So it’s a — it is part of that. So we do expect to continue to drive improvement as we our guide for ’24 has us, again, driving improvements in how we execute showing up in growth in earnings and expanded margins and another year of strong cash generation. So it’s a — it is an important part of that — those actions that we took as we went through ’23.
Operator: Our next question comes from the line of Julian Mitchell with Barclays.
Julian Mitchell: Maybe first off, I just wanted to clarify some of Monish’s comments on operating margins year-on-year. So I think Monish, you were saying that in Q1, the margin is up 250 bps, excluding restructuring. And then the full year is up 75 to 100 bps including restructure. I just want to make sure if those numbers were right.
Monish Patolawala: You’re right. You’re right.
Julian Mitchell: Any color on sort of segments within that or the corporate cost, there was some reallocation you talked about on Slide 7? Any kind of major moving parts that you’d call out year-on-year on a segment basis or what that new sort of corporate run rate is?
Monish Patolawala: Yes. I would say, Julian, as with prior years, there are a number of miscellaneous items in corporate and unallocated that are always subject to a fluctuation on a quarterly annual basis. So if you look at 2023, our input cost was $44 million. And in the fourth quarter, it was a $120 million benefit. The Q4 benefit was largely the result of annual incentive compensation accrual for the first nine months that we allocated the businesses finally based on performance. This adjustment had no impact to total company margins. So it’s just a bucket swap between corporate unallocated and the businesses. And so for the full year of 2024, again, based on Health Care, being a part of 3M for the whole year. So it’s just the assumption, we expect the expense range of paying somewhere in the $100 million to the $200 million on an adjusted basis for corporate unallocated.
Julian Mitchell: And then just my second question, just trying to understand the free cash flow guidance because I think you did $6.3 billion of free cash in 2023. And this year is guided at about $5.3 billion. So it’s a big decline year-on-year even with net income, I think, growing $200 million in the guide and CapEx is up about $100 million in the guide. Anything to sort of call out on that?
Monish Patolawala: I would just say, Julian, 3M has historically always been a good cash generator. And that’s what we plan to continue doing. If you look at 2022, we had 86% of free cash flow conversion, which we were not happy with at all. And the teams have done a great job in 2023 to get us back. If you take the two years, it’s around 100%. And if you look at the history of 3M, we have always been in that range. And I would say we’ll continue doing that. But at the same time, we’ll keep investing in growth, productivity and sustainability as and when the volume comes up as and when the opportunities arise because at the end of the day, our first priority is organic growth because that gives us the best return. And the best way to do that is organic investment. So that’s our first priority.
Operator: Our next question comes from the line of Nigel Coe with Wolfe Research.
Nigel Coe: Great [Indiscernible] by the way. So I just want to dig into the corporate line again, Monish. I think you said $100 million to $200 million kind of a run rate for 2024. That’s EBIT, not EBITDA. I just want to make sure that’s the case. And are you reflecting any corporate dissynergies or stand-alone cost for Health Care within that $100 million to $200 million?
Monish Patolawala: It’s EBIT. It’s EBIT, Nigel, so that — can you hear me?
Nigel Coe: Yes, I can hear. Yes.
Monish Patolawala: I’m sorry, what was your follow-up question? I didn’t catch the…
Nigel Coe: Yes. The kind of — the second part of that question was were — are you reflecting any stand-alone costs or stand-alone costs or corporate synergies from the Health Care spend within that number? Or would that be additive to that range?
Monish Patolawala: No. That number, again, if you just go back to Bruce’s comment at the beginning of the call, our current assumption is that Health Care is a part of 3M, even though the spin is on-track for first half 2024. And as we go through the spin of Health Care, we plan to have an Investor Day post-spin, where we’ll update you on the stranded cost, the impact of transition services agreements as well as what 3M looks post-spin.
Bruce Jermeland: Yes. Nigel, just to highlight, Monish during his prepared remarks, did mention that there is additional cost in Health Care for standing it up as a stand-alone entity. So that is having some margin impact within Health Care.
Nigel Coe: No question. I just want to make sure that was the case. And then my follow-up question is just really trying to dig into the restructuring cadence. You obviously — you quantified the Q1 impact, but take the $152 million of cost savings in Q4, Monish, and then multiply that 4. You get to mathematically about $650 million of cost savings. And the midpoint of your guide for 2024 is $617 million. So I’m just actually wondering, it doesn’t look like we’re getting any incremental costs coming through from here on in 2024. So just wondering what is the offset to that? Is there some level of investment here? Just wondering what’s going on here?
Monish Patolawala: Yes. So I would say it’s the same thing I’ve said before. If you remember, we have said our total benefits of $700 million to $900 million, once the program is done with equal costs. We are saying though, our actions will be largely done at the end of 2024. So you will see benefits continuing into 2025. And as I’ve previously mentioned, our savings are net of the necessary investments required to provide sustained benefits from our restructuring programs. So for example, — these investments include structure necessary to enhance our go-to-market models. As we talked about, we have exited or changed the distribution model for 27 to 30 countries. So making sure we have a structure that supports that change, continuing to automate our back-end processes as we continue with the spin of Health Care upgrade rooftops as we consolidate space because you see the savings as we have exited the space, but I got to make sure that the rooftops upgraded so people can come into work there and then continued investment in cybersecurity.
