This conversation is the performance release conference of 3M Company in the second quarter of 2025, where senior management introduces the performance situation and answers questions from investors. During the meeting, forecasts regarding performance were mentioned, which are based on the current view of the company's future performance and financial results, while also noting that these forecasts may be affected by risks and uncertainties. In addition, it was mentioned that the conference will involve non-GAAP financial indicators, and relevant adjustment explanations have been attached to the press release issued that day.

The company achieved strong performance growth in the second quarter, with adjusted earnings per share increasing by 12% year-on-year and organic sales growing by 1.5%. All business departments have achieved positive growth for three consecutive quarters. By improving productivity and cost control, the operating profit margin increased by 290 basis points year-on-year. The company continues to invest in growth projects, demonstrating outstanding culture in driving strategic focus in uncertain macroeconomic environments. The company has intensified innovation efforts and accelerated the frequency of new product launches. Several new products have been launched in the first half of the year, with sales of new products increasing by 9% in the first half of this year after hitting bottom last year. It is expected that the full-year growth will exceed 10%. New products include a low-profile, durable fire equipment and a consumer product with a reusable filter frame, these innovative designs help to reduce costs and save space. Meanwhile, the company is driving business excellence by improving sales team performance, enhancing cross-selling, improving pricing discipline, and reducing customer churn, especially in the safety and industrial sectors, where preliminary results have been achieved. This model is now being expanded to the entire organization.

In the second quarter, 3M made significant progress in services, asset utilization, and quality, achieving record on-time service rates, improving overall equipment efficiency, and releasing capacity through improved manufacturing processes. At the same time, the company reduced quality costs by optimizing machine settings through AI models, demonstrating its continued improvement in quality control. In terms of capital allocation, 3M returned $3 billion to shareholders and demonstrated its strategy in handling legal matters through a settlement with New Jersey over PFAS claims. Despite facing macroeconomic uncertainty, 3M adjusted its full-year earnings outlook and plans to continue focusing on innovation, efficiency improvements, and customer needs to address challenges.

The company achieved strong profit growth and stable free cash flow generation in the most recent quarter, with all business departments experiencing positive year-over-year organic growth. Particularly in China, business growth was strong, benefiting from strong commercial execution in industrial adhesives, films, and electronic product solutions. Business in the United States and Europe also saw growth, although facing challenges in certain areas such as automotive OEM and aftermarket markets. Additionally, the company's adjusted operating profit and earnings per share showed significant growth, while successfully improving operational efficiency, controlling investment growth, and leveraging exchange rate fluctuations. Free cash flow increased by 10% and substantial shareholder returns were made, including dividends and stock buybacks.

The company updated its financial guidance, reflecting strong first-half performance and tariff impacts. Despite the challenging macroeconomic environment, the company achieved strong productivity growth, with the updated organic revenue growth expectation of low single digits as compared to the original target, and expects all business segments to maintain low single-digit growth for the full year. Additionally, the company anticipates facing approximately 20 cents of tariff impact, but has partially offset this impact through internal operational improvements and investment strategies. Expected annual EPS growth is 6% to 10%, primarily driven by operational improvements, while being offset by tariffs and foreign exchange factors. For the second half of the year, the company expects revenue growth to be similar to the first half, including benefits from volume growth and productivity enhancements, partially offset by tariff impacts and higher interest expenses.

The CEO emphasized the importance of research and development and innovation for new products in the discussion, pointing out that progress is being made in the new product plan, which will drive company growth and enhance market competitiveness. The CEO mentioned that although some markets such as the automotive and large retail industries are facing price pressures, the company is achieving growth and improving profit margins through new product development and pricing strategies in the industrial sector. In addition, he also mentioned that the company has increased research and development investments and adjusted resources to support the development of new products in order to meet customer expectations and regain market share.

The discussion focused on how the company can achieve significant improvements in operating costs and adjusted profit margins, including through optimization measures in the supply chain and general and administrative (GNA) costs. The company expects to achieve approximately $500 million in productivity improvements for the full year through these measures, with half coming from GNA cost optimization and the other half from supply chain improvements. Additionally, strategies such as reducing quality costs, procurement savings, and cost control were mentioned to further enhance cost management, playing a critical role in improving adjusted earnings per share (EPS).

The management team discussed the company's cost control, particularly in terms of optimizing expenses related to IT and shared services, emphasizing short-term and long-term structural savings achieved through means such as cloud computing, core framework and network optimization. At the same time, they also discussed how to balance investments to stimulate long-term growth in the current macroeconomic environment, including increasing investments in sales, research and development, and new product development, while closely monitoring macroeconomic conditions to adjust investment strategies.

In recent discussions, the company's top management has conducted a detailed analysis of the current macroeconomic environment, pointing out that the overall economic environment is showing a slow and steady state, with industrial production index (IPI) and GDP maintaining at moderate levels, indicating a persistently tepid market environment. However, despite the relatively gloomy macro environment, the company has successfully achieved growth in multiple business areas, particularly in the safety and general industrial sectors, through self-help measures, the launch of new products, and the implementation of a business excellence plan. Management specifically mentioned the strong performance of the industrial market, safety product division, and electrical market, and expects growth in the aerospace and defense sectors in the second half of the year. In addition, regarding performance guidance for the third and fourth quarters, the company predicts a seasonal growth in sales and profit margins, emphasizing a similar growth trend in the third and fourth quarters based on historical sales and profit comparisons.

Recently, the company reached a settlement with the state of New Jersey regarding PFAS-related litigation. Despite facing pending cases in over 30 states and personal injury lawsuits, the company plans to cease production of PFAS by the end of the year to address legacy environmental issues. At the same time, the company is actively communicating with states and maintaining financial flexibility to address potential legal liabilities while investing in company growth.

The conversation discussed the company's first half-year profit margin of 24% and the guidance range of 150 to 200 for the full year, from which the expected profit margin for the second half of the year was calculated. It explained that although revenue is expected to increase quarter by quarter, the reason for the decrease in profit margin in the second half of the year is due to the impact of tariffs, increased investments, and rising fixed costs. However, despite this, the profit margin for the second half of the year is still expected to increase compared to the same period last year, demonstrating the company's strong operating momentum and potential for future productivity improvements.

The dialogue mainly discussed the impact of foreign exchange rate fluctuations on company profits, especially the impact of the euro exchange rate on EPS, as well as an analysis of the trends in the consumer electronics market, pointing out that the market was strong last year, but softened relatively in the second half of this year.

In this conversation, the discussion mainly revolves around the impact on the company's performance, including the influence of "on time, in full" execution on the company's top line, and how the company can reduce customer churn and improve performance by improving this indicator. In addition, issues related to the company's performance guidance are mentioned, including seasonal changes, price dynamics, and factors related to the industrial side. It is particularly noted that some of the main factors influencing the company include tariffs, increasing stranded costs, and investment. The conversation also mentions specific financial impacts related to the company's operations, including performance growth in the first and second quarters, and the impact of investment sales on EPS.

The annual cost mentioned in the conversation is 100 million US dollars, with approximately 30 million US dollars in the first half of the year and 70 million US dollars in the second half of the year, confirming that this cost allocation trend has not changed.

The company discussed changes in tariff assumptions, including the benefits of implementing suspensions and specific remedial actions taken during the quarter. The tariff impact mainly comes from China, and the company has partially offset the impact of tariffs through cost and procurement changes as well as price adjustments. Additionally, despite anticipated challenges in the Chinese market due to tariff issues, the current business performance remains healthy, with a slowdown expected in the second half of the year. The company has 7 factories and 5000 employees in China, with a good performance, especially in the home appliances and electronics export markets.

In this discussion, the management of 3M Company detailed the performance of the second quarter, including order growth, accelerated consumer demand, and the continued stability of orders and backlogs. At the same time, they also specifically discussed the current situation and expectations of the European market, pointing out that although the current European market is stable, the performance of the automotive industry will be crucial for market recovery in the second half of the year. Additionally, they also mentioned the positive impact of the Chinese market and growth signs in other business areas in Europe.

The company expects an organic growth rate of 2.5% in the second half of the year, a slight increase from the 1.5% in the first half, despite intensifying market competition and no clear improvement in the macro environment. The growth mainly comes from price adjustments and the promotion of new products (NP), while the company is actively responding to potential sales pressure. In the general industrial sector, such as security business and electronic products, growth is maintained despite a slight slowdown in the market. Large orders from government projects and electrical products also contribute to growth. Additionally, although the overall automotive industry is weak, the company anticipates that its performance in this sector will shift from decline to stability through its Business Excellence Plan, particularly in areas such as adhesives and sound insulation components for automotive parts.

The discussion on the rise in tariff costs has weakened the impact of low-cost Asian competitors in the market, bringing potential opportunities for the company to increase pricing and market share, especially in the consumer market. Retailers are re-evaluating their supply chains in non-U.S. markets, making the company more attractive due to the tariff impact, which is expected to primarily manifest in increased sales volume rather than price adjustments. These opportunities have been included in the company's business plans for the second half of the year.

The conversation mainly revolves around the company's annual price adjustment strategy, mentioning a 40 basis point absolute year-on-year price increase to offset material cost inflation, and highlighting adjustments to pricing strategies for large customers. In addition, the growth performance of the SBG department was discussed, despite OTFS lagging behind other departments, the company is still committed to increasing OTF to 9% by the end of the year, and expects this to bring growth enhancements while reducing inventory to optimize operational efficiency.

In the discussion, the recent performance improvement of the company was talked about, particularly the increase in profit margin of the TBG business sector, which was mainly attributed to the increase in sales volume and productivity. Additionally, the impact of US tax policies on the company was also mentioned, including the favorable effects of tax reforms on the company, maintaining a reasonable tax burden, and positively affecting the company's tax burden in the upcoming years.

In the discussion, the company confirmed its optimistic expectations for business growth in the second half of the year, especially regarding the organic growth of SBG (Strategic Business Group), TBG (Technology Business Group), and consumer business. It is expected that these departments will show stronger growth momentum than in the first half of the year, particularly SBG and TBG, while consumer business growth may remain on par with or slightly higher than the first half of the year, depending on consumer behavior. Additionally, the discussion also emphasized the significant improvement in profit margin of the consumer business, attributed to increased productivity and optimization of supply chain and Gna.

The company discussed the impact of investment strategies on operating leverage, pointing out that operating leverage could increase to over 35% when demand rises. At the same time, regarding the property damage issues in PFAS litigation, the company stated that it will handle according to the progress of the cases, including the settled New Jersey case and the upcoming Vermont case, but did not give specific numbers, the relevant information has been disclosed in the 10-Q filing. The company emphasized its focus on priority matters, expressed gratitude for the efforts of employees, and committed to continuing to create value for customers and shareholders.