Monish Patolawala: Yeah. So, we believe that we are eligible for insurance payments. We have put our insurance providers on notice for PWS and for Combat Arms. And in fact, for Combat Arms, we have — we are working on an arbitration to recover that. So as you know, these things take some time to work through and that’s what the teams are working on and we’ll keep you posted as soon as we come to know on what that number could look like.
Jeff Sprague: Great. Thank you. I’ll leave it there.
Operator: Thank you. We go next now to Brett Linzey of Mizuho.
Brett Linzey: Hey. Good morning, all, and congrats to Mike.
Mike Roman: Thanks, Brett.
Monish Patolawala: Hi, Brett.
Brett Linzey: Yeah. I wanted to come back to the portfolio and the geographic prioritization. So you called out the 100 basis points headwind in 2024. Should we think of the first quarter as the starting point and just simply anniversary that headwind for the balance of the year and it’s complete or is this more of a multiyear initiative with some topline drag?
Monish Patolawala: So there’s a little bit of drag next year, but I — it’s not big. I would just say the first half of this year will be slightly heavier than the second. But directionally, I would say, yes, you can use the first quarter as the math that gets you across the four quarters.
Brett Linzey: Okay. Great. I guess the follow up, you called out some contribution from those initiatives in each of the segments. Are you able to size what that what that benefit is and I would imagine it’s sort of structural, but any color would be great?
Monish Patolawala: Yeah. I would just say, when I — we look at it in total is why are we doing these portfolio moves or geographic moves? It comes down to, it allows us to do better focus, better prioritization. So at the end of the day, you’re going to see it in multiple places. You’re going to see better sales growth in Other products because we’re exiting these and the teams can focus, whether it’s ad merch, et cetera. You will see it in inventory, because, again, we’ll be able to focus our inventory on the products that we want to focus on. And you’re going to see it a little bit in margin. That margin will take a little bit of time to come through. But some of these products that we are exiting are below our average margin.
So it does help us lift the average margin. And then, as I said, on the geographic prioritization side, you get a lot of structure out, which is already embedded in our margin that we are seeing and we’re getting some one-time benefits on property sales that we disclosed this quarter.
Brett Linzey: Okay. Great. Appreciate the detail. Best of luck.
Monish Patolawala: Thanks.
Mike Roman: Thank you.
Operator: We’ll go next now to Joe O’Dea of Wells Fargo.
Joe O’Dea: Hi. Good morning.
Monish Patolawala: Hi, Joe.
Mike Roman: Hi, Joe.
Joe O’Dea: Hi. I wanted to ask on PFAS and you’ve talked about the exits there kind of progressing to plan, if not a little bit ahead of plan. But just how do we think about alternatives? I think there’s been press over the years on different applications across a number of different end markets and we think about semiconductors or military or auto. Do you expect to participate in that? I mean, where are you on the sort of product innovation pipeline and being able to sort of provide alternative products…
Mike Roman: Yeah. And…
Joe O’Dea: … to what you’re exiting?
Mike Roman: And Joe, as I said in my comments, we work with each of our customers as part of the transition. I would say there’s kind of three alternatives for them. One is PFAS from another source. A number of the applications, many of the significant applications, they’re challenged to find an alternative. So that’s what they’re looking to do is source PFAS from another supplier. The second one is, perhaps, there’s a chemistry that has similar properties that isn’t PFAS and you can move into that. We’re exiting PFAS and we’re not going to move into other chemistries. They’ll be durable and persistent to meet the requirements of these applications. The one area where we can help and what we’re doing for ourselves is working to discontinue the use of PFAS in our products and we’re engineering them out.
We’re designing around them. And there’s a number of applications our customers have where that’s very difficult to do and challenging and they don’t know a solution today. But for us, the majority, the vast majority, we’re already worked through solutions. So that’s something that we can help customers with and we are and we’re helping them look at the alternative ways to design and engineer their processes and products.
Joe O’Dea: That’s helpful. And then the second question is just related to CERCLA designation and really just trying to understand what the designation versus not getting the designation means at a high level. I think when you first announced this being proposed, you talked about how 3M’s view was this would not lead to a timely or appropriate kind of remediation. But just to try understand having the designation versus not having it at the end of the day kind of what that means?
Mike Roman: Yeah. There are certain, I would say, EPA responsibilities that would come with CERCLA designation. We — at this point, we don’t anticipate an impact on our ability to serve customers and we’ll — as we better understand all those requirements and we’re committed to meeting and complying with the requirements under CERCLA and the EPA guidelines.
Joe O’Dea: Okay. Thank you.
Operator: And we’ll go next now to Deane Dray of RBC Capital Markets.
Deane Dray: Thank you. Good morning, everyone, and my congrats to Mike and also to the team on orchestrating all these moving parts.
Mike Roman: Yeah. Thanks, Deane.
Monish Patolawala: Thank you, Deane.
Deane Dray: Hey. And just a quick follow up on that last PFAS question. So the enforcement actions by the EPA, they set PFAS as hazardous. So that’s a milestone. And then in the process of setting up the super fund. So would either of these actions put you closer to be able to set a reserves? I know you couldn’t before for accounting purposes, it was not estimable or the probable, but now we’re closer to that. So are you closer to where you could be setting reserves for these remaining unaddressed PFAS liabilities?
Mike Roman: Yeah. Deane, we are — as I’ve said a number of times, we’re proactively managing this all aspects of the PFAS dynamic. And as soon as we can get to probable and estimable, we will take the reserves and we’ll keep you informed, and I would refer to our SEC filings for updates.
Deane Dray: That’s real helpful. And just one other one, I’m sorry. Is there any scenario where 3M would continue to manufacture PFAS after the year end 2025 target?
Mike Roman: No. Deane, we’re committed to that exit. We’re on track and we’re committed to follow through.
Deane Dray: All right. Loud and clear. Thank you.
Operator: Thank you. This concludes the question-and-answer portion of our conference calls. I will now turn the call back over to Mike Roman for some closing comments.
Mike Roman: This concludes my last earnings call as 3M CEO. I would like to thank the investors, shareholders, analysts, employees and family who joined these calls each quarter. I greatly appreciate your questions and diligence in working to better understand our company. I’m confident that under Bill’s leadership, our people will continue to build on the momentum from our strong start to the year. Thank you for joining us and have a great 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.
