3m (MMM) Q3 2026 earnings call transcript

Thank you. Good morning, everyone, and welcome to our quarterly earnings conference call. With me today are Bill Brown, 3M's Chairman and Chief Executive Officer, and Anrag Maheshwari, 3M's Chief Financial Officer. Bill and Anrag 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 2 and take a moment to read the forward-looking statements. During today's conference call, we'll 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 10Q lists some of the most important risk factors that could cause actual results to differ from our predictions.

Please note, throughout today's presentation, we'll 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 3, and I will hand the call off to Bill. Bill?

Thank you, Chinmay, and good morning, everyone. We delivered strong performance in Q3, including organic growth of 3.3%, operating margin of 26.2%, up 110 basis points, earnings per share of $2.50, up 12%, and free cash flow of $1.2 billion. We returned $600 million to shareholders in the quarter, including $400 million in dividends and $200 million of share repurchases.

These results include Madison Fire and Rescue, which is now fully consolidated into our financial reporting and reflected change in acquisition amortization reporting. Our updated guidance for the year incorporates both items, and ONROG will provide additional details later in the call. Based on our Q3 performance and continued strong order trends, we remain confident in achieving organic growth of greater than 3.5% this year.

The progress we're delivering reflects the disciplined execution of the strategy we've been implementing over the last two years. As we've discussed, a value creation framework is centered around three phases, building the foundation, driving transformation, and accelerating performance. Our results today are clear evidence that we're making progress across all three. We're strengthening the foundation of the company and rebuilding critical capabilities to position 3M for long-term success.

We've invested in Salesforce effectiveness and AI-enabled tools. We've sharpened our focus on priority verticals where we can win and improved how we allocate R&D resources.

Operationally, we're delivering on our goals to improve productivity, quality, and supply chain performance. In the quarter, we launched 87 new products, up 24%, and we're on track to exceed our target of 350 this year. Year-to-date, five-year new product sales are up 34% versus last year to nearly $3 billion, resulting in new product vitality in the mid-teens from a low of 11% in 2024.

Cross-selling is also gaining traction, with $140 million in wins booked to date and another $120 million in the pipeline, well ahead of our original $100 million three-year goal.

And in today's higher inflation environment, our price execution has been particularly strong and fully offsets material and oil cost pressures. Across our manufacturing and supply chain network, productivity improvements including procurement savings, higher asset utilization from increased throughput and lower downtime, and improved quality drove gross margins up 230 basis points year over year. Cost of port quality improved by 40 basis points, and overall equipment effectiveness improved by 20 basis points.

We continue to see meaningful opportunities to further simplify and standardize, reshape the portfolio, reduce risk, and improve enterprise resilience and predictability. We've closed 16 manufacturing sites and distribution centers year to date and are taking action on 10 more over the next 12 months, supporting further gross margin improvement beyond 2027. And the Madison Fire and Rescue acquisition, which is now combined with our SCBA business and reported as a separate division within SIPG, is off to a good start.

The JV delivered high single-digit pro forma growth and operating margins ahead of our deal model and 3M overall. And integration is well underway to capture synergies across distribution, international expansion, and operational performance. And we continue our efforts to address litigation risk and are actively working with a court-appointed mediator for the AFFF Personal Injury MDL, and more information is available in our quarterly filing.

Moving to slide four, I'll provide a bit more color on our end market performance. We continue to see strong momentum in general industrial and safety, with second-half growth accelerating to high single digits, above our prior expectations. In electronics, we're seeing increasing strength in semiconductors and data centers, which is partially offsetting a weaker consumer electronics market, especially in LCD displays.

Auto OE and aftermarket is trending in line with prior expectations, with a modest improvement from down low single digits in the first half to about flat in the second, and with OE a bit softer and aftermarket a bit better. The consumer business, which contributes about 20% of sales, improves sequentially to about flat in the second half as modest improvement in consumer POS spending is partially offset by channel inventory adjustments at a few specific retailers.

Net-net, we still see sales accelerating the second half and are full year above 3.5% organic. Turning to slide five, over the medium to long term, accelerating innovation across our frontier verticals, including aerospace, data centers, and others, will be an important driver of growth.

Space Materials is a great example how we can take differentiated 3M technologies and extend them into entirely new markets. As shown on the left side of the slide, we're combining our capabilities in films, adhesives, and others to solve light, thermal, energy, and weight challenges across multiple parts of a spacecraft, from the satellite chassis to solar arrays. Our current pipeline supports opportunities from low Earth to geosynchronous orbits and across a range of commercial and government customers.

In Q3, we launched a lightweight reflective film for a commercial constellation to reduce light scattering toward Earth and address light pollution concerns. And we plan to launch another product in Q4 to provide a moisture-resistant barrier for solar panels. We have more than 10 other projects in development or in pre-pipeline stage that will follow in the next few years. And on the right side of the slide, there's been a lot of interest in expanded beam optics and the opportunity ahead of us. And in light of an AK filing and press release last evening, I wanted to take a minute to highlight the progress we're making.

As a reminder, EBO's patented Feral technology enables faster installation, greater durability, and higher density optical connections for AI infrastructure. The technology is particularly valuable in scale-out and scale-across applications, including optical backplanes, where connectors at the back of a server rack can be difficult to access, install, and maintain. We previously announced a partnership and deployment with Microsoft and said we were also engaged in proof-of-concept work with five additional global hyperscalers, one of whom was Amazon Web Services.

Last evening, we filed an 8K stating we issued a warrant to Amazon to purchase up to 3.2 million shares, or approximately 0.6% of 3M common stock, based upon the achievement of $6 billion in cumulative sales of optical connectivity and other data center-related products over the next seven years and other event-based milestones. We also announced that we signed a contract manufacturing agreement with Genius Electronic Optical Company, or GSEO, and acquired a 4.7-cent stake in the company in a private placement to cement our strategic partnership. GSEO is a credible and proven supplier of premium consumer device components, and they will help us rapidly advance technology development and scale EBO manufacturing on top of our internal capacity expansion plans.

But as we previously said, success in the space requires building a robust ecosystem of partners. We're actively supporting industry standardization through the EBO multi-source agreement, which started with 17 members and is now up to 63. This MSA brings together hyperscalers, connectivity providers, and chip designers under a common framework to establish industry standards and certify practitioners. EBO was highlighted by many of these ecosystem partners at last week's Open Compute Project Global Summit, including by one other hyperscaler demonstrating EBO in a next-gen rack design running live traffic, and it was headlined in a recent article by Semi Analysis, a well-respected trade journal. We believe the combination of industry collaboration through the MSA, growing ecosystem adoption, and differentiated 3M know-how positions us well to benefit as EBO becomes a larger part of next-generation AI infrastructure.

Overall, we've made meaningful progress in reinvigorating our innovation engine over the last two years. Success requires speed and precise execution, and we're building a stronger, faster, more innovative, and more resilient 3M. As this company-wide effort evolves, I'm confident it will translate into faster growth, higher margins, and stronger free cash flow over time.

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

Thank you, Bill. Turning to slide six, we delivered another strong quarter across all financial metrics. Solid organic growth, 110 basis points of margin expansion, double-digit earnings growth, and robust free cash flow, all reflecting execution against our strategic priorities. Starting with the top line, we delivered organic sales growth of 3.3%, driven by general industrial and safety, both of which performed better than expected on successful execution of our commercial excellence initiatives, including pricing.

We also saw continued strong double-digit growth in semiconductors and data centers as we gained traction from new product launches and good customer positioning. Together, these more than offset a weaker consumer electronics market.

Notably, the orders trend that we have seen through the year continues and grew high single digits in the quarter, led by industrials, safety, data centers, semiconductors, and aerospace. This resulted in backlog growth of high teens over last year, positioning us well for the fourth quarter. By geography, U. S. and Canada grew approximately 7%, the highest we have seen since the pandemic Industrials grew double digits as we executed well on pricing, cross-selling, and sales effectiveness in a constructive market Which more than offset a soft consumer market Latin America grew high single digits with broad-based growth across all three businesses It was encouraging to see Europe grow for a second consecutive quarter despite a soft auto market.

In Asia, we had positive growth and saw another double-digit crotter in India as we increased penetration in automotive, industrial, and a growing consumer market.

Overall, we grew in all regions except China, which was down high single digits on weak consumer electronics demand. As Bill mentioned, following the Madison acquisition starting this quarter, we now exclude the amortization of intangibles from adjusted results to better reflect the underlying performance of the business. Historical recasted financials for 25 and first half 26 are shown on slide 13, and as you can see, have an impact of about 40 basis points to margin rate and 4 cents to EPS per quarter. For Q3, adjusted operating margin was 26.2%, up 110 basis points, with the three business groups up 140 basis points, partially offset by 30 basis points from corporate as expected. Operating profit increased $140 million, with $260 million from sales growth and productivity, particularly in supply chain, partially offset by about $120 million of stranded costs and investments.

The $0.27 of EPS growth was driven by $0.22 of operating profit growth and $0.05 of below-the-line items, including a lower share count net of a higher tax rate, resulting in adjusted EPS of $2.50, up 12% year-on-year.

Q3 GAAP EPS was $2.63, up 70% year-over-year. This included the impact of costs from ongoing transformation actions, exit of certain PFAS manufacturing assets, and gain from change in value of our solventum ownership.

Free cash flow was $1.2 billion in the quarter, as higher earnings were offset by working capital timing, which we expect to reverse in the fourth quarter.

Turning to the next slide, I will provide a quick overview of our growth performance for each business group. Safety and industrial delivered another standout quarter with 7% organic sales growth driven by the continued expansion of commercial excellence initiatives and the ramp-up of new products. Electrical markets division continued to grow double digits as they deepened penetration with key customers in the data center market. Safety, industrial adhesives, abrasives, and industrial specialties collectively grew high single digits driven by targeted commercial initiatives to reduce customer churn, expand sales coverage, increase sales effectiveness, and drive cross-selling Though repair claims market remains soft, auto aftermarket grew mid-single digits driven by the new products and wins with large multi-shop operators Year SIBG sales are up 6 and importantly orders and backlog are up double digits giving us good visibility into the fourth quarter Turning to transportation and electronics Third quarter sales grew 0 due to weaker than expected consumer electronics which was down mid Outside of consumer electronics, the business grew about 5% across semiconductors, aerospace, commercial branding, and auto.

In addition to data center and semiconductor, aerospace grew double digits, driven by continued strength in defense, sustained civil aviation bill rates, and growing demand for space films.

Commercial branding continued its first-half momentum, growing mid-single digits, driven by graphics and personal auto demand, while auto was down mid-single digits on softer builds. Despite the weak consumer electronics and auto market for the first nine months, TEBG sales grew 2.1%, with orders up high single digits and backlog up double digits, supporting acceleration in the fourth quarter.

SIBG and TEBG, which together represent 80% of our business, delivered about 4% growth in the quarter and 4.5% year-to-date. Finally, consumer was flat in the quarter, improving sequentially as the rate of decline in the U. S. moderated, while international continued to grow mid-single digits U. S. point-of-sale grew over 2% through the quarter, but continued inventory adjustments at a few large retailers resulted in U. S. selling being down low single digit As retailer inventories stabilize and POS continues to show positive momentum on the back of NPI and retailer-specific programs, we expect the growth trend to improve in the fourth quarter. Overall, we are delivering on our commitment with strong year-to-date results, including organic sales growth of 3.3%, operating margin expansion of 60 basis points to 25.2%, earnings growth of 12% and free cash flow of $3.1 billion.

Year-to-date, we return $4.4 billion to shareholders, including $1.2 billion in dividends and $3.2 billion in share repurchases. Please turn to slide 8 for an update on our 26 guidance.

Auto momentum, a healthy backlog, and easier comparisons give us confidence and organic growth of just over 4% in the fourth quarter, keeping us on track for more than 3.5% for the full year. On the back of strong year-to-date performance, continued momentum, and focus on productivity, we are raising our earnings guidance from a range of $8.95 to $9.10 on the new basis to a range of $9.10 to $9.15, or $0.10 above the midpoint, resulting in growth between 11% and 12% for the year. On oil, we now estimate the inflation impact at $185 million, up from the $150 to $175 million range we communicated in July. We expect to fully offset the increase through disciplined execution of the pricing actions we implemented in the second quarter.

While this pass-through is dollar neutral, it dilutes margin rate by about 20 basis points, which we will mitigate through better productivity. For the year, we expect margin of about 24.6% on the new basis in line with our prior expectations.

Free cash flow remains at approximately $4.8 billion and adjusted tax rate at about 20%. Turning to slide 9, we will provide formal 2027 guidance in January, but our framework to drive profitable growth remains consistent and are confident that we will exceed all of our investor day targets. We expect good growth in line with our second half exit rate, with more contribution coming from new product launches as we sustain commercial excellence, including pricing discipline.

Alongside growth, we will continue to drive productivity largely from supply chain and transformation actions as we more than offset investments and stranded costs, resulting in margin rates exceeding our investor day target of 25.4% on the new basis. For EPS, we expect operational performance to be the primary driver of earnings growth like this year. Non-operational performance will be influenced by changes in interest rates and effects, while the tax rate should remain stable and share buybacks will continue to be accretive.

Finally, we expect robust free cash flow driven by earnings growth and working capital improvements and will continue disciplined capital deployment. Having returned $9.3 billion since the start of 2025, we are well on our way to exceeding the $10 billion target.

Before we open the call for questions, I would like to thank the 3M team for their commitment, resilience, and responsiveness to drive value to all our stakeholders. Our performance to date and opportunities ahead provide us with increased confidence in delivering on our updated 2026 guidance and exceeding the commitments we laid out at Invest Today.

With that, let's open the call for questions.

So, Scott, good question. I mean, first of all, it is pretty well publicized in the marketplace around what's happening in oil and gas prices and general inflation. I think that's well covered. But I think our ability to drive price right now is partly from the new products. I think importantly, it's from just significantly better responsiveness, service delivery rates, product availability that we're delivering to our customers. And I think that is that's a very important part of it. And I wouldn't discount that, you know, we're being, I'd say, a bit more aggressive here on price, holding our ground on this one. So I think all of those things come together and what's driving price. So we'll see ourselves for the year to be slightly above a point and a half.

We were saying last time about 1.5%. It'll be a little bit better than that because oil price continues to come up. Back half of the year will be slightly above two. Front half was one. So we're doing better. We're executing well on price. We're covering material and oil cost inflation. And we feel pretty good about the direct trajectory we're on right now on pricing.

So, look, this is a very, very important step we've taken here with Amazon. There's no disclosure right now on other parts of the commercial agreement, but it's been in the works for some time. It's a very important strategic commercial relationship. I do believe it's a validation of the technology. It's an important milestone in this broader relationship that we've had with Amazon. You know, it's very clear in the agreement that, you know, it's for optical connectivity, EBO and other data center related products. They do have faith in our broad material science capabilities for acoustics, vibration, thermal kind of things inside of data centers. And so we're very excited about where we happen to be. You know, as you note, it's, you know, there's at least something in the AK.

It's cumulative. Six billion dollars is where the warrant vests over seven years. It's in increments. It's not ratable. It'll start to ramp towards the back end of next year is what our expectation happens to be and become more meaningful as we get into 28. But as we sit here today, that's as far as I think we'll be able to disclose as this continues to ramp. What's important right now is we execute well. We scale well here with Amazon. We build out the ecosystem, which they and other hyperscalers believe is very important. So a very important step is combining that with the GSEO announcement where we have solidified the supply side, the ramp up we expect to get to support Amazon and other hyperscalers.

So collectively, we think it's a very important milestone that we're at today on EBO.

So, I mean, you went through some of the numbers. I appreciate you doing that and recalling the trajectory we're on. It's a pretty broad portfolio. Not everything kind of flows positively every quarter, but, you know, you've laid out appropriately the steps that we're taking to drive, you know, organic growth in the company, something I think we struggle to do over time. It comes back with, you know, back to what we were focused on very originally was around re-innovating innovation and driving new products to the marketplace. And we continue to progress that very, very well and is becoming more impactful.

We're clearly driving a lot of commercial excellence activities, improving our capability at the front line, building a better relationship with our channel partners, more cross-selling, better performance so we have less churn, pricing. I mean, all these things come together to kind of make this machine run better, and you went through the numbers. So we'll end the back half of the year. It will be close to 4%. Q4 will be touching just over 4%. You know, as we look into 27, we continue to see growth momentum here. You know, there are some economic tailwinds here on the industrial side. We feel pretty good about that. But more importantly, this is a self-help story. You know, we're showing that we can grow organically, even in a choppy macro environment, you know, and drive margin expansion quite substantially.

So the combination of what we're trying to do, I think, is what's really turning this 3M company around. And, you know, I'm very, very excited about where the future holds here.

Okay, great. Thanks, Amit. And you're absolutely correct. You know, at the Invest today, what we laid out was that we had about $300 million of stranded costs at that point in time. But since then, we've had tariffs of about $280 million. We have oil now, which is $185 million. We obviously were able to offset all of that plus more, which is why we are ahead in terms of our margin expansion so far and will be next year as well. So, you know, as Bill mentioned, we're going to exit the year close to about 4% in terms of organic growth. And as we go into next year, that will accelerate because of new products, commercial excellence and pricing, which we've done a very good job this year and continue to kind of sustain that next year and drive for more pricing to offset oil.

So with the volume growth on the margin side, we have good incrementals. Historically, we said it's between 30% to 40%. I think we are more closer to the 40% right now in incrementals, given the progress that we made over the past couple of years. I'll combine that with productivity on both supply chain as well as some of the transformation actions we are taking. And it should continue at the same rate as it has over the past couple of years. And while we drive volume with high incrementals, productivity will much more than offset the step up in investments and stranded costs. So expect good margin expansion as we go into next year and be very confident to be ahead of the 25.4 percent, the new investor target, despite all the other headwinds we had.

So feeling pretty confident.

Appreciate it, Ken.

So, Joe, for this year, EBO is in the $40 million range, plus or minus. We've got another quarter to go here. We do expect that to ramp considerably next year, likely will double, could be maybe a little bit better than that, depending upon progress through the year. You know, internally, you know, we have doubled our manufacturing capacity. So we'll be north of, say, 10 million ferals a year. It'll be, you know, a little bit better than that. We expect to increase that over time. You know, the contract manufacturing agreement with GSEO, given their size and what they currently do for consumer devices in similar spaces, you know, they could do potentially multiples of that per month.

So I believe, you know, if we scale them as we know we will over the course of the fourth quarter into early next year, you know, that we will see our ability to actually satisfy the market demand. So hopefully it's not a capacity issue. It becomes more in comfort of hyperscalers. It's developing the ecosystem. And I just want to reiterate, one of the key factors here is making sure we have diversity of supply, not just from 3M, but other partners here, because that's going to be quite important for hyperscalers to sign on. So I believe with GSEO, we'll be in pretty good shape to scale to the market requirements as we see them now.

So, look, you know, for us, I mean, our order rates have been pretty good. You know, we, you know, for the quarter, you know, they were up about 7%. We see good backlog going into the fourth quarter year to date, a little bit better than eight. You know, it's better on the industrial side. But generally, good order trends, good momentum here as we head into the back end of the year. So just from a macro perspective, we continue to see the broader industrial markets improving, especially in the U. S. And I know this part of it is driven by data centers, but it's quite a lot of other factors that go behind that. Auto build rates are likely to be down.

They're down modestly in the quarter and likely for the year as well. You know, we see the consumer electronics space, you know, worsening a little bit in the back end of the year, you know, more like down mid-teens from the consumer electronics market. You know, those are the broader pieces. You know, IPI is about where we were before, slightly better globally. You know, U. S. IPI, U. S. GDP is slightly better from where we thought in July. So that's getting, I'd say, a little bit better, you know. And, you know, those are the key pieces. The U. S. consumer is sort of still a little bit soft, although what I would say is we continue to see good POS growth, which is sell out for us.

You know, it's north of 2 percent growth on POS, which is pretty good. You know, so I feel it's getting at least more stability in the U. S. consumer behavior, if not maybe a little bit of improvement. So overall, you know, I'd say the industrial is pretty good, you know, kind of mixed outside of that.

Sure. So, you know, as we exited the third quarter, Julian, you know, the backlog in TEBG was up quite, double digits. So that gives us good visibility as we go into the fourth quarter. You are correct about the consumer electronics being pretty consistent between third and fourth quarter. But where we do see is the good backlog getting converted plus continued strength in the aerospace defense, the semiconductor and data center, which continues to accelerate in the fourth quarter, plus all the commercial excellence that we are driving in the commercial branding business. This along with, you know, auto, we've had some couple of good wins in auto as well, that kind of coming through, I think gives us confidence that we will accelerate the growth in the fourth quarter from third quarter in TBG.

Correct. There is no one-time benefit in terms of the margin expansion. It's all about controlling our cost-based driving productivity across both supply chain and GNA. Bill did mention in his prepared comments about gross margin being up to 130 basis points, really good work around all the buckets being the cost of poor quality, which was better by 40 basis points, driving more productivity and automation in the factories that we have today, and even in this environment, driving procurement savings. So I think it's all fundamental drivers in terms of expanding our margins. As we go into next year, you are right, we said we had $300 million of stranded costs. You know, we had 100 last year, 150 this year, incremental 50 next year.

But just on where we are in the momentum in terms of supply chain and making some structural cost changes, I think we are confident on continuing the productivity into next year as well.

Yeah, Julian, I think the thing to keep an eye on is as we keep talking more about transformation and the changes that we're making, a lot of this year has been around G&A. There's been investment to, you know, transform the GNA functions. It's starting to occur within our supply chain network and data center and distribution center network as well. I talked a little bit about some of the changes there. That's going to be impacting us into 27. And certainly with the factory consolidation, given a typically would be three, four, five-year payback, that'll start to become more meaningful in 2028. So when you take a step back and think about all of the work that we've done, And, you know, we've seen, you know, gross margins come up from the low 40s to now touching close to the mid 40s.

You know, again, you know, up to potentially the high 40s over the next four or five years through some of the transformation that's happening.

Good morning, Andrew. Just a question on Madison Fire. Just are we putting, now that it's organic, are we putting any accretion into 26 on that? Just from a modeling perspective, do I need to sort of put something in?

Yeah, it's EPS neutral to us. I mean, it does grow higher than company average and margins better, but given the size of the business, it doesn't really move the needle much on the top line. It obviously comes with operating profit, but there's a step up in interest because of the leverage and NCI. So, overall, it's EPS neutral for this year and next year.

So just on that last part of me, data centers this year will be about 700 million. Last year was around 550 in that range. You know, part outside, the bigger part would be outside, so electrical connections, And part is inside around optical connections, copper, other parts within inside of the data center. But most of it was on the outside.

You know, yeah, there's been a lot of conversations with, you know, really all of the other hyperscalers. Obviously, Amazon is, you know, quite substantial in that space. So that's a very important one. You recall last quarter we talked about a strategic partnership we announced with Microsoft where they'll be using EBO and Azure data centers. You know, these things are continued to evolve. You know, again, we've got to continue to, you know, work the ecosystem, build the scale, you know, continue to advance the technology. Because each hyperscaler has some uniqueness in their configuration and architecture. So there's some work that has to happen there. But I think we have very, very good momentum here. I think this was a very important step that we've taken in the last couple of days with Amazon.

And I hope in the coming months others will follow suit.

Morning, Joe. So, Bill, I just wanted to follow up on that thread, right? The warrants are a pretty unique structure. I'm just curious, like, how did that even come about? And then also, I think you just mentioned that you're hoping that potentially some of other hyperscalers will follow suit. Just any other clarification around that would be helpful.

You know, so at this conference last week, it's the Open Compute Project, which is in San Jose. I was on the West Coast and had a chance to walk around the show for a few hours. And were there many other hyperscalers and a lot of ecosystem partners that were there? There's a lot of conversation around EBO, how it can be used, how it can be scaled, how do we manufacture it, partners that want to be part of it. So there's just a ton of activity happening there. So it's pretty broad-based, but, again, it's evolving. I mean, each quarter, each month, we're taking steps forward here. We have to keep executing and doing all the things that I've been very carefully talking about around scaling and technology development and ecosystem.

All of these things are critically important. For Amazon, look, I think the warrants conversation is really important because it cements what I believe is a very strong strategic partnership we have with Amazon. And, you know, it's an agreement. It's a union, if you will, with Amazon where we both see, you know, win-win. We see opportunity to drive share of value on both sides.

You know, for us, the warrants are going to be, you know, accretive to significantly accretive to the company. So, you know, we thought that was prudent and the right thing to do. Again, it's about 0.6 percent of our shares. So it's not usually meaningful, but it's very symbolic in terms of the overall relationship we have with Amazon.

Yeah, Joe, absolutely. As I was mentioning when Amit was asking the question that, you know, the volume, which typically has been a 30 to 40 percent incrementals for us, is now getting closer to the 40 percent incremental. So there will be uplift from volume plus productivity, and both of them combined will drive the margin expansion for next year.

So, look, I think we'll sort of get through the quarter here and then we'll go through next year. You know, your numbers next year, roundabout, right? I mean, it's sort of $80, $100 million of EBO. I mean, again, look, we've got to continue to execute and scale here. We're not going to size it beyond that. But, you know, when we talked last time, we said the total addressable market here for for EBO is is around two billion dollars in the 28 time period. You know that this year will do again, 40 million roughly.

This is an important initiative for us. We're maturing the technology. You know, I think, you know, this step with Amazon last quarter with Microsoft, others that are in conversation, you know, gives us a greater right to win in that space. So I feel better about, you know, our ability to go after that market. You know, we believe it will continue to grow over time as people get comfortable with EBO, with a contactless, you know, sort of connection device as opposed to physical contact point-to-point devices today. So I think it's going to continue to evolve, but won't comment on anything beyond 27, but I do believe it's going to continue to grow and grow meaningfully. Otherwise, we wouldn't have talked about where we happen to be with Amazon and the size of the contract manufacturing agreement with GSE.

All these are very important to us. Yeah, $6 billion or $7 billion, that's why I just thought I'd throw that out there. There's no volume commitments here. We've got to earn a right to that. It's going to happen over time.

That's the number they put out there. is what is expected over the course of the next seven years. So we think that's an important target for us.

And then just Anorak, maybe for you, the S&I margins were very strong this quarter. Looking at the NCI line, it looks like the contribution from Madison Fire was very strong this quarter. I'm getting to math, close to $100 million EBITDA contribution, which feels too high, but just wondering what kind of margin Madison Fire is coming in at, and what's a good number for 2027?

Yeah, so Nigel, I would say the number is not that high as you're citing it out to be. The margins are we finished the quarter at 26.2% margins. They are a little bit higher than that, I would say. But that does get offset on the NCI lines. Overall, it was EPS neutral to us. So the NCI was just a couple of pennies compared to last year, so it was not close to that. And as you model into next year, I would say it's, again, going to be EPS neutral.

There will be incremental $200 million of revenue coming from Madison. You can assume a margin rate higher than the company, and the offset will be high interest in NCI.

Hey, good morning, Steve. As far as the fourth quarter is concerned, I know a couple of these businesses you said are going to accelerate, and that's great color. But maybe just how you're seeing things play out versus normal seasonality. Maybe seasonality really is like there is no normal seasonality with the last few years, but how you're thinking about those kind of daily sales trends. And then just lastly on that, the backlog. You mentioned the backlog was up. Maybe just a little more color. I think you gave some on the second quarter.

Yeah, so look, Q4 typically is a lighter quarter, but there's nothing unusual about seasonality here in the fourth quarter. We do see it being up with the 4%. I guess we get you to greater than 3.5% for the year, so it's got to be more than 4%. Again, it's off of a bit of an easier compare. The prior year in Q4 was a little bit softer as opposed to Q3. We had a tougher compare here in Q3, but it gets a little bit better in Q4. But, look, we've had, you know, just, again, very good order trends. You know, the backlog going into the quarter is up about 18%. So it's high teens percent year over year going into the quarter.

You know, we have about 25% of the revenue that's in backlog, which is pretty good and a little bit better than we typically see. So, but, again, you know, based on where we see it today, you know, we feel pretty good about coming in north of 4% and more than 3.5% for the year.

Yes, correct. And it is still the same. And in the fourth quarter, you'll have probably $1.25 of that because of the $15 million of stranded costs and $75 million of investment. So no real change from the cadence that we had laid out from the beginning of the year. And that standard cost next year is $15 million. It goes from $150 to incremental $50.

Thanks, Steve.

Good morning, Andy. Bill, can you give a little more of an update on your overall progress and innovation as we start thinking about 27? And I think you previously have mentioned your cycle time of innovation target is at least 20% better. But can you use tools such as AI to push greater innovation much faster and with better margin? I think you'll do greater than 350 new products you just said. But you've also said that 3M used to do 7,800 per year. Can you get back to those levels faster than you thought and with greater improvement in design to cost?

So, look, first of all, yeah, I'm very pleased with what's happening right now on NPI innovation. We're accelerating. You know, I gave, you know, some of the numbers here, you know, about 87 in the quarter, up about 24 percent. For the year, we'll be at 350 or more. So that would be up 23 percent year over year. You know, early last year at the investor day, we said we would be 1,000 products over three years. And, you know, we should be, you know, above that, you know, was what my expectation would be. You know, I think what's important is we've seen the funnel remain very, very healthy. So we're bringing more projects into the funnel, into our development pipeline that we're launching.

I think that remains very, very encouraging. Cycle time has been pretty good, actually. We will be down 20%. It'll move around a little bit, but I think we've already proven that so far. But as we bring more class fours, class fives into the funnel, which will drive more incremental growth over time, They're a bit of a longer development cycle, so that could push things a little bit in the other direction. But the cycle time continues to come down. Our on-time launch attainment remains around 80%, 81%. So that's all very, very good. As you mentioned about AI, look, I do believe that this is going to be a meaningful way for us to accelerate innovation. Again, from 20% compression on cycle time, just by bringing AI in, you're ideating faster.

You're eliminating some of the steps of developing and making prototypes in labs, getting out to a factory. So instead of doing physical prototypes, you can do virtual modeling and simulation. All those opportunities are happening now. So that could further compress cycle time. And what that means is we should be accelerating the numbers of new product launches without accelerating the cost to go and make that happen. So I'm very encouraged. We're pushing very hard on this. A lot of the effort to date has been codifying this vast treasure trove of information that resides at 3M in terms of all of the patent information, all the technical papers, all the material specs, safety sheets, all of this information, process informatics, all the how you make it.

It all needs to be codified. That's now being done. And when you have all that and you lay AI on top of that, it can really accelerate our journey in bringing new products to market. So I'm encouraged about the progress we're making here, and to your point, I think there's a great opportunity to accelerate that into 27 and beyond.

So, yeah, I mean, consumer, we expect, will turn slightly positive in the back end in the fourth quarter of the year. Of course, you know, we thought Q3 was going to be positive. It didn't happen. But we're on the right trajectory here. It's not necessarily going to be a big driver of growth for the company, given, you know, its size and where we expect it to be in the fourth quarter. You know, but the trends are positive. You know, POS was kind of, you know, basically up a little bit in Q1, improved a bit more in Q2, around 2, 2.2%, a little bit better in Q3. You know, so POS has been pretty good. You know, what happened over the course of this year is the inventory in the channel, especially with a couple of retailers, has been pulled down a little bit.

About half a week in Q3 was about a half a week in Q2. You know, we find that to be stabilizing here a little bit going into the fourth quarter. But again, you know, it's hard to predict what some of these retailers are going to do. But, you know, when we take a step back and look at the way the portfolio is evolving, you know, we see it to be slightly better in Q4. But again, not a big, meaningful driver for the growth as a company.

You know, one of the things that's interesting is, I mean, international has been pretty good. So even while the business is mostly U. S. , about 70 percent. But international for us has been up mid-single digits, and the trends there continue to be pretty strong. So I think if we put all together, U. S. can improve and international holds in it mid-single digits, we can actually be positive in the fourth quarter.

So, Vruin, thanks for the question. I mean, look, John was here for a number of years, close to 30, and was CTO for quite a long time and was a fantastic partner to me in reestablishing, reinvigorating innovation. Tushar has been with the company for 25 years. He's a PhD. He's got a lot of experience both running a business as well as developing technology, more than 40 patents to his name. And I like the combination. He's been running the IATD business within SIBG for the last number of years, you know, leaning forward on on AI, digital tools. I think that combination is going to be very important to us. And, you know, having somebody that knows the players internally, know the technology, importantly, knows our customers.

You know, that combination, I think, will drive good continuity in what we're trying to do on innovation at 3M.

No, I mean, we think 27 will be a step up on that. So it's a couple of different things. We continue to see very good growth in our electrical markets division with connectors, medium voltage connection coming into data centers. That has been a good grower for us all year, double digit, and we can see that continuing into next year.

But there's a lot of other different technologies. You point out in Extel, which goes into a couple of different behind-the-meter type solutions outside of the data center. And, you know, we continue to have momentum there. You know, we're expanding capacity to meet the demand of that space. So I think that could be a step up into 27 and perhaps even better than that in 2028. So I think very good momentum both inside as well as outside the data center, Varun.

So we haven't really talked much about what we do on pricing. I mean, sometimes when you bring new products, it's creating a new space, so you really have a good vantage point. But I think our ability to drive value-based pricing is becoming a lot better. We see it across a number of different product portfolios. So, you know, I would say when we bring in new products to the marketplace, once you start to hit volume ramp, you know, we do see, you know, margin, those products generally being margin accretive to the company. So price is an important part of that.

So we provide – we manufacture a ferrule. The fibers have to be terminated into the ferrule. They have to be put into a connector and then installed in a data center. So all those pieces are quite important. But, you know, hyperscalers have an important they design their own architecture, the server designers, server manufacturers, you know, have views of where they're taking their product line, how they're shifting from copper to optics over time. So all of those various pieces, you've got to work with that broad set of players to establish EBO and then to grow it. So that's what the MSA is really for. It's developing standards and then certifying players in the space to install EBO.

So that needs to happen side by side with technology development and scaling.

Yeah, no, so consumer electronics, yeah, it was, we've seen some pressure here in the quarter. We'll see some additional pressure going into Q4 as well in consumer electronics. I mean, we do in consumer electronics, we provide films for, primarily for LCD displays. We do conductives. We do OCA, e-bonding a lot for phones and tablets, notebooks, etc. We're primarily a premium player here. So 70% of our business roughly is with premium device manufacturers. Overall, I'd say we're tracking kind of in line with or maybe slightly better than the market. We've seen pressure in two particular areas. One is in LCD displays. That's one area. And the other is with China OEMs. Not a very big part of our business, but that market is down quite substantially in the quarter and in for the year.

But we're performing very well with premium device manufacturers where performance, where thermal management, for AI devices, for foldable devices, for all these new innovations, we're performing very, very well there. And as I look forward, that kind of innovation with those premium manufacturers, I think, will allow us to return to growth going into next year and beyond.

So we can't talk about the latter part of that, which is, you know, who we're getting specced in on, but I was very careful, and I said, you know, it's a pretty broad space. It's both, it's LEO and GEO. It's, you know, low-Earth orbit, you know, geosynchronous orbit, commercial customers, you know, some government contracts we're working on, But it's a broad opportunity for us. You know, and you can see some of the challenges here. You know, it's around how do you lightweight, you know, the satellites build more capability, bring more protection. So there's no, you know, light reflecting back to the earth.

You know, removing a glass solar panel as they get bigger with the replacement with films that allows it to work to be a lot lighter. So there's a lot of capability here. You know, our content is growing in that space. You know, our innovation, I think, is quite important. But, you know, we expect that that's going to grow over time, which is why we want to keep highlighting it. So we don't want to say too much more than that, but it's a great opportunity for us to grow our business.

So, yeah, we should we implemented the price increase starting May this year and we started seeing the increase in our cost probably a month earlier than that. So you should see about some carryover going into next year, definitely on the oil cost piece. And at the same time, you should also see the price carryover. So we will be neutral between price and oil cost for next year. And the strategy was actually to be a little bit more surgical. It wasn't peanut butter spread across the entire businesses. It was looking at areas where there was either higher costs or where some of the peers were going out with price increases, and that's what the team did.

And I think we did a very, very good job by offsetting it. Last year, tariff, we did not offset the entire price increase, but over the year we did, and the discipline has been really, really good.

No, it should be sufficient. sufficient. But again, it gets back to this diversity of supply. So we are scaling internally, but we'll never be able to within 3M to be able to accommodate the market demand. You know, GSEO has an incredible capacity, you know, but likely over time, there'll be, there may be other players here, other manufacturing sources to just give that satisfaction of diversity of supply. So we're confident we can ramp with GSEO, but, But, you know, there may be others that we'll have to bring on board over time.

Okay. So thank you, everybody. And I know we're over a little bit. I appreciate everybody joining the call today. And I want to thank again all the 3Mers for delivering another strong quarter of great execution, great value to customers and our shareholders. I'm proud of what we've achieved together, and I'm excited for what the future holds at 3M.

Thank you all, and have a good day.