3M CEO Touts Data-Center Push, Margin Gains and Progress Toward 2027 Targets

Key Points

• 3M says it is ahead of its 2027 targets, citing 5.4% second-quarter organic growth, higher margins, improved execution and on-time, in-full delivery rising to about 90%.
• Data centers are a major growth priority. Its expanded beam optics technology has been standardized by Microsoft Azure, is being evaluated by five other hyperscalers, and could address a market approaching $2 billion within the next two years.
• Innovation and cost reductions are supporting the outlook: 3M plans more than 350 new-product launches this year, is consolidating factories, expects to offset $150 million–$175 million in oil-related costs through pricing, and is tracking above its 25% operating-margin goal for next year.

3M NYSE: MMM Chairman and CEO Bill Brown said the company is making progress on operational execution, product innovation and structural transformation as it works toward targets outlined at its 2027 investor day.

Speaking at a company news event, Brown said his approximately 2.5 years leading 3M have centered on a “back to basics” approach across operations, supply chain, innovation and commercial execution. He also cited efforts to build a culture focused on accountability, rigor, speed and urgency.

Brown said the company has seen more sustained organic growth, higher margins, an increased pace of new-product introductions and improved sales-force activity. He said 3M is tracking ahead of the targets it set at its investor day at the beginning of last year.

Operational performance and customer service

Brown highlighted improvements in on-time, in-full delivery, or OTIF, which he said had risen from the low-80% range to about 90% consistently across the company. The consumer business is operating more consistently in the mid-90% range, he said.

While describing the result as progress, Brown said the company has not yet reached its desired performance level. He said the next stage of operational improvement will involve raising service levels while reducing inventory and shortening delivery lead times for customers.

“If you could do all those three together, that’s what we’re trying to do,” Brown said.

Improved service levels have helped reduce a customer attrition issue that rose when service levels declined, according to Brown. He said 3M is also using artificial-intelligence tools to identify potential customer churn and trigger proactive sales and management follow-up. OTIF is one factor in retention, he said, along with quality, performance and price.

Innovation push and data-center opportunity

Brown said 3M has directed 80% of its research-and-development spending toward priority verticals where it believes it has differentiated technology and a right to win. The company has also centralized R&D governance and increased on-time project assessments to about 80%, he said.

New-product launches have accelerated from about 125 products annually three years ago to 284 last year. Brown said 3M expects to launch more than 350 products this year. Its five-year New Product Vitality Index, a measure of sales from products introduced over the prior five years, has risen from 11% to the mid-teens, he said. Brown said the company aims to reach about 20% by the end of next year, compared with a historical level near 25%.

Brown said innovation is expected to account for more than half of roughly $400 million in growth above the macroeconomic backdrop this year. Over time, he said, 3M intends to shift from incremental projects toward efforts that serve adjacent markets and new businesses.

One area of focus is data centers. Brown said 3M’s expanded beam optics, or EBO, technology provides durable, dust-resistant fiber-to-fiber connections and has been shown to reduce installation costs by 85%. Microsoft has standardized on EBO for its Azure data centers under a strategic partnership announced earlier this year, Brown said.

Five other global hyperscalers are conducting qualifications and proofs of concept, according to Brown. He said 3M is doubling internal EBO production capacity this year, while also using contract manufacturing and licensing to help establish an ecosystem around the technology.

• 3M has formed an industry group with 44 companies, including hyperscalers, chip designers, connector companies and contract manufacturers, Brown said.
• The company holds about 100 patents in the EBO space and has another 50 pending, according to Brown.
• Brown said the EBO market opportunity is approaching a total addressable market of $2 billion in the next year or two.

3M’s overall data-center business generated about $600 million last year, Brown said. Beyond optical and copper interconnects, the company provides cable terminations and splices and sees demand for its heat-resistant Nextel ceramic fiber in certain behind-the-meter applications, including fuel cells.

Growth, pricing and portfolio actions

Brown pointed to 5.4% organic growth in the second quarter and 3.3% growth in the first half. Safety & Industrial growth exceeded 8% in the second quarter, while Transportation & Electronics grew nearly 6%, he said. Consumer declined slightly, though Brown said point-of-sale trends improved.

The company expects organic growth of more than 3.5% for the year, implying an acceleration in the second half, Brown said. He cited aerospace and defense, semiconductors, data centers, commercial vehicles and broad industrial activity as areas of momentum, while noting pressure in consumer electronics and some automotive markets.

On pricing, Brown said 3M expects about 1.5 percentage points of price increases for the year, including roughly 2% in the second half. He said the company expects oil-related input-cost headwinds of $150 million to $175 million and plans to offset them dollar for dollar through pricing.

Brown also said 3M continues to review its portfolio. He cited the completed exit from its Precision Grinding & Finishing business, which involved seven factories, and the acquisition of Madison Fire & Rescue alongside a private-equity partner. The fire-safety business is growing at a high-single-digit rate and had EBITDA margins above the company average at acquisition, he said.

Structural cost program

As 3M shifts from what Brown described as a holding-company model toward an integrated operating company, it is pursuing efficiencies across factories, supply chains and back-office functions including information technology, human resources and finance.

The company had 110 factories and 84 distribution centers at the end of last year, Brown said. Its factory count is now below 100, with additional sites under analysis or in various stages of execution. He said factory consolidation will be a methodical three- to five-year effort and could support margin expansion beyond 2027.

Brown said 3M is tracking above its goal of reaching a 25% operating margin by next year. Artificial intelligence is expected to help streamline supply-chain processes and accelerate innovation, including through digital modeling and tools that connect sales teams, customers and researchers, he said.

About 3M (NYSE:MMM)

3M Company is a diversified technology and manufacturing company headquartered in St. Paul, Minnesota. Founded in 1902 as Minnesota Mining and Manufacturing Company, it initially supplied abrasives and other materials before expanding into a broad range of science-based products and technologies.

The company develops products for industrial, transportation, electronics, safety and consumer markets. Its offerings include personal protective equipment, industrial adhesives and tapes, abrasives, filtration products, electrical materials, automotive solutions, medical and dental products, and consumer brands such as Post-it Notes and Scotch products.

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