3M Company (MMM) — Q1 2026 Earnings Call Transcript

Thank you. Good morning, everyone, and welcome to our first quarter earnings conference call. With me today are Bill Brown, 3M's Chairman and Chief Executive Officer; and Anurag Maheshwari, our Chief Financial Officer. Bill and Anurag will make some formal comments, then we will take your questions. Please note that today's earnings release and slide presentation accompanying this call are posted on the homepage of our Investor Relations website at 3m.com. Please turn to Slide 2 and take a moment to read the forward-looking statements. During today's conference call, we will be making certain predictive statements that reflect our current views about 3M's future performance and financial results. These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Item 1A of our most recent Form 10-K lists some of these most important risk factors that could cause actual results to differ from our predictions. Please note, throughout today's presentation, we'll be making references to certain non-GAAP financial measures. Reconciliations of the non-GAAP measures can be found in the attachments to today's press release. With that, please turn to Slide 3, and I will hand the call off to Bill. Bill?

Thank you, Chinmay, and good morning, everyone. We delivered solid operating performance in Q1 with earnings per share of $2.14, up mid-teens versus last year. Operating margin increased 30 basis points to 23.8%, and free cash flow was over $500 million, up double digits. During the quarter, we returned $2.4 billion to shareholders, including $400 million in dividends and $2 billion of share repurchases. We had a light start to the year on the top line with organic growth of 1.2%, driven by pockets of macro pressure. But we saw encouraging order trends that support our outlook for acceleration in the balance of the year. Looking forward, we remain confident in achieving our full year 2026 guidance despite the volatile environment. Our performance reflects strong execution on productivity, cost discipline and commercial rigor. We're building a stronger foundation based on commercial, innovation and operational excellence, underpinned by a relentless focus on strengthening our performance culture. In commercial excellence, we're seeing benefits from improved sales effectiveness and lower customer attrition, and we continue to make progress on cross-selling opportunities. To date, we've closed on approximately $80 million of new business against the 3-year, $100 million target we laid out at Investor Day with a pipeline of $85 million of additional cross-sell opportunities. We've introduced AI tools to drive growth, reduce churn and automate manual work, including an agent that analyzes our sales and opportunity pipeline data to develop customized coaching plans for sales managers to help reps meet their targets. And we believe digital tools like Ask 3M, a new AI-powered digital assistant that helps customers find solutions to design challenges using 3M products, will allow us to reach a broader population of customers. Our pace of new product introductions is accelerating with better on-time performance, reduced cycle times and clear governance and accountability across R&D. We launched 84 new products in Q1, up 35% versus last year, and we're on pace to launch 350 in 2026. This will put us ahead of our Investor Day target to launch 1,000 new products through 2027. We've maintained OTIF service levels above 90%, while at the same time, reduced inventory by 3 days and delivery lead time by 25%, improving our competitiveness with customers. OEE improved over 100 basis points year-on-year as we optimize asset run length, run time and changeovers, creating a stronger foundation for sustained productivity and fixed cost leverage. And cost of poor quality decreased by approximately 100 basis points versus Q1 last year, driven by more structured root cause analysis, significantly increased Kaizen activity and tighter process controls. What matters is that these are not isolated wins. They collectively reflect greater execution discipline and constancy of purpose. And that consistency and momentum gives us confidence that we can meet or exceed the medium-term goals we outlined at our Investor Day last year, even in an uncertain macro environment. While we continue to strengthen our foundation and shift from a holding company to an operating company model, we're beginning a broad-based transformation of the company, simplifying and standardizing processes, reducing complexity, reshaping our portfolio and improving resilience and predictability. We see substantial opportunities to streamline operations and consolidate facilities. The transformation includes both deliberate footprint actions as well as targeted investments in manufacturing and process technology. For example, transitioning from solvent to solvent-free coating, which brings cost capital and environmental benefits. Earlier this month, we closed on the previously announced sale of our precision grinding and finishing business within SIBG, which reduced our footprint by 7 factories. And we closed 1 factory and announced 3 other full or partial closures, bringing our total projected manufacturing site count to below 100. At the same time, we're investing more than $250 million over the next 3 years in standard, easy-to-replicate automation across our plants and distribution centers. By automating material handling in our warehouses, replacing manual slitters with automated systems and automating our current manual visual inspection processes, we are improving safety, reducing labor costs, increasing yield and putting ourselves in a better position to support demand as volumes recover. To illustrate the opportunity, we have 7,000 material handlers and over 600 operators performing manual visual inspections across our network and about 500 manual slitters. When we automated the slitting operation at our facility late last year, we achieved a 30% increase in square yards per hour productivity. Over time, this transformation will allow us to accelerate towards a structurally higher growth, higher margin potential portfolio of priority verticals. Slide 4 provides a more detailed view of growth and orders by end market. When you look across our portfolio, roughly 60% of our businesses showed relative strength in Q1, including general industrial and safety. Importantly, we also saw strong orders in these markets, which gives us visibility and reinforces that the demand environment in these verticals remains healthy. At the same time, we experienced macro and industry-driven softness in about 40% of the portfolio that we've been highlighting as watch areas. In electronics, we delivered flat year-over-year growth in Q1 versus mid-single digits last year. Our performance in semiconductor and data centers was very strong, while consumer electronics was soft due to industry-wide memory chip issues, which is impacting demand. Electronics orders were up double digits due to significant activity in semis and data centers, which will convert to revenue in Q2 and the second half. In automotive, the market was soft as expected in the first quarter. Global IHS build rates were down about 3% overall and 10% in China, which pressured volumes. And in consumer, we continue to see soft U.S. consumer discretionary spending with a few pockets of strength in categories with recent new product introductions. POS trends in the U.S. improved over the course of the quarter and were positive in 7 of the last 8 weeks, providing some encouragement heading into Q2. Overall, orders were up slightly over 10% in Q1 and backlog grew double digits, both sequentially and year-over-year, giving us momentum into Q2. This strength reflects the combined impact of our new product introductions, continued progress in commercial excellence and orders for longer lead time products, with some additional benefit from pre-buying ahead of recent price actions. It's encouraging to see order strength continue into the first few weeks of April. Turning to Slide 5. As part of our ongoing focus on portfolio shaping, last month, we announced the acquisition of Madison Fire & Rescue, which will be combined with our Scott Safety business to create a leading global fire and safety business. The combination of Scott Safety's premium self-contained breathing apparatus with Madison Fire & Rescue's premier portfolio in rescue technology and fire suppression creates an $800 million revenue business, growing at a high single-digit growth rate. This strategic transaction broadens our safety portfolio, one of our priority verticals by expanding our market reach and building scale for future growth. It positions us to maintain above-market growth, enhance margins and drive strong free cash flow generation. I also want to highlight our growing data center and associated power utility business with current revenue of approximately $600 million, $100 million inside the data center and about $500 million bringing power to the facility. This is a priority vertical space, where we are introducing new products like EBO or Expanded Beam Optics, a high-performance optical connector engineered to improve installation speed, reliability and operational efficiency within data centers. EBO builds on our existing TwinAx copper connector for high-speed data transmission and positions us well for the copper to fiber transition underway. With hyperscaler validation, a significant order in hand and a $1 billion-plus addressable market, we're investing to more than double our capacity to support growing AI demand. We see additional opportunities here as demand expands to ceramics, silicon photonics and on-chip optical connectors. We have strong IP to support this evolving market and a clear roadmap to develop new products that further drive growth. Overall, I'm pleased with our progress this quarter, encouraged by the pace, operational tempo and executional rigor of the 3M team. We're on a multiyear journey and progress won't be linear, but we're building the capability to execute consistently, to innovate with purpose and to allocate resources toward the parts of the portfolio that deliver the most value. I'm grateful to the 3M team for their commitment, hard work and focus as we deliver progress every day. With that, I'll turn it over to Anurag to share the details of the quarter. Anurag?

Thank you, Bill. Turning to Slide 6, we had a good start to the year, performing ahead of expectations on orders, margins, earnings and cash. Starting with top line, we delivered organic sales growth of 1.2%. SIBG showed continued momentum and grew over 3%, slightly better than expectations. TEBG was flat, lighter than expectations due to ongoing weakness in certain end markets like consumer electronics and auto as well as late timing of order intake within the quarter. In CBG, we did not see the expected recovery in the U.S. consumer market, resulting in organic sales down 1%. Notably, we saw significant strength in orders this quarter driven by progress on commercial excellence and NPI. Overall, orders grew slightly more than 10%, with SIBG and TEBG growing mid-teens, driven by industrial, safety, data center, semiconductor and aerospace. The auto momentum accelerated through the quarter, resulting in backlog growth of 20% over last year and 35% sequentially, positioning us well for the second quarter. First quarter adjusted operating margins were 23.8%, up 30 basis points year-on-year, driven by strong volume and broad-based productivity, which more than offset approximately $145 million of tariff impact, stranded costs and investments. Operating income from the 3 business groups was up $85 million with 60 basis points of margin expansion driven by supply chain productivity, including improvements in cost of quality and procurement and logistics and continued focus on structural G&A reduction. Corporate was a 30 basis point headwind from planned wind down of Solventum transition services agreements. Our sustained operational performance of driving growth and productivity led to EPS improvement of $0.26 or 14% to $2.14. In addition, we benefited from lower share count, timing of tax benefit and FX of selling tariffs, stranded costs and investments. Adjusted free cash flow was $540 million in the quarter or up 10% from strong earnings growth and improvement in inventory, a decrease of 3 days while maintaining service levels of greater than 90%. In addition, we returned $2.4 billion to shareholders in the first quarter, including approximately $400 million in dividends, reflecting a 7% increase per share and $2 billion through opportunistic share repurchases. Turning to Slide 7, I will provide an overview of our business group performance for the first quarter. First, Safety and Industrial had another quarter of 3%-plus growth as we continue to gain traction on commercial excellence initiatives and realized benefits from new product launches. We delivered mid-single-digit growth across industrial adhesives and tapes, safety, electrical markets and abrasive systems, driven by continued share gains from new product introductions and targeted commercial initiatives to reduce customer churn, strengthen sales coverage and increase cross-selling. Collectively, this growth more than offset continued weakness in roofing granules as the housing market and consumer sentiment remains soft. Even though auto repair claims were down mid-single digits, it was encouraging to see our auto aftermarket business be flat to slightly up after a couple of years of decline from good execution of the key account strategy. Turning to Transportation and Electronics. While growth was flat, orders were up low teens, accelerating through the quarter, resulting in backlog up about 30%. Approximately half of the business delivered mid-single digit growth, including double-digit growth in semiconductor and data center, driven by continued market demand and ramp-up of EBO that Bill referenced earlier. In addition, we saw growth in aerospace and commercial branding from better sales effectiveness. This was offset by the other half of the business, which is exposed to consumer electronics and auto where the market was down. Finally, Consumer first quarter organic sales were down 1%, driven by weakness in USAC as we did not see the expected pickup in retail traffic in the early part of the quarter. We did see pockets of strength. Scotch-Brite grew approximately 10% on the back of new product launches. We also saw good traction in international markets, especially in China and Asia, but it was not enough to offset the impact of USAC, which makes up a majority of the CBG revenue. By geography, in China, we again grew mid-single digits despite soft auto and consumer electronics end market as we executed on our key account strategy and launched local NPIs in a relatively strong industrial market. USAC was up slightly with mid-single-digit growth in industrials being offset by softness in Electronics and Consumer. Asia had another quarter of good growth, with India in the high teens as we drove higher sales coverage across the country. EMEA was down about 1% due to market weakness in auto. Moving to Slide 8. Though the macro remains uncertain, given our good performance in the first quarter, we are reiterating our guidance for the year. Organic sales growth of approximately 3%, earnings per share ranging from $8.50 to $8.70 and free cash flow conversion of greater than 100%. For sales, the strong backlog combined with continued strength in orders in the first 3 weeks of April gives us confidence that all 3 business groups will accelerate growth in the second quarter and through the balance of the year. On margins, we had a solid start with the 3 business groups growing 60 basis points despite 100 basis points year-on-year tariff impact. As we lap tariff pressure in the second half, the continued momentum on productivity and volume acceleration gives us confidence in our expectation of approximately 100 basis points margin expansion for business groups this year. On non-operational, we expect positive trends driven by a $2 billion share repurchase in the first quarter and lower net interest expense. Overall, we are maintaining our EPS guidance, which includes a contingency, and we will go through the components of the earnings bridge on the next slide. Given the strong earnings growth and good progress on working capital, particularly inventory and continued CapEx efficiency, we believe our free cash flow will be more than $4.5 billion for the year and greater than 100% conversion. Slide 9 shows the trend of key earning elements and the current guidance. We are trending $0.05 to $0.15 higher on earnings from momentum on productivity and lower share count and interest expense. We are facing higher input costs due to the recent increase in oil price, but have implemented targeted price increases to mitigate the impact at the current levels. Given that we are early in the year and we are operating in a volatile macro environment, we think it is prudent to keep a contingency until we have more clarity about the rest of the year. Overall, we are moving with determined pace and will continue to calibrate as the year progresses. Regarding cadence, we expect sales growth to accelerate in Q2 and the back half of the year. Backlog conversion and continued order strength is expected to support growth momentum in both SIBG and TEBG in the second quarter. We anticipate consumer to improve as point of sale is on an upward trend, resulting in normalized inventory levels. On EPS, given the contingencies for the second half, we expect the first-half EPS to be higher than the second half. Our 2026 financial outlook puts us on pace to exceed our medium-term financial commitments that we laid out during Investor Day around growth, margin, and cash. And on capital allocation, we have already returned over $7 billion of the $10 billion shareholder returns that we had committed to. Before we open the call for questions, I want to take a minute to thank the team for a strong start to the year and being proactive in this environment to mitigate risk and control the controllable and for their commitment to strengthening the foundation and driving profitable growth. With that, let's open the call for questions.

Bill or Anurag, just trying to dig into the order commentary a little bit more, maybe you could give us a little more perspective on the pre-buy, the size of it, if you could. And I guess the pre-buy would imply getting ahead of price increases and the like. So maybe a little bit of color on how much additional price is now embedded in your organic growth forecast. And just also on these backlog numbers, obviously, the delta sound great, but it's not really a backlog business. So kind of the question, is it law of small numbers on those deltas? Or is there actually significant visibility that you can anchor to as you look into Q2?

Jeff, thank you for your question. I'll begin and then hand it over to Anurag regarding the backlog. As mentioned, we had strong orders in the first quarter, seeing double-digit growth, which is excellent. Although we're not primarily a backlog-driven business, we experienced a robust backlog coming out of Q1, and it has continued to grow into Q2. During the quarter, we observed solid order growth in January and February, with mid-single-digit increases, but we saw a significant acceleration in March. This growth has carried into April, which is encouraging. Regarding pricing, we implement an annual price increase every April 1, making it challenging to determine how much was driven by pre-buy behavior. We believe there may be some pre-buy in reaction to our announced price increase due to rising oil prices, though it's difficult to quantify. In terms of pricing for the year, we had previously forecasted about 80 basis points, but we slightly fell short of that in Q1. Aside from oil-related increases, we still expect around 80 basis points. Including the anticipated oil price impact, we estimate an additional 50 basis points, bringing our price expectation for the year to approximately 1.3 points. Anurag, could you provide more insights on the backlog?

Yes. Thanks there, Bill. You are right that we are largely a book-and-ship business. We have about 75% of our revenue in a quarter comes from book and ship, but we do get backlog coverage as we enter the quarter. With the numbers that we mentioned, which was about 35% up sequentially to 20% year-over-year, provides us about 400, 500 basis points of additional coverage as we enter into the quarter, which is not insignificant given the growth acceleration that we expect from Q1 and Q2. So I think it's really good to see that we are starting with a very good backlog coverage for the quarter. Combined with the order momentum that Bill spoke about in the first 3 weeks of April, it gives us really confidence for acceleration of growth through the second quarter. And typically, we do not talk about orders and sales because of the book and ship because they converge together. But this time, you could see the big spike. And as Bill mentioned, part of it could be the pre-buy, but a lot of it is commercial excellence, NPI and other initiatives that we are driving, which resulted in order acceleration.

Great. And then maybe just a quick follow-up then. Just a comment about then accelerating into the remainder of the year. By that, do you mean each quarter will be a faster growth quarter than the one that preceded it, even though the comps are getting tougher in the back half of the year?

Yes, we see Q2 being better than Q1. And we see the second half being better than the first half, is the way we're currently looking at it, Jeff.

Just to follow up on Jeff's question. Are customer inventories low and there's a little bit of a restock occurring? Or are they balanced? How do you guys kind of see that element right now?

So we track it pretty carefully on the Safety and Industrial business group, the distribution inventory is relatively normal, I'd say maybe a tick below what we typically would see. We would typically see 65, 70 days, and it's a bit below that. On the Consumer side, it's about normalized from where we were last year, around 13 weeks of supply coming into the year was a bit higher, maybe 13.5. But right now, we're around 13. So on the Consumer side, fairly normal. On the Safety and Industrial side, I'd say normal to maybe a bit light in the channel.

Okay. Helpful. I think you mentioned your factory footprint is down like 10%. Is there another 10%? I mean how do you guys kind of think of where the endpoint on that journey is?

We will continue to discuss this with investors moving forward. At the end of last year, we completed the sale of PG&F, our precision grinding business, which had seven factories across Europe, one in Asia, and a couple in the U.S. While it was not a large operation, it had a significant factory presence. This transaction reduced our footprint by seven. We also closed one facility in the first quarter and announced a few more closures that will happen throughout this year and into next year. This will bring our total below 100, lower than our current number. We'll keep evaluating this and updating investors as necessary. However, a footprint just under 100 is larger than what we currently require.

Just wanted to start maybe if you could give any color around the second quarter dynamics in a bit more detail, understand the organic sales growth accelerates year-on-year from the 1% in Q1. Also, I think Anurag, you said first half EPS more than second half because of the contingency. So I just want to gauge sort of how much sequentially or year-on-year EPS should grow in Q2? And what's the sort of margin embedded in that guide would be?

Sure. Sure, Julian. Let me answer those questions. So first, just on the revenue growth. As we mentioned because of the good backlog and the auto momentum, we expect organic growth in the second quarter to be higher than 3%, with all the 3 business groups accelerating. SIBG, which was at 3.2%, obviously going higher than that. TEBG, low single digit. And CBG flat to positive. So that's the expectation of the revenue growth acceleration. Obviously, that's going to come with high flow-throughs. We're going to continue with the productivity that we did in the first quarter will continue to the second quarter. And between volume and productivity, we'll offset all the last quarter of the tariff year-over-year impact for us, a pickup in stranded costs and investments. So you will see operationally for us, it's going to be a solid margin, about 24.5%, and good EPS flow-through coming from that. On below the line, we will see a couple of pennies of headwinds relative to last year. Last year, in the second quarter, we had a divestment of an investment that we had in India, which was about $0.08 to $0.10. Then you see a little bit of tax, which was favorable in Q1 coming back in Q2. So those are two headwinds. Of course, they will be offset by the share buyback, which we did in the first quarter, which is going to help us in the second quarter, plus a little bit on the non-op pension side. So you put all of that together, we should grow more than $0.05 in the second quarter, which for the first half would put us at about $0.30-plus of EPS growth, which is more than half if you include the contingency for the full year. Now the contingency, as I mentioned, we kept it for the second half of the year, depending on how things evolve. If we continue performing the way we do, revenue grows over 3% in the second quarter, which is a good exit rate as we enter into the second half. And if it continues at that a little bit better with good volume flow-through, no tariff headwind, the margins in the second half could be much higher than the first half.

I appreciate the detailed information. I have a quick follow-up. That was very comprehensive. Regarding the pre-buy dynamics, thank you for mentioning that. I'm trying to understand your assumptions about how much of that reverses, especially since you've indicated that organic sales growth is accelerating in the second quarter. I'm curious if the pre-buy is contributing positively or if the unwinding of it could be a drawback. Could you elaborate on the pre-buy dynamics for the remainder of the year?

So Julian, it's difficult to determine the exact impact of pre-buying. We are experiencing strong order inflow and significantly better success with new product launches, along with growing momentum in commercial excellence. It's important to note that part of the growth in Q1, and into early April, was driven by some long-lead products intended for semiconductors, particularly for data centers, which will be delivered in Q2 and later in the year. All these factors are at play. When I reflect on the entire year, as we mentioned, we expect growth to accelerate in Q2 and continue in the latter half. These elements are interconnected, and any pre-buy effects will be resolved in Q2, but we anticipate further acceleration in the second half thanks to key operating fundamentals around new product introductions and commercial excellence.

On the $0.05 to $0.15 of contingency tied to oil macro uncertainty, can you just outline kind of roughly how you think about the split on the demand side versus the cost side of that and your planning assumptions? And then really looking for any color on the oil exposure sort of across the business, and what you're thinking about that contingency could flow through if you need to use it?

Let me begin with the contingency and then Bill can add to that. The $0.05 to $0.15 of contingency we have is actually divided between the two areas you mentioned. As I stated, in the second quarter, we expect to be above 3%, which is a good exit rate as we move into the second half. If there is any impact on volume due to macro factors, which we’re not seeing at the moment, or if input costs increase slightly, it will likely be distributed between the two areas. Our current goal is to keep focusing on what we can control with NPI and commercial excellence, outperform the macro environment, and enhance productivity to avoid using the contingency in the second half.

And Joe, regarding oil prices, we view it as two main factors: supply and demand. On the supply side, approximately 45% of our cost of goods comes from raw materials, which amounts to around $6 billion in raw material spending. A third of that is based in polychem products such as ethylene, propylene, esters, and acrylates, and we are experiencing some upward cost pressures there. So far, we anticipate a cost increase of about $125 million, which we plan to offset with pricing adjustments. I previously mentioned that we expect a 50 basis point increase in price due to our exposure to oil. As for how this situation will impact the broader economy and consumer spending in sectors like automotive, it's still developing, and will depend on various factors, including events in the Middle East, but that’s our current outlook.

I wanted to also follow up on pricing and I guess a little bit on price cost. When do these surcharges take effect? I would imagine some point in Q2, but any color on when they take effect would be helpful. And it just seems like with the $120 million of cost inflation that you referenced, Bill, on the 50 bps of price, the plan here is to be, I guess, be neutral on price cost. And I asked because if I remember a year ago, you guys were actually EPS negative on the tariff inflation. Just want to make sure I have that neutral view right.

So Chris, we've learned quite a bit this year. We are adjusting to tariffs more quickly than we did last year; initially, we were somewhat cautious, but we've managed to offset a significant portion of the tariff costs through adjustments in cost and pricing. We are being careful with this approach. We plan to offset the cost increases related to oil with price increases, and that's our working assumption. Historically, we've managed to cover material cost inflation with pricing adjustments. Typically, a 2% rise in material costs translates to approximately 50 basis points in price increase. For the current year, we're expecting around 80 basis points overall, although it may be slightly lower in the first quarter due to lighter inflation numbers. This year, with oil prices increasing, we anticipate an additional 50 basis points in pricing, leading to a total increase of about 1.3 points for the year. This is our current expectation. It's not an additional surcharge; the price increase will be incorporated into the pricing of our products. The impact will vary by product and geography, but in general, it will be less of a surcharge and more integrated into the base price.

Yes. And in terms of the rollout in the timeline, we've already started in April in a couple of countries in Asia. And then in the United States, it starts on May 1 and Europe as well. So it is imminent right now with all the letters going out to the customers, knowing when the surcharge is going to impact them, oil price increase is going to impact them.

This is Neil on for Amit. So I know we just got first quarter results, but if I could ask about the growth algorithm into 2027 because the outlook suggests some meaningful improvement in trends exiting this year. If I just look at new product introductions, for example, I mean, these are accelerating. And if we add maybe 2 points of macro growth to new product introduction, would that math imply that 3M is growing around 4.5% organically next year?

Yes. Thanks for the question, Amit. I'll start and Bill can add from there. We said this year that we will grow about $330 million, $300 million above macro. And as we get into the second half of the year, from the exit rates, you are right, we will be north of 3.5%, which would imply that we would be above where we are in the first half and above where the full year would be. So we do feel very good as we enter into next year with what we are doing on the NPI as well as what we are doing on commercial excellence and how that is translating. So first is, obviously, we've got to grow in the second quarter about 3%. And if we do grow above the 3.5% in the second half of the year, I think it will give us good momentum to kind of accelerate the growth into 2027. But it's a little bit too early to kind of talk about that, and we'll provide more color as we go through the course of the year.

I was hoping we can address the point-of-sale momentum. I mean that's a surprising number, up 7 on the last 8 weeks, given the pockets of macro pressure. So just your impression here, is this consumer driven? Is it more on the commercial side at all? Just some context and the momentum into April?

Deane, so it is consumer driven because it's in the consumer business group. I think it's very encouraging for us to see POS up. That's a sell-out 7 of 8 weeks, which I think is really good. It does kind of make us feel a little bit better going into Q2. And that business, Consumer business stabilizing, perhaps growing a little bit in Q2 and the balance of the year, so those are good trends. I think it reflects the team's very aggressive efforts on driving promotions, getting shelf space, driving NPI, being really aggressive at hustling at the customer interface, good on-time performance still in at 95%, 94.5% range. So just really good work. Anurag talked a little bit about a couple of pockets that are growing a bit better, but it's pretty broad-based. We see really good trajectory here through the first quarter now going into Q2 on the clubs, which is not surprising, given where consumers happen to be today. But we feel good about the trends and good about the outlook for Q2 so far.

Good to hear. And I'd love to hear a bit more about the Expanded Beam Optics opportunity. There's a lot of focus on this. It's addressing the data transfer bottlenecks in AI processing. So just where do you stand competitively? How quickly can you ramp on this? Is there any question of manufacturing capacity? Because the take rate on this is one of the fastest growing right now in data centers.

Well, Deane, exactly. That's why we're so optimistic about it and why we're talking more about it. And the fact that we've had some really good robust IP protection around the technology. It is expanded beams. So it's not a point-to-point fiber connection to the data center. It's sort of like an easy click between two pieces of multi-fiber device referrals that come together. And we can put that together at 80% less time with a less strain technician; better reliability, can operate in a dusty environment, which is why it's gotten some good take rate. We've had at least a validation by at least one hyperscaler, a second one is in testing. I expect that will be positive as well. We had a fairly large order coming in, in Q1 relating to the hyperscaler that has certified it. We are in a ramp-up mode. We will double capacity towards the back end of the year. We're investing quite significantly to expand capacity, relying on other partners in the space. Hyperscalers won't go with a single source of supply. So we've got to make sure we have some dual source, either a couple of factories or us with a contract manufacturer. So all of this is working. We're working the ecosystem. The pace at which this has happened is very encouraging, and the team is pushing hard. I'm really optimistic about where it's going to go from here. This is a polymer EPO as it moves to ceramics, which is more EBO or fiber to the chip. I think it opens up a lot more opportunities with a lot of other players in the space. So look, it's encouraging, which is why we want to share today with investors.

I'm just going to ask one since we're near the top of the hour, and we've gotten through a lot of the questions on my list. Just on some of the margin puts and takes, so have you guys seen any changes to your full year productivity assumption or stranded costs or growth investments? And I guess was any of that kind of front-loaded into the first quarter? How are we thinking about phasing throughout the year of those 3 items?

Thank you for your question, Nicole. We mentioned that we have a range of $0.05 to $0.15 for our contingency, with the midpoint being $0.10. Approximately half of that is attributable to productivity, most of which occurred in the first quarter. The only two adjustments we made from our previous guidance include about $0.05 from strong productivity on both the supply chain and G&A sides, primarily observed in the first quarter, which we aim to maintain. The second $0.05 at the midpoint originates from our proactive capital deployment, where we repurchased $2 billion in shares during the first quarter out of $2.5 billion, which naturally provides an earnings boost throughout the year, in addition to our effective cash management with our cash reserves. Those are the significant changes.

But we're not changing our productivity guidance, stranded cost guidance at $150 million tariffs. I mean that all stays the same as it was back in January.

Could you please discuss what your customers are saying about possible supply chain bottlenecks, especially regarding sulfur, helium, and methanol derivatives? Are those considerations included in your contingency plans, and do you have strategies to address any shortages that might arise in the latter half of the year?

So Laurence, it's a good question. I mean that's probably affecting some of the pre-buy activity perhaps. Look, I think we're all working through this. We're in direct contact with all of our suppliers trying to manage all of our sources of supply, making sure we've got a variety of players that we can go to. So it's on our minds. So I know it's on theirs, and it's going to affect behavior as we go through the next several months, and we watch what's happening in the Middle East and through the Strait of Hormuz. So we'll keep you updated on that, but it's certainly a factor that's on everyone's mind today for sure. So thank you.

So I know we're a couple of minutes late, but thank you all for joining today. And I want to thank again all of the 3Mers for their efforts, for their dedication and executing against our priorities, strengthening the foundation, as Anurag say, controlling the controllables, delivering value to our customers and shareholders. So thank you. Thank you all for joining today. Have a good day.