3M Q2 2025 Earnings Call Transcript

Key Takeaways

  • Positive Sentiment: We delivered a strong Q2 with adjusted EPS of $2.16 (up 12% YoY), organic sales growth of 1.5%, and free cash flow of $1.3 billion, driving a 290 bps margin expansion.
  • Positive Sentiment: Innovation remains a priority with 64 new product launches in Q2 (up 70% YoY) and first-half five-year new product sales up 9%, putting the company on track to exceed 215 launches for the year.
  • Positive Sentiment: Operational and commercial excellence advanced as on-time-in-full reached 89.6% (the highest in nearly six years), overall equipment effectiveness rose to 59%, and cost of poor quality fell to 6.1%.
  • Neutral Sentiment: 3M settled PFAS claims with New Jersey via structured payments over 25 years and continues to address other state, federal, and international PFAS litigation detailed in its 10-Q.
  • Positive Sentiment: The company raised full-year EPS guidance to $7.75–$8.00 (inclusive of tariffs), expects ~2% organic growth, 150–200 bps of margin expansion, and >100% free cash flow conversion.
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Earnings Conference Call
3M Q2 2025
00:00 / 00:00

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to the three ms Second Quarter Earnings Conference Call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session.

Operator

At that time, if you do have a question, please press star one on your telephone keypad. As a reminder, this call is being recorded Friday, 07/18/2025. I would now like to turn the call over to Chinmay Trevedi, Senior Vice President of Investor Relations and Financial Planning and Analysis at three

Chinmay Trivedi
Chinmay Trivedi
SVP - IR at 3M Company

Thank you.

Chinmay Trivedi
Chinmay Trivedi
SVP - IR at 3M Company

Good morning, everyone, and welcome to our quarterly earnings conference call. With me today are Bill Brown, three ms's Chairman and Chief Executive Officer and Anurag Maheshwari, our Chief Financial Officer. Bill and Anurag will make some formal comments, then we will take your questions. Please note that today's earnings release and slide presentation accompanying this call are posted on the homepage of our Investor Relations website at 3ms.com. Please turn to Slide two and take a moment to read the forward looking statements.

Chinmay Trivedi
Chinmay Trivedi
SVP - IR at 3M Company

During today's conference call, we'll be making certain predictive statements that reflect our current views about three ms'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'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.

Chinmay Trivedi
Chinmay Trivedi
SVP - IR at 3M Company

With that, please turn to Slide three and I will hand the call off to Bill. Bill?

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Thank you, Chimei, and good morning everyone. We had another quarter of strong performance with second quarter adjusted earnings per share of $2.16 up 12% versus last year and above expectations. Organic sales growth was 1.5% with all three business groups reporting positive growth for the third quarter in a row. Operating margins increased two ninety basis points year on year through productivity and cost controls while we continue to invest in growth initiatives. And free cash flow was solid at $1,300,000,000 for the quarter and 110% conversion.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Our performance reflects the culture of excellence we're building inside the company as we continue to drive the rigor and op tempo necessary to deliver on our strategic priorities in this uncertain macro environment. As part of our commitment to innovation excellence, we're increasing the cadence of new product launches. In Q2, we launched 64 new products, up about 70% versus last year which puts us at 126 launches for the first half and on track to exceed our target of two fifteen for the year. The pipeline remains healthy and there is more rigor and discipline in the process with better business cases and higher launch schedule attainment. And most importantly, five year new product sales bottomed last year and was up 9% in the first half accelerating from Q1 into Q2 and tracking well to be up more than 15% for the year.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

With 64 launches in the quarter there are a lot of exciting new products to discuss but let me take a moment to highlight just a few. In our fire safety business, we launched a low profile rugged air pack with updated electronics to enable telemetry and connectivity that has been well received by our largest firefighting customers, especially those who value compactness and maneuverability in small spaces. In our consumer business we've been building around the Filtree platform with four new product launches in the last six months including one with a reusable filter frame that can be refilled by a collapsible deplete filter, analogous to a razor razor blade model. This innovative design reduces shipping costs and saves retailers storage and shelf space. At the same time, we're continuing our focus on commercial excellence as we drive increased sales force performance, capture higher cross selling opportunities, improve price discipline and reduce churn.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

You recall that our team in Safety and Industrial launched the program in U. S. Late last year and has now expanded this effort into Europe and Asia. We've trained over 400 sales managers and see early results through higher closed won opportunities and improved order rates. We now have 48 cross selling pairs identified about double since Q1 with a pipeline value of over $60,000,000 and $10,000,000 of new orders book to date.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

We are tightening pricing controls by reducing price deviations and focusing on bigger deals with strategic customers. And we're reducing customer churn by leveraging our predictive analytics model to identify and win back customers at risk. SIBG has been first out of the gate on commercial excellence initiative and we're seeing promising early results with average daily order rates up low single digits in Q2. Our strategy is working and we're now extending this three ms enterprise wide commercial excellence model across the organization with transportation electronics quickly leveraging the learnings and best practices from SIBG while adapting it to the unique nature of a more spec in type business. Our second priority is operational excellence.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

In the second quarter, we made good progress on several fronts including service, asset utilization and quality. On service, our on time and full metric reached 89.6%, the highest quarterly performance we've achieved in nearly six years and we exited June at just over 90%. Consumer and TEBG remained consistently above 90% and SIBG was 83% for the quarter improving more than 300 basis points year on year. Our overall equipment effectiveness metric was approximately 59% showing continued improvement both year on year and sequentially with a lot of runway ahead of us. We're now at the point where OEE is improving on a consistent basis through better tracking and deeper root cause analysis and it's highlighting potential capacity consolidation opportunities.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

For example, a core manufacturing process at three ms is adhesive coating and we have about two fifty different types of coders throughout the network, some quite old and all expensive to replace. One of our larger coaters is in Knoxville, Iowa making fiber adhesive tapes. Through an extensive effort to reduce changeovers, increase operating speed and improve machine uptime, the team drove a 12 improvement in OEE and freed up enough capacity to retire two 70 year old coders at another facility. This is just one example of the broader opportunity at three ms to use a rigorous, methodical approach to get more production out of our higher capacity assets and proactively decommission aging, less productive assets in the network. This thinking can be extended to all of our core manufacturing processes, making, coating, slitting, packaging and over time more holistically to the design of our future network.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

We're also making progress on quality. In the second quarter, our cost of poor quality was 6.1%, down 30 basis points sequentially and 90 basis points year over year. We are using AI enabled models to optimize machine settings for more efficient changeovers leading to better utilization and higher yield. Quality is a core element of our enterprise wide three ms Excellence operating model and we're extending our efforts to improve quality in every function and everything that we do. Our third priority is effective capital deployment.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

In the first half of the year, we returned $3,000,000,000 to shareholders via dividends and share repurchases and we'll continue to be opportunistic on buybacks in the second half of the year while preserving balance sheet flexibility. In May, we announced a settlement with the State of New Jersey on PFAS claims taking the opportunity to settle both site specific and statewide claims with broad protections against future litigation and cash payments spread over twenty five years. We continue to manage other state, federal and international matters all of which are extensively covered in our 10 Q. On the back of the progress we're making on our priorities and the strong results in the first half, we're increasing our earnings guidance to a range of $7.75 to $8 now inclusive of the anticipated impact of tariffs. We expect organic growth to be approximately two percent for the year reflecting the current macro environment as we see it today.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Slide four highlights several of the key macro trends we're tracking and their impact on three ms. All metrics on the left reflect a global economy that remains sluggish and moving laterally, not materially improving or worsening. Our safety and general industrial businesses were up low single digits in the first half and are both beginning to see a pickup due to our commercial excellence initiatives. Auto will be flattish in the second half, a step up from the decline in the first half due to share gains in new models, while consumer electronics is likely to soften a bit in the back half due to slower demand for premium devices. Auto aftermarket will remain challenged and consumer will likely follow a similar pattern to the first half due to the subdued U.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

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

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

Thank you, Bill. Turning to Slide five, we reported another quarter of strong profitable growth and robust free cash flow generation. Starting with the top line, all three business groups delivered positive year on year growth despite the fluid macro environment, resulting in total company adjusted organic growth of 1.5%. We saw continued momentum across electronics, general industrial and safety end markets, which was partially offset by known softness in auto and automotive aftermarket. Consumer was flattish as sentiment remains cautious.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

By geography, our growth was led by China, up mid single digits with strength in industrial adhesives, films and electronics bonding solutions driven by strong commercial execution that led to share gains. The U. S. Was up low single digits, led by growth in Electrical Markets and Personal Safety, partially offset by weakness in Auto OEM and Aftermarket. Europe was flat with strength in Electrical Markets and Personal Safety, partially offset by weakness in Transportation Safety and Auto.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

Q2 daily order trends were up modestly year on year driven by our progress on commercial excellence in the Industrials businesses, partially offset by weakness in consumer as retailers are watching to see how the season plays out. Our backlog continues to grow providing 20% to 25% coverage of third quarter sales. Q2 adjusted operating margins were 24.5%, up two ninety basis points and operating profit increased high teens or $225,000,000 in constant currency driven by continued strong operational performance. This included a $300,000,000 benefit from volume growth, broad based productivity, lower restructuring cost and equity comp timing, partially offset by $50,000,000 of growth investments and $25,000,000 from tariff impact and stranded cost headwind. Collectively, this contributed $0.31 to earnings, which was partially offset by $02 from FX and $06 from non operational below the line items.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

Our strong operational performance resulted in overall adjusted EPS of 2.16 an increase of 12%. Relative to our initial expectations of approximately $2 this outperformance was driven by four factors. First, continued G and A efficiency as we make progress on IT optimization and lower indirect expenses. Second, metering of increase in year over year investments in response to a lower demand environment and evolving tariff landscape. Third, weakening of the U.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

S. Dollar. Finally, we had a $06 benefit from the sale of an investment below the line, which was initially anticipated in the third quarter and offset the impact from tariffs and other below the line items. Free cash flow was $1,300,000,000 10% higher than last year as we benefited from strong earnings and we returned $400,000,000 to shareholders via dividends and executed on a $1,000,000,000 in gross share buybacks. For the first half, our gross buybacks were $2,200,000,000 I will provide a quick overview of our growth performance for each business group on Slide six.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

Safety and Industrial organic sales grew for the fifth consecutive quarter, up 2.6% in Q2. This was broad based with six out of seven divisions posting positive results. Similar to the first quarter, industrial adhesives and tapes and electrical markets continued to perform well on the back of new product innovation and commercial excellence. It was encouraging to see abrasives turn positive as we launch new products and execute our commercial strategy to increase sales effectiveness. Auto aftermarket continued to see challenges down mid single digits amid industry pressure with collision repair claim rates down double digits year to date.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

Transportation and Electronics adjusted sales were up 1% organically in Q2. Growth was led by commercial graphics and auto personalization driven by demand for a new product, the premium fleet wrap and expanding sales coverage. Electronics and Aerospace and Defense showed strength, while our auto OEM business was down low single digits, reflecting continued weakness in auto builds, particularly in Europe and The U. S, which were each down low single digits year on year. Finally, the consumer business was up 0.3% organically in Q2.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

Though consumer sentiment remains soft, we continue to execute on growth initiatives including new product launches in Scotch Brite Kitchen Scouring, Scotch Blue Pro Sharp Painters Tape and Command, and continued service improvements and increase in advertising and merchandising investment. And along with organic growth, each business group expanded margins year on year, SIBG up three twenty basis points, TBG up two thirty basis points and CBG up three seventy basis points. Overall, our focus on delivering organic growth and improving operational excellence helped us deliver solid results in the first half, including growth of 1.5%, operating margin expansion of two fifty basis points to 24% and earnings growth of 11%. Before providing the details of our updated guidance, let me start with a reminder of how we framed it in April, which is the middle column on Slide seven. On organic sales growth, due to the soft macro, we indicated that we were trending to the lower end of our 2% to 3% range.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

Our first quarter productivity gains were very strong, but given the dynamic environment, we did not flow through this outperformance into our guidance and maintained the EPS range at $7.6 to $7.9 Given that the tariff situation was uncertain, we kept tariffs out of the guidance range at the time, but estimated a gross impact of $0.60 or a net impact of $0.20 to $0.40 after mitigating actions. We have now updated the guidance to reflect our strong first half performance and have also incorporated the tariff impact. We are updating our organic revenue growth guidance to approximately 2% and expect all three business groups to grow low single digits for the year with a similar profile to the first half. On the back of a strong first half performance, we now expect margin expansion of 150 to 200 basis points and are increasing both the lower and higher end of our EPS range, which is a $0.13 increase at the midpoint, dollars $0.02 3 of that coming from operational performance, offset by $0.10 of FX and tariff impact. We now expect our free cash flow conversion to be higher than 100% building on strong first half performance, efficient CapEx and second half improvement in working capital providing us with further optionality on capital deployment.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

Let me walk you through the drivers of the EPS guidance updated on Slide eight. First, we are flowing through $0.23 of operational improvements, which include actions to offset the tariff impacts. This is driven by $0.16 of productivity, which includes the G and A efficiency gains and $0.07 metered investments. As we highlighted previously, we are investing in a metered manner while maintaining the critical growth investments to support our strategic priorities. Finally, as mentioned, we have now included tariffs in the guidance, which is a gross headwind of $0.20 partially offset by the foreign exchange headwind reduction from $0.15 to $05 On the other non operational items, there is no change from the prior guidance.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

Putting this all together, the EPS growth year on year is driven by strong operational improvement and we now expect an operational benefit of $0.95 to $1.2 partially offset by $0.50 of tariff, FX and non op headwinds for a total EPS growth of 6% to 10%. Regarding the second half, we expect year on year earnings growth of $0.18 at the midpoint. Similar to the first half, this includes an approximately $0.50 to $0.55 benefit from volume growth and continued productivity net of stranded cost and growth investments, which is partially offset by $0.03 0 to $0.35 of tariff impact and higher interest expense. Before we open the call for questions, I would like to acknowledge and thank the three ms team for their focus on operational excellence and controlling the controllables in a dynamic macro environment, which gives us confidence in meeting our increased guidance and delivering strong shareholder returns in 2025. With that, let's open the line for questions.

Operator

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

Scott Davis
Founding Partner - Chairman & CEO at Melius Research LLC

Hey, good morning guys.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Good morning Scott.

Scott Davis
Founding Partner - Chairman & CEO at Melius Research LLC

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

William Brown
William Brown
Chairman, Director & CEO at 3M Company

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

William Brown
William Brown
Chairman, Director & CEO at 3M Company

So the progress on that I think has been quite good. I think we should be expecting both improvements in growth from new product innovation as well as improving margin as you are bringing a product to market. Certainly as these things materialize and they stabilize in a factory, we are bringing better benefits to the customers. They should generate better pricing in the marketplace. So I do expect that we should see better margin performance from them, but really what we are focused on is delivering against customer expectations, beating the competition, regaining share of wallet and just getting back to that spirit of innovation at the company.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

And as I said, I think the progress we have made so far has been fantastic. We are investing more in R and D, are shifting dollars, we are shifting resources into new product development as we talked a year ago. We are up about 150 people since Q4 of last year. So it takes some effort, it takes focus, takes following the metrics, but we're making good progress and we should see certainly growth and hopefully some margin benefit as well.

Scott Davis
Founding Partner - Chairman & CEO at Melius Research LLC

Okay, Bill. That's helpful. And I just want to follow on on that a little bit. I mean historically when you think about some of your customers have been tough to get price with auto, big box guys, mean just brutally hard. So is it have you found that new products are really going to be your only avenue of getting price for those guys?

Scott Davis
Founding Partner - Chairman & CEO at Melius Research LLC

Or because of the realities of inflation and tariffs and such, do you find it a little bit easier to capture a little bit of inflation impact from those guys also without new products?

William Brown
William Brown
Chairman, Director & CEO at 3M Company

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

William Brown
William Brown
Chairman, Director & CEO at 3M Company

So we are doing pretty well this year on pricing again mostly on the industrial side.

Operator

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

Jeffrey Sprague
Founder & Managing Partner at Vertical Research Partners

Hey, good morning everyone.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Hey, morning, Jeff.

Jeffrey Sprague
Founder & Managing Partner at Vertical Research Partners

Hey, Bill. Good morning. Maybe just pivot from the growth side to the cost side and what you're working on there. I'm wondering if you could just elaborate a little bit more on kind of the sources of operational upside in the footprint versus kind of G and A and the like. And I asked the question in the spirit, right?

Jeffrey Sprague
Founder & Managing Partner at Vertical Research Partners

The adjusted margins are moving up pretty nicely. We don't get an adjusted gross margin, for example. So how much of it's at the gross line? How much of it's kind of in G and A? And how do you see that playing out moving forward?

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Okay, Jeff. So it's a good question and I'll start and maybe I'll ask Ganaragh to jump in on part of this. So for the year, it's about $05,000,000,000 of productivity, more or less about half is coming out of G and A and about half is coming out of our factories, of our supply chain which as we translated internally is running about 2% net of inflation which is about what we had expected. Inflation in the quarter, Q2 was a little bit higher than 2% and Q1 was a less than 2% for the fire staff it's around 2% for the year we are expecting about the same and again we are getting about 2% gross productivity, 2% net productivity on top of inflation. So it's actually been pretty good on supply chain side.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

It's the elements that we have been talking about I alluded to in some of my prepared remarks, 40,000,000, 50,000,000 coming out of reduced cost per quality which has been a good trajectory that we've been on a long journey, lot more to do, good movement on procurement savings net of any inflationary pressures from our suppliers, Really good cost controls on the four wall size within our factories as well as in the logistics network as well. So overall about $250,000,000 really good progress on driving supply chain productivity And I'd say the same thing on the G and A side and I'll turn to Anurag to maybe say a couple of words of what's happening on the G and A side, but overall about $05,000,000,000 half G and A, half is supply chain.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

Thanks, Bill. So Jeff, really encouraged by the performance and productivity just across both supply chain and on the G and A side and that gave us confidence to raise the EPS at the midpoint by about $0.13 Yes, so Bill spoke through the pieces on supply chain, very consistent to what we communicated and invested across the four buckets. On the G and A similarly at the Investor Day what we said is there are three areas where we would expect G and A savings to come out of. IT optimization where we spend close to $1,000,000,000 Second is indirect expenses where we spend more than $3,000,000,000 and then shared services. So where we are more of the opportunities coming is the first two buckets.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

I think on the IT, the team has done a really, really good job. We take our IT expenses, it's broken into three categories, which is protecting, maintaining and investments, maintenance, which is about two thirds of it. The team has done a good job in terms of cloud mainframe network optimization, also looking at staff augmentation, the number of applications we have. So there is a whole bunch of tactical efforts that the team has gone through and done a good job. And what's also shown is not only is these savings which we can take in the quarter, but also long term structural savings that we can see and we are well down on that path.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

On indirect, I mentioned in the last call as well, we have more visibility in terms of the data, where the spend is going. So first we look at whether it's aligned with our strategic priorities or not. If it's not aligned, then we don't need to spend. If it's aligned, what's the best way for us to procure and use the leverage of the enterprise. So I think it's moving quite well in that direction and shared services will take a little bit more time as we go down that path.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

But overall, I would say very good performance and productivity.

Jeffrey Sprague
Founder & Managing Partner at Vertical Research Partners

And then Bill, maybe just back to growth as my follow-up. Just maybe your philosophy on sort of metering I get it the macro is not great and you're managing a complex P and L, but it's $07 right? I think we all would have been perfectly happy with the guide $07 lower than what you put out today. And you telling us, hey, we're keeping our foot on the gas on the investment.

Jeffrey Sprague
Founder & Managing Partner at Vertical Research Partners

So are these just kind of longer term things that weren't going to bear fruit in the near term anyhow? Again, maybe just your philosophy on that.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

No, so Jeff, a good question. I mean, look at this very, very carefully and we were leaning in on making growth investments where we think there's a prudent payback in the near to medium term and if we see the macro not as strong as we had anticipated, we're pulling back a little bit, but still we're significantly investing in growth investments this year. The number is about $175,000,000 and when you parse that there is significant more in add and add merch, is more in the sales force, there is more going into R and D. As I mentioned, we're up 150 people there. Are pushing people from PFAS into R and D, into new product development as well.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

So we are pushing up our R and D spend as a percentage of sales. All those pieces I think are going in the right direction and there are some things that are happening on the IT side that are systems related to driving growth. So all of those things we're trying to be smart and prudent and invest in to actually stimulate long term growth about recognizing where the macro happens to be today. So I think we're being balanced here Jeff. We look at it very carefully to the extent that things look a little bit better in the back half into '26 then we'll let a little bit more out but we watch it very carefully.

Jeffrey Sprague
Founder & Managing Partner at Vertical Research Partners

Great. Thanks for the perspective.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Okay Jeff.

Operator

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

Julian Mitchell
Equity Research Analyst - US Industrials at Barclays Investment Bank

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

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Okay, Julien. So I'll start here and Anurag can jump in as well. I'm glad you pointed that chart out. We spent a lot of time putting together to make it as clear for investors as we can on what's happening in the macro as we see it and the impacts on the company. Look, as I mentioned in my script, the macro it's sluggish, it's moving laterally.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

I went through some of the numbers there on what's happening with IPI, it's around 2%, it's sort of flattish, GDP is about the same, it's in mid-2s and about to be the same, maybe a little bit softer in the back half. PMI I mentioned is below 50, it's at 49, but it's contracting but not as much. So again things are just moving laterally, consumer remains relatively sluggish. And what you see on that slide four is momentum building inside the company on self help, on new product introductions, many of which will come out in the market, it will come in the first half of the year, will start to impact sales in the back half and the benefits of commercial excellence which is really starting to take hold inside the company. So general industrial includes parts of both SIBG and TEBG, so parts of those two businesses.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

So it has abrasives, industrial specialties, roofing granules, electrical markets, a piece of the tapes business that goes into industrial products and then from TEBG includes advanced materials, aerospace and defense which actually we expect to grow pretty decently in the back half, consumer branding. So it's got commercial branding and transportation safety. So you have got all those pieces in there. It's about 38% to 40% of the company. So it's a pretty big part of it.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Again, the industrial IPI is moving somewhat laterally, but generally speaking the opportunities we are seeing here are principally coming from self help. There is some in the markets we know A and D is going to be picking up for us in the back half. It wasn't as strong in the first as we had expected some internal, some external issues, but we see that picking up for us in the back half. Electrical markets remain very robust for us. Again we expect that to be high single digits going into the back half.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

So that's kind of a nutshell on the safety side or on the general industry side. On safety, we had a good start to the year. We see some acceleration in the back half. Part of it is from new product introduction in fire safety, SCBA, we have launched a new product that and we have had some big wins with government customers. So we do see the back half on safety accelerating there as well because of both a couple of wins that we have had but some new product introductions.

Julian Mitchell
Equity Research Analyst - US Industrials at Barclays Investment Bank

That's great. Thanks very much. And then just focusing a little bit on the second half guidance, often your third quarter earnings are up a little bit sequentially, but I understand you had that $06 gain moving into the second quarter. Maybe help us understand how we should be thinking about third quarter versus fourth quarter dynamics, anything to call out on sales or the margin progression?

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

Yes. Thanks, Julien. It's Anurag here. So listen, within the second half, let's just first start with the top line. Guidance for the full year is approximately 2% organic growth.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

In the first half, we grew 1.5%. So that would imply a 2.5% growth in the back half. And we're expecting probably Q3 and Q4 to grow at the similar levels around there. In terms of EPS, Q3 is historically higher than Q4 and that's firstly because seasonally our revenue is higher in Q3 than in Q4 and also on the margin side it's higher. The ratio has been, if you look at the second half, 52 of the EPS of the second half is in Q3, about 48% is in Q4.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

So we kind of expect the same trend this year as well.

Julian Mitchell
Equity Research Analyst - US Industrials at Barclays Investment Bank

That's great. Thank you.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Thank you.

Operator

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

Amit Mehrotra
Amit Mehrotra
MD & Head - Industrial Sector at UBS Group

Thanks. Morning everybody. I guess maybe just a separate topic talk about PFAS. I think there was obviously a nice settlement or not a nice settlement but a decent settlement size with the state of New Jersey. I think you have 30 more states still pending.

Amit Mehrotra
Amit Mehrotra
MD & Head - Industrial Sector at UBS Group

There's obviously a personal injury suit still outstanding. But just given the development in New Jersey and kind of the structure of that. And then you're obviously year to date exceeding your full year share buyback target. Maybe Bill talk about your freshest most updated thoughts on that because I still feel I still feel there's this overhang in the value of the company based on these pending liabilities. So I think it would be great to hear your thoughts on maybe how you view the progress on these and when you expect to maybe gain a little bit more full clarity on it.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Well, Amit, thanks for the question. And yes, so we did have a settlement with the state of New Jersey both for a specific site which we did not own. It's a Chemours DuPont site but there was some liability there as well as statewide claims. And we believe it was the right decision for the company and the shareholders to take risk off the table.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

It spread cash out, cash payments out over the next twenty five years through 02/1950. So we thought that that was quite manageable. You are right, there is just over 30 other states AG cases both within the MDL and some outside of the MDL. We are taking them piece by piece. There is obviously lots of conversation going on with the AGs and the MDL in individual states.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

So there is a lot of activity there And we're I just want to remind you we're exiting PFAS manufacturing by the end of this year. So there'll be no new molecules that the company's produced on PFAS going into the environment. These are all settling legacy issues and we are going to deal with this as best that we can. Personal injury is on the horizon. It is scheduled for in October.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

There is a bellwether case. Will be kidney cancer. There will be one, two or three cases that we tried around October 20. There is a lot of conversation that's happening there as well. There is a science day on other things last month.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

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

Amit Mehrotra
Amit Mehrotra
MD & Head - Industrial Sector at UBS Group

Okay. Helpful. Thanks. And then maybe just one for Anurag. Just circling back to the first half to second half cadence.

Amit Mehrotra
Amit Mehrotra
MD & Head - Industrial Sector at UBS Group

If I just kind of unpack the implied margin I mean I think the company did 24% in the first half guiding to 23 a little over 23 for the full year. So obviously that implies a step down in second half versus first half. But obviously revenue should be higher sequentially. So I'm just trying to kind of square that circle a little bit and understand why what are the puts and takes that actually take margin down 2H versus 1H when revenue is building sequentially?

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

Yes. Thanks Amit. So yes our first half margin is 24%. We are guiding between one hundred fifty two hundred for the year. So that would imply at the midpoint that the second half guidance would be around 22.5%.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

And the delta between the two is you clearly see a pickup in volume, productivity should do well. It's essentially the tariff impact that we are seeing in the second half, which is more than 120 basis one and thirty basis points and also a pickup in investments and stranded costs. So that's a big delta between the first half and the second half, but volume productivity better. But if you take a step back and you look at it year over year, you're still seeing the second half margins go up by 110 basis points at the midpoint of our guidance and that's after absorbing tariff, after absorbing increase in stranded costs and higher investment. So it's pretty encouraging in terms of the performance of the second half which is obviously as we go into next year, we mitigate more of the tariff impact, there is more productivity that will come through.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

So overall, the momentum in the second half operationally is similar to where we are in the first half.

Amit Mehrotra
Amit Mehrotra
MD & Head - Industrial Sector at UBS Group

Okay, got it. Thank you very much. Appreciate it.

Operator

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

Steve Tusa
Steve Tusa
Managing Director at JP Morgan

Hi, good morning.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Good morning, Steve.

Steve Tusa
Steve Tusa
Managing Director at JP Morgan

Just a quick one to start. What's the embedded assumption on Forex? I would have thought there was maybe a little bit more upside just given your exposure on the euro.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

Yes. So on Forex, our headwind on the EPS for the year is about $05 On revenue, we think it's about flattish. And the reason there is a disconnect between the flattish on the revenue and the $05 headwind is just the impact of the year on year hedge benefit that we had last year. As you know, we hedge our non dollar currencies, which create a hedge benefit or a loss which lag to the currency movements. So last year in Q2, it produced a significant hedge benefit because of the strength of the dollar.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

Now the dollar weakens in the second quarter, so the hedge benefit is modest. Which is why you see all of our FX headwind in the first half of the year, which is about $05 As you go into the second half, you should see that kind of normalize and for the full year it will be about $05 headwind on the FX side.

Steve Tusa
Steve Tusa
Managing Director at JP Morgan

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

William Brown
William Brown
Chairman, Director & CEO at 3M Company

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

Steve Tusa
Steve Tusa
Managing Director at JP Morgan

Okay, great. Thanks a lot.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Thank you, Steve.

Operator

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

Andrew Obin
Andrew Obin
MD - Equity Research at Bank of America Merrill Lynch

Hi, Good morning.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Hi, good morning, Andrew.

Andrew Obin
Andrew Obin
MD - Equity Research at Bank of America Merrill Lynch

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

William Brown
William Brown
Chairman, Director & CEO at 3M Company

So we're not going to quantify it specifically because there is lot of factors into why customers may not buy from us because of OTIF, but improving it, delivering on time in full to customers is quite important. We know from talking to our end customers, element it is of churn, why customers leave us that number is across the company is pretty substantial. Are focused on this. We are trying to bring it down. One element is responsiveness and customer service, its quality, but importantly it's on time and full.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

So clearly Andrew as we get better on that, that's going to allow us to reduce churn grow and we are starting to see benefits of lower churn in the back half. Think part of it probably is related to OTIF. It is hard to say exactly what part of it is though.

Andrew Obin
Andrew Obin
MD - Equity Research at Bank of America Merrill Lynch

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

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

Thanks, Andrew. There is nothing on the footprint, only one timers in the second half, which is doing operationally. We grew the first half at zero five zero dollars to $0.55 and second half we grow around the same rate as well. So volume and productivity, where we see the impact is more on the tariff. We have $0.20 for the year.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

We had a couple of pennies in second quarter, so $0.18 of that is in the second half. That is the major impact. On top of that, stranded cost is picking up in the second half versus the first half and a pickup in investments. So I would say those are the big factors. There is no not much of a one timer over there.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

The only thing on the EPS between first half and second half is obviously the sale of the investment that we had in Q2, which is below the line, which impacts the second half.

Andrew Obin
Andrew Obin
MD - Equity Research at Bank of America Merrill Lynch

And what other words can you quantify the stranded costs again? I apologize.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

Was it stranded cost? So it's $100,000,000 for the year. It's about $30,000,000 in the first half and $70,000,000 in the second half.

Andrew Obin
Andrew Obin
MD - Equity Research at Bank of America Merrill Lynch

Okay. So that hasn't changed?

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

No.

Andrew Obin
Andrew Obin
MD - Equity Research at Bank of America Merrill Lynch

Okay. Thank you.

Operator

Our next question comes from the line of Deane Dray with RBC Capital Markets. Please proceed with your question.

Deane Dray
Deane Dray
Managing Director at RBC Capital Markets

Thank you. Good morning, everyone.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Good morning, Deane.

Deane Dray
Deane Dray
Managing Director at RBC Capital Markets

I was hoping you'd take us through the changes in your tariff assumptions, the benefit of the pause that was implemented, but did you make any specific mitigation actions in the quarter and kind of what was the decision about including it in guidance on a go forward basis?

William Brown
William Brown
Chairman, Director & CEO at 3M Company

So the last time we said it was $0.60 gross, now it's $0.02 0 The biggest change really going to be around China. Last quarter was about 80% of the tariff impact. At the time the rate was 125, 145, so U. S. 145, China was 125%, they've come down dramatically to ten and thirty.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

That was the biggest source of change. Things are moving around still a little bit, but we included it in the guidance mainly because we're more than halfway through the year. Things have stabilized at least a little bit and any changes from here, we would only have a couple of months in the balance of the year that would impact '25, the rest would roll into 2026. So we feel we are pretty well calibrated. Of course we are watching very carefully what happens in the EU.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

We have got to watch against any re escalation and trade tensions with China. That could be a change, but from the way we see it today, I think we know enough about it in terms of the gross and net impact to roll it through into guidance which I think is cleaner for investors. So we are offsetting $0.20 of gross tariff with both cost and sourcing changes which is about half of the offset and the other half is coming through price. So the gross amount is about $140,000,000 nets around 70, about half of that say $75,000,000 is price, the other half $35 ish million is going to be cost savings as well as sourcing. The pricing piece of it, that's one of the elements is helping us push second half growth a little bit because that's mostly a second half item.

Deane Dray
Deane Dray
Managing Director at RBC Capital Markets

Great. And then in your answer, you just put the spotlight on China and there might have been expectation there would be some fallout because of tariffs and maybe some pushback on your business there, but up single digits look pretty healthy. So just have you seen much of a fallout and how much is embedded in the second half?

William Brown
William Brown
Chairman, Director & CEO at 3M Company

So do you know, we actually had a very good first half up mid single digits. Frankly, it was better than we expected coming into the year. Early in the year we were thinking it's low single digits, it's been mid single digits in the front half. We do expect it will slow down in the back half, that's embedded in our numbers. For us it's roughly half is domestic, half is export and both were performing very well.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

It's some of the local stimulus happening in China for appliances, white goods which we sell a lot of tape products into, as well as the export market, lot of which was electronics. Again that for us has been pretty healthy, but again we do see it softening in the back half of the year. We are committed to China. It's a big part of the company, seven factories, 5,000 people there. We have a great team, great business, really driving a great job on commercial excellence there in China and again it will slow down but still be up for the year.

Deane Dray
Deane Dray
Managing Director at RBC Capital Markets

Great, thank you.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Sure.

Operator

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

Nicole Deblase
Nicole Deblase
Lead Analyst at Deutsche Bank

Yes, thanks. Good morning.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Good morning, Nicole.

Nicole Deblase
Nicole Deblase
Lead Analyst at Deutsche Bank

Maybe just starting with the demand trends through the quarter. I guess, there's still been some concern out there that we've heard about like whether there was any sign of tariff pre buy. It seems like we're kind of on the verge of tabling that. So just wanted to hear your thoughts, Bill and if what you have seen through July kind of gives conviction that pre buy wasn't really a factor.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

So it's so it's hard to discern that. There is probably a little bit hanging out there but it's not substantial. Anything that might happen from Q2 into Q1, we see Q3 coming into Q2. So it's I don't think the pre buy is an issue. For the quarter, our orders were up low single digits as we described in materials, a little bit better in SIBG about flattish in TEPG down a little bit in consumer, but consumer accelerated over the course of the quarter.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

So June was better than May, May was better than April. So we saw some acceleration there. July it's still very, very early. It's we saw some similar progress here in July, but again it's only a couple of weeks. So it's hard to discern a pattern over that, but Q2 orders were up low single digit.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Our backlog grew, it's about 1% sequentially, so about $2,000,000,000 and as Anurag mentioned in his comments, I mean we are not really a backlog driven business, are more book and ship, but we saw some backlog growth sequentially and 20%, 25% of Q3 is covered in backlog is a pretty good place to be. So what I am pleased about is orders are hanging in there and backlog is hanging in if not growing a little bit sequentially.

Nicole Deblase
Nicole Deblase
Lead Analyst at Deutsche Bank

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

William Brown
William Brown
Chairman, Director & CEO at 3M Company

So we are hopeful for Europe in the back half. It's an important market for us. The thing, the watch item for us is going to be auto, Nicole actually. What we have seen overall is IHS builds globally are sort of flattish. So it moved from down a little bit to up a couple of tenths in the latest drop a couple of days ago, a lot of that's China, which is driving that growth.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Europe and North America are both down which adversely affects three ms. Europe is expected to be down in the back half on auto build and that's one that's important to us. Other parts of our business are showing some signs of growth. We saw SIBG up in the quarter in Europe and I think there signs that there could be growth on that side but auto is a watch eye area for us in Europe in the back half.

Nicole Deblase
Nicole Deblase
Lead Analyst at Deutsche Bank

Thank you. I'll pass it on.

Operator

Our next question comes from the line of Chris Snyder with Morgan Stanley. Please proceed with your question.

Chris Snyder
Chris Snyder
Executive Director at Morgan Stanley

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

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Thank you. So Chris, thanks for the question. Look, is some price in there. It is probably 40 basis points, let's say, of price in that 2.5. So if you look at just comparable to Q1 is 1.5 to Q1.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

So it's up in terms of growth rate sequentially first half and the second half, but there is some pricing benefits. I went through some of the drivers on the general industrial side, the safety business. The one area I talked a little bit about electronics, so softening a little bit in the back half, but still up. There is some end markets that are up. We do see some larger orders that have come through in the government side, on electrical product side.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

The one area that I didn't speak about was on the automotive side even though automotive will remain weak. We working hard on repositioning our business there and driving growth with new models. We do expect us to be flattish in the back half from being down in the front half even though the builds are still weak in the back half. Part of it is really aggressive commercial excellence efforts to go back and recapture opportunities in the tiers particularly bonding and joining and acoustics and other things. There's some model switchovers happening where we're specked We are hopeful that we can continue our position on those new models as they get into production later on this year.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Auto is a watch area for us. We do expect that to be better in the back half and more flattish versus down in the front, but that's an important driver of their second half performance, Chris.

Chris Snyder
Chris Snyder
Executive Director at Morgan Stanley

Thank you. I appreciate that. And if I could follow-up on maybe competitive tailwinds that could support demand. I imagine particularly in consumer there's a lot of low cost competitors from Asia. I mean if we look at the online marketplaces.

Chris Snyder
Chris Snyder
Executive Director at Morgan Stanley

Have you seen any impact here from tariff costs on competitors that could maybe give you guys some pricing in consumer which I know is typically difficult or even some share gain opportunity? Thank you.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Hey Chris, thank you. Some but not going to be price, it's more volume and there's all of The U. S. Retailers are looking very carefully where their source of supply is, if it's coming from non U. S.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Markets, it's important. Obviously the tariff impacts makes them a little less economic and makes us a little more attractive. So on the margin yes there are some opportunities there and the team in CBG are really pushing that. It's not going to come through necessarily in price. It's more likely to be in volume and those are some of the opportunities that are embedded in the back half of the year for CBG.

Chris Snyder
Chris Snyder
Executive Director at Morgan Stanley

I appreciate that. Thank you.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

You bet.

Operator

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

Nigel Coe
Managing Director at Wolfe Research, LLC

Thanks. Good morning. Thanks for the question. Obviously, a lot of my questions have been answered already. Just want to make sure, Bill, I heard the price contribution in the second half.

Nigel Coe
Managing Director at Wolfe Research, LLC

I think you said 40 basis points. Is that 40 basis points absolute price or is that 40 basis points improvement versus the first half?

William Brown
William Brown
Chairman, Director & CEO at 3M Company

No, it's 40 basis points of absolute year over year improvement. The look, it's let just step back on the whole thing just because for the year we are getting about 70 basis points more or less of price. We typically would see about 50 basis points which is what is required to offset 2% material cost inflation. So 2% on $6,000,000,000 of materials, 120,000,000 and if we pass it through in price which we have done, that's 50 basis points. We're getting about 70 basis points.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

So it's a little bit of an extra lift. Part of that is coming because we're offsetting tariff headwind and a lot of that's going to happen in the back half of the year. But part of it is going to come from some of the pricing discipline that we're putting in place. What we see a very different processes on price governance in SIBG and now moving to TBG as well. So in SIBG we used to have for about 60% or more of the deals were less than $20,000 so very small.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Today that's less than 20%. So we are trying to be more strategic on where we give pricing discounts to larger customers and make sure we get the volume for it. So that's showing an effect in some price as well. So long winded way of saying, yes, it's 40 basis points year over year and it's 70 basis points for the full year of price.

Nigel Coe
Managing Director at Wolfe Research, LLC

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

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Again, the question gets back to like sort of trying to get parse a note if to a revenue, it's very difficult to do that, but we do know that not delivering on time is a source of churn and reducing churn implicitly drives growth. So look at 83% just over that was a good result not what we had expected. We expect more from that. As we transition into July we're a little north of 85%. We expect to be in the high 80s now by the end of the year.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

The team tells me they want to exit the year at 90%. I think that's a stretch goal. You may have noticed our inventories are running a little bit higher than last year. So part of it is we are making up for lower OTIF with higher inventory. So we have got to make sure that we both drive OTIF improvement in the back end which we're really really focused on.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

At the same time we bring down inventory. That's what we're trying to do. The team's focused on us. We're making progress. Would say I wish it would be faster.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

I think Chris would expect it to be faster but good progress. And we know that's going to drive growth in the back half.

Nigel Coe
Managing Director at Wolfe Research, LLC

Okay. Thanks Bill.

Operator

Our next question comes from the line of Andy Kaplowitz with Citigroup. Please proceed with your question.

Andrew Kaplowitz
Andrew Kaplowitz
Managing Director at Citi

Good morning, everyone. Good morning, Andy. I'll get a nice jump in margin after what seemed like a few quarters of pressure in TBG. So could you talk about what, if anything, changed? I know you talked about the metering of investments that you're making for the company.

Andrew Kaplowitz
Andrew Kaplowitz
Managing Director at Citi

Does it hit that segment a bit more than others or maybe you're getting closer to fully absorbing PFAS stranded costs or maybe it's just better mix? Any color would be helpful.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

Yes, great. Thanks for the question, Andy. It's driven by volume and productivity. It's not so much of investment. I think all the three segments, the margin expansion was very, very good, specifically in TBG, there was volume was about a point higher than last year, but just the productivity, which we did both on the supply chain and on the G and A side, it spread across all the three business groups and also in TEPG, which more than mitigated the stranded cost that they had.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

So when we the past couple of quarters, TEPG margins have been down, we see this pickup and as we go through the course of the year in our current margin guide of 150 to 200 basis points, you should see all three business groups doing well. SIBG and CBG will definitely do better. TBG a little bit lighter because of the stranded costs that you pointed out, but the productivity is flowing through well there.

Andrew Kaplowitz
Andrew Kaplowitz
Managing Director at Citi

Thanks for that. And Bill, I think it might be helpful to hear about your thoughts on the fiscal environment here in The U. S. Maybe a little bit of color on how three ms is thinking about the big beautiful bill. I think it does put money in industrial companies' pockets, you know, given bonus depreciation, etcetera.

Andrew Kaplowitz
Andrew Kaplowitz
Managing Director at Citi

But it doesn't seem like you're reacting to it at all. Is it just too early? How do you think about it? And how might companies react to it moving forward?

William Brown
William Brown
Chairman, Director & CEO at 3M Company

It's a it's a it's a it's a good question. It's a very broad question. You know, I think specifically to the the tax bill, it's, it's favorable to us. It's favorable to other companies. In in the sense, it helps us with, maintaining reasonable FITTY GILTI rates which is important to us, helps us maintain our effective tax rate in the 20% range which is what we had anticipated and hoped for.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

So it maintains where we happen to be. It's good news because it could have gone the other way. Bonus depreciation, and the R and D expense, it doesn't really work for us for the next couple of years because of the, some of the PWS costs and other things, that will help us in the out years. But right now, FITI GILTI rates hovering around, maintain around 14%, which I think they made permanent is good news for the company for sure. So I will not comment on the relative fiscal environment, but that is certainly from a tax perspective helpful to the company. Appreciate the color.

Operator

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

Joseph O'Dea
Joseph O'Dea
Managing Director at Wells Fargo

Hi, good morning. Just wanted to make sure hi, just want to make sure I'm thinking about the back half organic construct across the segments where if there's roughly 100 basis points better year over year growth in 2H versus 1H that we would see a stronger than average improvement in SIBG, TEBG improving growth a little bit and consumer maybe that growth rate is more consistent with the first half. Is that a reasonable framework?

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Yes, that's exactly what it is. Yes. So both SIBG and TEBG should be a little bit better in the back half and consumer in line with that maybe a tick or two up but again it depends on the consumer behavior but it's really going to and it's a smaller business but hinges on the first two.

Joseph O'Dea
Joseph O'Dea
Managing Director at Wells Fargo

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

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

Yes. So we finished over 21% on CBG on the consumer business group, which is very good. Last year we ended on the 19% level. So this was really good. I think where you would see the benefit more is around the productivity side.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

In fact, the investments actually did go up in the consumer group relative to last year. The one compared from Q2 of last year was obviously the equity comp timing which did impact consumer as well. But I would say more of the outperformance on the margin is driven by the productivity that we are driving both on the supply chain side as well as in the G and A side which trickled through to the consumer business.

Joseph O'Dea
Joseph O'Dea
Managing Director at Wells Fargo

Great. Thank you.

Operator

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

Laurence Alexander
Laurence Alexander
Equity Analyst at Jefferies Financial Group

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

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

Yes. Maybe I'll just start off with the operating leverage first. On the operating leverage piece, we should see that flow through. Okay, today our operating leverage is about, I mean, our increment is about 35%. That will probably be the same if not go higher, if volume picks up on the upside.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

Because if you look at the metering of investments, I mean, we are spending $175,000,000 of a step up in investment this year relative to last year. The metering was more because of the demand calibration. Demand softens up a little bit then you don't spend so much on advertising and merchandising. You look at a tariff landscape, then you look at different projects and you say, okay, let's prioritize them. But when it comes to R and D, comes to sales, we've added it. For the second quarter, we had envisioned about $85,000,000 of pickup in investment.

Anurag Maheshwari
Anurag Maheshwari
CFO & EVP at 3M

We did more than $40,000,000 So it's still quite a significant amount. So that investment is probably going in the right stage. Second half we are still maintaining the investment that we always had and if volume comes up, I think the operating leverage should be north of 35% in the second half or in time to come.

William Brown
William Brown
Chairman, Director & CEO at 3M Company

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

William Brown
William Brown
Chairman, Director & CEO at 3M Company

Well thank you very much for joining the call for questions we have got through every analyst which was good. I also want to thank all the 3Mers for their continued drive toward excellence in the company improving every single day and delivering value to customers and to our shareholders. We are laser focused on our priorities and we will be through the next number of quarters and look forward to speaking with you at the end of our third quarter. Thank you so much. Have a good day.

Operator

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

Executives
    • Chinmay Trivedi
      Chinmay Trivedi
      SVP - IR
    • William Brown
      William Brown
      Chairman, Director & CEO
    • Anurag Maheshwari
      Anurag Maheshwari
      CFO & EVP
Analysts
    • Scott Davis
      Founding Partner - Chairman & CEO at Melius Research LLC
    • Jeffrey Sprague
      Founder & Managing Partner at Vertical Research Partners
    • Julian Mitchell
      Equity Research Analyst - US Industrials at Barclays Investment Bank
    • Amit Mehrotra
      MD & Head - Industrial Sector at UBS Group
    • Steve Tusa
      Managing Director at JP Morgan
    • Andrew Obin
      MD - Equity Research at Bank of America Merrill Lynch
    • Deane Dray
      Managing Director at RBC Capital Markets
    • Nicole Deblase
      Lead Analyst at Deutsche Bank
    • Chris Snyder
      Executive Director at Morgan Stanley
    • Nigel Coe
      Managing Director at Wolfe Research, LLC
    • Andrew Kaplowitz
      Managing Director at Citi
    • Joseph O'Dea
      Managing Director at Wells Fargo
    • Laurence Alexander
      Equity Analyst at Jefferies Financial Group