Ladies and gentlemen, thank you for standing by. Welcome to the 3M Fourth Quarter Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded Tuesday, January 21, 2025. I would now like to turn the call over to Chinmay Trivedi, Senior Vice President of Investor Relations and Financial Planning and Analysis at 3M.

Thank you. Good morning, everyone, and welcome to our fourth quarter earnings conference call. With me today are Bill Brown, 3M's Chief Executive Officer; and Anurag Maheshwari, our Chief Financial Officer. Bill and Anurag 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 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 will be making certain predictive statements that reflect our current views about 3M's future performance and financial results. These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Item 1A of our most recent Form 10-Q lists some of the most important risk factors that could cause actual results to differ from our predictions. Please note throughout today's presentation, we will be making references to certain non-GAAP financial measures. Reconciliations of the non-GAAP measures can be found in the attachments to today's press release. With that, please turn to Slide 3, and I will hand the call off to Bill. Bill?

Thank you, Chinmay, and good morning, everyone. Before I start, I'd like to welcome Chinmay to his first earnings call as the Head of Investor Relations. He has been with 3M for three years, leading the FP&A function, and was with GE before joining 3M. He's replacing Bruce Jermeland who retired on January 1. Bruce led IR for the last six years and was with 3M for more than two decades, and we wish him well in his retirement. 2024 was a pivotal year for 3M. Earlier in the year, we spun off our Healthcare Business Group as Solventum and we settled two significant legal matters. We also substantially completed the largest restructuring program in company history, which focused on reducing complexity and improving margins. These changes weren't easy, but the team has done a terrific, job executing the programs and the results are showing up in our financial performance. This relentless focus on operational execution drove a strong finish to the year. Fourth quarter adjusted earnings per share was $1.68 on 2.1% organic revenue growth. The company generated free cash flow of $1.3 billion with conversion of 145%. During the quarter, we returned $1.1 billion to shareholders via dividends and share repurchases. These results capped a strong year for the company where we delivered $7.30 in adjusted earnings per share at the high end of our guidance and up 21% year-over-year. Organic sales grew 1.2% and we generated $4.9 billion in free cash flow with a conversion rate of 111%. Turning to Slide 4. The fourth quarter results reflect our focus on the fundamentals. Each business group drove positive adjusted organic growth. The first time in nine quarters that all business groups grew together and it was broad-based. 12 of our 16 divisions posted positive growth compared to only…

Thank you, Bill. Turning to Slide 6. We had a strong finish to the year with Q4 performance coming in better than expected. Total adjusted sales were $5.8 billion with organic growth up 2.1%. All three business groups had positive adjusted organic growth in the quarter and performed better than our end markets. In the fourth quarter, global IPI was up 1.4% year-on-year and the markets we serve trended in line with expectations. Consumer electronics remained stable, automotive OEM builds were flat and consumer retail discretionary spending was soft. Geographically, our growth was led by China, up high-single-digits, driven by our electronics business where we continue to gain share and saw modest front-loading from an anticipated change in tariffs. The U.S. was up low-single digits despite the challenging macro backdrop with growth in Aerospace and general industrial. And EMEA was down low-single digits due to the continued weak environment, including a high single-digit decline in auto builds. Adjusted operating margins were 19.7%, down 20 basis points year-over-year, and adjusted EPS was $1.68 or $0.05 better than the midpoint of our guidance. The better performance was driven by $0.09 of volume leverage, higher productivity, and lower restructuring charges, more than offsetting the unexpected $0.04 headwind from FX due to the significant recent U.S. dollar strength. I will provide a quick overview of our growth performance for each business group on Slide 7. Safety & Industrial organic sales grew for the third consecutive quarter with 2.4% growth in the fourth quarter. This growth was broad-based with six out of seven divisions posting positive growth. We saw particularly strong demand for eBonding in electronics and hearing and body protection in personal safety. In addition, growth was driven from a large few power grid orders as anticipated in Asia and the U.S. for aluminum…

[Operator Instructions] Our first question comes from the line of Jeff Sprague with Vertical Research. Please proceed with your question.

Thank you. Good morning, Bill and Anurag. Hi, just on the top-line in particular, so I was wondering if you could give us a sense of to what degree sort of the operational execution -- product development has actually impacted the top-line already versus what you expect to kind of play out in 2025. Just thinking on some of these product launches and the like came later in the year. So perhaps we could start there.

So, good morning, Jeff. Thanks for the question. Yes, we were very pleased with the acceleration of new product introductions, as I mentioned in my remarks, came in above expectations, in fact, quite a bit above the expectations. But still very early. A lot of the products that we're launching are what we call Class III, so they're incremental. So year one sales on these products are going to be somewhat light and it will grow over time over the next several years. More importantly, as we grow our NPI launches next year by double-digit, we shift to more what I call higher octane or Class IV type products, which have more sales capability. We'd likely see more impact on the top-line from these launches. It's an important dimension. I think the team has built momentum. It's part of the governance process. It's a lot of -- it's the enthusiasm, the team. Some of it is shifting some resources around. We added 50 people in Q4 and we moved about another 100 people into R&D development in the quarter. So we're on the right track. This is a good sign. We've got to see it turn into a reasonable and substantial margin and income over time. But whatever we've seen in terms of launches, is built into the two to three guidance we see next year.

Great. And then maybe just one for Anurag. A lot of conversation last year as we were all trying to fine-tune our models on kind of the restructuring versus stranded costs and the like, just wonder within that $0.70 to $1 -- $0.70 to $1 bridge item, Anurag, you could give us a little bit of granularity on restructuring investments and stranded costs in particular.

Okay. Good morning, Jeff. Sure. Let me do that. And probably what I'll do is I'll break the pieces to the bridge. Yes. So at the midpoint of our EPS guidance, we are growing 10% to 14%, excluding the non-op items, which is quite strong relative to the midpoint of organic growth. So there are three factors for that. One of them is sales volume, which creates significant volume leverage as well as incrementals. So a 2.5% volume growth at the midpoint of the guidance and 35% incrementals, that's about $200 million or so. Second is the lower restructuring cost to your specific question. That's about $200 million tailwind into '25. So that's another $200 million. And finally, on the net productivity, that's about $150 million as well. And lots of pieces in that. The PFAS stranded cost is a -- is negative $100 million. We're making some growth investments as well, but offsetting that is overall net productivity through the factories, through our SG&A function as well. So you put all the three buckets together, it's about $550 million of margin improvement. FX is offsetting about $125 million of that or so. So the $425 million is at about -- at the midpoint about 160 basis points of margin expansion. So those are the three big pieces driving the operational growth of $0.70 to $1.

Great. Thank you for that. I'll pass the line.

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

Hi, good morning. Good morning, guys.

Good morning, Scott.

And thanks for the shorter presentation too. Hi, Bill, you mentioned the quota pull forward. I think you mentioned something about some changes in the sales organization. But if we just back up a little bit, what -- perhaps you could just frame kind of what you're trying to change with the sales organization and maybe a little bit more detail on what exactly does that mean when you talk about a quota pull-forward or as far as trying to drive growth?

Yes. So it's a great question. Thank you for that. When I laid out the original plan around driving top-line growth. It -- the basis is around driving more innovation and that's going to take time and I commented on that a little while before. Growth in the near term is going to come from selling more what we have on the market today. And that's an important dimension to this, which is just a more aggressiveness in our frontline sales and marketing resources. They're dealing with right now with not a lot of new things to say to the customers because we haven't been innovating as much. And our on-time, in-full performance out of the factories has not been that great. It's improving, but it has not been that great. So the sales force is challenged in some ways to sell and I think they've been on their back feet in some ways. And I think what Chris and the team at SIBG and others across the company are doing is really leaning into this. So what we're trying to push for is making sure that the sales leaders, the sales reps out in the field, they know what they're expected to do in 2025 early in the year. So that's -- they're getting out of gates January 1 with our quota, their targets specific things around closed one wins. Typically, that would have been in early April when it rolls out. So a little bit lag. So that's why Q1 might not have had some momentum. A little more structure around how the sales managers and area leaders are working in terms of their cadence, reviewing the progress with their sales reps, that's quite important. Some of the other dimensions that we're pushing on here is around cross-selling. We -- it's a pilot. It's six combination pairs that we've done, six or eight different distributors. So it's small pieces here. But in December, we saw some pretty good momentum building. And I'm pretty optimistic that over this year and next that there's going to be some benefits for cross-selling. We're working on pricing and reinstituting some price corridors and changing our governance process on pricing. So when you step back, I think all of this gets back to the original premise was -- we've got to get better at selling what we have today on the marketplace. And that's where the back-end of '24 and then most of '25 is going to come from, which is why I think it's important to investors to understand that piece. The NPI will come over time. I'm very confident about that, but we've got to get better at selling more what we have on the market today.

Makes sense, Bill. And just -- I think -- when you talk about on-time, in-full, it seems very fundamental. But in theory, if you had 100% on-time, in-full, would your growth rate be 100 basis points higher, 200 basis points higher? Is there any way to kind of narrow that down?

Yes, it's hard to quantify, Scott, it's a good question. Clearly running at 88% is not where we need to be. We're feeling -- we're running around 93%, a little over 93% in Consumer. We should be in the high 90s. That's the expectation of some of the big-box retailers. So we're getting there. We're doing better there. We're over 90% in the Transportation business. That's good. It should be better. The concern really is in SIBG, the Safety & Industrial business in the low 80s. We're definitely losing business for sure there. We are not delivering. When somebody needs something right now and we don't have it available, that is causing them to go someplace else, even though we have a better brand, sometimes a better product, and attractive price. So it is costing us sales. So I do know that as a fundamental part of driving top-line, we've got to get better at exercising the supply chain and making sure we meet our customers' expectations.

Okay. Best of luck. Thank you, guys.

You bet. Thank you.

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

Thanks. Good morning, everyone.

Good morning, Nigel.

So -- morning. Bill, so you sound a little skeptical about the 1.9% IPI forecast just based on that's where we were this time last year. So I'm just wondering when you went through the plan process, looked at the bottoms-up kind of projections from the businesses, and then you overlay that with the top-down, what kind of haircuts have you taken to that 1.9%? And then that brings me on to my next question, well, the real question I guess. What have you baked in for pricing in 2025? And then just going forward, what is the sort of framework here? Is it IPI plus price? Is it IPI multiplied by some kind of factor plus price? I mean, any way to think about that growth function going forward?

So it's a good question. I don't think we're going to deconstruct the elements of growth between price and volume and share gain and other parts of it. But look, we did enter '24 with an expectation IPI was going to be a bit better and it softened through the year. There was an expectation of auto builds and that softened quite a bit in the back-end of the year. As we were three months ago, thinking about IPI in 2025, it was higher than we actually are sitting at today, it was on 2.4%. The auto-build was at that point in time higher expectation for '25 than we sit here today. So these indicators, they're just that. They're indicators and we use them. It's an important dimension, but it's sort of a starting point. We -- of course, we've done a bottoms-up review of our business. We feel confident that 2% to 3% is the right place to be. When you look at a blended macro between IPI and GDP because we're about 80% weighted to IPI, 20% to GDP, it's around 2.1%. So the center point at 2.5% is a little bit above the macro. We know that some of the initiatives we're putting in place around commercial execution, new product development, getting our factories run a bit better, those are all very important dimensions. But Nigel, again, it's -- we're two, three weeks into the year. We've got a new administration in Washington. There's lots of conversations floating around tariffs. We'll see as the year goes by, both progress and traction of some of the initiatives we have internally plus what happens in the macro and we'll update investors accordingly. So right now, we feel good about 2% to 3% is the right place to start in '25.

Great. Thanks, Bill. And then, Anurag, for you. Thanks for the details on the margin bridge. The $150 million of net productivity, that appears to be mainly the payback on the restructuring actions in 2024. So I'm just wondering if there's anything from some of the more structural drivers such as improving -- ultimately improving footprint, supply-chain, et cetera?

There is. So let me break up the $150 million in a little bit more detail, yes. So first, just on the headwinds over there. So I said it was $100 million of stranded costs. The incremental investments we are making as well, which is about $225 million, some we did in '24, some in '25. It's both a carryover as well as in-year. So if add the two together, it's about $325-ish, $350 million. Now offsetting that, you're correct, there is probably $70 million of restructuring benefits, about $280 million. But then to get to the positive $150 million, we're driving about more than $400 million of net productivity. And that is coming through again through supply-chain, be it procurement, more on the G&A efficiency and a few of the other areas that Bill has spoken about. So overall, I would say the productivity driving is $450 million, just being offset by all these other line items to get us to $150 million.

Okay. That's helpful. Thanks.

Our next question comes from the line of Andrew Kaplowitz with Citigroup. Please go ahead with your question.

Hi, good morning, everyone.

Good morning.

Bill, you had mentioned in the Conference Circuit in December that you saw a bit of an uptick in industrial demand in Q4. Did that continue into January here? Do you think it was just related to pre-buy ahead of tariffs? Or could it have been a reflection of maybe some modest recovery in short-cycle markets? How would you characterize it?

Yes. So we did see, I'd say, across the industrial part of the portfolio, not referring to the Consumer side, but the industrial part of the portfolio. We did see order rates, first of all, they were very steady through the quarter which I think was very positive. They were a tick higher than they were in Q3. The order rates were somewhat higher than the growth rate -- organic growth rate in the quarter. So there's a bit of backlog that was built into 2025. Those are all good indicators. But we are a shorter-cycle business. So we don't really live off backlog. It's more of a book-and-ship type business. But there's small little indicators. It was pretty broad-based. There was no specific region or business that was the driver of it. That also is somewhat encouraging. Again, it's -- and I contrast that to where we were in Q4 of '23, where I think there was a pretty dramatic tail-off in orders towards the back end of December, which got the team a little bit shaken in some ways. We did not see that happen here. So those are all good indicators, which is why when we look at 2%, 2.1% organic growth in Q4, that we feel that that's a good floor, if you will, for 2025. But I think it's good news. It's holding steady. And again, it's a reflection of some modestly improvements in the industrial markets. But again, it's kind of early days.

Helpful. And then Anurag, can you give more color into '25 margin guidance by segment? And then also comment on T&E margin particularly in Q4 '24 as it seemed a little weak in Q4 versus the other segments.

Yes. So first, let me talk about Q4 and then I'll get into '25. So overall, our Q4 came in better than expected across, from our expectations what we gave in the October guide, across all the three segments. Yes? And as I noted in my prepared comments, it's probably $0.05 higher than what our midpoint of our guide was because of volume and productivity with FX being the big headwind in the quarter, which was unexpected. Now on TEBG, we did expect the margins to be lower in Q4 seasonally one -- of course, between Q3 and Q4 because of under-absorption as we clear out inventory. So that was a big reason. And if you look between Q3 and Q4, sequentially, we improved inventory by 8 days. So that clearly has an absorption issue. Second is, we started making growth investments, which we are seeing in the revenue right now. That was a driver for it. And FX, if you -- TEBG does have a fair amount of business outside the U.S. so that impacts it as well. So you put all these three things together, the margin is lower. It actually came in better than what we expected. So overall, if I look at all the three business groups for '24, the margins came in a little bit better than expected. As we go into '25, we're probably not giving guidance right now very specific to each of the segments. But the 130 basis points to 190 basis points range that we gave in terms of margin expansion, we expect all the three business groups to grow a -- quite a bit. The TEBG could be a little bit lighter than the other two because of the PFAS stranded costs, a large part of it is in TEBG. But having said that, we expect good margin expansion across all the three business groups.

Very helpful, guys. Thank you.

Thank you.

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

Hi, good morning. Maybe just the first question, trying to understand the sort of operating margin expansion framework. So you talked about, I think, Anurag, $450 million of overall productivity improvement in 2025. In the past or recent past, let's say, Bill, you've talked about that sort of $250 million, $260 million COGS productivity number, so as a sort of annual placeholder. So just trying to understand the kind of delta between that. I'm guessing $450 million is not a medium-term placeholder because you have some extra savings this year from the 2023 plan. But maybe just help us understand sort of how to think about productivity on top of that 35% core leverage placeholder.

Sure. So, Julian, you're correct. What we have said is on the COGS line, 2% net productivity, which is about $250 million. The productivity, which I'm talking about is overall for the company, which also includes SG&A, other parts of the business as well. It also has one quarter of the TSA reimbursement, which overlaps over there too, right? So if you -- so those are the pieces, which takes us to $450 million. I mean, we'll provide more on the Investor Day in terms of the framework looking forward. But I think our goal is still to get 2% net productivity in COGS and for even on SG&A line to see whatever productivity we can get to offset inflation and other investments that we are making.

Thanks a lot. And I'll leave other medium-term questions for that event. So maybe just on the very short-term, Anurag. I think you had mentioned sort of 1.70-ish of EPS adjusted in Q1. The first half is just under $4, though I think based on that 50% comment. So you got a decent sequential step-up in the second quarter in EPS. Maybe just any very large puts and takes. It seems like organic growth pretty steady year-on-year, but anything you're calling out the sort of Q1 to Q2 delta?

Yes. Thanks for the question. So let me break it on the two parts. One is some discrete items in the first quarter. And then second is on the recurring operational performance and non-op impact, which you should see through the year. On the discrete items, as I mentioned in my prepared comments, due to the Solventum spin, there were few pieces, but a large part of it was the equity-based compensation, which I called out last year. We accrued in the second quarter. And as this year as we're returning back to historical trends, we'll be accruing it in the first quarter. This is about a $0.15 headwind in the first quarter, which becomes a tailwind in the second quarter. On the operational side, we'll see good flow-through from volume, lower restructuring costs, TSA absorption, all the productivity that we spoke about, which will offset PFAS stranded and mix headwind, and also all the growth investment. So there should be about $0.20 to $0.25 of EPS growth in the quarter. On the non-op, we have $0.40 for the year. So the first quarter is probably going to be closer to $0.08 to $0.10. So if you put all these items together, Julian, you've got $0.20, $0.25 of operational EPS growth. You minus the $0.8 to $0.10 of non-op and the $0.15 of equity-based comp, so the earnings are flat to Q1 of last year. Now as you move into the second quarter, if we continue the similar trajectory on operating performance and the non-op headwind, it will be $0.10, $0.15 of EPS growth. And then you add back the $0.15 of the equity-based compensation. So the growth in Q2 would be closer to $0.25, $0.30. So that's the bridge between Q1 and Q2. And then to your math, the first half and second half should be fairly equal in terms of EPS.

That's great. Thank you.

Our next question will come from the line of Steve Tusa with JPMorgan. Please proceed with your question.

Hi, good morning.

Hi, good morning, Steve.

Can you just talk a little bit about -- I'm not sure you mentioned it before, but the price assumption for this year?

No, we've not talked about that. I don't think we're going to disaggregate organic growth. It's embedded in the 2% to 3%. I think as we said before in the past, we do get price increases. The price increases cover material cost inflation and I expect it to be in a similar magnitude in '25. But we're not going to sort of give that specific number here today.

And is that a net positive or you're just -- you're just covering it?

No, it will be a net positive in this year. Yes.

Okay. And then just to -- one follow-up on the T&E segment in the fourth quarter. Margin was a little bit weaker than we were expecting. Anything in particular going on there in the fourth?

No, in fact, as I mentioned earlier, Steve, it's probably a little bit better than expected, nothing unusual. This is -- it's a combination of seasonality as you bring inventory down, some growth investments we made. But as you move into '25, you should see margin expansion again in TEBG. TEBG was actually our highest-margin expansion segment in '24 by growing over 220 basis points. So I would say nothing unusual in the fourth quarter, just timing of different things.

And then sorry, one more. Just on the corporate side, a little bit lower in expense this year. How does that look going forward? Is that a sustainable number in the model going forward into '26, '27, the corporate side?

Yes. We'll talk about '25 right now for, Steve. Just -- on '25, two pieces over there. Both equal halves, it's about $60 million each. One is just a reallocation between corporate and the business group. It's one last quarter of overlap over there because we did it for nine months of the year. So one is just the reallocation and the second is covering the TSA absorption costs about $60 million. So those are the only two pieces in corporate.

Great. All right. Thanks a lot.

Thank you.

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

Hi, guys. Good morning. How are you?

Good, Andrew. Good morning.

Yes, can we just talk about free cash flow? Good improvement in free cash flow conversion this year. As we think about next year, this squiggler line 100% free cash flow conversion. What kind of working capital benefit do you have dialed in? And what are their offsets in terms of cash flow or cash flow to keep it at 100% because you do have working capital release program and I would have expected that you could deliver over 100% quite sustainably for a number of years.

Yes. Hi, thanks for the question. Yes, we did very well in '24 as you could see 111% conversion, very good on the working capital as well where we improved the cash conversion cycle by 8 days. It's early days right now in '25. Reason we put 100% conversion is, one is CapEx is in line with depreciation. We'll continue to invest on the growth side as well as sustainability. So CapEx in line with depreciation. On the working capital, two things. As revenue goes up, obviously, we're going to consume more on the receivables side, but we continue to offset it by inventory. Our goal is to get to 75 days. We showed good progress in '24. We'll continue that in '25. Now we strive to do better than that. So as the year goes by, if we do better on inventory to offset the DSO impact or we -- there could be more than 100%, but that's the number we're going to start with and move from there.

Great. And just a question on Abrasives and Industrial Specialties. It seems to be sort of nice kind of in the coal mine short-cycle business. It's been consistently declining for a while. You do sound more optimistic. But if you look at these numbers, they seem to be relatively flat for the first -- for the past four to six quarters. Any visibility there, when do they turn positive? What are you seeing in the channel? What are you seeing at inventory levels at OEMs? I know auto is probably a decent market there, but just more color as to when do you think these businesses could turn? Thank you.

So, good question. I mean, so both businesses in the year were down low-single digits. They're very different, Industrial Specialties is a grouping of lots of different pieces, some are growing, some are not. Overall, it's been declining, but we see that flattening out and starting to grow over time. On the Abrasives side, we should see a better '25 than '24. Part of it is because of the industrial economy. Part of it is because of the launch of a new product offering called Cubitron 3 that we launched over the last year. It's now moving into a variety of different instantiations of different Abrasive products. It's growing. It's got tremendous differentiation versus competitors. So we feel very positive about that. So we see that getting a little bit better here in '25. Part of it is because of the new products being introduced. So we think it's going to both turn the corner here in '25.

But no commitment Q1, Q2, nothing more -- nothing specific like that.

It's a little bit granular. We'll come out. We probably can say more about this at the Investor Day when Chris talks about the individual components of his business, but nothing more today. You asked about the inventory in the channel, that's been pretty normalized. There's not any significant concerns one way or the other about inventory in the industrial channel. So that's not really the big driver here.

Great. I appreciate it. See you in February. Thank you.

Thank you.

Our next question comes from the line of Amit Mehrotra with UBS. Please go ahead with your question.

Thanks. Morning, everybody. Anurag, one of the things that obviously stood out to me is the expectation for profit growth to be well in excess of revenue growth for this year. You obviously provided a very helpful walk around how we get there. But as we're coming up in kind of late February, we think about the multi-year outlook, do we expect a high level of incrementals to be sustainable? It doesn't have to be over 100%, but can we expect a higher level of incrementals kind of on a sustainable basis as some of these cost initiatives have legs? And I also assume cash flow is going to grow in excess of earnings growth over the next several years. And if you could just talk about that and I'm trying to square that with a 2025 buyback guide that's a little bit lower than what you kind of exited at from a run rate perspective.

Right. Good morning, Amit. Thanks for the question. So at Investor Day, we'll provide a framework as we look out at the medium-term as to what's kind of going to drive the sales growth and from the sales, are we going to get gross margin expansion, which is going to flow through to the bottom line. So you're absolutely correct. We will provide that framework as we get into the end of the month in February. Yes. On the cash flow side, listen, as growth -- as we continue to grow, that is going to be a drag on receivables, but we have put an inventory goal out there for 75 days. We feel there's a good path for us to get there. We're executing well towards that. And it's 100% conversion. If you look historically at 3M, it's been around there. But going forward, depending on revenue being the big variable here as well, but on inventory being something we can control, our drive would be to be over 100% conversion. Yes.

Okay. And just maybe a bigger-picture question for Bill. Love to get it. You mentioned earlier about industrial OTIF kind of stubbornly in that low 80% level. Obviously, that's a pretty big deal just given the size of that business. Can you talk about maybe when you expect to see more progress on that and talk a little bit about the manufacturing DC footprint and when you expect to make more progress on that as well?

So, I mean, look, I expect more progress on SIBG OTIF in January. We expect it in February. We did not expect the deterioration we saw in November and December. Part of it is certain specific issues, quality issues, a couple of specific assets, SIBG. One of the things that I've been reminded about by people is it's a much more complicated portfolio. It's about 35% more SKUs in SIBG than TEBG and it's probably more than double the number that's in CBG. So it's a pretty complicated portfolio. That being -- and there's been some unique supplier challenges in that business as well. But that being said, we expect that business to be closer to 90% this year, maybe it's towards the end of the year, but we need to be making sequential improvement throughout the year on SIBG OTIF. And I know Chris is depending upon that. His sales force is depending upon it. And more importantly, our customers are. So that's -- we're on it. We're pushing on it. It's certainly gotten a lot of attention inside the company and the team is pretty laser-focused on making those improvements. I think you talked about the complexity as well in the network. Look, it's part of a longer-term plan in terms of operational excellence. The first part really is making sure that all of our factories have a -- an improvement target, an improvement plan for how they run their four-wall spend. We will also be looking at how we can run this network that we have today more efficiently. And then over time, as we really mature the operating equipment efficiency metric, which is a measure of utilization of assets, as that gets more mature, then we can start taking on a little more of a holistic look at the overall network. But right now, it's really just focused on blocking and tackling inside the factories. And I think we've got a lot of opportunity in front of us to improve on those dimensions.

Yes. Thank you very much.

Appreciate it. Thanks, Amit.

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

Yes, thanks, guys. Good morning.

Good morning, Nicole.

Maybe just starting with China. I think you're expecting a little bit of a slowdown to mid-single digits in 2025, but definitely not too shabby. I guess, can you talk a little bit more about what you're seeing on the ground there.

Yes. So from a macro perspective, China is expected to slow a little bit, both from a GDP and IPI perspective. But again, it depends on what you believe in those forecasts and in those numbers. I do think that tariffs could have an effect on what's happening in China, certainly on the export part of China. So we're watching that very, very carefully. There's news of the minute on tariffs for sure. So just stepping back, Nicole, China is about 10% of our revenue globally. Last year, it was up about 10%. It was up about 13% in the first half. It sort of slowed down in the back. Part of it is from electronics. When I look at -- so half the business is export and that's been -- electronics have been an important driver. But the other half that's really sure, if you will, China for China, that did grow, was up about 3% last year. So we saw a decent growth on the ground, not quite at macro, but decent growth. We had quite a bit of activity in December, quite a bit of activity happening here in January. Again, it's -- you never know, it could be some pull aheads, could be just getting ahead of Chinese New Year, which is the end of January. We do expect that our business in China will be slower in '25 than it was in 2024, probably in the low single-digit range is what we expect for revenue for 3M in China.

Got it. That's really helpful. Thanks, Bill.

Sure.

And then any update on insurance recovery as I think you promised us an update each quarter. Thank you.

So we've -- we're making progress on insurance and we're actively engaged in arbitration, negotiations in some places, litigation with insurance carriers for both for PWS and Combat Arms. In Q4, we recovered about $170 million. So to date, so through last year, it was about $340 million, mostly in the Combat Arms area. Again, we're pretty active in pushing this to legal teams to drive this pretty hard. And as I said last time, I'll say it again, we expect our insurers to honor the commitments they have to us and in their policies and we're going to make sure that they go and do that. So that's kind of where we stand today.

Thanks so much. See you in February.

Thank you.

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

Hi, good morning.

Good morning, Joe.

Just wanted to ask one on cash and just what you think the right amount of cash to carry is. So you ended the year with cash and marketable securities at about $7.7 billion. Where do you expect to end 2025 and then thinking maybe a little bit further out, just what you think the right amount of cash to have is whether that's a percent of sales or dollar amount?

Hi, Joe, it's Anurag here. So we -- as you correctly said, we ended the year at $7.7 billion. It's probably 2 times of the working capital requirement for the business. If you look at '25, we said we're going to buyback shares worth $1.5 billion. At current dividend rate, we're paying about $1.5 billion, $1.6 billion in dividends. $3 billion, we got $3 billion to settle on Combat Arms and PWS as well. So these are the big ones we have for the year. And our plan is to refinance majority of our debt. So if you put all of that together, we should end '25 at over $6 billion in cash.

And then also, Bill, just on industrial production and what are you watching most closely there, whether it's a region, whether it's an end-market in terms of how you're thinking about where the best potential sits for this accelerating industrial production that we're kind of all waiting for?

Yes. So we're looking at all the different pieces. Obviously, we're pretty levered to the manufacturing economy within IPI. So that's an important one. And we're a little bit heavier weighted in U.S. and probably Europe and others after that. So clearly, U.S. is an important focus of ours in watching IPI. The current forecast is it does turn positive from minus 0.3% to plus 0.5%, I think is what it was in 2025. Europe, we have to watch. We've got a pretty good presence in Europe as well. It's a very big turnaround in Europe from down 60 basis points to up 130 basis points next year. That's a pretty big movement. So those are the key things that we're looking at, I think, pretty carefully on IPI. And it's on the industrial side. On auto, look, it's -- I'm a little bit concerned about that only because we had some deterioration last year. The auto-build forecast for this year is weakened a little bit down 60 basis points. But when you -- as I mentioned in my remarks, when you disaggregate that, U.S. and Europe are down 3 points to 4 points. China is flat and the rest of Asia is up a little bit. So we have to watch that and look at where our content per vehicle happens to be. Obviously, the team is very focused on gaining share, gaining content in those automakers that are growing faster. That's a very important strategic focus of Wendy and her team, but those are some of the things we're looking at from a macro perspective.

I appreciate the color. Thank you.

You bet. Thank you.

Our last question will come from the line of Deane Dray with RBC Capital Markets. Please proceed with your question.

Thank you. Good morning, everyone.

Good morning, Deane.

Hi, I wanted to circle back on the strategies for reinvigorating new product introductions, but specifically reinvigorating innovation. I know we're going to start off the analyst event at the technology center. Just -- I think there's art and science here when it comes to innovation and just be interested in your thoughts. You can't just dump cash at the front door and say, innovate, but I know you're adding some headcount. Are there any other thoughts there in terms of kind of ramping-up innovation? And how do you feel about that longstanding policy at 3M R&D where the senior scientists get 15% of unbudgeted time? Does that still fit into the equation? Thanks.

Yes. Look, so 15% of time is sort of a hallmark of the company. I sort of joked that it's 115%, not going from 85% to 100%, but everyone has get through 15%. And I think that's important because it gives people the time to step back and think and ponder. I mean, I do the same thing. I go into my office and I think about what are the issues upon the company. We all have to do that. So I think that's a hallmark of the culture of the organization. Look, I think the first -- look, it's not a shortage of ideas and concepts for where we can innovate. I think we've got a great list of products as you turn the scientists, the engineers on, the people doing product development, those into business units, those out meeting with the customers themselves, the ideas are there. The pipeline is pretty full. We've got to do more to keep filling it up. But the pipeline has been full. I think it's about just turning on that and unleashing that energy that's in the folks that do the innovation. And so part of it is eliminating some of the bottlenecks in the processes and I went through last time a number of pieces of that. We are shifting within our capital budget, more investment to R&D for lab equipment, for prototype equipment to speed up the prototyping and scaling up of innovation. We are adding resources there. I think if you put the right framework in place and you're motivating the teams in the way we are and we're starting to kind of focus people on the growth verticals that we really want to focus our investment and time on, I do think that that's going to pay dividends over-time. This is something that Wendy in TEBG is going to lay out pretty clearly. When we get out to the end of February, we have our Investor Day. How do we get closer to those innovation partners so that we're really tied with them very closely. So their ideas translate back to us and we're working with them in not a transactional way, but in a strategic way. And I think if you do all of these things, this machine will turn on. And again, we saw good progress over the last six months. It's early days. I think we'll have another good year in '25. But ultimately, this is going to come down to, are we growing faster than the market. Therefore, we're gaining share and are we driving margin and margin expansion because the product we're offering to the marketplace are better than what the competition puts on the marketplace. And I think that's the end objective. We have a good start.

That's great to hear, especially that support of that 15% unbudgeted time. That's I'm sure a lot of people like hearing that. And then just a second question, a quick follow-up on the plan for reducing inventory days. I mean, I know there's an immediate benefit for free cash flow, but is there any pressure on service levels once you start to reduce the level of inventory and is there any kind of trade-off there? Thanks.

Look, that's something that we're watching very, very carefully. We came down 2 days year-over-year and I think it was 8 days sequentially in Q4. In SIBG, we saw sort of OTIF come back. So we're watching this very carefully. Our intention is to prioritize OTIF over inventory, frankly. That's what we think is really important. That's a greater lever. That being said, there are opportunities to eliminate the waste, if you will, in inventory. Not all the inventory we have is good inventory. We have a lot that's stuck on the water. We have a lot of components in warehouses and factories. We have to make sure we have the right inventory. That's why I believe this is the and not the or I believe that we can get to 75 days and over 90% OTIF. And I think we can get there. That's our goal. That's what we ought to be shooting for. It's not going to be linear and we saw in Q4, it wasn't linear. We had better inventory, not as good on OTIF, at least in one segment, but that's the objective. And again, we're going to prioritize OTIF over inventory knowing that we'll get the inventory over time.

Very helpful. Thank you.

Okay.

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

Okay. Well, thank you. I appreciate everyone's time and attention today. I know we're running top of the hour here, but I want to thank all of the 3Mers for their continued hard work and dedication to our customers and our shareholders. I look forward to introducing you all analysts and investors to the senior leadership team of -- at 3M at our Investor Day coming up on February 26 in St. Paul. It's going to be brisk today, it's minus 18, so dress warmly. So we look forward to seeing you on the 26th. Thank you very much and have a good day.

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