3M Company (MMM) Earnings Call Transcript & Summary

All right. Up next, we have Monish Patolawala, CFO of -- and Chief Transformation Officer of 3M. I don't know if you have any intro or maybe if you want to do that, but then also maybe talk about a bit of any kind of near-term update, maybe the obligatory Russia question, which I kind of have to ask. Maybe throwing a China question as well. But maybe we can start with just what you guys are seeing most recently, what near-term update is. Thanks for coming, by the way.

Sure. Thanks for having us. Great to be here in person, Stephen. I just thought I'll start a little bit by reminding people about our Investor Day and what we talked about it, the Strat 14, so nearly a month ago. What -- hopefully, you all got a chance to see it, but we talked about how we are investing in growth, driving margin expansion, cash. We are laser-focused on driving innovation that will help us create value for our shareholders, for investors, for all stakeholders. At the same time, we have a strong balance sheet. So that gives us a chance to play offense as required. We are going to continue to invest in growth, productivity and sustainability. We are putting capital to work. We're investing $1.7 billion to $2 billion on CapEx, 5% to 6% on R&D. We are investing in areas that we see are GDP-plus growth areas, that we have seen trends through the pandemic, whether it's home filtration, auto electrification, health care, biopharma filtration, electronics and then digital. At the same time, we are also -- we understand dividend is important for our shareholders, and we declared $1.49 per share dividend for the quarter, which is our 64th year of increase. I'll talk about M&A and our transaction with food safety at the end. And then we've also talked about share buyback, and I mentioned that during the Investor Day, that we would remain active in the market because of where we saw the price to be. Currently, in 2021, we bought approximately $2.2 billion of share buyback. For this year, we are allocating $2 billion towards share buyback. We've been active in the market, and we've done year-to-date approximately $800 million. And then when you think about the food safety transaction, which is on track to close, so just a reminder for everybody, we are combining our food safety business with NEOGEN in a reverse Morris trust. So it's a tax-efficient structure. As a part of that, we're getting 50% of the shares of NEOGEN, plus we're getting $1 billion in cash. In our view, that's another way to return value to shareholders. We -- as -- when I -- at Investor Day, we said we were not sure whether it's a spin or split. Even as of right now, we haven't decided whether it's a spin or split. But looking at current stock prices, if we had to make the call today, we would do a split-off transaction. And that's another cashless way of buying shares back. It's approximately 20 million to 23 million shares, which is 3.5% of shares outstanding, which will take EPS up by 2.5% next year after adjusting for the impact of the loss of income for the food safety business. At the same time, you look at this and the benefit of doing a split-off is to make sure that 3M shareholders get a chance to decide if they want to take shares in NEOGEN, plus it allows NEOGEN shareholders the benefit of actually having investors who want to be invested in NEOGEN. So it's a win-win transaction on all sides. We also get $1 billion of cash with that, which we will use according to our normal capital allocation policies. So when you put all that together and you think about what we are committed towards its growth at or above macro, margin expansion, strong cash, making sure we keep the balance sheet strong, but at the same time, delivering value for shareholders through multiple means and the food safety transaction is also another means of doing that. So I just thought I would say that. And to answer your question on quarter trends, Steve, I would say when we came into Investor Day, we had said the first quarter, when you compare it to the fourth quarter, had very similar trends when it came to a few things like end markets will remain strong. We have seen that continue to remain strong in the first quarter. When we think about inflation, we had talked about inflation for the year at $350 million to $450 million and approximately $200 million to $250 million in the current quarter, which is 1Q. Looking at it right now, I would say based on the geopolitical situation, we see the total year to be more inflationary than we thought coming into the year. But at the same time, we are committed to drive price to make sure that we continue to remain positive from a price drop perspective. Talking about hospital elective procedures, we came in at 90% in the fourth quarter. We thought we'll be somewhere in the 90% to 95% in 1Q and 100% by the end of 4Q. We are seeing very similar trends. January started off pretty soft with electric procedures, but February has picked up. Oral care procedures saw down in January and February as the Omicron variant impacted the world, but we have started to see that trend back up in the first 2 weeks of March. Auto production was 9% growth for the year. Listening to different analysts and talking to customers, we are seeing that number could be down to mid-single digits for the year based on what's going on from a geopolitical basis as well as chip shortage. Electronics was up 8% for the year -- sorry, plus 6% for the year, but down 8% in the first quarter. So we are seeing pretty much that trend. And then supply chain shortages have got -- I would say were marginally better. I think it's still a very uncertain and fluid environment. And I think the current geopolitical prices just put more pressure on already pressured supply chains. But overall, the team is continuing to commit to drive growth of our macro margin expansion and free cash for the year, while at the same time, continuing to invest in growth, productivity and sustainability, making sure that we are working our legal-related matters the best we can and continuing to do what's right for our customers, which is making sure that we are delivering on time as the best we can in respect of what the cost is. So overall, I would say we're continuing to deliver what we told you at Investor Day, and the team is doing an amazing job. And I should also just talk about disposable respirators since we had given that guidance, too, which is we expect disposable respirators to be down $700 million on a year-over-year basis. So just for math purposes, we used to do $600 million in 2019, we did $1.4 billion in 2020, $1.5 billion in 2021. If the $700 million is down, which is 2 points of growth, that gets you down to $800 million. So it's still higher than 2019 levels. And that's going to impact 200 basis points of growth. And our total growth at Investor Day was 3% to 5% -- sorry, 2% to 5%, which would be 4 to 7x disposable respirators. And the team is focused on that with some of the variance. We had said in the first quarter we'll be $100 million to 150 million down on a year-over-year basis. Currently, if we had to call it, we would say we are trending to the low end of the range, but we'll see where March goes, and we'll go from there.

And then when it comes to this inflation dynamic, where you said it could be worsening, what's the magnitude of that? So how much more price do you need to go get? It doesn't sound like it's -- it sounds like it's manageable in the context of [indiscernible].

It is. And I think as of right now, that's why we feel good that we can continue to manage this, we'll see how long it lasts. But overall, the teams have done a good job of continuing to drive price. We grew price 2.6% in the fourth quarter. And the teams, I would say, have the momentum to keep driving it as needed.

You guys guided to, I think, like 1.2% to 1.3% of price, at least kind of by my math, something in that, the low ones. But you exited obviously at a higher rate. Is there -- is that just kind of the average of the carryover over the course of the year? Is there something -- which segments are there headwinds to getting more price and which segments are easy to just continually pass it through?

Yes. So, Steve, what we guided was going after growth, which is 2% to 4% with 200 basis points. And then I would start by saying GDP IPI, we think, is somewhere in that. So in our growth rate of 3% to 4% to 7%, we are saying growth rate in GDP IPI is between 3.5% to 4%. We are continuing committed to driving price. The team continued to do what they did in Q4. There's definitely a carryover impact, but we are committed to going after more as we see more inflation. To talk specifically about segments, 70% of our business is driven by spec-in as well as regulated. So we continue to add a lot of value for our customers. And that's the reason, historically, 3M has been able to get 30 to 60 basis points of margin expansion to price for a long time. We do have contracts, especially in our health care business that we work through. The team has some segments of which they can take price faster. At the same time, we follow a very coordinated approach to going after price. So we are in multiple geographies, multiple segments. And we want to make sure we are doing what's right for our customers at the same time. So we're working through all of that. And that's why it took a little longer for us in 2021, but you can see the momentums there, and I think that momentum carries into '22.

In health care, where are these contracts? What are they focused around? Which businesses are they focused on?

So your contracts, if you think about our Wound Care business, a lot of them are government contracts. So as you work through those contracts and long-term contracts that we have, that's where you see -- in many cases, you have to work through those agencies to get price increases.

Got it. On the -- just kind of stepping back to the top line and the segments. You have Safety and Industrial growing low single digit despite the respirator headwind. Can you maybe talk about the kind of subsegment growth drivers there? And what's above and what's maybe below?

Yes. So when I talked about disposable respirators, it all hits our Safety and Industrial business. That impact of 2% on all of 3M is actually 6% for the Safety and Industrial business. The segments that make it up are our Tapes business, Abrasives as well as our aftermarket OEM business and then our Personal Safety division and then our Electrical Markets division. A lot of it is driven by the growth in IPI or industrial activity. The team has done a marvelous job of driving innovation in all these areas. So they're continuing to drive innovation and get margin expansion, and that makes us feel confident that we can continue to grow at or above macro in the long run. While at the same time, making sure that the margin headwinds that we are getting with the loss of disposable respirator volume, the teams are continuing to drive yield and efficiencies in the factories and trying to offset that the best they can.

And ultimately, the long-term margins here, I mean, can this one convert at a higher or lower rate than your -- I think you target is 35%?

Yes. So 30% to 40% is the overall long-term leverage. 35% is what we have priced to see with our disposable respirators. The answer for us, I would say, Steve, is volume gives us the best leverage. So the more we can grow, plus at the same time, continuing to drive yield and efficiency in our factories, I would say, will get us to that 35% that we have. Each year has -- '21 has been difficult, 2022 from a supply chain perspective also turns out to be difficult. And depending on -- once these supply chains normalize, there's absolutely no reason why we should not get leverage that we need. And part of it, if you just think about it, is gross margin, give or take, is $0.45, $0.50. So every incremental dollar of sales theoretically starts with $0.45 on the dollar. And then from there, you take away the investments in growth, productivity and sustainability and then some of the legal-related matters. That's why we feel 30% to 40% long-term leverage is not out of the realm.

A little bit better gross margin than what you had at your old shop, for sure. On the health care side, what are you seeing by subsegment there? You talked about the electives, but anything else that you're kind of driving that -- these strategic growth initiatives you talked about at your Investor Day, maybe discuss what some of those are specifically.

Sure. Health care is an amazing segment for us. The Health care segment grew 9% last year. And I'll just, for everyone's benefit, recap. It has multiple segments. One is our MST or Wound Care business. The second one is our Health Information System, or HIS. The third one is OCSD, which is our Oral Care business. The fourth one is, I think I talked about HIS, so Oral Care. And then there's food safety. And then the last one is Filtration, which is our -- which houses our Biopharma business. So I'll just talk about MSD, which is driven by the fact that we have one is electives. But two, by acquiring Acelity a couple of years ago, it has allowed us to be more relevant to caregivers. It allows -- the business also has after care or outside the hospital setting, home care offerings, which allows from a wound management perspective, so we are seeing growth there. When you go on to our HIS business, which is truly our digital business, the availability of using data and helping to drive clinician efficiency from an M*Modal platform is an area that we are very excited about. We are seeing great growth in our Health Information Systems division. Oral Care, when we think about custom orthodontics, I talked about in Investor Day about the solution that we've introduced, which used to take multiple steps for someone to do -- create custom orthodontic manually, can now be done by using digital or software. There's just tremendous response from the market. And then I talk about filtration, and under filtration, I would talk about biopharma filtration. It's a business that grew greater than 20% last year with an industry that's growing at 10%. And again, it's that filtration business that is being used in the manufacture of COVID vaccines. And when you put all that together and you look at health care in general as a GDP-plus business, we just feel very bullish. It's a great business. Mojdeh and team have done a really nice job of driving margin in that business, and it's an area that we will continue to invest in.

And I think you had given some color on how they performed over the last couple of years, kind of the strategic priority, growth priorities in the core market. The core market was down a little bit. Is that just COVID-related, electives and oral care? Is that...

That's right. So electives and COVID, so Acelity and Wound Care, a lot of them get impacted by the number of surgeries that you do and that's a big driver. But when I look at the key segments, whether it's M*Modal, it's custom orthodontics, it's biopharma filtration, then, of course, marrying the data that we have with our MST business with health information systems, all of these are clearly areas of investment that we have.

And as far as electives, just to clarify, you said you expected it to be 90% to 95% in the first quarter. And you said that it was in line or...

So pretty much in line, I would say. So we ended at 90% in the fourth quarter. We are seeing 90% to 95% in the first quarter, and it would gradually ramp to 100% by the end of fourth quarter. We saw January to start slower than we thought it would be. Part of it is the labor shortage in the hospitals. We have ramped up to February seems to be pretty much in line. So once all the official data comes out, we'll get a chance to see whether landed in that range of 90% to 95%. But I think it's somewhere in that range.

Yes. So not that different.

Not that different.

Consumer is one that doesn't really come up very much. What are the -- other than -- I guess you got home improvement in there, got some filtration assets. Anything else in there that you wanted to highlight as being exciting from a growth perspective there?

So I would say, again, the consumer business has been a great business for us for the last few years. You can see the growth through the pandemic, and in 2021, the business grew. I would say the 2 key areas that the team and Jeff Lavers and team have highlighted at Investor Day, both a $500 million franchises each. One is our home improvement business, which houses our command brand of products. And then the second one is our home filtration business, which is our filtering brand. Both are -- we have #1 share and market penetration in there. With home filtration, we are -- we see the capacity -- we don't have enough capacity to make. So we are investing $500 million in our facility in Clinton, Tennessee. It's going to add 600 jobs because we continue to see that business growing a lot. When you go into stationery and office supplies, a business that has rebounded very nicely in 2021, the channels are actually realigning themselves to take into account that many people are now maybe permanently going to work from home, but we continue to see growth in that segment, too. So it's an overall good segment. We feel the segments that we are investing are GDP plus. We'll, of course, have to see where consumer spending goes, Steve. But the team has done a really nice job of driving innovation in that space as well as being sustainable. It was -- that's the business where we committed to reduce the amount of usage of plastics as a part of our ESG goals that we announced in February of last year.

And then lastly, in the Transportation Electronics business. You talked about auto production, mid-singles. How much faster can you grow versus auto production with your exposure to EVs? And how is that initiative coming along?

Yes. So it's a very exciting platform. As many of you know, and Steve, you have followed 3M for a long time, the company has had a great association with auto OEMs for over 100 years. And the innovation that we have brought to that industry using materials science has been tremendous. Over the last x number of years, we have grown 300 to 500 basis points over our build rate. In 2021, of course, it was higher, but that was partly driven also by some of the channel bills, et cetera, that we have talked about during Investor Day. Our view is when you think about many of our solutions, whether it's lightweighting, acoustic materials, bonding solutions, engineered films, all of those, which we have had very strong position in our internal combustion engines, we would say easily put over to the auto electrification space, and we continue to partner with OEMs there. Plus with all the partnerships that we have, the OEMs, we get a chance to actually look at the technical road map much earlier than most others. And that is allowing us to use material science to come up with innovative solutions like thermal management that further adds to helping EVs get safer. So when we put all that together, the 300 to 500 basis points of growth over build rate, I think, continues for some time. You're also seeing that the auto electrification business, which we talked about at Investor Day, is a $400 million business that grew 30% in our $2 billion auto platform. So we are very excited. I think this is a space that we can continue to add value as auto OEMs in a wait, we are right there with them, making sure that we can offer our technologies to continue to have innovative solutions [indiscernible].

When you talk to investors and you do all these meetings and all these conferences, which of these platforms do you think are least well understood, whether it's the magnitude of the impact of the growth or just people kind of disregard it because 3M is a -- I wouldn't say it's like a -- there's not a lot of complexity here. It's just -- there's a lot of -- it's a lot of SKUs, very distributed in the types of products you have. So it's hard to like bucket things. Which of these couple of things should we kind of -- obviously, EVs. But which of the other one should we keep an eye on, do you think, in your mind?

I would just say, start looking at 3M from a lens of multiple end markets that we have talked about. One is, of course, EVs and auto that we talked about. The other one is electronics. And what I mean by electronics is not just consumer electronics, but as chip manufacturing continues to go and as you have more need for digital or compute power, the work that we do on the electronics side, whether it's manufacturing -- to enable chip manufacturing, whether it is to reduce heat in data centers, et cetera, is an area. So that's one in TBG. I would do auto and I would do electronics. If I go to health care, I would break it up between elective procedures and biopharma filtration of growth of biologics. If I go to consumer, I would look at home improvement, and I would look at people's need for filtration or better filtration. And then when I go into SIBG, or my Safety and Industrial business, I would look at industrial activity and manufacturing, and I would look at the innovative solutions that we bring in the manufacturing space, which is replacing derivates with bonding solutions, as well as regulation or growth of regulation when it comes to hearing and face protection systems that we have. So I would just ask everybody, when you look at these large end markets that we play, each one of these areas that we have talked about growth are all GDP-plus areas. And when you just -- and as long as we can invest and innovate, which we are committed to do, you should see growth about the macro.

Turning to the margin side. Anything mechanical heading into 2023 that flips the other way, whether it's incremental cost saves? Or should it be a relatively clean 30% to 40% incremental margin year? And what kind of growth rate do you need to hit that type of target over time?

Yes. That's a great one. I mean I hope we get to a point where supply chains are stable. So supply chains are stable in '23 and '24. I go back to the 30% to 40% should be doable just because of the math I gave you all on margin rate plus yield efficiencies that we are continuing to drive using data and data analytics, and then taking some of it back to invest and in our legal-related matters and where that goes. Growth rate, I would say, is growth at or above macro is what we are targeting, and that should allow us to get to the 30% to 40%. So we are quite bullish about the long-term because of the investments that we are making in growth as well as all the work the teams are doing in using data analytics, daily management to drive yield and efficiency in the factories.

Were the historic initiatives like business transformation, I mean, was that -- it's tough for us to see those, the results of those. The ERP implementation has also seemed to have taken longer. I mean like were those real? Like was that -- where are the results from those?

Yes. So listen, I can't -- I was not there, so I can't comment about that. But what I'll tell you, Steve, is that on an ERP journey, 2/3 of our revenue is now on 1 ERP. The business is continuing to use data and data analytics to make sure we drive results. And I thought I'll just recap the digital strategy. So we have 4 pillars. Pillar #1 is digital product. Digital product is making sure you have product for your customers that they can use digitally. So our HIS business, for example, is a pure software business. So that's one. The second one is you take digital customer, which is making sure that we make it easy for our customers to do business with us. So whether it is our e-commerce platforms, whether it's an omnichannel in safety and industrial, is another area. Then you talk about digital factory or digital operations, which is digitizing our operations using data and data analytics to improve efficiency in our factories. For example, when we ramped up N95 production during the pandemic, it was partly driven by the fact that the company created a digital twin of the manufacturing that allowed us to ramp that up. You're taking that and you're starting to show that in our filtration business right now because of the learnings that we got through the manufacturing of that. And then the last one is digital operations, which a lot of people talk about from an ERP perspective, that allows us to get cost to serve. So when you put all these digital together, you end up getting where do you see it, you would see it in growth, you would see it in margin and you would see it in cash.

When we talk about digital and we talk about the impact on the channel, how has that evolved for you guys? I mean you're kind of a fresh face coming in here. To me, e-commerce has threats and opportunities for a business like 3M. How we've been kind of -- a little bit of look back, how do you see that playing out? Is that -- are there equal threats and opportunities to this? And how do you guys address price transparency perhaps being disintermediated from certain customers? Or is that just nonexistent, it's all positive when it comes to e-commerce?

I think it's all -- for us, right now, it's all positive. I think we don't know where this industry is going to go. But when I look at the ease of customer ordering, even on the industrial side, that's why we talk about the omnichannel, where if I could get a customer to understand my product better and make a quicker decision on whether it meets their specs or not, that's a huge win for us. How we fulfill that order is a very different dialogue than making sure our customers or consumers can take advantage of it in the industrial channel. In the consumer channel, we have great partnership with many of the e-commerce retailers and a lot if you shop online. But we would like to make that experience even better. We would like to make our search engines better for you to know. So I -- we right now are looking at this and saying, this is where the world is going. It's a trend we have seen through the pandemic. I think that trend remains and we want to be a part of it.

Moving on to the portfolio, obviously, the food safety move. Is there anything else that you guys are thinking about? I kind of look at health care as a bit of a could possibly stand on its own. The others are a bit more integrated from a manufacturing perspective. Am I looking at that the right way?

So the way we look at -- our portfolio for us is a very active event. We are constantly looking at it. And the way we look at it is, first, we ask the question, is there a market do you have the right to win and are you ready to commit resources? To the extent you have a market, you have the right to win and you're ready to commit resources, our first step is always to go organically and say, "Can we invest in it organically?" If the answer is we don't have the skill set internally and we're better off getting it from somewhere else, we won't hesitate to acquire. So we have acquired M*Modal, we have acquired Acelity. So that's first. The second way we look at it is, do you have a market, but you don't have the right to win? And is that a better owner? If there is a better owner, we will definitely look at it. NEOGEN is an example where we just felt it's a great market, good business, $400 million, 40-plus EBITDA, but it was better off being combined to create a larger food and animal safety business. With NEOGEN, it's much more focused, better capital allocation that's focused, shareholders would benefit. So we decided that's a business that is better combined with NEOGEN. So that's the way. And the third, to the extent that there is no market, and whether we have the right to win or not, it doesn't matter. If there's no market and it's not a good market, we will divest of it. And the company has made divestitures in the past where they just felt it was not strategic. At the same time, we partner -- we also put in small equity investments through our ventures fund. It's not a very large fund, but in new emerging technologies, to make sure that we are continuing to remain relevant and invest in those technologies, whether it is in health care. Right now, we have it in health care, we have it in advanced materials. Areas that we look at it and say, "Is there something we can learn from them? Can we commercialize the product? Can we productize it?" And if the answer is yes, then that's something else we would go acquire or partner better with them. So that's the way we look at portfolio. And I would say everything is always on the table because everyone's got to win on their own.

A few minutes left here. Just wanted to talk about the liability situation. Maybe give us an update on what your view is on what's happening with combat arms. I appreciate some of the releases you guys have put forth to kind of tell your side of the story I think a little bit better. But how are we -- how do we think about the risk here? Because it just -- the numbers are just -- the numbers are pretty big when it comes down to it. How are we wrong to take case count times settlements? I mean it's a huge number, obviously. But where does that math go off the rails?

Yes. So first, I'll just start with we have tremendous respect for the men and women who protect our country. And we are proud of the partnership we have with all of them and making sure that we are supporting to keep the country safe. On -- as it regards to combat arms, we have had 11 MDL cases that have gone so far. 5 have gone in 3M's favor. 6 haven't. But we have also had 8 dismissals. So you could theoretically argue there are also wins for 3M. We have 5 more coming down the pipe to it, I believe, are already in progress as of right now. With the number of cases that have already been dismissed, those 5 that are there coming up are mainly core picks or plaintiff picks. We are also actually pretty happy with the recent order that has been passed by the judge that's asking 13,000 applicants to make sure they file with the right documents. Otherwise, they're going to dismiss those cases in the next 60 to 90 days. We plan to appeal all the ones that we have lost. We -- our appeals are already in progress for the case #1 and case #3 that we lost. We believe there are strong legal and evidentiary proof that were shown in those cases that need to be dismissed. The appeals will take 12 to 18 months approximately through. So we'll keep you all posted as things evolve. But as of right now, we believe we haven't done anything wrong and we continue to defend ourselves.

PFAS is a little bit further out. What's the next milepost on that front?

So PFAS is 2 pieces. One is the firefighting form or AFFF MDL. Again, it's a very fluid trial calendar. But what we know is the first one will be in early 2023. And then we've got 2 other PFAS cases trials coming up, MDL one is in June of this year and one is in October of this year.

So we're watching those. I guess what do you think is the number that's embedded in your stock today for the liabilities here?

Listen, I'll leave you all to figure that out. What I look at is making sure that we continue to drive the business really hard. At the end of the day, what I can tell you is the business is going to continue to deliver growth at about macro, good margin expansion, strong cash. We have a very strong balance sheet. We are levered at 1.3 to 1.4x. We generate $5.5 billion to $6 billion of cash each year. We deliver good returns to our shareholders. Right now, it's a 4% yield between share buybacks that we have done last year. The $2 billion that we plan to allocate this year on the dividend of $3.4 billion, we believe that we're going to keep running this franchise as hard as we can and keep defending ourselves where we need to.

Are you -- and you're confident you can continue to raise that dividend going forward with this backdrop?

So I think you got to think about different ways of returning value to shareholders, and that's what we are committed to do, whether it is through superior returns, whether it's through share buyback, whether it is doing transactions like we did with NEOGEN. All of those are factors -- like at the end of the day, our goal is to make sure that we keep the company safe with a strong balance sheet and make sure we keep delivering good returns to our shareholders.

Any questions out there?

So just 1 question. So a couple of years of paying down debt post Acelity, kind of can I get any leverage color on where you're thinking about leverage moving forward?

Yes. As I've said before is one of the hallmarks of 3M has been a strong balance sheet and good strong cash flow. And I don't see that not happening. So we're going to continue to keep doing that. Our debt -- net debt-to-EBITDA leverage was at 2.3% when I came in. We are down to 1.3%, 1.4%. I feel really good at this level because it allows me to lever up if I need to do or go down if I need to do depending on the environment. So it gives me a lot of strategic flexibility at the point where we are right now.

Any other questions out there? With regard to these -- the environmental liabilities, it seems like you guys are -- have given like less visibility into this spending. Whereas some companies like Honeywell have 20 years ago when they had the asbestos issues and other things, which I guess they kind of still have except not quite the same, they kind of broke it out below the line that it was kind of clear for people to see. You guys are taking a little bit of a different tact on that. Why -- what's the rationale for that decision?

Yes. There's no -- like no deep thought other than, Steve, my first point is GAAP earnings are equally important. So I start with GAAP. Could we adjust out? We absolutely could. We'll take that into account. I know you've asked us that question before, too. But if you then look at our filings, for example, the Ks and the Qs, we break out what our charges are for PFAS and the reserves that we have taken on the change in reserves. You can go and look at our respiratory accrual, which is similar to the asbestos. And here we have our respiratory, you can also find that in the K and Q. So we are as transparent as we can in the K and Q with everything the state of where we are, so of each of the cases, what reserves we have taken. So you can factor that in. But I hear your point. So we'll take that into account.

Just 2 things. The state of GAAP earnings in this sector and in this market is like completely trashed. I mean it's -- I don't like it, but it is what it is. I mean there's not 1 company that doesn't adjust something several different ways to make it look better than it actually is. And number two, you're assuming that people actually read the Qs and Ks, which I think is another very conservative assumption -- or maybe aggressive, either way. It's -- I guess it's a little bit refreshing to kind of hear that. But like given where your stock is valued today on those earnings, clearly, the market is not looking at that and saying, "Oh, like, the quality of these earnings is so much better than some other companies. So let's give it a premium." I mean I feel like that has to be somewhat of a debate in the locker room, no?

We will take that into account. It's a good point.

All right. I don't really have a dog in the fight, but I just -- I feel like...

No, it's good advice. I think -- it's good advice. We'll definitely take that into account.

[indiscernible] don't get paid these days. Trust me. Any other questions for these guys? That's it for me.

That's great. Thanks for having us.

Sorry, one more. I almost forgot. One more. J&J and their approach to this. Just easy question for this one. Have you guys evaluated something like that with any of this stuff?

So we are aware of what J&J has done. I can't comment on what they've done. But we are always looking at various options. We understand the various options are out there. And we'll keep working it. And as we decide what we want to do, we'll definitely keep everybody informed.

Is there anything specific with regards to what you guys do that would not apply?

No. Again, I don't know enough of the J&J case in detail to tell you whether it's different or not. I think I would go back to we've got a great set of advisers always telling us that the first step is to make sure that we work through the MDLs, we work through the cases and we'll keep evaluating as we go.

Your advisers aren't telling you to go GAAP earnings, are they? Because maybe you need to have to talk to those guys if they are.

Point taken.

[indiscernible]

Yes, sorry, Russia or Ukraine, just to check the box.

So Russia, Ukraine, as you know, we have announced publicly we're suspending business with Russia, Ukraine. Our revenue is less than 1% of sales at that level. What I think we are monitoring, too, is not just the impact on our supply chain, which may not be that large, but what is the impact on the tiers beyond our -- in our own supply chain that we are not aware of. But that's what we are monitoring right now, and we'll see where it goes.

[indiscernible]

So nothing that we have seen as of right now that has impacted us, but we'll see as -- it's a very fluid environment that's evolving rapidly. So we'll watch as that goes.

One more, maybe somewhat related, same region, I guess, roughly. What's the deal with this Belgian plant that you guys -- like what's the story there? How has that evolved?

Yes. So we -- based on a permit that we were in compliance with that recently has -- they have changed the levels for our air and water discharges, we received it in sometime in November. We filed a K that says we would have -- it could be an event where it could have a material impact if they shut the plant down. We did appeal the order. We have received the response or appeal was rejected a few days ago. We are collaborative working with the government right now to interpret the order and make sure that we can comply with the new requirements. We have our best engineers working on it. And I think we're going to -- we'll keep you all posted as things evolve in that space.

But what does that mean? So they reject the appeal so now you have to spend more? Or does it shut down?

So as of right now, pieces of our operation, which were shut down before, too, continue to be shut down that we are working on. And then our goal is to work with them proactively to get the plant up and running. But there's always a risk that the plant fully shuts down, which is what we told you in the 8-K. So we are monitoring that. We've got the best people on the ground working that with the government to make sure that we can continue to comply with the new permit requirements. And if that means we got to spend new more CapEx or OpEx, we'll do what we need.

Got a lot going on.

But it's a great business, and the team is working really hard. It's a very fluid and uncertain environment, but I think we are making sure we're taking care of our customers first and making sure we are delivering for them. And while at the same time, continuing to drive what we need to drive on margin, cash and growth.

Great. That's it. Thank you so much.

Thank you. Thanks for having me.