3M at Key Leaders Conference: Strategic Focus Amid Challenges

On Wednesday, 14 May 2025, 3M (NYSE:MMM) participated in the Bank of America Industrials, Transportation & Airlines Key Leaders Conference 2025. CEO Bill Brown outlined the company’s strategic vision, balancing optimism about innovation and operational excellence with caution about macroeconomic headwinds. Despite challenges, 3M aims to leverage its strengths to drive shareholder value.

Key Takeaways

• 3M settled PFAS claims with New Jersey for $400-450 million, easing long-term financial risk.
• Tariff impacts are lower than expected due to reduced China rates.
• The company is focusing on innovation and operational excellence to improve performance.
• Manufacturing capacity utilization is at 58%, with plans to consolidate the network.
• 3M is committed to building a performance culture centered on customer needs.

Financial Results

• Settlement with New Jersey on PFAS claims valued at $400-450 million, with $285 million on a present value basis.
• Tariff impact initially estimated at 60 cents per share gross, now mitigated to below 20-40 cents due to reduced China tariffs.
• Q1 2024 margin performance increased by 220 basis points, with expectations to reach the high end of the margin expansion range for the year.

Operational Updates

• Safety and Industrial Business Group aims to improve on-time and in-full delivery from the low 80s to 90% by year-end.
• Plans to double new product launches in the coming years, focusing on customer collaboration.
• Consumer product revenue was nearly flat in Q1, with expectations for improvement in May and June.
• Current manufacturing capacity utilization is at 58%, with efforts to streamline and consolidate the network.

Future Outlook

• Strategic priorities include growth through innovation and operational performance.
• Capital deployment will focus on portfolio management, dividends, and buybacks.
• Macroeconomic challenges include softening GDP and IPI forecasts, with lower automotive build rates in the US and Europe.
• Tariffs are expected to moderate from current levels.

Q&A Highlights

• Emphasis on creating a performance culture with customer focus and performance-based pay.
• Expansion of performance share agreements from 10 to 1,500 employees.
• Opportunities identified in the semiconductor sector, particularly in Arizona.
• PFAS manufacturing assets will be dismantled by the end of the year.

For a detailed understanding, readers are encouraged to refer to the full transcript provided below.

Full transcript - Bank of America Industrials, Transportation & Airlines Key Leaders Conference 2025:

Unidentified speaker, Interviewer: Thank you so much for joining us. Our next session, we’re going to do a fireside chat with Bill Brown, Chief Executive Officer and Chairman of three So thanks so much for being here. Such a delight. Know, star attraction clearly at this event. So thank you so much.

And with that, we’re going to go into sort of informal fireside. Thank you. Thanks so much for making the trip here.

Bill Brown, Chief Executive Officer and Chairman, 3M: Absolutely. You planned the weather very well.

Unidentified speaker, Interviewer: Yeah, no, I apologize for that. As I said, I think I escaped it this morning. Like I think by the time I got out of the train, it was boring.

Bill Brown, Chief Executive Officer and Chairman, 3M: Yeah. Yeah.

Unidentified speaker, Interviewer: Yeah. So look, know, look, Bill, a little over a year at three ms as the CEO, I think two and a half months as the chairman. Know, biggest upside surprise, biggest unexpected challenge so far. You know, maybe we’ll start there.

Bill Brown, Chief Executive Officer and Chairman, 3M: Okay. Well well, thanks for having me. It’s it’s great to be here this morning. Maybe a comment first on an announcement we made earlier this week on Monday afternoon. We announced a settlement with the state of New Jersey on PFAS claims.

It it’s there’s a case that goes back to 2019. It’s a it was the focus was originally on one cycle chamber works, you know, and that’s where It’s owned by Chemours now, was owned by DuPont up until 02/2001. So again, just that’s a quarter century ago. So 02/2001, we provided PFAS product into that particular facility.

And this again, this claim goes back about six years. We we took the opportunity to settle the claim and and use it not just to settle the site itself, which is chamber works, but statewide PFAS DNR claims, which so so wrapped all into one, you know, old as well as with a series of protections that are pretty broad. The state attorney general in New Jersey has pretty broad authorities to release claims, and that’s all in the in the documents, all in our SEC filings. I’m sure, know, people who follow the company have have read about this. You know?

But that was, that was quite appealing to us. It wasn’t just resolving the site. It was resolving statewide claims with a number of, protection features, including a credit arrangement that allows us to claim back from the state for claims that would have been released by the AG, which a court subsequently finds as liable for. So there was a lot of features about this that we kind of liked. The headline numbers between 4 or $450,000,000 in, of total value, you know, which $285,000,000 on a present value basis.

We’ll take a charge for that in the second quarter here. $2.10 of that is for ChamberWorks itself, which includes the facility and other adjacent parts of that. Dollars 75,000,000 of NPV is for the statewide claims, and that’s important because relevant to other things going on around the company. Key thing about this is the cash flows happen over a very long period of time. So it’s twenty five years.

It’s twenty years for the statewide claims starting in 02/1930 going to a balloon payment in 02/1950. So it’s the the cash tame the the cash terms, I think, were were favorable to us and manageable for us, allows us to focus on our capital deployment priorities, which we are we’re clearly doing. It takes a lot of risk and uncertainty off the table, which we certainly want to do. So it’s a result for the company. The team is really focused on executing our game plan.

The three priorities I’ve been talking about now for, it turns out, a year that have been in the seat in terms of what we’re trying to do at the company. Maybe one other thing, and we may have come to this or not, but everybody’s talking about tariffs. I think I go back to three weeks ago when we had our earnings release and we’re talking about a lot of the good things happening in the company on NPI and operational excellence and the commercial excellence initiative. And all the questions were really around tariffs, because it was pretty substantial and a lot of headwind there is causing some perturbations in the economy, which I’m sure we’ll talk about today if the audience has interest in this. But you saw the deal from China.

For us, we talked about the sensitivities for tariff, we held it outside of our guidance. You know, it was gross of 60¢ in 2025, net 20 to 40¢ after mitigation. In that 60¢, 70 5 or 80% of the impact is from China. So the China rates have come down quite a bit, so so has the impact on the year. At the moment, we see ourselves at the bottom end of that 20 to 40¢ range, maybe below that.

But beyond that, you know, we’ll wait until we see what happens with other deals, you know, beyond ninety days here with China and The US, you know, but it actually has been, mitigated quite a bit. So, again, below the bottom end of that 20¢ range, but it’s not gonna be zero. So I thought it was important to get those two pieces out upfront. So you mentioned about a year in the job and a couple months as as chairman. It’s been it’s been interesting.

It’s been busy. A year has gone by pretty quickly. You know, I go back to the decision I made fourteen or fifteen, sixteen months ago to join three m. It’s a it’s an iconic company. It’s it’s a hundred and twenty three year history of innovation.

We’ve got fantastic brands, a lot of great people, you know, global reach, customer access. You know? But I saw us having an opportunity to focus back on fundamentals, the basics of the business to drive shareholder value. I think it’s playing out, you know, just that way. You know, in terms of the, you know, coming on board, I laid out this the priorities I have in the store today.

They’re pretty evergreen. It’s around top line growth through innovation and commercial excellence, driving operational performance across the enterprise. And then capital deployment is the third key priority, and that includes things we’re doing on the portfolio, includes what happened with the dividend and what we’re doing on buybacks, but also the smart decision I think we made on capital deployment vis a vis the state of New Jersey. So, you know, in terms of when I when I reflect back on the last year and what’s happened, the company has responded, I think, very well to this challenge to rise up again on innovation. It’s why people joined the company.

You know, we were going for a long period of time where we weren’t bringing new products onto the marketplace. We’ve now turned that around. It started to turn around. It’s going to take some time. But that’s been a pretty, you know, I think a good reaction, I think, within the organization.

The thing that I think we’ve been maybe a little bit more challenged on or where I see more of an opportunity is really driving operational excellence across the company. You know, I know coming in, we had a big complex network. I mean, you can read that in any case. A lot of this has been published around that. But but but it’s more around the maturity of the metrics of the team, of the processes around how do you drive an operational excellence agenda across the organization, not just in the supply chain as well.

That’s that’s important, and we’re getting at that. It’s around all their functions within the company. So when I talk about OpEx, it’s around the enterprise itself, including r and d. You know, the there’s a great opportunity for us to do better at how we execute in developing new products through the r and d function. So so the thing that I found, you know, probably more of a challenge was gonna be take some time to really get our arms around operational excellence.

You saw q one, we had very good margin performance up 220 basis So it’s quite good. We’ll be we’ll be fine for this year. We talked about towards the high end of the range that we gave a margin expansion for the year. But, again, I think that’s an area that’s gonna take a lot of work. And it’s gonna take a, you know, some changes in the culture to make that to make that stick.

So anyway.

Unidentified speaker, Interviewer: And in terms of any unexpected low hanging fruit that you were able to tackle over the past twelve months?

Bill Brown, Chief Executive Officer and Chairman, 3M: Well, I wish I could see the low hanging fruit. Know, we all look for that. It look, it’s a lot of hard work. It’s a big company. We do, we have a a presence in a lot of countries around the world, a lot of factories, you know, a lot of complexity in innovation.

So as I I wouldn’t say there’s any low hanging fruit. I you know, again, what I’ve been what I’ve been very pleased about is how quickly the folks that are doing the researching, the folks out with customers, the application engineers, the product developers, you know, and how quickly they’ve identified new products, things that we can work on and bring to market. And that responsiveness, I think, certainly encouraging for me, and and I hope it’s encouraging for investors as well. You know, that that is that is really key to driving growth in a company is is key to driving margin, you know, multiple expansion in in, you know, in our stock as well. So, you know, good progress so far, and I think a lot more to do.

Unidentified speaker, Interviewer: You know, the next question, we sort of prepared these questions before the latest news on tariffs. And I think you and I sort of talked about that things are changing fairly rapidly. But, you know, maybe a two part question. The first one, because I I know folks will ask, what are you seeing in your end markets and the broader economy? You know, if you can, we’d love to hear the latest demand trends.

If you care to update us, I know people, everyone will ask. And then part two of this question, and as I think the question has evolved. Yes, the tariffs look different.

Bill Brown, Chief Executive Officer and Chairman, 3M: But

Unidentified speaker, Interviewer: do you see are you seeing your customers, your suppliers make any decisions to change their supply chains, their sourcing? And are you thinking about your own CapEx differently? I’m sure like you could probably spend an hour with us, like talking about these three topics.

Bill Brown, Chief Executive Officer and Chairman, 3M: And we only have twenty five minutes

Unidentified speaker, Interviewer: to cover all those

Bill Brown, Chief Executive Officer and Chairman, 3M: pieces. That’s good. So let me let me start and you can just sort of like direct me how you wanna go. Just in terms of the macro, I mean, it’s been three weeks and we had our earnings release. So, you know, things are evolving, but it’s not materially different from then.

You know, we did see a we do see today, I mean, a softening macro environment. You could see it in the GDP and IPI as well. Those are two important macro factors for us. If you go back to the beginning of the year to where we were at the earnings release, you know, dropped about 30 basis points, you know, both individually and combined between GDP and IPI. And in fact, when you look at in GDP, if you look at what The US forecast there, I think it says is 1.3% for the year, but in 1.3% for the year was 2.2% or 2.3%, something like that in Q1.

Of course, we all know the preliminary number is down 0.3%. Now when I talked at the earnings release, I was saying, here’s what I’m seeing in our business. We had gone back early in March and pulled, they say, it’s actually pulled down our forecast for revenue in the quarter because we were seeing impacts on our business that weren’t yet flowing through the macro factors, but we were seeing it. We’re reacting to that. So we’ve seen that.

I mean, the economy has clearly softened. I mean, everybody, you know, knows that. We have seen, you know, you can see what’s happening in consumer sentiment, you know, the ISM index. You know, auto for us is a, is an important metric. It’s down 1.7% year, for the full year on a build rate.

You know, that’s an important number, but we gotta look behind that because US and Europe, where we’ve got bigger presence, is down between 56%. It’s actually down double that in the first quarter, you know, in terms of the build rate. You know, China was up in q one. It’s gonna be flat to up a little bit for the year. So you see not just build rate coming down, but the movement of where those builds are occurring.

And that’s an important factor for the company in the near term and certainly over the longer term as well. So auto is a bit soft. Electronics has been sort of mid single digits. Consumer electronics a little bit weaker than that, but not different than what we saw a couple of weeks ago. And of course, the consumers, you know, they’re being very cautious.

That’s been the case, you know, for the last year that I’ve been there. I mean, it’s, you know, their behavior is very cautious. We see that running through a lot of what do in the consumer products business. So that’s kind of the landscape. We had a, I would say, pretty good April in the sense of where the orders came in at.

Trends pretty much, and it’s continued into May, trends pretty much like we saw in the first quarter. Good orders in SIBG, the industrial business, a lot coming in the tapes business, the electrical markets business, EMD. Know, we’re seeing, personal safety to be pretty decent, roofing granules to be okay. Now where we’re seeing weakness in the industrial businesses, auto aftermarket, we saw that in q one. We expect that for the year.

Claims are down 10%. There’s other factors that are going on around in the automotive repair business. But so that’s kind of what’s happening there. Again, we wanna look at it. The the, you know, backlog was up through April.

It was up about 15% in the first quarter. So continue to build backlog. It means our orders are coming in stronger than our revenues. I think it’s a good factor as we think about the balance of Q2 and the balance of the year. You know, when we talk to our partners, you know, inventory in the channel seems fairly normal.

So there’s no overhang here. So we feel we feel pretty good about what’s happening in the industrial business. I think that’s holding its own in line with where we were in in q one. I’d say TEBG is similarly to where they were in q one, a little bit weaker than SIBG, but we saw that in Q1. A lot of it is driven from the auto business, as I mentioned a minute ago, what’s happening in the build rate that’s impacting that transportation electronics business.

And the third area is around is consumer products. We had, I think, I guess a decent Q1. We came in flattish, up about 0.3%, you know, which I think in this market is not a bad place to be. We, I think, had a pretty good first quarter. We’re turning that business around.

You know, we start off q two a little light in in in April as we had expected. You know, we see a build coming into May and June, so we’ll see better rates in May and June. And for this first couple of weeks of May, I think, has been pretty good. So, you know, that’s sort of the lay of the land across the company as a whole as I see it. You you talked about capital in factories and customers, suppliers making decisions.

Look. When I sit back, we’ve got a 10 factories around the world. We have 3,000 contract manufacturers. I’ve got and I’m running my assets around 58%. So I’ve got ample opportunity to move things up or down and move things around.

And we’re doing that. We’re trying to take advantage of where we have, you know, a location where we can manufacture a product, you know, where it it reduces the tariff impact on the company. And and we’re doing we’re doing all those things. There are some short term no regret type decisions we’re making, and those are already being implemented. Some other things that might take maybe a little bit of time to qualify a supplier.

For example, something that might have gotten disqualified or USMCA because a component comes out of Korea, we’ve got to get it requalified. It’s not hard. It takes a little bit of time, months, not years, but we’re doing all those things. And then and then depending upon what happens with tariffs over time, if if they stay where they’re at, obviously, there’s, you know, maybe more significant movements in the network. But if they moderate a little bit, as I expect, we’re not gonna go back to the rates where they were pre inauguration, pre liberation day, but they’re gonna they’re gonna moderate a little bit from where we happen to be today.

Based on that, we’ll make decisions on where we spend capital and and do we do seeing things more permanently to move production around. So I think I touched on a bunch of

Unidentified speaker, Interviewer: the things

Bill Brown, Chief Executive Officer and Chairman, 3M: that you can try to remember your

Unidentified speaker, Interviewer: No. This this is this is a fabulous answer. To go back something that you sort of talked about culture. So I know that how do you change the culture at three ms? And I think the focus here on performance metrics and compensation and maybe providing the right incentives.

And I know that there was a communication sent out inside the company at the year end that actually resonated very positively among the people who I’ve spoken to. But just maybe, you know, talk about that. Like how do you change compensation? How do you change the culture? How do you change performance metrics inside the company to drive the change that you talked about?

Bill Brown, Chief Executive Officer and Chairman, 3M: So look, metrics. It is compensation. Don’t don’t get me wrong. I I those are those are important elements of that. I think the more important thing on on on the culture is being clear about expectations, you know, through every one of 62,000 people in the company and doing all those things to make sure you’re pushing that, you’re rewarding that, you’re repetitive on it, you’re you know, it’s constancy of message, constancy of purpose.

I mean, it’s all those things that I think go behind that. If you participated in our investor day back at the end, it’s eons ago, it seems like late late February. The first thing I started off with was talking about the culture and the culture we wanna build inside the company. I’m talking about a performance culture, and I’d say it’s new one. It’s really building a performance culture inside the company.

And it starts with it starts with the customer kind of being obsessed with what do they need and delivering against. That trickles through everything inside the company is making sure we have the best talent on the planet on the on the team, you know, that we’re clear about expectations, that we we pay for performance. You know, that’s very important. People know where they stand. We drive things with speed and urgency and rigor and relentless continuous improvement.

I mean, those words, those words resonate inside the company. You know, they’re easy to say. It just takes time for that to build into the organization. Again, it’s through communication, repetition, all these things that happen day to day, hour to hour and how we spend our time and what we do, you know, so clearly there’s going to be some and has been some changes in the metrics. You know, today, you know, when I joined, we had, I think 10 people on a performance share agreement, which is equity based on some performance.

Today it’s 15 hundreds. Everyone that’s on an equity plan today is part of that program, which is important. It’s when when you get paid, we get paid kind of a thing. And, you know, luckily we had our annual meeting yesterday and thanks to all the investors, we had a very a good say on pay on some of the changes that we mentioned. It’s preliminarily 90%, which is good, much double where we were a year ago in terms of, you know, shareholders voicing an opinion on, on our executive compensation plans.

So we’re listening, we’re making, we’re adapting to that, you know, but look, this is, you know, coming into three ms, it is, I’ve been in a, my career has been pretty long. It’s evident to me how important culture really is to changing the trajectory of a company. I saw a little bit when I was at Harris, importantly, when we merged with L3, very different cultures, very, very different. Even though we sold to the same end customer, I’m seeing it even more so here at three ms. And if we get the culture right, the right people on the right team, doing the right things with the right cadence, opt out of urgency, get it done tonight, not tomorrow.

If it could be done in the next minute, do it in the next minute. It’s that sort of pace. If we can run at this pace, we’ve got a lot of opportunity ahead of us. So I’m rambling on this question on culture, but it really it is it is fundamental. It’s important.

We’re on it. And and the team is pretty energized by this. I gotta tell you, we, you know, we’ve done a bunch of all hands since we, since I started. And the first one it was around, it was like a lot of nice questions on Bill, what are you going be up to and all those things that, you know, people ask about what you’re new to the company. We had, we had over a thousand people in a room and over 10,000 people online just a couple of weeks ago after our earnings release.

And the questions were really good. It’s a lot about how do we, how do we build this company’s franchise going forward? How do we develop people, attract people, you know, invest in the things that are important? I mean, this is a good spot where we happen to be in. You know, as the macro starts to heal, you know, we we’re we’re gonna have a good year and in next next several years, I think very positive as well.

Unidentified speaker, Interviewer: Excellent. No, thank you. And maybe just to continue sort of culture, but R and D has always been at the heart of three ms and you’re sort of once again something that you highlighted. But how do you balance here, right? Very strong engineering culture, focus on innovation, you know, but on the other hand, you know, you do run a business and, you know, how do you make the output more commercial?

Bill Brown, Chief Executive Officer and Chairman, 3M: Yeah. So look, it’s a good question. This comes up a lot. I mean, it’s, you know, it’s a balance between inspiration and perspiration, I guess I’d say, because, you know, look, the people have to be inspired, but I do believe that you can better mechanize This this factory we call r and d. And I use those words inside the company.

I use it at the innovate investor day. You know, I’ll say it again today. There’s I mean, it’s a function. It’s a business process. It’s a and there’s ways you can measure it.

You can drive performance, better efficiency, better effectiveness. And, you know, from the July of last year, first earnings call I did at three ms, you know, I highlighted what I was seeing, you know, in, in innovation and what we’re doing in R and D. The fact is we spend over a billion dollars a year. We have 5,000 people doing R and D work. You know, the, the amount of time and effort that was put on new product development had come down quite a bit.

You know, the new product launches dropped by, by a lot. We were seven, eight hundred, seven, eight years ago, you know, and in 2023, before I joined, we were at 128. So we bottomed that out and it’s coming back up. But, but there’s ways of getting at this. You can inspire innovation and give people time to think about what are the next solutions we could bring to customers, spend time with customers, but at the same time, better manage it.

You know, we were not talking to investors. In fact, we weren’t talking internally around, oh, how many products are you gonna launch this quarter? Okay. How many are you going to launch this month? Right now, how are you going to launch this week?

And the reality is when you drive it like that, you get you get results. If you’re asking people how much time do you spend in a given week and how much is not value out of time, they’ll give you a long list of things that, that we could do differently to better spend the dollars that we’re spending on R and D. You know, we, we never talked about on time attainment of launches. I remember, you know, we, in, in October, the Q3 earnings release last year, I talked about how many products we were launching and gave a sense for where we’d be for the year. And we came in far better than that.

In fact, early December, was, it was, it was a number X. We came in almost double x by the December. And you say, wait a minute. It takes me fourteen months or thirteen months to develop a product. Why wouldn’t I know about that in early December and launch at the December?

Clearly, somebody does. But the ability to track this and drive this and measure it is is really important. I think you can inspire people yet still drive a lot of these metrics into the company. We’re done. We’re just you know, I’m talking to you about new product launches.

The reality is are we getting revenue from it? Are we getting profit from the revenue? You know, those are the things that really squeeze inside the company. And I’ll talk about a lot more about that with investors as we get more mature in these KPIs. But Andrew, is this is an area that really is is going to make a big difference over time, I think.

And we’re and we’re seeing some good progress so far.

Unidentified speaker, Interviewer: Thank you. So clearly product reinvigorating growth I think is at the heart of your agenda at three ms. You’ve touched on product launches, but maybe we can drill down because it seems that you have three segments and it seems that sort of it is different for every segment. So maybe, and I’m talking about reinvigorate the recipe for reinvigorating the growth. Maybe we can start with safety and industrial.

I think you’ve highlighted that customer retention and churn has been an issue impacting the growth. Why was safety and industrial impacted more than other segments? So it’s a

Bill Brown, Chief Executive Officer and Chairman, 3M: very complicated portfolio. We have 135,000 SKUs in the safety and industrial business. 90% of the business goes through distribution, and distributors have lots of choices on what they carry and what they sell. So so let me just define the situation. We’re delivering, you know, in the low eighties on time and full, and it’s lower than the other two businesses.

And that’s been a persistent issue. It’s improving, but it’s improving relatively slowly. We haven’t been launching a lot of new products across the company, including in safety and industrial. And when you have inflation, you’re trying to push out price. So you can imagine you’re sitting here at a distributor or salesperson selling to a distributor, you know, and you’re you’re getting a product that’s that’s sort of like what it was before because no NPI.

You’re pushing price increase. I can’t get it on time. So that opens up the aperture to look at other alternatives. And there’s a lot of things on the market that aren’t quite as good as three ms, but they might be available. So we started to see business laws.

It’s not it’s not a new trend. It goes back a number of years. We say attrition churn, share wallet loss is really what’s happening, you know? So so we’ve got to get the underlying pieces of it, which is on time and full. We got to launch new products.

You know, we got to make sure we’re pricing effectively and looking at cross sell opportunities, all of those things that we’re doing, But the reason we started in the SIBG on all of our commercial excellence initiatives was really for this reason. I saw this would be the biggest opportunity. And just in the last six months, we’ve seen a lot of good work that’s happening in that business, things that we might not have known a year ago what we need to do. And it’s not just changing a Salesforce incentive plan. That’s one of a hundred different levers you pull to get better on commercial excellence.

But that’s why we focused on, on churn or attrition in SIBG. But the same process is now being embedded over in TEBG and the transportation business, very different metrics, they’re very different way to going to business. But, but there’s another approach we could take to drive commercial excellence in that business as well. So, I mean, that’s sort of where the state of play that’s happening in safety and industrial.

Unidentified speaker, Interviewer: And and just as I think on time and full, you know, SIBG still lags down the peers. And if you look at your forecast, pretty steep climb into the year end. What makes you comfortable or what incentives do you give to sort of, you know, folks in the business to achieve those?

Bill Brown, Chief Executive Officer and Chairman, 3M: So it’s a sticky problem and it’s stickier than I thought it would be frankly. I mean, we, we were in the 83%, eighty four % range. We’ll do a little bit better this quarter. You know, we, we want to get to 90% by the end of this year. It is a, it’s a steep climb.

We’re not, you know, we want to bring down working capital. We want to bring down inventory. It’s not that’s not the issue. You know, we’re going to prioritize on delivering on time and full to customers. A lot of it is these are these are long lived assets, you know, legacy assets.

There’s certain suppliers that have not been as reliable to us. But fundamentally, it gets back to how we do our our demand forecasting, demand planning, supply planning, you know, the SIOP process, sales, inventory, operation planning. It’s just not as robust in that business as we’d want it to be. You know, we’ve not focused on what is the forecast and what what tools can you use to better predict demand. Some things come come choppy or other things are more smooth, but there’s ways to get we’re getting at this is how how do you anticipate demand and then making sure that you drive that back to your factory, what’s on hand and back to the suppliers.

And, you know, it’s you know, there’s a lot that we can do differently. This is not rocket science. This is not particularly hard. It’s going to take us a little time to get there, but the team is focused on it. You know, we’re, you know, it’s look every single week, you know, the top management of the company gets an update on what’s happening in OTIF, you know, across each of the businesses, divisions, factories, what drives it, where it was this past week.

And when you give that visibility, when you shine the light like that on a problem, it gets better over time.

Unidentified speaker, Interviewer: And maybe just shifting to transportation electronics. I think the issue there is somewhat different. Yeah. And, you know, my understanding is it’s really sort of medium term plan for new product introductions. So what is the medium term plan for new product introductions and what industry verticals excite you the most?

Yeah.

Bill Brown, Chief Executive Officer and Chairman, 3M: So, I mean, they all excite me. Let me just say that, you know, so everything that they’re doing is very good. Look, they’re important in aerospace, important in semiconductors, electronics, automotive. I mean, those are the big ones. Those are the key ones that part of our priority verticals that we laid out at the Investor Day.

You know, like the, it’s a bit different in TEBG in terms of new product introductions. It’s a much more complicated product. We’re stretching technology, stretching. You know, we we had to we had to do bench to bench cooperation and collaboration with our with our customers, more what we call class four, class five, so new to the world type solutions, more spec in opportunities than what we see in SIBG. I mean, of our r and d dollars goes to those two divisions.

I mean, I mean, segments, the consumer side, maybe not as much, does definitely not as much, you know, but that’s what’s happening in in TEBG. We expect to double the new product launches over the next couple of years. The team is working on compressing the cycle time. But what Wendy and her team are are are really focused on is is how do you get really close to the customers that we’re selling to. And it’s not, you know, a sales relationship.

It’s not necessarily top to top. It’s all it’s also sort of as you think about people developing new products, things that, you know, a new a new vehicle, whether it’s in The US, Europe, China, new consumer products. And and a lot of times it’s making sure that we actually have the capability in our factories to scale up and produce it. And we are pushing the envelope of technology around film technology goes into consumer electronics. What we do is is the best in the world, you know, and sometimes it runs at a faster pace as what our assets in our factories allow us to run at.

So we’ve gotta make sure that we we develop products that, you know, are are great for our customers, but we can manufacture them at scale in our factories. And when I think about the quality issues sometimes that we have, sometimes it’s because we push the limit on a on a product that we don’t yet have the tooling or the sensors or the capacity in our factories to actually manufacture. So so TBG is very different in many ways from, SIBG in terms of new product.

Unidentified speaker, Interviewer: Does semiconductor, you know, all this infrastructure in Arizona, right, because you would imagine that a lot more of the supply chain was probably gonna come there. Does that create a unique set of opportunities for three ms as a US based manufacturer with a lot of basic science?

Bill Brown, Chief Executive Officer and Chairman, 3M: It does actually. I mean, look, we’ve got a big footprint in The US, so that’s gonna be very helpful to us. We we are very active in the semiconductor space. We don’t it’s not a big part of the company, but it’s it’s significant and it’s growing. You know, we’ve got a good opportunity there.

It’s gonna take, you know, again, alliances, partnerships, you know, trade associates, a lot of different things we need to do and some capital. The reality is it it does require investment and lab capability to to be to be more significant in semiconductors.

Unidentified speaker, Interviewer: But it’s something you would consider.

Bill Brown, Chief Executive Officer and Chairman, 3M: Absolutely.

Unidentified speaker, Interviewer: Maybe consumer, you know, what struck me, I think it’s the first time in a decade that I think three ms, maybe more than a decade, that three ms was talking about the segment as a growth platform and actually willing to back it up with investments in areas like advertising and merchandising. So what made you excited about the consumer growth opportunity?

Bill Brown, Chief Executive Officer and Chairman, 3M: Everyone knows a Post it in Command Strip, I guess. Don’t know. Look, think

Unidentified speaker, Interviewer: the Wall Street Journal had like how to use Command

Bill Brown, Chief Executive Officer and Chairman, 3M: Street Yes.

Unidentified speaker, Interviewer: Yes. They literally wrote a feature on it.

Bill Brown, Chief Executive Officer and Chairman, 3M: Thousand uses of a post it. Yeah. Look, there there’s I I think Karina and the team have done a really good job at re at repositioning the business. And you have to look back over a couple of years. They had a program to simplify the portfolio, to simplify the geographies they go into.

And that was a painful process adapting to that. That was the last couple of years. We had not invested in advertising, merchandising through the restructuring program. There were a lot of folks that were pulled out of the system, including salespeople. We weren’t putting any investment in developing new products.

We were sort of out of focus. So what’s happened is we’re now largely through the simplification process of portfolio and geographies. We’ve stepped up dramatically the amount of time we’re putting on new product introductions. In terms of the new product launches in Q1, they were pretty significant. There are several of that I think are moving the needle for us this year.

And we, and we’re starting to lean more into four focus brands and more ad merge. And when you put those pieces together, you laid a fertile ground. You’ve got new product introductions that are coming in, you’re more simplified portfolio that’s focused, you know, and now you’re, you’re doing some advertising merchandising. We’re seeing that come back. And by the way, we’ve got a lot of footprint in The U S for the consumer business.

So you put all those things together, you know, we’ll perform better than macro because of that. You know, if we had, if the macro was better for us, we’d see much better results, but you know, we’re, we’re preparing ourselves when the consumer starts to come back, you know, and that’s gonna end up happening. So, so the team is doing a great job and, and, you know, it’s an important business for us, 5,000,000,000. So it’s one we gotta pay attention.

Unidentified speaker, Interviewer: And this is one area where you should get nice relief from the tariffs, right?

Bill Brown, Chief Executive Officer and Chairman, 3M: We we should, you know, there’s going to be because a lot of what we bring in from China, probably 80% or more, is for the consumer business. Right. So yes, that that that will be a relief for that particular business.

Unidentified speaker, Interviewer: So we have a minute and a half left, so I’ll squeeze one in. So capacity utilization and sourcing strategy, I mean, clearly equipment utilization is one of your key metrics. Was the exit of PFAS manufacturing? So A, you sort of remark how you’re relatively low capacity utilization, but then exit, continuing exit of PFAS manufacturing frees up capacity at key facilities. What opportunities does it create for you to streamline your internal manufacturing

Bill Brown, Chief Executive Officer and Chairman, 3M: So look, we have we have too many factories at a 10 and running them at 58% is not where you wanna be, obviously, and that’s something we’re focused on. Getting out of PFAS, I mean, those PFAS assets are specific to manufacturing PFAS. And by the end of this year, we’ll not be manufacturing it, and those assets will be dismantled. They are in factories. You know, there’s so there’s absorbed cost.

We’ve got to deal with stranded cost. The team is working this. We’re working this very, very hard. So it frees up space, but doesn’t free up necessarily capacity and machines where we happen to be manufacturing PFAS. You know, but we’re on this issue around utilization.

It’s gonna help us in a number of different dimensions. Certainly as we think about longer term, it’s consolidating the network. You need to know that it’s fundamental. Over time, it’s gonna reduce our capital spending because I’d rather, you know, use up the capacity I have than spend for new new capacity. It’s gonna be important.

But it’s also important to just surge capacity. You know, right now, some things come in for the one in a day or an hour or the next week. And and sometimes the assets, even though we are highly underutilized running that asset is is hard for us. So we’ve if we can drive some more headroom in some of these key assets, you know, our on time and full will come up as well. So this is it’s fundamental to running a manufacturing network.

You know, again, we’ve got a 90 assets, 38 of our big factories, about half our production volume. We track regularly on utilization. That’s just gonna grow over time. So, you know, we’re on it, up four points from last year, and it’s an important element in driving OpEx across the company.

Unidentified speaker, Interviewer: That’s fantastic. Thanks so much, Bill.

Bill Brown, Chief Executive Officer and Chairman, 3M: A pleasure. To do it. Thank you, everybody. Thank you.

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