In some cases, grow into it, in some cases we’ll keep working it down, and you’ve seen we’ve been able to do that. And at the same time, we’ve created oxygen to invest in the business. And Mike mentioned some of the spec-in wins that we have got in TVG [ph], we have continued to invest in CBG in a down market and we’ve done the same with SIBG and we had over 30 new launches across the company in the first quarter. So that’s the way I would look at it. On a payback basis, I would tell you that we are still continuing to have very good payback, and in fact, we were able to accelerate some of our restructuring actions, as well as get some one-time gains like property sales in Q1. So, overall, look at the total margin, 200 basis points to 275 basis points up on a year-over-year basis, which is a reflection of all the actions the team has taken.
Nigel Coe: Great. Thanks, Monish. My follow-up question is on the dividends. There’s been a huge sort of course industry about the potential dividend scenarios. But so hope that’s now behind us. But the 40% payout ratio on adjusted free cash flow, is the intent, Mike, to keep that 40% relatively stable going forward? So as you grow earnings and free cash flow going forward, the dividend should increase as well?
Mike Roman: Yeah. I would think of it as a guide of how we’re thinking about it. The approximately 40% of adjusted free cash flow, that’s the way the Board, that’s the guide that the Board is looking at as we go forward. So I — that’s where we start as we go forward with continuing operations. That’s the best way to think about it, Nigel.
Nigel Coe: Okay. Fair enough. Thank you.
Operator: Thank you. We go next now to Andy Kaplowitz at Citi.
Andy Kaplowitz: Good morning, everyone.
Mike Roman: Hi, Andy.
Monish Patolawala: Hi, Andy.
Andy Kaplowitz: Mike, thanks for all your help over the years. Congratulations.
Mike Roman: Thanks.
Andy Kaplowitz: Can you update us on your industrial channels within Safety and Industrial? Are they generally to the point where you have better visibility and de-stocking is mostly over? And it does seem like, for instance, industrial adhesives and tapes has been turning the corner over the last couple quarters. Is that a bit of a canary in the short cycle industrial businesses that you have?
Mike Roman: Yeah. Andy, I would say, if you look at inventory in the channels as kind of a measure of that, that’s — I would say it’s been reducing some of the inventory in the channel, really around improving supply chains. We talked a bit about this last quarter. As supply chains improve, our distributors in the channel are taking advantage of shorter cycle times and managing down some of their inventory. There’s also a bit of a cautious outlook, Monish, talked about a mixed outlook for industrial markets. And if you think about it, look at our results from Q1, industrial adhesives and tapes and personal safety when you adjust for the year-over-year respiratory change. Those were both — they’re multiple market, multiple industrial market focused and they were both up slightly in the quarter.
So they’re seeing a bit of both across their markets. We have some market-focused businesses like industrial mineral that’s seeing strong demand and then we have some other market-focused businesses, industrial like automotive aftermarket and our — kind of our industrial specialties, which was a lot of our products that go into shipping. So the shipping dynamics, the mild winter impacts on auto repairs, those are — we’re seeing kind of the downside of that in some of those markets. So it’s a mixed market. Again, the channels adjusting, taking advantage of improving supply chains, and I would say, somewhat cautious about the broader mixed nature of those end markets.
Andy Kaplowitz: That’s helpful, Mike. And then, Monish, obviously you mentioned a relatively good T&E start. You did have a pretty easy comparison in Q1, but 7% growth, you’re still kind of low-single digits. I know it’s up a little bit. You mentioned the buy ahead was a big part of the Q1 improvement, but is there any reason why your improved spec-ins wouldn’t continue in electronics? And then are you seeing any improvement at all yet, in semiconductors and those kind of end markets?
Monish Patolawala: Yeah. I would say first we are thrilled that we’ve got these spec-ins, so that’s a big positive. As I said, two-thirds of the total, 6.7%, that’s approximate. We don’t have the perfect number. We believe it’s partly driven by inventory normalization, both in auto and electronics, plus customers starting to buy ahead as they start building for end markets or Consumer end markets. What I would tell you is second half is so important for the Consumer Electronics business and we are watching that trend. If there is a big pickup in Consumer Electronics, we will definitely grow with it, because we are now spec-in to many more devices than before. So that — I would say second half is what we are watching, but this is where we see it right now.
And then on semiconductor, our view is we saw the first quarter slow and we believe that this will pick up in the second half, Andy, and that’s what we are watching there, too. All indications keep saying that it’s going to get better, but we are watching those trends.
Andy Kaplowitz: It’s helpful, Monish. Thanks, guys.
Operator: We’ll go next now to Scott Davis of Melius Research.
Scott Davis: Hey. Good morning.
Mike Roman: Hi, Scott.
Monish Patolawala: Hi, Scott. Good morning.
Scott Davis: Best of luck to you, Mike, in your next endeavors, et cetera.
Mike Roman: Thanks, Scott.
Scott Davis: Guys, a couple, I’ll just start with a dip [ph] and then ask a real question. But why — I’m looking at Slide 27, why does the 2026 payment dip, what was kind of the, let’s walk through a little bit of the color of the kind of how these payments were negotiated annually?
Mike Roman: Yeah. So there were so many facts that were put together, Scott. This was one of them on how these profiles were scheduled. So there’s no particular reason to give it out to you. This was a lot of factors, pluses and minuses, that put the whole agreement together.
Scott Davis: Okay. So there’s nothing specific in there that 2026, you’d have?
Mike Roman: No. No.
Scott Davis: I can take it offline.
Mike Roman: Yeah.
Scott Davis: Okay. More importantly, Mike, if you look back at the long-term growth rate ex-Health Care of 3M, it’s been kind of sub-2%. So below GDP and that includes some price, inevitably, I would assume. What do you think the entitlement growth rate of this business is longer term? I mean, this, go back 10 years, so I think that’s a full cycle for sure. But when you think about the next three years or five years, what do you think that the business should be able to grow at? Obviously, Bill’s going to have his own — his own initiatives. But what is your view on that?
Mike Roman: Yeah. Scott, I won’t get ahead of Bill and kind of how he’s going to think about going forward. I — you saw our guidance for this year. It’s in line with macro. Importantly, when you look at what drives our growth, it’s really investing in the business. Organic investments have been the dominant driver of growth for us as a company and we expect that to continue as we move forward. Like I said in my speech, making indispensable products for our customers and that means leveraging our innovation, our technologies, our manufacturing capabilities to come up with differentiated solutions for our customers. And do that more and more, prioritizing our investments, as we’ve talked a lot about. Where do we prioritize investments?
In attractive markets, markets that are have growth dynamics that are better than the macro. That’s kind of the way to really drive this growth strategy forward. And that’s how we think about it. That’s how we focus. It’s important that we really do prioritize leveraging our innovation so that we create not only the growth, but the differentiated value leader in the way we deliver value to shareholders in terms of margins and cash. And so it’s a — that’s the way I think about the formula for growth and it’s been the foundation for building the company and it’s a foundation for success as we go forward as well.
Scott Davis: Totally fair. I’ll pass it on, but congrats on getting all this work done the last year. I’m sure it’s been a lot of heavy lifting. So congrats and best of luck this year.
Mike Roman: Thanks, Scott.
Monish Patolawala: Thank you.
Operator: We’ll go next now to Andrew Obin of Bank of America.
Andrew Obin: Yeah. Good morning. It’s Andrew Obin.
Mike Roman: Hey, Andrew.
Monish Patolawala: Good morning, Andrew.
Andrew Obin: Hey. And Mike, congratulations, and great job getting all this legal stuff out of the way.
Mike Roman: Thanks, Andrew.
Andrew Obin: Yeah. So I would take an issue with Scott’s statement about lack of growth at 3M. I don’t know where he’s getting his numbers, because pre-COVID, a company has grown at, on average, at 3.7% organically based on my model. So I actually have the exact opposite question. What is this, for example, safety and growth, right? You say that industrial production has grown 2%, yet the guidance is zero to 2%. You have 100 bps, sort of this portfolio geography drag. Can we just dig in as to what you think are impediments to growth coming out post-COVID, because it does seem thing has changed after that? Can we just, right, because I would have expected that you would outperform industrial production, right? And every year, there seem to be a sort of new headwinds that are completely logical, but they seemingly come out of nowhere. Why the company’s growth sort of seems to be below average? Thank you.
Mike Roman: Yeah. Andrew, it’s kind of building on maybe my answer to Scott. The macro is an important part of this and we think about the macro for us, for 3M, is a combination of GDP, where we have our Consumer business, and then it’s also around industrial production in a broader Industrial and Transportation Electronics. But importantly, we go down and we really look at the markets that we’re part of. And so driving that growth, and again, the way we deliver on growth better than macro or in line with macro, is to pick markets where we can really leverage our innovation and be differentiated and drive our growth out of those attractive markets. And so what is the driver of it? Maybe if you don’t do this well, that’s your impediment question, is to really prioritize those attractive markets where you can — where we can deliver differentiated 3M solutions. That’s the model that will drive us forward.
Andrew Obin: Right. And then maybe just to follow up, I know you guys are tweaking your global distribution, exiting some direct distribution, you are starting to utilize distributors. Can you just talk about sort of what have you experienced so far with these changes to the models? What are the pros and cons, because some of the commentary referred is that, oh, 3M was leaving money on the table with distributor, some sort of legal risk associated? How do you mitigate those and what has the experience been so far? Thank you.
