Ladies and gentlemen, thank you for standing by. Welcome to the 3M First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded, Tuesday, April 30, 2024. I would now like to turn the call over to Bruce Jermeland, Senior Vice President of Investor Relations at 3M.

Thank you, and good morning, everyone, and welcome to our first quarter earnings conference call. With me today are Mike Roman, 3M's Chairman and Chief Executive Officer; and Monish Patolawala, our President and Chief Financial Officer. Mike and Monish will make some formal comments, then we'll take your questions. Please note that today's earnings release and slide presentation accompanying this call are posted on the home page of our Investor Relations website at 3m.com. Please turn to Slide 2. Please take a moment to read the forward-looking statement. 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 10-K 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. Please turn to Slide 3. During today's presentation, Mike and Monish will discuss our total company Q1 2024 results, which are inclusive of the Health Care business and are on the same basis on which 3M provided first quarter guidance back in January. As we have mentioned, it is important to note that Solventum Corporation's separate financial reporting will differ from the basis of presentation used by 3M for the Health Care segment. 3M's full year 2024 earnings guidance initiated today is on a continuing operations basis, reflecting Solventum as discontinued operations for the full year, including the first quarter of 2024. In addition, we will be treating changes in the value of our 19.9% equity…

Thank you, Bruce. Good morning, everyone, and thank you for joining us. In the first quarter, we delivered strong results that were better than our expectations as we returned to adjusted organic growth and achieved double-digit adjusted earnings growth. We improved performance across our businesses and in our operational execution. We also completed the spin-off of Solventum and finalized 2 major legal settlements. Our results demonstrate the positive impact of the changes we have made over the last several years. We've also made significant progress in executing our strategic priorities, which has positioned the company for long-term shareholder value creation. In the first quarter, on an adjusted basis, we delivered revenue of $7.7 billion, including improved organic growth, operating margins of 22%, up 400 basis points; and earnings of $2.39 per share, up 21%. On April 1, we successfully completed the spin-off of our Health Care business, Solventum, creating 2 world-class companies well positioned to deliver greater shareholder returns through distinct and compelling investment profiles. As independent companies, both 3M and Solventum are better able to tailor their capital allocation and investment priorities to win in their respective markets. I want to thank and congratulate the teams whose dedication made this major accomplishment possible and wish the entire Solventum team, led by CEO, Bryan Hanson, great success in the future. In Q1, we also finalized 2 major legal settlements. First, our settlement agreement with U.S.-based Public Water Suppliers received widespread support and participation. It was granted final approval by the court on March 29. We anticipate making total payments with a pretax present value of up to $10.3 billion over the next 13 years. The first payment is expected in the third quarter of 2024. It is important to note our agreement with Public Water Suppliers addresses the detection of any type of PFAS at any level. This includes PFAS that have already been detected or may be detected in the future, including those that are the subject of the U.S. EPA's recently announced limits in drinking water. Second is our settlement of the Combat Arms multi-district litigation. As of today, more than 99% of claimants have chosen to participate. This provides us the certainty and finality the settlement was intended to achieve. We anticipate making total payments up to a pretax present value of $5.3 billion through 2029. We also continue to make good progress on our exit of all PFAS manufacturing. We are on track to meet our commitment by the end of 2025 and are working closely with each of our customers to complete an orderly transition. In summary, the progress across all 3 of our strategic priorities has helped make 3M stronger, leaner and more focused on what we do best: utilize 3M science to make indispensable products for our customers. I will now turn the call over to Monish for more details regarding our performance in Q1 and to discuss our guidance for 2024.

Thank you, Mike, and I wish you all a very good morning. Please turn to Slide 6. We continue to build upon the strong foundation we laid in 2023. We remain focused on our priorities, and the team continues to deliver improving results. We posted strong adjusted results in the quarter, including sales of $7.7 billion, operating margin of 21.9%, earnings per share of $2.39 and free cash flow of over $800 million. These results were better than our expectations as we continue to drive strong operational execution and spending discipline. We also benefited from significant operating leverage, particularly in Transportation and Electronics, which was driven by strong organic volume growth in electronics and automotive. Our results also benefited from the acceleration of certain nonrecurring actions, which I will go through in more detail on the next slide. Our first quarter adjusted sales of $7.7 billion exceeded our expectations of $7.6 billion as we delivered improved organic growth, which was partially offset by a headwind from foreign currency translation. We delivered adjusted organic growth of nearly 1% or up 2.4% excluding geographic prioritization, product portfolio initiatives and last year's disposable respirator comp. Organic growth was driven by our Transportation and Electronics business as the team won share gains from spec-in wins and new product introductions with automotive and consumer electronics OEMs. This drove strong organic growth as the OEMs ramp production for new launches for end customers. Geographically, year-on-year strength in China and EMEA was driven by our strength in electronics and automotive. Sales in the U.S. were flat year-on-year with industrial and health care end markets showing relative strength, offset by consumer retail softness. Please turn to Slide 7 for details of the components that drove our year-on-year operating margin and earnings performance. As mentioned, on an adjusted basis,…

Thanks, Monish. Paying a competitive dividend has been a priority for 3M for more than 100 years. This will continue to be true following the spin-off of Solventum. As part of the spin, we distributed 80.1% of Solventum's outstanding shares to our shareholders and post-spin have made the decision to reset 3M's dividend. As a result, we anticipate a dividend of approximately 40% of adjusted free cash flow. This represents a dividend that is in line with our industrial peers and well above the S&P 500 median with the potential to increase over time. We expect to seek Board approval to declare the second quarter dividend in May with payments anticipated in June. In addition, post spin, we have stepped back into the market for share repurchases. Before I conclude, let me emphasize some important points from the quarter. Q1 was a strong start to the year, driven by significant improvements in operational execution as well as the achievement of several major milestones toward our strategic goals, including the successful spin-off of Solventum and the settlement of 2 major legal matters. I would like to thank our people for their dedication and continued focus on delivering value for our customers and shareholders. Through their efforts, we are well positioned to deliver a strong 2024. Tomorrow, May 1, I transition into the role of Executive Chairman. I look forward to working with Bill Brown as he assumes the role of CEO. That concludes our formal remarks, and we will now take your questions.

[Operator Instructions] We go first this morning to Julian Mitchell of Barclays.

Congratulations, Mike, on the transition. And obviously, you'll stay very involved in the Executive Chairman role.

Yes. Thank you, Julian.

Absolutely. Maybe just to start off with, Monish, you packed a lot of clarification on the moving parts into the prepared remarks. Maybe just to try and understand a little bit better the quarterly sort of cadence here. So it sounds like second quarter EPS, down slightly maybe versus the sort of [ 170 ] comp ops number for Q1, and that's really because of the stock comp and the one-timers that you talked about. So do we think about sort of second quarter revenue being similar to first quarter margins down a bit because of the stock comp and one-timers? And then as we step into the second half, you've got higher revenues half-on-half and then sort of good operating leverage of the stepped-up revenue. Maybe just any thoughts around that.

Yes. I would say, Julian, so you summarized it. I would go back and say there's so many moving pieces that I would really say first look at first half, second half. And then when you do that, we would also show you that on revenue, we are starting to hit normal seasonality trends. So on revenue, the first half, second half is 49-51. And then the margin split first half, second half is 47-53. And the reason for that is some of the items that you've mentioned. Part of the biggest item there is the -- is Solventum's first quarter, where we don't get reimbursed for TSAs, and that's driving the 47 to 53. If you now go into the important factors just into Q2 to make sure that I cover all the points, restructuring charges are between $250 million to $300 million for the year. 70% is weighted to the first half. Similarly, you mentioned it too and I said that in my prepared remarks, we will incur stock-based compensation headwind around $120 million to $150 million. FX, the stronger dollar continues to remain in the second quarter. So we got to factor all that in. And I would say that's why we've given you first half, second half guidance, there are more details. I know Bruce and the team can walk you through it. But if you start with that, I think you'll get directionally in the zone that we are talking about.

That's very helpful. And then maybe a second question, perhaps more for Mike, but on capital allocation. So clearly, you and the Board spent a lot of time thinking about balance sheet leverage of 3M to settle on that sort of 40% dividend payout ratio. You also mentioned, though, on the buyback some step-up since the Solventum spin. So maybe help us understand kind of how you and the Board are thinking about 3M's leverage requirements from here. How meaningful could a buyback be? And then tied to that, Monish, any clarification on interest expense guide for this year based on that balance sheet?

Sure, Julian. I would start with we continue to be a strong cash generator, and we're well capitalized to invest in our business, which is -- continues to be the first priority for capital allocation and also return capital to shareholders, including the dividend that we've been talking about and share repurchases. And I -- my comment, we're back in the market. The pace will depend on how we view the macro, how we look at our performance, the intrinsic value of our stock. We haven't declared really how we're going to move forward on that. But I -- so well positioned to, like I said, invest and drive the capital allocation priorities that we talk about.

Julian, I'll answer your second question. When we talk about below-the-line items, we talk about 2 things: mainly it's pension and it's interest expense/income. So I'll combine the 2. So our guide is net expense of $75 million to $100 million or $0.10 to $0.15 per share. Q2, as I mentioned, will continue to benefit from the interest income that we receive from the -- dividend that we receive from Solventum of $7.7 billion. And so therefore, the $75 million to the $100 million guide for the year will mostly be weighted to the second half of the year.

We go next now to Nigel Coe with Wolfe Research.

Mike, hopefully, the Exec Chairman role is a bit less stressful than Chairman and CEO role. So congratulations on that. So just a few more -- maybe a few more details on the 2Q, Monish. The restructuring -- and I understand 70% in the first half, 30% in the second half. How does that phase between 1Q and 2Q? I'm just trying to understand whether that's fairly level-loaded or whether there's a bit more coming through in the second quarter. And then on the restructuring, I see the total charges. But in terms of the gross payback, what kind of payback are we assuming on that restructuring? And are we still on a 3M RemainCo basis, still on track for $700 million to $900 million of savings by '25?

Yes. So I'll start with the first one, Nigel. As I said, it's 70% weighted in the first half of the $250 million to $300 million range. In the first quarter, at a holdco basis, we did $122 million of restructuring that I've said in my announcement, and then you'll see Health Care was approximately $20 million of that. So you've got $100 million that is on a RemainCo basis. And so the balance is -- so you can get the math. When I come to your next piece on payback, I just wanted to start again, I've said this before, I'll say it again, you have to look at restructuring in total. So when we started this program we said, there are multiple things we wanted to achieve. Number one was we wanted to change the way we work, and the way we achieved that was streamlining our supply chain, getting a shorter path to customers and third was reduce stranded cost, have a lighter center as well as create oxygen to invest in the business. And when we put that program together, that was including holdco. As we have now spun out Health Care, you can see all those items starting to come in, which is margin expansions coming in. And that is happening because of the improvement we have in our supply chain and the way we work. It's happening because we are closer to customers. It's happening because we have reduced stranded cost. When we started our journey and we announced the spin of Health Care, we had said industry benchmark was somewhere between 1% to 1.5% of sales, which is like $400 million to $450 million. And now our dis-synergies from the spinout of Health Care are the $150 million to $175 million, and we're going to keep working that, in some cases, grow into it; in some cases, we'll keep working it down. And you've seen we've been able to do that. And at the same time, we've created oxygen to invest in the business. And Mike mentioned some of the spec-in wins that we have got in TEBG. We have continued to invest in CBG. In a downmarket, we have done the same with SIBG, and we had over 30 new launches across the company in the first quarter. So that's the way I would look at it. On a payback basis, I would tell you that we are still continuing to have very good payback. And in fact, we were able to accelerate some of our restructuring actions as well as get some onetime gains like property sales in Q1. So overall, look at the total margin, 200 to 275 basis points up on a year-over-year basis, which is a reflection of all the actions the team has taken.

Great. My follow-up question is on the dividend. There's been a huge sort of [ core ] industry about the potential dividend scenarios, but hopefully, that's now behind us. But the 40% payout ratio on adjusted free cash flow, is the intent, Mike, to keep that 40% relatively stable going forward, so as you grow earnings and free cash flow going forward, the dividend should increase as well?

Yes, I would think of it as a guide of how we're thinking about it. The approximately 40% of adjusted free cash flow, that's the way the Board -- that's the guide that the Board is looking at as we go forward. So I -- that's where we start as we go forward with continuing operations. That's the best way to think about it, Nigel.

We go next now to Andy Kaplowitz at Citi.

Mike, thanks for all your help over the years. Congratulations.

Thanks.

Can you update us on your industrial channels within Safety and Industrial? Are they generally to the point where you have better visibility and destocking is mostly over? And it does seem like -- for instance, Industrial Adhesives and Tapes has been turning the corner over the last couple of quarters. Is that a bit of a canary in the short-cycle industrial businesses that you have?

Yes. Andy, I would say if you look at inventory in the channels as kind of a measure of that, that's -- I would say it's been reducing some of the inventory in the channel really around improving supply chains. We talked a bit about this last quarter. As supply chains improve, our distributors in the channel are taking advantage of shorter-cycle times and managing down some of their inventory. There's also a bit of a cautious outlook. Monish talked about a mixed outlook for industrial markets. And if you think about it, look at our results from Q1, Industrial Adhesives and Tapes and Personal Safety, when you adjust for the year-over-year respiratory change, those were both -- they are multiple market -- multiple industrial market-focused, and they are both up slightly in the quarter. So they're seeing a bit of both across their markets. We have some market-focused businesses like Industrial Mineral as that's seeing strong demand. And then we have some other market-focused businesses in industrial like automotive aftermarket and our kind of our industrial specialties, which was a lot of our products that go into shipping. So the shipping dynamics, the mild winter impacts on auto repairs, those are -- we're seeing kind of the downside of that in some of those markets. So it's a mixed market. Again, the channel is adjusting, taking advantage of improving supply chains and, I would say, somewhat cautious about the broader mixed nature of those end markets.

That's helpful, Mike. And then, Monish, obviously, you mentioned the relatively good T&E start. You did have a pretty easy comparison in Q1. But 7% growth, you're still guiding of low single digits. I know it's up a little bit. You mentioned the buy ahead was a big part of the Q1 improvement. But is there any reason why your improved spec-ins wouldn't continue in electronics? And then are you seeing any improvement at all yet in semiconductors and those kind of end markets?

Yes. I would say, first, we are thrilled that we've got the spec-ins, so that's a big positive. As I said, 2/3 of the total, 6.7%, that's approximate. We don't have the perfect number. We believe it's partly driven by inventory normalization both in auto and electronics, plus customers starting to buy ahead as they start building for end markets or consumer end markets. What I would tell you is second half is so important for the consumer electronics business, and we are watching that trend. If there is a big pickup in consumer electronics, we will definitely grow with it because we are now specced in to many more devices than before. So that -- I would say second half is what we are watching, but this is where we see it right now. And then on semiconductor, our view is we saw the first quarter slow, and we believe that this will pick up in the second half, Andy. And that's what we are watching there, too. All indications keep saying that it's going to get better, but we are watching those trends.

We'll go next now to Scott Davis of Melius Research.

Best of luck to you, Mike, in your next endeavors, et cetera.

Thanks, Scott.

Guys, I had a couple. I'll just start with a [ knit ] and then ask a real question. But why -- I'm looking at Slide 27. Why does the 2026 payment dip? What was kind of the -- just walk us through a little bit of the color of the kind of how these payments were negotiated annually.

Yes. So there were so many facts that were put together, Scott. This is one of them on how these profiles were scheduled. So there's no particular reason to give it out to you. This was a lot of factors, pluses and minuses that put the whole agreement together.

Okay. So there's nothing specific in there that 2026, you'd...

No.

I can take it off-line.

Yes.

Okay. More importantly, Mike, if you look back at the long-term growth rate ex Health Care of 3M, it's been kind of sub-2%, so below GDP. And that includes some price inevitably, I would assume. What do you think the entitlement growth rate of this business is longer term? I mean just go back 10 years, so I think that's a full cycle for sure. But when you think about the next 3 or 5 years, what do you think that the business should be able to grow at? Obviously, Bill is going to have his own initiatives. But what is your view on that?

Yes. Scott, I won't get ahead of Bill and kind of how he's going to think about going forward. You saw our guidance for this year, it's in line with macro. Importantly, when you look at what drives our growth, it's really investing in the business. The organic investments have been the dominant driver of growth for us as a company, and we expect that to continue as we move forward. Like I said in my speech, making indispensable products for our customers, and that means leveraging our innovation, our technologies, our manufacturing capabilities to come up with differentiated solutions for our customers and do that more and more prioritizing our investments. As we've talked a lot about, where do we prioritize investments? In attractive markets, markets that are -- have growth dynamics that are better than the macro. That's kind of the way to really drive this growth strategy forward, and that's how we think about it. That's how we focus. It's important that we really do prioritize leveraging our innovation so that we create not only the growth, but the differentiated value leader in a way we deliver value to shareholders in terms of margins and cash. And so it's a -- that's the way I think about the formula for growth, and it's been the foundation for building the company, and it's a foundation for success as we go forward as well.

Totally fair. I'll pass it on, but congrats on getting all this work done the last year. It's -- I'm sure it's been a lot of heavy-lifting. So congrats and best of luck this year.

Thanks, Scott.

Thank you.

We'll go next now to Andrew Obin of Bank of America.

It's Andrew Obin. Mike, congratulations, and great job getting all this legal stuff out of the way.

Thanks, Andrew.

Yes. So I would take an issue with Scott's statement about lack of growth at 3M. I don't know where he's getting his numbers because pre-COVID, company has grown at, on average, at 3.7% organically based on my model. So I actually have the exact opposite question. What is this, for example, safety and growth, right? You say that industrial production is growing 2%, yet the guidance is 0% to 2%. You have 100 bps sort of this portfolio geography drag. Can we just dig in as to what you think are impediments to growth coming out post COVID? Because it does seem thing has changed after that. Can we just -- right? Because I would have expected that you would outperform industrial production, right? And every year, there seem to be sort of new headwinds that are completely logical, but they seemingly come out of nowhere. Why the company's growth sort of seems to be below average?

Yes. Andrew, it's kind of building on maybe my answer to Scott. The macro is an important part of this, and we think about the macro for us -- for 3M is a combination of GDP where we have our Consumer business, and then it's also around industrial production in a broader industrial and transportation and electronics. But importantly, we go down and we really look at the markets that we're part of. And so driving that growth and, again, the way we deliver on growth better than macro or in line with macro is to pick markets where we can really leverage our innovation and be differentiated and drive our growth out of those attractive markets. And so what is the driver of it? Maybe if you don't do this well, that's your impediment question is to really prioritize those attractive markets where you can -- where we can deliver differentiated 3M solutions. That's the model that will drive us forward.

Right. And then maybe just a follow-up. I know you guys are tweaking your global distribution, exiting some, right, direct distribution. You are starting to utilize distributors. Can you just talk about sort of what have you experienced so far with these changes to the models? What are the pros and cons? Because some of the commentary referred is that 3M is leaving money on the table with its distributor, some sort of legal risk associated. How do you mitigate those? And what has the experience been so far?

Yes. Andrew, just talking about the change, so this was part of the restructuring -- actually was part of the model change that we've been making, really focusing on leading through our businesses globally and prioritizing where they -- the most important parts of their business and looking at what's the best model to put in place. And so geographic prioritization was the way we termed it. And so we focused on some of those smaller countries that we operate in. We talked about approximately 30. We've launched this in 27 countries at this point. It's really a model to move to an export model. And we do have to -- it's much more than kind of the way we've talked about on the headlines. You have to set up a successful model. You have to set up a model to support distributors. You're changing from the traditional 3M model in those countries to an export-driven model. So it's important that we not only have capabilities in region, but globally to support that kind of model in those countries. It's also important that we have a strong governance everywhere we operate around the world. So we continue to focus on advancing our governance model as we make those changes. So it is much more dimensions to the change. We're off to a good start and successful with that. We call it a revenue impact this year because we're switching to an export model. And so we're driving a different price model with our distributors. But that is going to continue to drive, I think as it succeeds, will drive very good performance for us on a go-forward basis.

It also helps us -- to add on to Mike's comments on pros, benefits, you take a lot of structure out from those countries, that also has benefited us on the margin line. It also helps us focus our portfolio. Like what are we going to sell? And therefore, it's SKU rationalization that once you get through this, you will have a different inventory profile that support those smaller countries. So they're still very important countries for us. In no way are we walking away. It's just a different way of approaching them.

We'll go next now to Joe Ritchie of Goldman Sachs.

Mike, I echo all the best of luck, congratulations.

Thanks, Joe.

I'm going to start just -- just let us start with a quick just clarification. So just apologies if I missed it, like Slide 15, where you give the operating income number of $1.2 billion. So if I just kind of back out the performance this quarter, it assumes Health Care stranded cost of roughly $100 million to $150 million goes to the segment. So I just want to make sure I have that right. And then also on that slide, on the restructuring charges, Monish, going back to your comments from earlier, so the way to think about it is $100 million-ish the first quarter ex the Health Care number, that's the apples-to-apples comparison to the restructuring charges of $250 million to $300 million for the year?

So try me again on the first piece of the question because I didn't follow exactly. But I'll answer your second one. So the $250 million to the $300 million is embedded in here, and that's on a continuing ops basis. So that does not include Health Care.

Okay. All right. Great. Yes. So just on the operating income quickly, I think you guys have roughly $1.7 billion this quarter. I think we had like roughly, call it, $350 million or so in Health Care profit. So you back that out, that's above the $1.2 billion number. So I was just basically trying to understand how much the Health Care stranded costs go into the other segments.

Yes. So I think that there are 2 pieces to this. One is the dis-synergies of Health Care, which on an annualized basis right now, we think it's $150 million to $175 million. And then the second piece of this is, as I've mentioned, there's $250 million of cost that we hold on behalf of Solventum for which you get reimbursed in April 1 onwards. So you eat Q1 with no reimbursement basically. So if you look at our Other segment, Joe, you will see -- or Other category, you will see a loss of $65 million in there in Q1. And that's basically, we don't get reimbursed for that in Q1.

Got it. Okay. No, I think I've got it and can follow up afterwards...

Yes, Bruce can follow up off-line with you.

Yes, yes. And then just another quick follow-up on the electronics business. And so I know the stats you kind of gave on demand and then inventory normalization. Is it possible to kind of parse out the inventory benefit that you're seeing? I'm just curious like how much of that 15% came from just inventories normalizing just because -- maybe I'm just not close to it anymore. But I'm just curious, like what other like products are really kind of driving end-market demand for electronics at this point?

Yes. Joe, what we talked about in the results for TEBG in the first quarter in electronics, these are spec-in wins on some of the mobile platforms. And so the inventory, it's getting ready for the demand, really the demand that they're seeing into the second quarter. And at this point, it's really -- that's the step-up. And then there's a portion of it that's inventory kind of filling into the value chain of those OEMs. But it's -- the bigger part of it is the spec-in -- for us, anyway, the bigger part of it is the wins in the spec-in side of it.

And Mike, that's smartphone demand?

It's mobile devices, largely phones. Yes, yes, largely phones.

We'll go next now to Steve Tusa of JPMorgan.

Mike, congrats again, and thanks for all the help over the years and the effort.

Yes. Thanks, Steve. Thanks.

Just to be clear, you said 40% of adjusted free cash flow. Can you just help us with what the construct of that is? What is adjusted free cash flow?

You're referring to the dividend, Steve, I presume?

Yes, just the construct. I don't need a number for cash. Just how do you define that adjusted free cash?

Yes. So if you look at all our material that we have submitted, you will see historically what we have broken out is from our GAAP results, there are certain items that we have been adjusting to get to adjusted results, which is litigation expenses. Number one. Number two is PFAS because we've been exiting -- we've been showing PFAS as an exit. And number three was all the costs incurred to spin out Solventum or the Health Care business. So it's the same construct there. And as always, Steve, if we decide to change something, we'll keep you all posted on changes to adjustments. So those are the big ones. And if you see our press release statements or schedules, you will see that split by category in there.

Yes. Steve, it's all detailed in our press release attachments.

Right. So whatever you're paying out in cash for these liabilities, that is adjusted out of free cash. So for example, the $4.3 billion or whatever in this year will be adjusted out, and then you take whatever we want to assume for free cash flow and then take 40% of that?

Correct.

Correct.

We'll go next now to Jeff Sprague of Vertical Research Partners.

Thanks for clarifying that on the dividend. That was a key question. Also, I just wonder, to any degree, has Bill Brown been involved in the kind of the formulation of the updated guidance here, whether explicitly or tacitly? And I know he's formally starting tomorrow, but just any color on that would be interesting and helpful.

Sure, Jeff. Bill is, as you would expect, getting ready to step into the role. He's been engaged with myself and senior management and the Board since the announcement. But he's really -- his part is being informed and getting ready to start, as you said, tomorrow. He's not part of the decisions on what we've laid out here in the earnings call today. So he starts tomorrow. Bill starts tomorrow, and I look forward to working with him as he does.

Great. And then just thinking about, again, the cash flows as it relates to the liability outflow that we're looking at here. What guidance, if any, could you provide on what you're thinking on insurance recoveries? And if you're successful in those claims, when those might start flowing as potential offsets to the liability schedule?

Yes. So we believe that we are eligible for insurance payments. We have put our insurance providers on notice for PWS and for Combat Arms. And in fact, for Combat Arms, we have -- we are working on an arbitration to recover that. So as you know, these things take some time to work through, and that's what the teams are working on. And we'll keep you posted as soon as we come to know on what that number could look like.

We go next now to Brett Linzey of Mizuho.

Congrats to Mike.

Thanks, Brett.

Yes. I want to come back to the portfolio and the geographic prioritization. So you called out the 100 basis points headwind in '24. Should we think of the first quarter as the starting point and just simply anniversary that headwind for the balance of the year and it's complete? Or is this more of a multiyear initiative with some top line drag?

So there's a little bit of drag next year, but I -- it's not big. I would just say the first half of this year will be slightly heavier than the second. But directionally, I would say, yes, you can use the first quarter as the math that gets you across the 4 quarters.

Okay. Great. I guess the follow-up, you called out some contribution from those initiatives in each of the segments. Are you able to size what that benefit is? And I would imagine it's sort of structural, but any color would be great.

Yes. I would just say when we look at it in total is why are we doing these portfolio moves or geographic moves. It comes down to it allows us to do better focus, better prioritization. So at the end of the day, you're going to see it in multiple places. You're going to see better sales growth in other products because we're exiting these and the teams can focus, whether it's ad, merch, et cetera. You will see it in inventory because, again, we'll be able to focus our inventory on the products that we want to focus on. And you're going to see it a little bit in margin. That margin will take a little bit of time to come through. But some of these products that we are exiting are below our average margin. So it does help us lift the average margin. And then as I said on the geographic prioritization side, you get a lot of structure out, which is already embedded in our margin that we are seeing. And we are getting some onetime benefits on property sales that we disclosed this quarter.

We'll go next now to Joe O'Dea of Wells Fargo.

I wanted to ask on PFAS, and you've talked about the exits there, kind of progressing to plan, if not a little bit ahead of plan. But just how do we think about alternatives? I think there's been press over the years on different applications across a number of different end markets when we think about semiconductors or military or auto. Do you expect to participate in that? I mean, where are you on the sort of product innovation pipeline and being able to sort of provide alternative products to what you're exiting?

Yes. And Joe, as I said in my comments, we work with each of our customers as part of the transition. I would say there's kind of 3 alternatives for them. One is PFAS from another source. A number of the applications, many of the significant applications, they're challenged to find an alternative. So that's what they're looking to do is source PFAS from another supplier. The second one is perhaps there's a chemistry that has similar properties that isn't PFAS, and you can move into that. We're exiting PFAS, and we're not going to move into other chemistries. They'll be durable and persistent to meet the requirements of these applications. The one area where we can help and what we're doing for ourselves is working to discontinue the use of PFAS in our products. And we're engineering them all. We're designing them. We're on them. And there's a number of applications our customers have where that's very difficult to do and challenging, and they don't know a solution today. But for us, the majority -- the vast majority, we're already worked through solutions. So that's something that we can help customers with, and we are. We're helping them look at the alternative ways to design and engineer their processes and products.

That's helpful. And then second question is just related to CERCLA designation and really just trying to understand what the designation versus not getting the designation means at a high level. I think when you first announced this being proposed, you talked about how 3M's view was this would not lead to a timely or appropriate kind of remediation. But just to try to understand, having the designation versus not having it at the end of the day, kind of what that means.

Yes. There are certain, I would say, EPA responsibilities that would come with CERCLA designation. We, at this point, we don't anticipate an impact on our ability to serve customers. And we'll -- as we better understand all of those requirements, and we're committed to meeting and complying with the requirements under CERCLA and the EPA guidelines.

And we'll go next now to Deane Dray of RBC Capital Markets.

My congrats to Mike and also to the team on orchestrating all these moving parts.

Yes. Thanks, Deane.

Thank you, Deane.

And just a quick follow-up on that last PFAS question. So the enforcement actions by the EPA, they set PFAS as hazardous. So that's a milestone and then in the process of setting up the Superfund. So would either of these actions put you closer to be able to set a reserves? I know you couldn't before for accounting purposes. It was not estimable or the probable, but now we're closer to that. So are you closer to where you could be setting reserves for these remaining unaddressed PFAS liabilities?

Yes. Deane, we are -- as I've said a number of times, we're proactively managing this, all aspects of the PFAS dynamic. And as soon as we can get to probable and estimable, we will take the reserves. And we'll keep you informed, and I would refer to our SEC filings for updates.

That's really helpful. And just one other one, I'm sorry. Is there any scenario where 3M would continue to manufacture PFAS after the year-end 2025 target?

No, Deane, we're committed to that exit. We're on track, and we're committed to follow through.

This concludes the question-and-answer portion of our conference call. I will now turn the call back over to Mike Roman for some closing comments.

This concludes my last earnings call as 3M's CEO. I would like to thank the investors, shareholders, analysts, employees and family who join these calls each quarter. I greatly appreciate your questions and diligence in working to better understand our company. I'm confident that under Bill's leadership, our people will continue to build on the momentum from our strong start to the year. Thank you for joining us, and have a great day.

Ladies and gentlemen, that does conclude today's conference call. We thank you for your participation and ask that you please disconnect your line at this time.