you, Bill. Turning to slide five, we reported another quarter of strong profitable growth and robust free cash flow generation. Starting with the top line, all three business groups delivered positive year-on-year growth despite the fluid macro environment, resulting in total company adjusted organic growth of 1.5%. We saw continued momentum across electronics, general industrial, and safety end markets, which was partially offset by known softness in the automotive aftermarket. Consumer was flattish as sentiment remains cautious. By geography, our growth was led by China, up mid-single digits with strength in industrial adhesives, films, electronics bonding solutions, driven by strong commercial execution that led to share gains.

The US was up low single digits led by growth in electrical markets and personal safety, partially offset by weakness in auto OEM and aftermarket. Europe was flat with strength in electrical markets and personal safety, partially offset by weakness in transportation safety and auto. Q2 daily order trends were up modestly year on year driven by progress in commercial excellence in the industrials businesses, partially offset by weakness in consumer as retailers are watching to see how the season plays out. Our backlog continues to grow, providing 20 to 25% coverage of third-quarter sales.

Q2 adjusted operating margins were 24.5%, up 290 basis points, and operating profit increased high teens or $225 million constant currency, driven by continued strong operational performance. This included a $300 million benefit from volume growth, broad-based productivity, lower restructuring cost, and equity comp timing partially offset by $50 million of growth investments and $25 million from tariff impact and stranded cost headwind. Collectively, this contributed $0.31 to earnings, which was partially offset by $0.02 from FX and $0.06 from non-operational below-the-line items. Our strong operational performance resulted in overall adjusted EPS of $2.16, an increase of 12%. Relative to our initial expectations of approximately $2.00, this outperformance was driven by four factors.

First, continued G&A efficiency, as we make progress on IT optimization and lower indirect expenses. Second, metering of increase in year-over-year investments in response to a lower demand environment and evolving tariff landscape.

Chinmay Trivedi: Third,

Anurag Maheshwari: weakening of the US dollar. Finally, we had a $0.06 benefit from the sale of an investment below the line which was initially anticipated in the third quarter and offset the impact from tariffs and other below-the-line items. Free cash flow was $1.3 billion, 10% higher than last year. We benefited from strong earnings. And we returned $400 million to shareholders via dividends and executed on $1 billion in gross share buybacks. For the first half, our gross buybacks were $2.2 billion. I will provide a quick overview of our growth performance for each business group on slide six. Safety and Industrial organic sales grew for the fifth consecutive quarter, up 2.6% in Q2.

This was broad-based with six out of seven divisions posting positive results. Similar to the first quarter, industrial adhesives and tapes electrical markets continue to perform well on the back of new product innovation and commercial excellence. It was encouraging to see abrasives turn positive as we launch new products and execute a commercial strategy to increase sales effectiveness. Auto aftermarket continues to see challenges down mid-single digits amid industry pressure with collision repair claim rates down double digits year to date. Transportation and electronics adjusted sales were up 1% organically in Q2. Growth was led by commercial graphics and auto personalization, driven by demand for a new product, the premium fleet wrap, and expanding sales coverage.

Electronics and aerospace and defense showed strength while our auto OEM business was down low single digits reflecting continued weakness in auto builds particularly in Europe and the US, which were each down low single digits year on year. Finally, the consumer business was up 0.3% organically in Q2. Though consumer sentiment remains soft, we continue to execute on growth initiatives including new product launches in Scotch Brite Kitchen scouring Scotch Blue Pro Shop painters tape, and command. And continued service improvements and increase in advertising and merchandising investment. And along with organic growth, each business group expanded margins year on year, SIBG up 320 basis points, TBG up 230 basis points, and CBG up 370 basis points.

Overall, our focus on delivering organic growth and improving operational excellence helped us deliver solid results in the first half, including growth of 1.5%, operating margin expansion of 250 basis points to 24%, and earnings growth of 11%. Before providing the details of our updated guidance, let me start with a reminder of how we framed it in April which is the middle column on slide seven. On organic sales growth, due to the soft macro, we indicated that we were trending to the lower end of a 2% to 3% range.

Our first-quarter productivity gains were very strong, given the dynamic environment, we did not float through this outperformance into our guidance and maintained the EPS range at $7.60 to $7.90. Given that the tariff situation was uncertain, we kept tariffs out of the guidance range at the time, but estimated a gross impact of $0.60 or a net impact of $0.20 to $0.40 after mitigating actions. We have now updated the guidance to reflect our strong first half and have also incorporated the tariff impact. We are updating our organic revenue growth guidance to and expect all three business groups to grow low single digits for the year with a similar profile to the first half.

On the back of a strong first-half performance, we now expect margin expansion of 150 to 200 basis points, and are increasing both the lower and higher end of our EPS range. Which is a $0.13 increase at the midpoint. $0.23 of that coming from operational performance, offset by $0.10 of FX and tariff impact. We now expect a free cash flow conversion to be higher than 100%, building on strong first-half performance efficient CapEx and second-half improvement in working capital providing us with further optionality on capital deployment. Let me walk you through the drivers of the EPS guidance updated on slide eight.

First, we are flowing through $0.23 of operational improvements which include actions to offset the tariff impacts. This is driven by $0.16 of productivity, which includes the G&A efficiency gains, and $0.07 metered investments. As we highlighted previously, we are investing in a metered manner while maintaining the critical growth investments to support our strategic priorities. Finally, as mentioned, we have now included tariffs in the guidance which is a gross headwind of $0.20 partially offset by the foreign exchange headwind reduction from $0.15 to $0.05. On the other non-operational items, there is no change from the prior guidance.

Putting this altogether, the EPS growth year on year is driven by strong operational improvement, and we now expect an operational benefit of $0.95 to $1.20 partially offset by $0.50 of tariff FX, and non-op headwinds for a total EPS growth of 6% to 10%. Regarding the second half, we expect year-on-year earnings growth of $0.18 at the midpoint. Similar to the first half, this includes an approximately $0.50 to $0.55 benefit from volume growth and continued productivity net of stranded cost and growth investments. Which is partially offset by $0.30 to $0.35 of tariff impact and higher interest expense.

Before we open the call for questions, I would like to acknowledge and thank the 3M team for their focus on operational excellence and controlling the controllables in a dynamic macro environment which gives us confidence in meeting our increased guidance and delivering strong shareholder returns in 2025. With that, let's open the line for questions.

Operator: If your question has been answered and you would like to withdraw, please press star two. If you are using a speakerphone, please lift up your handset before entering your request. Please limit your participation to one question and one follow-up. Our first question comes from the line of Scott Davis with Melius Research. Please proceed with your question.

Scott Davis: Hey. Good morning, guys. Good morning, Scott.

Bill Brown: Scott, can you talk about the new product plan? And I guess kind of more specifically teasing out the impact on kind of margin versus growth and how you think about that tipping point where you can really start to see growth above your end markets. I'll just leave it at that. I have a follow-on.

Bill Brown: So, Scott, I'm glad you asked about R&D and NPI because it's been a very important initiative. And as I talked a year ago, this would take some time to materialize, and we are starting to see some improvement on our five-year sales. We talked about 9% up in the first half and quite good for the year going to 15%. So it's actually trending in the right way. I'm really excited about the fact that we're launching more products up 70% in the quarter, and we did more in the first half or about as many in the first half as we did in 2023. So the progress on that, I think, has been quite good.

I think we should be expecting both improvements in growth from new product innovation as well as improving margin. As you're bringing a product to market, certainly as these things materialize and they stabilize in a factory, we're bringing better benefits to the customers. They should generate better pricing in the marketplace. So I do expect that we should see better margin performance from them. But, really, what we're focused on is delivering against customer expectations, beating the competition, regaining share of wallet, and just getting back to that spirit of innovation at the company. And as I said, I think the progress we've made so far has been fantastic. We're investing more in R&D. We're shifting dollars.

We're shifting resources into new product development as we talked a year ago. We're up about 150 people since Q4 of last year. So it takes some effort. It takes focus. It takes following the metrics, but making good progress, and we should see certainly growth and hopefully some margin benefit as well.

Scott Davis: Okay, Bill. That's helpful. And just wanna follow on that a little bit. I mean, historically, when you think about some of your customers have been tough to get priced with, you know, auto, big box guys. I mean, just brutally hard. So is it have you found that new products are really gonna be your only avenue of getting price for those guys? Or because of the realities of inflation and tariffs and such, do you find it a little bit easier to capture a little bit of inflation impact from those guys also without new products?

Bill Brown: So what we're seeing so far this year is pretty good progress on pricing, and it's mostly coming out of the industrial businesses. I think you're right for auto where it's a spec-in business. As you win a spec, you tend to have some value built into that. It's hard to determine how much is priced versus the value that's there. Consumer, the big box people, a little bit harder as you just pointed out. So it's a bit you know, we're getting better price certainly on the industrial side. And that's and as I've said before, we are covering our inflation tip with a little bit more because of the tariff impacts coming through.

So, we're doing pretty well this year on pricing, again, mostly on the industrial side.

Scott Davis: Okay, thanks a lot, guys. Thank you. Appreciate it.

Operator: Our next question comes from the line of Jeffrey Sprague with Vertical Research. Please proceed with your question.

Jeffrey Sprague: Hey. Good morning, everyone. Hey. Good morning, Jeff. Hey, Bill. Maybe just pivot from the growth side to the cost side and what you're working on there. Wondered if you could just elaborate a little bit more on kind of the sources of operational upside, in the footprint versus kind of G&A and the like. And I asked the question in the spirit. Right? The adjusted margins are moving up pretty nicely. We don't get an adjusted gross margin, for example. So how much of it's at the gross line? How much of it's kind of in G&A? And how do you see that plan out moving forward?

Bill Brown: Okay, Jeff. So it's a good question, and I'll start and maybe I'll ask Anurag to jump in on part of this. So for the year, it's about half a billion dollars of productivity. More or less, about half is coming out of G&A. And about half is coming out of our factories, out of our supply chain, which as we translate it internally, is running about 2% net of inflation, which is about what we had expected. Inflation in the quarter Q2 was a little higher than 2%, and Q1 was less than 2% for the first half. It's around 2%. For the year, we're expecting about the same.

And, again, we're getting about 2% gross productivity 2% net productivity on top of inflation. So it's actually been pretty good on the supply chain side. It's the elements that we've been talking about, I alluded to in some of my prepared remarks, you know, $40-$50 million coming out of reduced cost per quality, which has been a good trajectory that we've been on a long journey, a lot more to do. Good movement on procurement savings, net of any inflationary pressures from our suppliers, really good cost controls on the four-wall size within our factories as well as in the logistics network as well. So overall, about $150 million really good progress on driving supply chain productivity.

And I'd say the same thing on the G&A side. And I'll turn to Anurag to maybe say a couple of words of what's happening on the G&A side. But overall, about half a billion dollars half G&A, half in supply chain.

Anurag Maheshwari: Thanks, Bill. So, hey, Jeff. Really encouraged by the performance and productivity just across both supply chain and on the G&A side, and that gave us confidence to raise the EPS at the midpoint by about $0.13. Yeah. So, you know, Bill spoke through the pieces on supply chain, very consistent to what we communicated and invested across the four buckets. On the G&A, similarly, at the Investor Day, what we said is that three areas where we would expect G&A savings to come out of, IT, optimization where we spend close to a billion dollars. Second is indirect expenses. Where we spend more than three billion dollars. And then shared services.

So where we're seeing more of the opportunities coming is the first two buckets. I think on the IT, the team has done a really, really good job. We take our IT expenses. It's broken into three categories, which is protecting, maintaining, and investments, maintenance, which is about two-thirds of it. You know, the team's done a good job in terms of cloud, mainframe, network optimization, also looking at staff augmentation, the number of applications we have. So there's a whole bunch of tactical efforts that the team has gone through and done a good job.

And what's also shown is not only is these savings which we can take in the quarter, but also long-term structural savings that we can see. And we have well down on that path. On indirect, I mentioned in the last call as well, we have more visibility in terms of the data, where the spend is going, so first, we look at whether it's aligned with our strategic priorities or not. If it's not aligned, then we don't need to spend. If it's aligned, what's the best way for us to procure? And use the leverage of the enterprise? So I think it's moving quite well in that direction.

And shared services will take a little bit more time as we go down that path. But overall, I would say very good performance and productivity.

Jeffrey Sprague: And then, Bill, maybe just back to growth as my follow-up. Just maybe your philosophy on sort of metering the best investments. I get it. The macro is not great, and you're managing, you know, a complex P&L. You know, but it's but it's $0.07. Right? I think we all would have been happy with the guide, $0.07 lower than what you put out today. And, you know, you telling us, hey. We're keeping up put on the gas on the investment. So are these just kind of longer-term things that weren't gonna bear fruit in the near term anyhow? Or, again, maybe just your philosophy.

Bill Brown: No. So, Jeff, it's a good question. I mean, we look at this very, very carefully, and we are leaning in on making growth investments where we think there's a prudent payback, you know, in the near to medium term. And if we see the macro not as strong as we had anticipated, we're pulling back a little bit. But still, we're significantly investing in growth investments this year. The number is about $175 million. And when you parse that, there's significant more in ad and ad merch. There's more in the Salesforce. There's more going into R&D. You know, as I mentioned, we're up 150 people there.

We're pushing people from PFAS into R&D, into new product development as well. So we're pushing up our R&D spend as a percentage of sales. All those pieces, I think, are going in the right direction. And there's some things that are happening on the IT side that are systems related to driving growth. So all of those things we're trying to be smart and prudent and invest in to actually stimulate long-term growth. You know, by recognizing where the macro happens to be today. So I think we're being balanced here, Jeff. We look at it very carefully.

You know, to the extent that things look a little bit better in the back half into 2026, then we'll let it a little bit more out, but we watch it very carefully.

Jeffrey Sprague: Great. Thanks for the perspective. Okay, Jeff.

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

Julian Mitchell: Hi, good morning. Maybe just wanted to start with the slide four where you run through some of those macro buckets. And just trying to understand within general industrial and safety, is the improvement there based on sort of self-help market share efforts at 3M? It sounded like that, but I wondered what you're assuming for the sort of core macro environment in the back half. And maybe just give us any understanding of how recent demand trends have evolved across different markets in the last couple of months?

Bill Brown: Okay, Julian. I'll start here, and Anurag can jump in as well. I'm glad you pointed that chart out. We spent a lot of time putting together to make it as clear for investors as we can on what's happening in the macro as we see it and the impacts on the company. You know, look. As I mentioned in my script, the macro, it just it's sluggish. It's moving laterally. I went through some of the numbers there on what's happening with IPIs around 2%. It's sort of flattish GDP is about the same. It's in mid-twos and about to be the same, maybe a little bit softer in the back half.

You know, PMI, I mentioned, is below you know, below fifty. It's at forty-nine, but it's you know so it's still contracting, but not as much. So again, things are just moving laterally. Consumer remains relatively sluggish. And what you see on that slide four is momentum building inside the company on self-help, on new product introductions, you know, many of which will come out in the market. They come in the first half of the year will start to impact sales in the back half. And the benefits of commercial excellence, which is really starting to take hold inside the company. So general industrial includes parts of both SIBG and TEBG, so parts of those two businesses.

So it has abrasives, industrial specialties, roofing granules, electrical markets. A piece of the tapes business that goes into industrial products. And then from TEG includes advanced materials, aerospace, and defense, which actually we expect to grow pretty decently in the back half. Consumer branding, so it's got commercial branding and transportation safety. So you've got all those pieces in there. It's about 38% to 40% of the company, so it's a pretty big part of it. Again, the industrial IPI is moving somewhat laterally, but generally speaking, the opportunities we're seeing here are principally coming from self-help. There's some in the markets. We know A&D is gonna be picking up for us in the back half.

It wasn't as strong in the first as we had expected, some in internal, some external issues, but we see that picking up first in the back half. Electrical markets remain very robust for us. Again, we expect that to be high single digits going into the back half. So that's kind of a nutshell on the safety side. On the general industry side. On safety, you know, we had a good start to the year. We see some acceleration in the back half. Part of it is from new product introduction in fire safety. SCBA. We've launched a new product, you know, that and we've had some big wins with government customers.

So we do see the half on safety accelerating there as well because of you know, both a couple of wins that we've had, but some new product introductions.

Julian Mitchell: That's great. Thanks very much. And then just focusing a little bit on the second half guidance, often your third-quarter earnings are up a little bit sequentially, but I understand you had that $0.06 gain moving into the second quarter. Maybe help us understand third-quarter versus fourth-quarter dynamics. Anything to call out on sales or the margin progression?

Anurag Maheshwari: Yeah. Thanks, Julian. It's Anurag here. So within the second half, let's just first start with the top line. Our guidance for the full year is approximately 2% organic growth. In the first half, we grew 1.5%, so that would imply a 2.5% growth in the back half. And we're expecting probably Q3 and Q4 to grow at similar levels around there. In terms of EPS, Q3 is historically higher than Q4, and that's what firstly, because seasonally, our revenue is higher in Q3 than in Q4. And also on the margin side, it's higher. The ratio has been if you look at the second half, 52% of the EPS of the second half is in Q3.

About 48% is in Q4. So we kinda expect the same trend this year as well.

Julian Mitchell: That's great. Thank you. Thank you.

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

Amit Mehrotra: Thanks. Morning, everybody. I guess maybe just a separate topic, talk about PFAS. Think there was obviously a nice settlement or not a nice settlement, but a decent settlement size with the state of New Jersey. I think you have thirty more states still pending. There's obviously a personal injury suit still outstanding, but just given the development in New Jersey and kind of the structure of that, then you're obviously year to date, exceeding your full-year share buyback target. But maybe Bill talk about freshest, most updated thoughts on that because I still feel there's this overhang in the value of the company based on these pending liabilities.

So I think it would be great to hear your thoughts on maybe how you view the progress on these and when you expect to, you know, maybe gain a little bit more fuller or full? Full clarity on it.

Bill Brown: Well, so, Amit, yeah, thanks for the question. And, yeah, so we did have a settlement with the state of New Jersey both for a specific site, which we did not own. It's a Chemours DuPont site. But there was some liability there as well as statewide claims. And you know, we believe it was the right decision for the company and the shareholders to take risk off the table. It spread cash payments out over the next 25 years through 2050. So we thought that was, you know, quite manageable. You're right. There's, you know, just over thirty other states, AG cases both within the MDL and some outside of the MDL. We're taking them piece by piece.

There's obviously lots of conversation going on with you know, the AGs and the MDL in individual states, so there's a lot of activity there. And I just wanna remind you, we're exiting PFAS manufacturing producing produced on PFAS going into the environment. These are all settling legacy issues, and we're gonna deal with this as best that we can. Personal injury is on the horizon. You know, it is scheduled for, in October. You know, there's a bellwether case. It has it will be kidney cancer. There'd be one, two, or three cases that we tried. Around October 20th. There's a lot of conversation that's happening there as well.

There's a science day on other things, you know, last month. So there's a lot of activity here. We're managing as best that we can. You know, it's important for us to make sure that you know, we remain the cash flexibility to handle these issues as they come yet still invest in the growth of the company. And that's what we're trying to do. Our balance sheet is very, very healthy. You know, we have a lot of optionality around things that we can do. And we're dealing with this and we communicate with investors with what we know as we know it. And you see a lot of it in the 10-Q.

Amit Mehrotra: Okay. Helpful. Thanks. And then maybe just one for Anurag. Just circling back to the first half to second half cadence. If I just kind of unpack the implied margin, I mean, I think the company did 24% in the first half, guiding to 23 a little over 23 for the full year. So, obviously, that implies a step down in second half versus first half. But, obviously, revenue should be higher sequentially. So I'm just trying to kind of square that circle a little bit and understand, you know, why know, what are the puts and takes that actually take margin down 2H versus 1H when revenue is building sequentially?

Anurag Maheshwari: Yeah. Thanks so much. So yeah. Our first half margin is 24%. We're guiding between 150, 200 for the year. So that would imply at the midpoint that the second half guidance would be around 22.5%. And the delta between the two, as you clearly see pickup in volume, productivity should do well. It's essentially the tariff impact. That we are seeing in the second half, which is more than 120, 130 basis points. And also pick up in investments and stranded costs. So that's a big delta between the first half and the second half. But volume productivity better.

But if you take a step back and you look at it year over year, you're still seeing the second half margins go up by 110 basis points the midpoint of our guidance. And that's after absorbing tariff after absorbing increasing stranded costs and higher investment. It's pretty encouraging in terms of the performance of the second half, which is obviously as we go into next year, we mitigate more of the tariff impact. There's more product productivity that will come through. So overall, you know, the momentum in the second half of operationally is similar to where we are in the first half.

Amit Mehrotra: Right. Okay. Got it. Thank you very much. Appreciate it.

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

Steve Tusa: Hey. Good morning. Good morning, team. Morning. Just a quick one to start. What's the embedded assumption on forex? I would have thought there was maybe a little bit more upside just given your exposure on the euro.

Anurag Maheshwari: Yeah. So on ForEx, our headwind on the EPS for the year is about $0.05. On revenue, we think it's about flattish. And the reason there is a disconnect between the flattish on the revenue and the $0.05 headwind is just the impact of the year-on-year hedge benefit that we had last year. As you know, we hedge our non-dollar currencies. Create a hedge benefit or a loss which lag to the currency movements. So last year in Q2, it produced a significant hedge benefit because of the strength of the dollar, the dollar weakens in the second quarter, so the hedge benefit is modest.

So which is why you see all of our FX headwind in the first half of the year, which is about $0.05. As you go into the second half, should see that kind of normalize. And for the full year, it'll be about $0.05 headwind on the FXI.

Steve Tusa: Okay. And then just to follow-up on the consumer electronic side. I think you guys are maybe a little bit more bearish, it seems like, on the trend there. Can you maybe talk about specifically where that weakness is on electronics?

Bill Brown: We see electronics. It's still up in the back half. It's just not as strong in the front half. You know, when we look at the you know, across all things, you know, TVs, tablets, you know, phones, notebooks, you know, everything is sort of softening towards the back end of the year. At least that's what's been expected. You know, we had a very strong year last year. So part of it is year-over-year comps, but started, you know, pretty good in the first half, up mid-single digits. You know, still up in the back half, but softening versus in terms of a rate basis versus the first.

Steve Tusa: Okay. Great. Thanks a lot. Thank you, Steve.

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

Andrew Obin: Yes. Good morning. Hi. Good morning, Andrew. Just a question. Can we just sort of say in terms of on-time in full. I know that this was a big drag on top line and safety and industrial. What kind of impact to top line does it have as it's improving and you're sort of regaining traction? Your medium and smaller customers? Can you quantify that? Are you seeing any discernible impact yet?

Bill Brown: So we're not gonna quantify it specifically because there's a lot of factors into why you know, why customers may not buy from us, you know, because of OTIF. But improving it, delivering on time in full to customers is quite important. We know from talking to our end customers, it is an element of churn. Why customers leave us. That number is, you know, across the company is pretty substantial. We're focused on this. We're trying to bring it down. You know, one element is responsiveness customer service. It's quality. It's but importantly, it's on time in full. So clearly, Andrew, as we get better on that, that's gonna allow us to reduce churn, grow.

And we're starting to see, you know, benefits of lower churn in the back half. I think part of it probably is related to OTIF. It's hard to say exactly what part of it is, though.

Andrew Obin: Okay. Gotcha. And just sort of going back to the guidance, you know, just very simplistically, you know, I think generally, right, seasonality is a little bit different, and it seems second half is weaker. Despite the normal seasonality, despite accelerating top line into the second half. Right? And I would imagine based on what we're hearing actually pricing dynamic all in is not that bad on the industrial side. So can you just highlight one-time items related to your footprint consolidation and changes in absorb what are the headwinds, in the second half that are sort of messing with the seasonality? Could you just quantify them for us again? I really appreciate it. Thank you.

Anurag Maheshwari: Thanks. There is nothing on the footprint. Any one-timers in the second half, which is doing operationally, we grew the first half at $0.50 to $0.55. And second half, we grow around the same rate as well. So volume and productivity way we see the impact is more on the tariff. We have $0.20 for the year. We add a couple of pennies in the second quarter, so $0.18 of that is in the second half. That is the major impact. On top of that, you know, stranded costs are picking up in the second half versus the first half and a pickup in investments. So I would say those are the big factors.

There's not much of a one-timer over there. The only thing on the EPS between first half second half is obviously the sale of the investment that we had in Q2. Which is below the line, which impacts the second half.

Andrew Obin: And what are the can you quantify the stranded cost again? I apologize.

Anurag Maheshwari: The was this stranded cost? Yeah. So it's $100 million for the year. It's about $30 million in the first half and $70 million in the second half.

Andrew Obin: Okay. So that hasn't changed? No.

Andrew Obin: Okay. 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. Good morning, Dean. I was hoping you'd take us through the changes in your tariff assumption you know, the benefit of the pause that was implemented. But did you make any specific mitigation actions in the quarter? And, you know, kinda what was the decision about including it in guidance on a go-forward basis?

Anurag Maheshwari: So the you know, last time we said it was $0.60 gross. Now it's $0.20. The biggest change really gonna be around China. You know, last year, last quarter, you know, was about 80% of the tariff impact. You know, at the time, the rate was $1.25, $1.45. So you guys $1.45. China was 125%. They've come down dramatically to ten and thirty. You know, that was the biggest source of change. You know, things are moving around still a little bit, but we included it, you know, in the guidance you know, mainly because we're more than halfway through the year. Things have stabilized at least a little bit.

And any changes from here, you know, we'd only have a couple of months in the balance of the year that would impact 2025. The rest would roll into 2026. So we feel we're pretty well calibrated. Of course, we're watching very carefully what happens in the EU. You know, we've gotta watch against any re-escalation in trade tensions with China. You know, that could be a change. But from the way we see it today, I think we know enough about it in terms of the gross and net impact to roll it through into guidance, which I think is cleaner for investors. So we're offsetting $0.20 of gross tariff with both cost and sourcing.

Changes, you know, which is about half of the offset. And the other half is coming through price. So the gross amount is about $140 million, nets around $70. About half of that, say, $35-$40 million is price. The other half, $35-ish million is gonna be cost savings as well as sourcing. You know? And the pricing piece of it know, that's one of the elements that's helping us push second-half growth a little bit because that's mostly second-half item.

Deane Dray: Great. And then in your answer, they you just put the spotlight on China. And, you know, there might have been an expectation there'd be some fallout because of tariffs and maybe some pushback on your business there, but up single digits. Look pretty healthy. So just yeah. Was it did have you seen much of a fallout? And you know, how much is embedded in the second half?

Anurag Maheshwari: So do you know we actually had a very good first half up mid-single digits. It was at frankly, it was better than we expected coming into the year. You know, early in the year, we were thinking it's low single digits. It's been mid-single digits in the front half. We do expect it will slow down in the back half. That's embedded in our numbers. You know, for us, it's roughly half as domestic, half as export. And both were performing very well. It's some of the local stimulus happening in China for appliances, white goods, which we sell a lot of tape products into, as well as their export market, a lot of which was electronics.

Again, that for us has been pretty healthy. But, again, we do see it softening in the back half of the year. We're committed to China. It's a big part of the company and seven factories, five thousand people there. We have a great team, great business, really driving a great job on commercial excellence there in China. And, again, it'll slow down but still be up for the year.

Deane Dray: Great. Thank you. Sure.

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

Nicole DeBlase: Yeah. Thanks. Good morning. Good morning, Nicole. Maybe just starting with the demand trends through the quarter. Guess, you know, there's still been some concern out there that we've heard about, like, whether there was any sign of tariff prebuy. It seems like we're kind of on the verge of tabling that. So just wanted to hear your thoughts Bill, and if what you've seen through July kind of gives conviction that prebuy wasn't really a factor.

Bill Brown: So it's not so it's hard to discern that. There's probably a little bit hanging out there, but it's not substantial. You know, anything that might happen from Q2 into Q1, we see Q3 coming into Q2. So I don't think the prebuy is an issue. For the quarter, you know, our orders were up low single digits as we described in the materials. A little bit better in SIBG, you know, about flattish in TEBG, down a little bit in consumer, you know, but consumer accelerated over the course of the quarter. So June was better than May. May was better than April. So we saw some acceleration there. July, it's still very, very early.

You know, it's you know, we saw some similar progress here in July. But, again, it's only a couple of weeks. So it's hard to discern a pattern over that. But Q2 orders were up low single digit. Our backlog grew. It's about 1% sequentially. Sequentially, so about $2 billion. And as Anurag mentioned in his comments, I mean, we're not really a backlog-driven business. We're more book and ship, but you know, we saw some backlog growth sequentially in 20, 25% of Q3's covered in backlog, which is a pretty good place to be. So what I'm pleased about is orders are hanging in there. And backlog is hanging in, if not growing a little bit sequentially.

Nicole DeBlase: Thanks, Bill. That's helpful. And then on Europe, I feel like there's definitely been a little bit of excitement building about the potential course of recovery there. I know you guys were flat in the quarter, but have you seen anything when you look at those orders and backlog that suggest green shoots in Europe?

Bill Brown: So we're hopeful for Europe in the back half. You know, it's an important market for us. You know, the thing the watch item for us is gonna be auto, Nicole, actually. You know, what we've seen overall is IHS builds globally or sort of flattish. So it moved from down a little bit to up a couple tenths, you know, in the latest drop a couple of days ago. You know, a lot of that's China. Which is driving that growth. Europe and North America, both down, which adversely affects 3M. You know, Europe is expected to be down in the back half on auto build, and that's one that's important to us.

Other parts of our business, you know, are showing some signs of growth. We saw SIBG up in the core quarter in Europe, and I think there's signs that there could be growth on that side. But auto is a watch area for us in Europe in the back half.

Nicole DeBlase: Thank you. I'll pass it on.

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 ask about back half organic growth you know, to 2.5%, so up from the 1.5% in the first half. The comps do get a bit tougher. It sounds like you guys think the macro continues to go sideways. So is that lift really all just price that's coming through and maybe some help from the NPI? And then is there any buffer in that guide for maybe some volume pressure should there have been first-half channel build? Thank you.

Bill Brown: So, Chris, thanks for the question. Look, there is some price in there. You know, it's probably 40 basis points, let's say, of price in that 2.5%. So you know, if you look at just comparable to Q1, it's 1.5% to Q1. So it's up in terms of growth rate sequentially Q first half of the second half, but there is some pricing benefits. Yeah. I went through some of the drivers on the general industrial side, the safety business. You know, the one area I talked a little bit about electronics so softening a little bit in the back half, but still up. You know, there are some end markets that are up.

We do see some larger orders that have come through on the government side, on the electrical product side. You know, the one area that I didn't speak about was on the automotive side. Even though automotive will remain weak, you know, we are working hard on repositioning our business there and driving growth with new models. You know, we do expect us to be flattish in the back half from being down in the front half even though the builds are still weak in the back half. Part of it is really aggressive commercial excellence efforts to go back and recapture opportunities in the tiers, particularly bonding and joining and acoustics and other things.

There's some model switchovers happening where respect in. You know, we're hopeful that we can, you know, continue our position on those new models as they get into production later on this year. So auto is a watch area for us. We do expect that to be, you know, better in the back half and more flattish versus down in the front, but that's an important driver of their second-half performance, Chris.

Chris Snyder: Thank you. I appreciate that. And if I could follow-up on maybe competitive tailwinds that could support demand. I imagine, you know, particularly in consumer, there's a lot of low-cost competitors from Asia mean, if we look at the online marketplaces. Have you seen any impact here from tariff cost on those competitors that could maybe give you guys some pricing in consumer, which I know is typically difficult, or even some share gain opportunities? Thank you.

Bill Brown: Hey, Chris. Thank you. You know, some, but it's not gonna be price. It's more volume, and there's you know, all of the US retailers are looking very carefully at where their sources supply is. If it's coming from non-US markets, it's important. Obviously, the tariff impacts make them a little less economic and make us a little more attractive. So on the margin, yes, there are some opportunities there, and the team in CVG are really pushing that. It's not gonna come through necessarily in price. It's more likely to be in volume. And those are some of the opportunities that are embedded in the back half of the year for CVG.

Chris Snyder: I appreciate that. Thank you. You bet.

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

Nigel Coe: Hi. Thanks. Good morning. Thanks for the question. Obviously, a lot of my questions have been answered already. Just wanna make sure, Bill, I heard you know, the price conversion in the second half. I think you said 40 basis points. Is that 40 basis points absolute price or is that 40 basis points improvement versus the first half?

Bill Brown: No. It's 40 basis points of absolute year-over-year improvement. For the you know, look, it's let me just step back on the whole thing just to because for the year, we're getting about 70 basis points more or less of price. We typically would see about you know, 50 basis points, which is what is required to offset 2% material cost inflation. So 2% on $6 billion in materials, $120 million. That's and if we pass it through a price, which we've done, that's 50 basis points. We're getting about 70 basis points, so it's a little bit of an extra lift.

Part of that is coming because we're offsetting tariff headwind, and a lot of that's gonna happen in the back half of the year. You know? But part of it is gonna come from some of the pricing discipline you know, that we're putting in place. You know, what we see a very different of price governance in SIBG and now moving to TEBG as well. So in SIBG, we used to have for about 60% or more of the deals were less than $20,000, so very small. You know, today, that's less than 20%. So we're trying to be more strategic on where we give pricing discounts to larger customers and make sure we get the volume for it.

So that's showing an effect in some price as well. So, you know, long-winded way of saying, yes. It's 40 basis points a year over year, and it's 70 basis points for the full year price.

Nigel Coe: Okay. That's helpful. And then I find it curious or maybe a little bit ironic that, you know, SIBG growth is actually superior despite the fact that OTIF is lagging the other two segments. So number one, are you still on track to get OTIF within SIBG to 90% by year-end? And if you were to guess, you know, if you can improve OTIF from 83 to 93, what kind of growth uplift would you expect to see?

Bill Brown: Again, the question gets back to, like, sort of trying to parse, you know, an OTIF to a revenue. It's very difficult to do that, but we do know that not delivering on time is a source of churn, and reducing churn implicitly drives growth. So, look, 83%, just over that was a good result, not what we had expected. We expect more from that. You know, as we transition into July, we're a little north of 85. You know, we expect to be in the high eighties now by the end of the year. You know, the team tells me they wanna exit the year at 90. I think that's a stretch goal.

You know, you may have noticed our inventories are running a little bit higher than last year. So part of it is, you know, we're making up for lower OTIF with higher inventory. You know? So we've gotta make sure that we both drive OTIF improvement in the back end, which we're really, really focused on. And at the same time, we bring down inventory. So that's what we're trying to do. The team's focused on us. We're making progress. I would say I wish it would be faster. I think Chris would expect it to be faster. But good progress. And we know that's gonna drive growth in the back half.

Nigel Coe: Okay. Thanks, Bill.

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

Andy Kaplowitz: Good morning, everyone. Hey. Good morning, Andy. I know I get a nice jump in margin afterwards seemed like a few quarters of pressure in TBG. So could you talk about what, if anything, changed? I know you talked about the metering of investments that you're making for the company. Does it hit that segment bit more than others or maybe you're getting closer to fully absorbing PFAS stranded cost or maybe it's just better mix? Any color would be helpful.

Anurag Maheshwari: Yeah. Great. Thanks for the question, Andy. It's driven by volume and productivity. It's not so much of the invest I think all the three segments, the margin expansion was very, very good. Specifically in TBG, there was volume was about a point higher than last year. But just the productivity, which we did both on the supply chain and on the G&A side, it spread across all the three business groups and also in TEPG. Which more than mitigated the stranded cost that they had. So, you know, when we past couple quarters, I've DPG margins have been down. We see this pick up.

And as we go through the course of the year, you know, current margin guide to 150 to 200 basis points, you should see all three business groups doing well. SIBG and CBG will definitely do better. TPG a little bit lighter because of the stranded costs that you pointed out, but the productivity is flowing through well there.

Andy Kaplowitz: Thank you for that. And, Bill, I think it might be helpful 3M's thinking about the big beautiful bill. I think it does put money in industrial companies' pockets. You know, giving bonus depreciation, etcetera. But it doesn't seem like you're reacting to it at all. It just too early? How do you think about it? And how might companies react to it moving forward?

Bill Brown: It's a good question. It's a very broad question. You know, I think specifically to the tax bill, it's favorable to us. It's favorable to other companies. In the sense, it helps us with, you know, maintaining reasonable fitting guilty rates, which is important to us, helps us maintain our effective tax rate in the 20% range, which is what we had anticipated and hoped for. So it maintains where we have to be. It's good news because it could have gone the other way.

Bonus appreciation and the R&D expense, it doesn't really work for us for the next couple of years because of some of the PWS costs and other things, but that'll help us in the out years. But right now, FIDI guilty rates hovering around can maintain around 14% which I think they made permanent, is good news for the company for sure. So I'll I won't comment on any relative fiscal environment, but that's certainly from a tax perspective, helpful to the company.

Andy Kaplowitz: Appreciate the color.

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. Good morning. Just wanted to make sure hi. Just wanna make sure I'm thinking about the back half organic construct across the segments where there's roughly a hundred basis points better year-over-year growth in 2H versus 1H. That we would see a stronger than average improvement in SIBG TBG, improving growth a little bit, and consumer, maybe that growth rate is more consistent with the first half. Is that a reasonable framework?

Bill Brown: Yeah. That's exactly what it is. Yeah. So both SIBG and TBG should be a little bit better in the back half. And consumer in line with that, maybe a tick or two up, but again, it depends on the consumer behavior. But it's really gonna and it's a smaller business, but it hinges on the first two.

Joe O'Dea: Got it. And then I actually thought the consumer margin was the most impressive. I think organic was up 30 bps year over year and op profit was up north of 20%. And so just any unpacking of the bridge there the self-help side of things, absence of any items that were a drag last year, any color would be helpful.

Anurag Maheshwari: Yeah. So listen. We've initial 21% on CVG on the consumer business group, which is very good. Last year, we ended at around the 19% level. So this was really good. I think where you'd see the benefit more is around the product year. The one compared from Q2 of last year was obviously the equity comp. Timing, which did impact consumer as well. But I would say more of the outperformance on the margin is driven by the productivity that we're driving both on the supply chain side as well as the G&A side, which trickle through to the consumer business.

Joe O'Dea: Great. Thank you.

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

Laurence Alexander: Good morning. Just two hopefully very quick ones. One is how do you think about the effect of your metering of investments on operating leverage if demand surprises on the upside either back half of this year or next year? And secondly, can you on the PFAS question, I just want to follow-up on kind of if I understood one of your comments. How are you thinking about the property damage side of PFAS litigation? When do you think you'll have visibility around the legal strategy to ring-fence the liabilities there?

Anurag Maheshwari: Yeah. Maybe I'll just start off with the operating leverage first. On the operating leverage piece, we should see that flow through. Okay. Today, our operating leverage is about I mean, increments is about 35%. That will probably be the same if not go higher. As volume picks up on the upside. Because if you look at the meet we the metering of investments I mean, we spending $175 million of a step up in investment this year relative to last year. The metering was more because of the demand calibration where, you know, if demand softens up a little bit, then you don't spend so much on advertising and merchandising.

You look at a tariff landscape, you look at different projects and you say, okay. Let's prioritize them. But when it comes to R&D, comes to sales, we've added it. For the second quarter, we had envisioned about $85 million of pickup and investment. We did more than $40 million, so it's still quite a significant amount. So that investment is probably going in the right stage. Second half, we're still maintaining the investment that we always had. And if volume comes up, I think the operating leverage should be north of 35% in the second half or in time to come.

Bill Brown: And on the PFAS question, you know, a lot of the environmental natural resources, property issues are encompassed in the AG cases. You know, part of which was resolved in New Jersey. Vermont's coming up in you know, moved out to November, and the rest are in the MDL. And we'll handle them as they come forward. And you know, won't circumscribe any particular number on that. There's plenty of disclosure in our 10-Q.

Laurence Alexander: Thank you. Okay, everybody. Well, thank you very much.

Bill Brown: For joining the call for all the questions we've got through every analyst which was good. And I also wanna thank all the 3Mers for their continued drive toward excellence, you know, in the company, improving every single day. Delivering value to customers and to our shareholders. We're laser-focused on our priorities, and we'll be through the next number of quarters. I look forward to speaking with you, at the end of our third quarter. Thank you so much. 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 line at this time.

Where to invest $1,000 right now

When our analyst team has a stock tip, it can pay to listen. After all, Stock Advisor’s total average return is 1,072%* — a market-crushing outperformance compared to 180% for the S&P 500.

They just revealed what they believe are the 10 best stocks for investors to buy right now, available when you join Stock Advisor.

See the stocks »

*Stock Advisor returns as of July 14, 2025

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has positions in and recommends 3M. The Motley Fool has a disclosure policy.