Ladies and gentlemen, thank you for standing by. Welcome to the 3M Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, October 24, 2023. I would now like to turn the call over to Bruce Jermeland, Senior Vice President of Investor Relations at 3M.

Thank you and good morning, everyone and welcome to our second quarter earnings conference call. With me today are Mike Roman, 3M's Chairman and Chief Executive Officer; and Monish Patolawala, our President and Chief Financia. Mike and Monish will make some formal comments, and 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 @3m.com. Please turn to Slide two. Please take a moment to read the forward-looking statement. During today's conference call, we'll 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-Q lists some of the 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 three and I'll now hand the call off to Mike. Mike?

Thank you, Bruce. Good morning, everyone, and thank you for joining us. In the third quarter, we built momentum through strong operational execution as we again delivered for our customers, positioning us for a solid close to 2023. On an adjusted basis, we delivered earnings ahead of our expectations, expanded margins sequentially across all four businesses, and achieved our third consecutive quarter of double-digit year-on-year growth in free cash flow. As we make progress and deliver improved financial results, we are increasing our full-year adjusted earnings per share guidance to $8.95 to $9.15, up from a previous range of $8.60 to $9.10, and our adjusted free cash flow conversion range to 100% to 110%, up from 90% to 100% previously. We continue to deliver against our priorities. We are driving performance throughout 3M with strong operational execution, restructuring actions, and spending discipline. We are progressing the spin of the healthcare business, which we expect to be completed during the first half of 2024. And we are reducing risk and uncertainty by reaching significant settlements to address combat arms and PFAS litigation. I will now provide some additional context around how we are advancing these priorities. Next slide, please. Our margin expansion clearly demonstrates the performance our team is driving throughout 3M. We delivered 240 basis points of year-over-year adjusted operating income margin expansion, excluding 80 basis points of restructuring-related charges. We are strengthening our business in several important ways. We are progressing with our restructuring actions to streamline our organization, reduce structural costs, and get us closer to customers. We have leaned out the center of our Company, simplified our global supply chain organization, and optimized our global go-to-market models. At the same time, we are advancing supply chain performance to improve service, drive productivity and yield, expand gross margins,…

Thank you, Mike, and I wish you all a very good morning. Please turn to slide five. As Mike mentioned, we are seeing significant traction from the actions we are taking to strengthen the business. Through a focus on customers, effective adjustment of production, benefits from efficiency and productivity initiatives, ongoing proactive spending discipline, and the relentless focus on managing inventory, we were able to deliver solid adjusted third-quarter results, including sales of $8 billion at the high-end of our guidance range of $7.9 billion to $8 billion, operating margins of 23.2%, an increase of 160 basis points year-on-year and 390 basis points sequentially; earnings per share of $2.68, a year-on-year increase of 3%, and free cash flow of $1.9 billion, up 39% year-on-year with conversion of 130%. Organic sales on an adjusted basis declined 3.1% versus last year. This included an expected year-on-year headwind of approximately $140 million, or 1.7 percentage points related to lower disposable respirator demand and last year's exit of our operations in Russia. Excluding this, Q3 adjusted organic sales were down 1.4%. Consumer and electronics end markets continue to be soft. Our adjusted organic sales declined year-on-year mid-single digits in our electronics business and high-single digits in consumer. This softness was partially offset by strength in our automotive OEM business. Regionally, the U.S. was up slightly despite continued challenges in retail. Europe remained soft, and China was down mid-teens year-on-year organically due to continued end-market softness along with lapping strong sales backlog recovery in the prior year. Our strong adjusted EPS of $2.68, exceeded our expectations of $2.25 to $2.40. Roughly two-thirds of the beat was driven by operational execution in our supply chain and proactive spending discipline, and a balance driven by restructuring timing. The restructuring actions we announced earlier this year are largely…

[Operator Instructions] Our first question comes from Scott Davis with Melius Research. You may proceed with your question.

Good morning, Mike, Monish, and Bruce. I haven't been able to say this in a while, but a pretty solid, complete quarter overall, so some progress there. But, guys, I want to back up a little bit. What are the remaining steps to get health care spin complete? Any big hurdles still remaining?

Yes, Scott, I would say the team continues to make very good progress. And so we don't see any hurdles ahead of us. There's a lot of work to do to get ready for the spin and so we've got work to do, getting ready for each step of that process. As we talked about in my remarks, we named the CEO, and we're adding to the leadership team and getting that built out. So that's really an important foundation. We have the Board Chair named and continue to work on filling out the Board. So those are important steps. I don't see -- the team has given us great confidence that we're going to continue to progress. And we're on track for the timing that we talked about in early 2024 and see ourselves getting there successfully. Importantly, for us, it's -- much of it is and we've talked about, it's about getting ready for the spin of health care, it's also about getting ready to stand up 3M as a stand-alone Company with a health care spin being completed. So we're putting focus there. And even what we talked about in the quarter that really driving the priorities that we are talking about, the execution in our operational execution is an important part of getting ready for 3M for the spin as well, and we're making good progress there, as you noted.

Just process-wise to add to Mike's comments, the teams are working through system changes, standing up legal entities and as well as all the regulatory filings, Scott, that we need to do, and that's what everyone is focused on from the health care side.

That's helpful. So Mike, just taking your comments a little further, at the new 3M, do you envision a new 3M or you can kind of run at lower levels of CapEx, lower levels of even potentially R&D as a percent of sales. And the knock on 3M was always that it costs a lot of money to drive a point of growth and sometimes with the incrementals that worked out well. But in down cycles, that certainly did not work out well. But is there a new vision in 3M, I should say, that you can run at kind of more productive, efficient levels of CapEx and R&D?

Yes. Scott, there's a couple of dimensions to the answer to your question. The first starts with what we've been talking about. We announced a restructuring back in Q1, and that was really coming from what we had learned as we operated our businesses and we looked at where we were going with our supply chains in the face of some of the challenges in supply chains globally. And it was really behind that was an expectation that we could drive greater productivity, improvement in our execution, stronger performance, improved margins. And so that was really the foundation of that restructuring. And so I think part of the answer to your question is we took those decisions to lean out the center of the Company, simplify our supply chain, streamline our go-to-market models. Those are a foundation for the future of 3M. And those are -- you can see starting to demonstrate that we can drive improved financial performance for the Company. And that's -- we expect that to be a foundation for the future as well. I even talked about this is with that performance starting to build some momentum, we can accelerate how we view the future. And then you are talking about investing in growth and innovation and productivity and sustainability. And we'll continue to be our capital allocation, first priority is going to be investing in organic growth in R&D and CapEx. And really, thinking of and targeting high-growth market spaces, places where we can differentiate ourselves with our innovation capabilities where we can be aligned to emerging market trends. So I think that how we prioritize that investment is going to be aligned with where we see that ability to make a difference. So both are important foundations for the future.

Our next question comes from Andrew Obin with Bank of America. You may proceed with your question.

Yes. Good morning. Just a question on electronics. It's been a headwind for a while. What KPIs are you looking at? When do you think -- and I think you said that was broadly in line with expectations. But when do you see the light at the end of the tunnel? When does it bottom -- what does it take for this business to bottom?

Yes, Andrew, I would say we came through third quarter. We still saw as we said soft end markets for electronics, and that's consumer electronics, it's into semiconductor. It's into a big part of our -- what we have as a focus in our customers and electronics. When we look ahead, there's some uncertainty, we're starting to see, as Monish said, electronics stabilize. I think that really reflects that we don't see it continuing to go down. It's starting to stabilize. There's some -- companies are talking about things getting better as they go forward. I would say we're watching it closely. We expect Q4 to look a lot like Q3 in our end markets, and I would say electronics included. So we're watching what we always watch. Our customers are large electronics customers in consumer electronics and semiconductor associated with data centers and those are the -- that's where we're going to be taking the lead from where we see demand going, where we see market performance going, when we see the market improve. We'll take the lead from them.

Just another data point for you, Andrew, at the end of second quarter, we had said that the way we predicted electronics was the amount of negative Vs quarter-on-quarter would get better. So if you compare us to the first half and the amount we were down year-on-year versus the third quarter, we are less down. It doesn't mean we are not down, but that's another point that Mike was trying to make is that's where we are starting to see some signs of stabilization. But as I said in my prepared remarks, I think we'll have to just watch how the holiday season plays out.

Got you. And just a follow-up question on health care. I appreciate that you guys are doing a lot of sort of sort of accounting, et cetera, et cetera. But you have done the separations in the past. And I guess the question I have, any thoughts, as Bryan has joined the Company, I know in the past, there's been headlines about Health Information System being separated. I know there are other sort of businesses inside health care. Any thought about sort of maybe repositioning the portfolio as particularly as Bryan came on board, repositioned the portfolio for sort of future as a stand-alone Company.

Yes, Andrew, going back to really how did we think about the strategy to spin out health care. And one of the important questions was do we see health care as a leading health care technology Company attractive to shareholders with a great future. And that portfolio of businesses, the answer for us was yes. And that the -- the best way to create that value was to stand it up as a stand-alone Company and the portfolio work we had done even over time as part of 3M position it to be a successful stand-alone Company. And each of the businesses play an important role there. Now it is going to be an independent Company. We'll have a new CEO and a Board and they will develop the strategies for how they think about creating the greatest value driving growth for that business, thinking about how to really manage that portfolio of businesses as they go forward. So we see it as being ready to stand forward as a leader and are really confident in the leadership that will take the Company as a stand-alone.

Our next question comes from the line of Joe Ritchie with Goldman Sachs. You may proceed with your question.

Thanks. Good morning, everyone. Can we start just on the restructuring, the benefits and the push out a little bit of the expenses? Just -- it seems like you're running ahead of schedule on the benefits. So I'd love to get any color about where this is. What you see coming in better than expected? And then also just on the push-out on the cost into 4Q, just what were some of the reasons for why the costs are getting pushed out from 3Q to 4Q?

Yes. So I'll just start, again, as a reminder, Joe, the total benefits for this program over the period of the program is $700 million to $900 million, with costs approximately of $700 million to $900 million. And coming into the year, we had said for 2023, we would see benefits in the ranges of $400 million to $450 million of benefits and equal offsetting charges. So when you look year-to-date, we are, I would say largely on track for the year, we still believe will be in the $400 million to $450 million of benefits, which will get offset by cost of $400 million to $450 million. So the teams have done a really nice job of continuing to execute. There are multiple pieces to this program. One was corporate simplification. The second was streamlining our supply chain. And third was making sure that we are closer to our customers in our business group units. And all three of these programs are running well on track. As regards to just timing from Q3 to Q4, I would say nothing big. We operate in multiple countries, as you know, and we wanted to make sure we follow all rules and regulations in those countries. And so some items dropped from Q3 to Q4, and we had a couple of other small investments that we had to make in Q3. They're just based on all the work the teams are doing, we just felt better to do it in Q4, so nothing major. So still pretty much largely on track, $400 million to $450 million of benefits for the year and $700 million to $900 million for the program.

Got it. Okay. Great. That's helpful, Monish. And then I guess -- I know it's probably too early to think about 2024. But if you kind of think through like the price/cost equation from here on out, it seems like raw materials are becoming less and less of a headwind for you guys. Can you maybe just provide any type of framework for 2024 and ultimately, like how you think about both price and what you're seeing from a raw mat perspective?

So, I'll just start first, Joe, by 2024 is a little ways away. So I think our first focus is just getting Q4 done, getting the teams continuing to focus on our priorities. You've seen what our teams have done. So we continue to execute on our priorities. You've seen we have delivered a solid Q3. We have taken guidance up for the whole year. We're gaining momentum, and we want the team to continue to focus on doing that getting 2023 closed out. So when we get into 2024 and Q4 2023 earnings call, we'll definitely give you an update on 2024. To answer your question on deflation and price, I'll start with deflation. I'll start by saying, first of all, the headwinds that we have seen or the carryover headwinds are approximately $25 million in the quarter, which we called out, which was very similar to Q2. When you look at overall market and material, I would say we are seeing more disinflation than deflation. When you think about places where energy is still a little more -- is still inflationary, downstream materials are still inflationary and then labor is still sticky from an inflation perspective. Where we have seen some benefits is upstream chemicals and logistics and the teams have taken advantage of that. But I would say more importantly, I don't think the teams are just focused on material cost, they are more focused on saying, how do we drive overall cost down in the factories, whether it is driving yield and efficiency, whether it is dual sourcing, whether it is making sure we have alternate materials. That's what Peter Gibbons and the team is working. And the work that they have done through this year is clearly evident in the results that you're seeing. So that team has done a very nice job. And then when it comes to price, I would tell you, we came into the quarter -- into the year, we said low single digits price increase. That's what we are -- as of right now, we are on track with pretty much the same range. And Joe, as you know, you've followed 3M longer than I have. This is not a formula-based pricing. We are very thoughtful about it. We look at it market by market, product by product, and we make sure that the price that we are charging our customers is a representation of the value that we -- that our customers get. And I would say, if you leave 2024 aside for a moment, long term, 3M has always had a very good price/cost equation because of the value that we add to our customers. And I don't see that changing. And I believe that with the innovation that we bring with the customer focus that we have that, that equation remains.

Our next question comes from the line of Chris Snyder with UBS. You may proceed with your question.

Thank you. One thing that has really stood out to us over the last couple of quarters is the underlying margin improvement of the business. if we ex out restructuring spend and savings, we see an operating margin on the underlying business of roughly 22% this quarter, first, less than 21% in Q2 and like a mid-'18 in Q1. So a very strong ramp here. Can you just talk about what's driving that outside of the restructuring, why is the underlying business seeing so much margin momentum?

So I would say, first, Chris, it's a huge thanks to the 3Mers who have been focused on their priorities. The priorities, as Mike mentioned, driving performance across all of 3M, spinning out health care, reducing risk by managing litigation is all starting to show up in the results. To your point, even if you exclude our restructuring costs and benefits, the margin rate is -- has shown a pretty good ramp. And that's driven, I would say, by two or three things. One is continued execution in the supply chain, with some of the restructuring that we have made and the supply chain is definitely more agile. We are also using a lot of data and data analytics. We have also learned through the pandemic on how to continue to operate our supply chain. So number one, you're starting to see the benefit of the improved yield and efficiency, you're able to take longer runs to as material gets better. Secondly, the team has been very thoughtful in proactive cost management to the extent where they saw there were places they could invest, they have; to the extent where we had lower volumes, we have managed to control cost. Third is we have had a relentless focus on working capital with inventory, and you're seeing that from a cash conversion basis. So I would just say it's continued good, strong operating performance that you're starting to see. And then as you add on the benefits that you get from the restructuring and once the cost goes away, which we have said this program will take approximately two years to complete out, you can see the overall, long-term benefits from the margin rate that you're going to get from better operating performance as well as better restructuring benefits. At the same time, you've got to keep in mind that we are that -- the teams are going to continue to watch this in the fourth quarter. It's an uncertain macro. But I'm very confident with what we're doing that the execution is there, but there's always more we can do, and we'll keep trying to drive more and more execution as we go.

I appreciate that. And maybe kind of taking that and bridging to the Q4 guide. It seems to us by our math, that you're kind of guiding underlying operating margins ex restructuring to something like 19% down from the almost 22% this quarter. I know revenue is down, but it seems to suggest a very sharp decremental. Can you just maybe talk about what's causing that margin step down? Because it feels like a lot of the improvements, whether it's supply chain or price cost are sustainable. Thank you.

Yes. Chris, again, depends on the math. I'll just start with margin rates in total. When we started the year or we came into the year, we had said margin rates for the year are going to be around 19%. At the end of Q2, we said margin rates are going between 19.5% to 20% for the year. And now based on where we are with the midpoint of our guide, our margin rate will be approximately 20%. So when you back into it, the fourth quarter is higher than the 19.5% that you have, it's somewhere in that 20.5% to 21% for the fourth quarter. And just to keep in mind, the reason you see this decremental. One is, of course, the restructuring is higher in Q4 versus Q3, plus it's higher of -- the midpoint is $95 million to $100 million of restructuring on a year-over-year basis, if you're doing year-over-year decrementals. The second piece to keep in mind is, in general, revenue in 3M drops from Q3 to Q4, you have less billing days or less business days in Q4. That's why our revenue guide, which is going from $8 billion, it goes down to between $7.6 billion and $7.7 billion, which is basically saying the underlying macro trends are the same. It's just lower billing days or lower business days, which also puts an impact. If you look at the history of 3M, Chris, and you look at Q3 to Q4, you will always see a pretty sharp decline from Q3 to Q4 in margin rate. And that's mainly driven by just the lower volume because of the less business days that come into Q4. Hopefully, that answered your question.

Our next question comes from the line of Andrew Kaplowitz with Citi. Please proceed with your question.

Hey, good morning, guys. So, Monish, I think at a conference a month ago, you had lowered your revenue guidance a bit and you sort of report $8 billion -- I think you had $7.9 billion to $8 billion. So maybe you can talk about the cadence of revenues for the quarter. Did any of your businesses pick up in September here in October? Are you just being conservative at the time? And then how are you thinking about the impact of higher rates on your businesses?

So I'll start by saying at that moment in time, what we saw is what we told you all, which we felt was in that $7.9 billion to $8 billion. There Was uncertainty in electronics, consumer and China, I would say, thanks to all the focus the teams have on taking care of customers, we were able to get to the high end of our range of $8 billion. I would say the same trends, Andy, pretty much stayed through the quarter. Electronics pretty much was where we thought it was going to be. China continued to remain weak and so did consumer retail. As Mike mentioned and so I have in my prepared remarks, we are seeing electronic stabilizing. We are watching for the fourth quarter what the holiday trends will bring for consumer retail. Back-to-school was softer than we expected. And then China, again, I would say is we are -- it's pretty much the trends we expected in China. Overall, for the fourth quarter, you'll see us having revenue of $7.6 billion to $7.7 million, which is again just driven by the fact you have less business days. On the other side, if you look at margin and you look at what the teams have done, the teams have continued to be very good on an operating execution perspective. We have continued to drive proactive cost control. We've done that in Q3. We'll continue to do that in Q4. And as a result, we were able to beat the 225 to 240. I had said in that conference a few months ago, and then we have raised totally a guide from 860 to 910 to 895 to 915. And then the other point, Andy, that's another bright spot is the cash conversion. The teams have done a marvelous job managing inventory, 130% free cash flow conversion in the third quarter, which has allowed us to raise our total year guide of free cash flow -- adjusted free cash flow conversion from 200% to 110% from 90% to 100%. So overall, the team is focused on operating execution.

Monish, if I can follow up on that, the cash conversion target raise. Maybe talk about your efforts. I know you talked about improving digitization at the Company, it seems like you're focused on digitization inventories having impact. So maybe you can talk about the confidence in generating higher cash conversion going forward, sort of the duration of these improvements as you go forward in '24 and beyond.

Yes. From the day of coming here, Andy, I've said working capital is a great opportunity for 3M. And through the pandemic, unfortunately, we had to build inventory levels and most companies did just to make sure we took care of our customers. And our first priority was always to take care of our customers. So we made sure we had enough inventory. As two things, as supply chains are stabilizing, number one, but more importantly, the execution that the teams are doing using data and data analytics and not -- and what I mean by that is not just going and using analytics, but being able to visualize by looking at data, they are able to see where the inventory is better. They are able to get a better demand signal, which allows them to get a better manufacturing signal, which allows them to get a better supply signal to their suppliers. And then the third piece is with all the work that we have done through the restructuring, where we have got the supply chain streamlined and restructured so that it's more agile. All of that is playing itself out in the inventory that we are seeing. I would tell you, as I said in my prepared remarks, there's more to go here. There's more that we can keep driving in this space. And we are going to continue driving it because this is a great place where we can continue to generate very strong cash for 3M.

Our next question comes from the line of Deane Dray with RBC Capital Markets. Please proceed with your question.

Thank you. Good morning, everyone. What are you planning and assuming for the auto strike impact for 4Q?

Yes, Deane, so it's something we're watching very closely. We're -- as you know, we stay very close with the automotive OEMs, our key customers there. We are -- we haven't seen a significant impact on our business to date. And we continue to watch it closely. We're staying connected on what happens week-to-week and impacting our demand. But it's something that as part of -- an important part of our global automotive business, the automotive as we talked about in the quarter, had very good performance. We had 16% growth in the quarter, outgrowing build rates and that's the broader core of our automotive business, our auto electrification business is growing even faster. So it's an important part. It's had some impact but relatively small impact to this point. Again, we're watching it closely as we move ahead.

Got it. And then you mentioned earlier in the prepared remarks, the back-to-school sales were weak. Can you quantify that just maybe year-over-year? And then how does this set up for holiday sales with consumer being weak, higher rates? What's the assumption there as well?

Yes, Dean, I probably would point you back at some of the data out there about year-over-year spend back-to-school being down per student. There's a number of metrics out there. For us, our category broadly in consumer is exposed to like shifting discretionary spend. So that continues to be part of the consumer story. So it wasn't back-to-school story, only back-to-school was muted. We didn't see the strong replenishment cycles that we would have seen in a stronger back-to-school. So I think we confirmed the data that's out there. And as we look ahead, we're -- I would say we're just looking at the uncertainty around what happens for the holiday season as well. And so we'll be monitoring that. And again, there's a broader story around consumer, retail for us, the shift of spending from discretionary products into areas like food and I would say, experienced kinds of spending, that trend has continued. So those are both underlying some of the performance that we saw in consumer in the quarter and how we're thinking about it into Q4.

Our next question comes from the line of Stephen Tusa with JPMorgan. You may proceed with your question.

Hi, good morning. Could you just give just an update total expected now inflation kind of carryover for the year? I know you mentioned it in the second quarter. Is that unchanged relative to what you had said before? I think it was like $150 million? Maybe that changed?

No change, Steve.

Okay. And then I guess, low single digits for the year on pricing. So that's kind of like a mid-single-digit volume decline. That kind of feels already recessionary. Things seem like very stable for you guys revenue-wise. How much of that negative 5% do you think is a function of destocking versus trend line on demand? And then just one last one for the fourth quarter. How much of that sequential sales decline are you expecting from electronics seasonality?

Yes. So Steve, maybe just thinking about the -- take the channel dynamic first, if you want. I would say -- when we look across the channel where we're seeing some destocking as in industrial channels, and that's really -- I think we talked about that last quarter, too, as supply chain performance has improved and stabilized. We're seeing the industrial channels shorten up their replenishment cycles. And so they're managing their inventory maybe back to more normal levels prior to when we got hit with some of the supply chain disruption. So that's the one destocking effect. There is some destocking in consumer that played out. The biggest part of that played out over the last year, retailers focused pretty heavily on taking out inventory. That seems to have played out, although there's some of that with the soft demand that's continuing. So it's, I would say, the rest of it -- when I look across the channel, otherwise, it's pretty stable globally; maybe some adjustments in China in some of those same markets as we continue to see the macro looking for where the macro goes as we go forward. Looking as we move ahead, electronics, we talked about stabilizing. It's really, Monish pointed out, it's part of it's a year-over-year comp. Remember last year, third and fourth quarter, we saw a decline in the electronics end markets, and we saw that in our businesses. So that's part of the view that Q4 stabilizes that year-over-year comp gets a little more -- changes a little bit as we lap some of those earlier declines from the first half. So I would say, we're staying close to that holiday season and what happens. That's an important season for electronics, and we'll be watching that closely as we go into the quarter.

Steve, I'll just add. I'll just add -- I just wanted to add one more disposable respirators is down $600 million on a year-over-year basis. That's approximately 200 basis points of growth.

Right. So sorry, are you assuming kind of normal sequential seasonal decline in electronics, you are?

Yes. Well, in the broader business, we have seasonality. Some of that is normal end market cycles, but it's also billing days as well. We have the holiday season. So we see it sequentially from Q3 to Q4, we see that normal trend.

Right, which you've always had, of course

Our next question comes from the line of Nigel Coe with Wolfe Research. Please proceed with your question.

Hi, good morning guys. So you can have too many electronics questions. So what's got my attention in Electronics is the sequential growth from 1Q through to 3Q has been quite sharp. I think 1Q was about 680. I think 3Q is a 750 or so. I mean I know some of its seasonality, et cetera. But it must give you a lot of confidence that as we go into 2024, that at least in the first half of the year, we should be -- that should be a nice tailwind to the business. So any thoughts on that?

Well, Nigel, I would say it's going to depend on the outlook as we get to 2024 for electronics and those key end markets that you're talking about it. And we've seen -- maybe that's part of the stabilization that we're seeing is the quarterly trend in electronics and against that year-over-year comparable is stabilizing in the second half. What will decide the performance in first quarter or first half of next year will really depend on the demand that we see. And some of that will come through the holiday season, but we'll be -- we'll come back at our Q4 earnings call and update on how we're looking at the first half of next year.

Okay. That's great. And then I don't like to ask same macro questions necessarily, but you are pretty -- cycle, very channel-centric. The flash PMI for the U.S. was at 50 in October. Are you seeing more stabilization or maybe some sequential improvement in the U.S. relative to Europe and China?

Yes. I think Monish called out the performance in the U.S. was up slightly, and -- and that, I would say, mixed performance in our industrial businesses in the U.S., reflecting some areas of strength, but also some, I would say, caution and uncertainty around the broader economy. So I think we're seeing the U.S. performing a little better, up slightly. And that's -- I would say that's in spite of the challenges that we've been talking about in consumer retail. So Safety and Industrial posted, I think, mid-single-digit growth in the U.S. in the quarter. So that's a good reflection on what we're seeing more broadly. And maybe that PMI is aligned to that. That PMI represents kind of a middle kind of expectation from the purchasing managers

Just only other thing Nigel I will add to Mike's comments is just in certain pockets, we are seeing customers managing inventory channel. And part of it is supply chains are definitely far more stable. So customers have lower lead times, so they're managing that in pockets.

Our last question comes from the line of Julian Mitchell with Barclays. Please proceed with your question.

Hi, good morning, thank you very much. One quick question. I just wanted to circle back on your sort of pricing outlook as you see it because volumes have been soft for some time. Headline inflation in theory is easing. Traditionally, you do have price pressure in areas like electronics, just through nature of the industry. So I just wondered sort of what the comfort level was as you look into Q4 and early next year, that you can hold price kind of firm-wide at least flat at 3M? And whether there's been any change how you sort of go to market to push price just given the experience of inflation in the last couple of years?

Yes, Julian, I would just say the same thing that I said with another question before. The way I would just say long term, 3M has always been able to add value to its customers, and that is reflected in the pricing that it charges. We look at this not based on just a formula, but we look at it market by market, look at our competitive position and market by market, look at the value we add, and that's how we come up with our pricing that we go with. And I would say, based on the innovation and the value that we add to our customers, long term, I don't see that changing. In the short run, as you have seen, the Company has been able to manage inflation through price. And if needed, we'll continue doing that. But overall, right now, the teams are quite focused on delivering the fourth quarter, and then we'll see where long term goes this topic. It will be a function of demand, a function of inflation. So that's the way I look at it.

Understood. And then just to focus on a couple of markets within Safety and Industrial, but I guess had been pretty strong and most of the sort of rhetoric is fairly strong around them. But organically, you had a little bit of pressure at least or less growth in and that's the electrical markets and also automotive aftermarket. So I just wondered any color around those in terms of is it just kind of accelerated destocking distributors just holding off on orders for some reason? Any color at all on auto aftermarket and electrical?

Yes, Julian, I wouldn't -- we saw a little bit of destocking in electrical markets. That was one of the areas in industrial that we saw that impacting. And I would say our automotive aftermarket probably saw a little bit of adjustments given what we talked about and Monish highlighted that, improving supply chains, distribution and the channel are managing their inventories, their safety stock, so more in line with stable supply chain. So I think that's part of it. Those have both been seeing good market performance as we've gone through the year. I think again, we're watching closely the trends as we go into the end of the year. But really, it's, I think, reflects on the -- a little bit of destocking and also the end market demand.

That concludes the question-and-answer portion of our conference call. I will now turn the call back over to Mike Roman for some closing comments.

To wrap up, we continue to execute our strategies, delivering results in a challenging environment while positioning 3M for the future, prioritizing high-growth markets and geographies where 3M innovation can deliver the most impact. Thank you for joining us.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and we ask that you please disconnect your lines.