3M (MMM) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the 3M first quarter earnings conference call.

During the presentation, all participants will be in a listen-only mode.

Afterwards we'll conduct a question-and-answer session.

(Operator Instructions) As a reminder, this conference is being recorded Tuesday, April 27, 2010.

I would now turn the call over to Matt Ginter, Vice President of Investor Relations at 3M.

Good morning, everyone.

Welcome to our first quarter earnings call and business review.

Before we address this quarter's results, I wanted to mention two upcoming events.

First is our upcoming plant tour and consumer and office business review scheduled for the morning of June 29 at our Post-It note manufacturing facility in Cynthiana, Kentucky.

A formal invite will be sent out shortly.

In the meantime, please hold the date.

Also, as I mentioned on the January earnings call, we have set aside the morning of Tuesday, December 7 for our annual outlook meeting in New York City.

Complete details regarding timing and location will be available later this year.

Before I turn things over to George, please take a moment to read the forward-looking statement on slide two.

During today's conference call, we will make certain predictive statements that reflect our current views about our future performance and financial results.

Those 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 the important risk factors that could cause actual results to differ from our predictions.

So let's begin today's review, turn to slide number three, and I'll turn it over to George.

Thank you very much, Matt, and good morning, everybody.

By now you have all seen the numbers, and we hope that investors are happy with our progress in the first quarter.

In the last quarter I told you I've never been more confident in our growth prospects, and the first quarter is exhibit A, shall we call it, in the reason why we feel that way.

It was a spectacular quarter from any point of view, and especially gratifying as an affirmation in both our strategic direction and of the implementation of our plan.

A few highlights if I may, please.

Sales rose by 25% in the quarter.

This was the largest single percentage quarter increase in any memory or record here, with organic volume improvement over 19%.

Adjusting for special items, in this case Medicare Part D, earnings were $1.40 per share, an all time record for the first quarter.

We maintained our best in class margins at 22.8%, up 700 basis points year-on-year.

I can think of no better way to refute some of the collapsing margin doubting Thomases out there.

The strong performance was across the board.

All of our businesses posted double digit sales growth, along with 20% operating income margins.

And some, like display in graphics, electro and communications and industrial and transportation were particularly outstanding.

Geographically, sales were strongest in emerging economies where sales expanded by 47% versus the first quarter of 2009, with China posting a huge volume gain of 66%, Korea is 74% and Taiwan, a whopping 88% gain.

The momentum built as the quarter unfolded, and in March, we had 16 countries across the world where the sales growth was 50% or better.

Yes, 16 countries.

Korea and Taiwan were over 75% in March, and these are not small businesses.

The United States was no slouch either in this growth race.

Sales were up over 11% in the quarter and up 18% in March.

This was all done even while we committed to accelerate R&D spend this year by about another $100 million.

Over the next two years, there's no doubt in our mind that this additional spend is going to accelerate our growth rate substantially.

It's proven formula for us, and we intend to ride it.

Of course, a quarter like this raises a number of key questions.

First, why did we see such magnificent growth in the quarter?

Where is it coming from, and what does it mean for this year and years beyond?

And second, why do you feel confident in raising our guidance by $0.50 on both the low end and high ends of the range, which is a healthy increase only three months into the year?

We have seen improving numbers in most Company earnings reports so far this quarter with high growth rates in Asia, so is that part is no surprise to anyone.

But this quarter's growth rate exceeds any conventional market expansion explanation we have.

Let me take you through our best thinking about where the 25% sales increase came from, understanding that in a Company like ours with so many moving parts and markets, precision is always an elusive animal to apprehend.

Here is what we know with reasonable certainty.

Acquisitions net of divestitures added 0.3%, pricing in aggregate added 4.2% and currency translation added 5 percentage points.

The remainder, of course, is a super organic growth number of over 19%.

I'd like now to try to help you understand where the growth came from, so we'll spend a minute or two analyzing the 19% jump.

With segment in geographic breakdown, you know we're neither wholly IPI nor a wholly GDP company, but we have elements of both in the our mix.

To a rough approximation, $6 billion of our annual sales worldwide GDP dependent, $11.5 billion of worldwide IPI dependent, $3.6 billion are Asia IPI and $5 billion on US GDP.

When we use the global inside forecast numbers on slide three, we hit a blended custom market index of about 7.2%.

Pretty close to the 7.3% worldwide IPI number for the quarter.

So that explains 7.2% of the demand in market growth, leaving 12% still to be explained.

A somewhat squishy number is inventory restocking.

Some commentaries from our industrial peers suggest that this part of the growth dynamic is over, though first, we are not sure if we ever saw it get started.

Moreover, quite a few of our supply chains, consumer electronics in particular, and automotive too, for that matter, have little or no channel inventory to speak of.

So they are not really a factor in volume driven by supply chain transients.

In the US, if you look at the census bureau data on inventories, they haven't moved up a lot.

Market data showed US inventories moving up by less than 1% year-over-year.

Historically, on small (inaudible) sales transients, which this 1% factor is, we see the sales result magnified in the channel by a 3X factor.

So we would expect some of our US sales to be impacted by this condition.

Given our roughly one-third mix of US sales, arithmetically it would explain about 1% of the quarter's sale growth, but to be ultraconservative, I'm going to extend it globally and say they amounted to the same total worldwide.

That would explain 3% of the growth with 9% still to be explained.

Another factor is new products.

We have done our level best to drive this element of growth knowing full well it's the best source of value creation.

Our the new product vitality index is running close to 30% on five year basis, headed to 40% at the end of the planning period.

Offsetting this, we usually use an estimate of 2% to 3% erosion and cannibalization annually, but I think our manage the pyramid strategy may have eased that erosion a bit.

Of course, it's difficult to discern the difference between penetration from new products and market share gains.

They aren't exactly mutually exclusive concepts.

But our best estimates point to a new product gain of 3% to 4% of this new sales growth.

That leaves four or five points of additional growth in the quarter to be explained.

That leads to the inescapable conclusion that we are taking market share.

Now as an engineer, I was trained never to determine a small number from the difference in two large number, but this is as good as we can get right now.

And candidly, I think we also gained significant share in the fourth quarter too.

To support that view, look at what three indicators alone are telling us about our sales in some key markets.

First, in automotive for example, worldwide auto builds were up 39% in Q1.

In comparison, our unit growth was 67%, well in excess of the auto build proxy.

Second, if we use Intel's Q1 logic and chip set unit growth as a proxy for sales growth in the consumer electronics industry, volume was up year-over-year by 44%, with average selling price about flat.

Correspondingly, Gartner also reported PC shipments in Q1 were up 27%.

In contrast, our electronics related businesses grew at about 85% for the quarter and was very broad based, not just LCD TVs.

Again, while this is not the scientific comparison, it is a leading indicator of significant penetration.

Third, in consumer, same-store sales in the US naturally varied widely, but the best performing companies grew same-store sales by 2% to 4%.

The orders were negative.

We grew volume in the quarter by nearly 11%, very impressive when compared to same-store performance of big box outlets in the United States.

Global GDP was up only 3%.

So my mind, this was great execution of the plan by 3M people, but also because of the vibrancy of our new technologies and products.

I'll give you a few examples quickly of how the plan is working, especially as it's relates to growing our core, new products and manage the (inaudible) more effectively.

Example number one is how an acquisition, Nylonge, enabled the home care division to realize an increase in sales of 20% year-over-year by driving up the pyramid with branded products.

Now, this is one of our mature core products, scouring products.

Second, our venture into renewal energy demonstrates our resolve not to back off investing in the future.

We formed this division in January of 2009 during the darkest days of the recession.

Essentially, it's about bringing together technologies and products from all across 3M to address nearly every facet of renewable energy components.

Solar mirrors, for example, are showing terrific growth, and sales renewable energy are up 72% in the first quarter.

We built a new coking line in Singapore for this business which we opened last September, and it has already sold out.

We are working on the next one as we speak.

Third, the electro and communication is business is another example of 3M staying the course on investments in the future.

Products in this business include a hugely successful optically clear adhesive for use in touch applications, Novek fluids and carrier tapes.

ECB sales were up 39% in Q1.

Fourth, an example of reinvigorating our core, industrial adhesives and tape division is playing much more broadly across the entire product spectrum, and its growth in Q1 of 31% was impressive.

And the long run of new inventions continues with a new tape product that includes the Holy Grail of adhesives, it will stick to another surface, believe it or not.

So in summary it was a great quarter, well ahead of any market trends and probably with a good share penetration gain element to it.

So I'll now turn the call over to Pat, and he'll give you some details on the quarter.

Thanks George, and good morning, everyone.

Please turn to slide number four.

On a GAAP reported basis, first quarter were $1.29 per share, a healthy 74% increase over the first quarter of 2009.

Included in that result was a one-time non-cash income tax charge of $84 million, or $0.11 a share resulting from a Medicare Part D changes embedded in the recently enacted Patient Protection and Affordable Care Act here in the US.

Our prior earnings expectations from the January earnings call were based upon the tax law in effect as of the date and therefore, does not contemplate this change, or charge.

So excluding this item, earnings were $1.40 per share, which is an all-time record for any first quarter in the Company's history, up 89% versus the first quarter of 2009 GAAP earnings per share.

Importantly, we achieved this result on less than record sales as our first quarter sales were still below 2008 levels.

So there's no doubt that we are running the Company today with a much more competitive cost position.

On the whole, our first quarter performance was ahead of our own expectations, so the year is off to a very strong start.

Let's examine a few of the details.

Please turn to slide number five.

Since the worst of last year's recession, we have now put together a string of outstanding quarters, and the first quarter was the best thus far.

First quarter sales increased nearly 25% ,and this growth came from virtually every part of the world.

Asia-Pacific grew 54%, and the combined Latin America/Canada region expanded sales by 26%.

European sales grew 15.9%, and growth in the US was 11.6%.

We experienced double digit worldwide sales increases in every business segment led by displaying graphics of 42%, electro and communications 39% and industrial and transportation at 29%.

Gross profit grew 34% year-on-year.

Gross margins rose 3.5 points to 49%.

A number of positive factors were at work here, including the 19% growth in organic sales volume, substantially improved factory utilization levels along with cost savings related to prior year's restructuring actions.

Clearly, we are sustaining those gains.

Finally, our many lean Six Sigma team continue to drive yield improvement and cost reduction efforts throughout our factories.

As the economy improves, we should see a nice continuous stream of productivity and efficiency gains.

SG&A costs increased 11%, which included a 30% increase in advertising and promotion investments to drive future volumes.

As a percent of sales, SG&A declined by 260 basis points.

We invested $342 million in R&D in the first quarter, a year-on-year increase of 6%.

Given how well the business is performing, we recently approved an additional $40 million of investments for the remainder of 2010 spread across a number of businesses to drive new growth programs.

These investments will largely impact the SG&A and R&D lines of the income statement.

Operating income rose 80% to $1.4 billion, and operating margins were an outstanding 22.8%.

The first quarter tax rate was 31.9% on a GAAP basis, which of course includes the charge related to Medicare Part D.

Excluding this charge, the tax rate was 26%, which was four points better than last year's rate due to a lower international tax rate along with the resolution of our 2008 federal tax audit.

In light of this, we now expect our full year tax rate to be at 28% or lower, excluding the impact of the Medicare Part D.

It is encouraging to us that our strategy is really beginning to play out in the numbers.

Growth is accelerating, costs remain under very good control, and margins and returns remain among the best in class.

Sequentially P&L highlights are on slide number six.

It is clear that our business is improving quarter by quarter.

Sales increased 4% as both our industrial transportation and electro communications businesses posted good sequential improvement across most of the respective operating units.

Gross profit rose 6% sequentially driven largely by stronger factory throughput along with higher sales levels.

First quarter raw material cost was flat to slightly higher than the fourth quarter as we are seeing some uptick in inflation that will begin to affect us in Q2.

Both SG&A and RD cost rose 5% sequentially, partially due to higher stock option expense.

You may recall that because we grant stock options in February of each year, our first quarter expense is higher than the fourth quarter.

Operating income rose 8% sequentially despite a five point drag from auctions and incremental margins were very strong at 46%.

Now let's turn to the balance sheet and cash flow.

Please turn to slide number seven.

I think all you know that one of our key objectives entering the recession was to focus on cash flow generation and on carefully managing our balance sheet.

For example, we kept a close eye on receivable balances and are monitoring the financial condition of our customers in order to optimally manage credit terms.

Also, we put extra emphasis on driving higher inventory turns and made it a top priority in our 2009 planning.

Now that the business is growing again, we can see that these efforts are really paying off.

First quarter free cash flow was $925 million, a record for any first quarter in the Company's history and more than two times that of the prior year.

Free cash flow conversion was nearly 100%.

Networking capital turns were 5.3 at March month end, a 20% improvement versus March 2009 levels.

Inventories rose by 5% year-on-year, a modest jump in a quarter when sales rose 25%.

As a result, inventory turns were 4.4, a 10% improvement over the first quarter of 2009.

Accounts receivable includes 15% year-on-year, again, well below sales growth levels.

March sales typically are the highest in the quarter, so it is not unusual to see receivables rise late in the quarter only to subsequently fall early in the following quarters payments are remitted.

Regardless, account receivable turns were a healthy 7.1 in March, up one-half turn versus March of last year.

All in all, our working capital is in good shape and we are well positioned as the economy improves.

Capital expenditures for the quarter were $157 million, down $87 million year-on-year.

We expect CapEx to accelerate in the remainder of 2010, and our full year estimate remains in the range of $1 billion to $1.1 billion.

Dividends paid to common shareholders were $374 million in the first quarter, including a per share increase of 3% in February.

This was a fifty-second consecutive year of dividend increases for 3M.

Now let's review the performance of our business units.

Please turn to slide number eight.

Industrial and transportation is our largest segment, representing about one-third of 3M sales, and they had a fabulous performance in the quarter.

First quarter sales in the segment grew 29% to $2.1 billion.

In local currency terms, sales rose 23.7% which is almost entirely driven by organic volume.

This growth was across the board in the quarter as most every business in the segment posted double digit local currency sales growth.

Sequential sales increased 6.6% in the first quarter, so the business continues to improve day by day.

In addition to the great performance in automotive, renewables and tapes that George mentioned, we also posted double digit local currently sales growth in abrasives, aerospace, purification systems and energy and advance materials.

All in all, industrial transportation's performance this quarter was quite strong and very broad based.

And there's still plenty of upside going forward as unit volumes are still 10 point below the peak levels that we saw in 2008.

Operating income for the quarter was $454 million, an increase of 160%, and margins doubled to nearly 22%.

The business was -- has taken off structural cost in the past couple of years, therefore, the leverage is quite significant.

In the last few years under HC Shin's leadership, industrial and transportation has significantly stepped up its level of customer engagement and new product flow.

Examples include our new Cubitron 2, our revolutionary self-sharpening abrasive technology that provides productivity advantages to our customers.

We are on track to begin mass production of this product in the second half of this year.

We also recently introduced Scotchgard anti-graffiti film to protect against vandalism in mass transit in retail spaces.

These are two examples of many.

We also received some important customer accolades in the first quarter.

Our automotive OEM team receives Honda's 2009 Development Award recognizing technically significant contributions to the manufacturing processes.

Honda also recognizes our Japanese subsidiary, Sumitomo 3M, for developing an interior film for their upcoming new hybrid car.

Honda is an outstanding customer and we are proud to be recognized by them for our efforts.

Our final business development, though, our renewable energy business signed a cooperative R&D agreement with the US Department of Energy's national renewable energy laboratory to accelerate a number of clean power projects in order to help meet the nation's carbon-free energy needs.

Please turn to slide number nine.

Nokia communications, for the first time in many quarters, was one of our fastest growing businesses.

During the worst of the recession, this team has been steadfast in their sales efforts, working bench-to-mench with our customers to drive future growth opportunities.

We are now finding that many of our competitors cut much deeper than we did and now that business is picking up, there's plenty of demand coming our way.

In particular, this provided a boost in many of our optically-clear adhesives, Novek fluids, carrier tapes and wafer processing materials for semiconductor manufacturing.

First quarter sales in electro communications were $665 million, up 38.6% in US dollars and up 34.3% in local currency.

Foreign exchange impact added a 5.3 points to first quarter growth.

Growth was once again led by our businesses that supply the consumer electronics and semiconductor industries.

They clearly drove most of the growth in Q1.

But I must also -- but it is also very encouraging to see double digit local currency growth in our electrical market business which supplies connectors and other solutions to the power utility, MRO and appliance markets.

On the flip side, our telecom infrastructure business related businesses held their ground in the market, they remain very sluggish.

Electro and communication posted a solid 20.6% operating margin in the first quarter, which is over four times that of last year's first quarter.

Much stronger sales and factory utilization were obviously a factor, but I don't want to take anything away from this team's ongoing commitment to productivity, yield improvement and waste reduction and the like.

They really did a fine job navigating through the recession and are now reaping the rewards of those efforts.

On the new business front, we continue to fight much more aggressively for market share in this business.

For example, we are driving increased spec in of 3M components and touch enabled devices.

The semiconductor curio tapes, we have successfully expanded our product offering to participate more broadly and capture additional growth in the consumer electronics, including the LED space.

In the electrical markets, we gained substantial share in the North American OEM insulating tape markets by aggressively capitalizing on the exit of a former competitor.

The list of similar examples continues to grow.

The electro communications business is off to a strong start in 2010, and we will look for continued improvement as the year progresses.

Please turn to slide ten where I will review our displaying graphic business.

Displaying graphics also delivered a very strong first quarter.

Again, consumer electronics was a key thing, but the performance in D&G continued to broaden out to other businesses as well.

First quarter sales were $869 million, up 42% year-on-year.

Sales rose 38.4% in local currency, which was entirely organic.

Profits more than tripled to $212 million, and operating margins were 24.3%.

Factory utilization was much improved versus last year's challenging first quarter, and the business continues to do a tremendous job in reducing cost.

First quarter growth was led by our optical film business where sales doubled year-on-year.

This was a function of all strong end market growth in consumer electronics, particularly LCD TVs, among with a number of important new 3M product solutions for the industry.

The LCD TV market is rapidly transitioning to LED lit from traditional CCFL bulb technology, and our films are playing a vital role in this transition.

Our films are also an important enabler in the ongoing transition to more energy efficient TVs.

Of course, product lifecycles in this space are quite short, and nobody knows this better than our team, so the leadership is relentlessly focused on next generation solutions for the industry, and we continue to aggressively drive lean Six Sigma in our optical factories to ensure that we capture all available future sales and profit opportunities.

Another sizable business within displaying graphics is our traffic safety systems business, which is the leading global supplier of high performance reflective materials for roadways and construction work zones.

Traffic safety assistance had a fabulous first quarter with double digit sales growth and solid profitability.

Similar to recent quarters, growth continues to be very good in developing areas of the world where highway infrastructure development continues to accelerate and stimulus spending is making a real positive difference.

Growth in the US, on the other hand, has been much more modest as it appears that the legislative focus at the federal and state level is on areas other than highway safety.

In recent investor meetings, we have talked quite a bit about broading our product offering to play bigger across the entire product pyramid.

Traffic safety is one business at 3M that does this very, very well.

For the past few years we have offered films to satisfy customer needs across the entire spectrum, good, better and best, if you will.

In addition, the team has augmented its global leadership position in films with adjacent offerings in reflective pavement markings, roadway maintenance systems and services and vehicle registration systems.

Traffic safety systems remains a very steady performer within displaying graphics, which nicely compliments the more volatile growth trends that are inherent in consumer electronics.

Commercial graphics also had a very solid quarter with double digit growth and continues sequential sales improvements as the advertising segments that they serve recover from the recession.

This business has recently introduced new promotional films to compete more broadly across the product pyramid.

Finally, within our newly formed mobile projection systems business, we received some nice accolades for our new 3M 150 pocket projector which was named an Edison Award finalist in the technology category.

Winners are to be announced later this month.

Please turn to slide 11.

Sales in the consumer space office space rose 15% in the first quarter to $912 million.

Local currency sales rose 11%, the majority which was organic growth.

We also had 2.6 points of growth from acquisitions in the quarter.

This growth happened throughout consumer and office as all businesses and geographic regions posted positive local currently growth.

As George mentioned, our home care business posted tremendous growth in the quarter.

We recently acquired two smaller, yet very strategic companies in Latin America to expand our presence in this market.

We also drove double digit local currency growth in the consumer healthcare business, which we bolstered in the past couple of years with two very important bolt-on acquisitions, [Vituro] and Ace.

We now have a formidable consumer healthcare lineup across the retail landscape.

The do-it-yourself business also posted very nice sales growth, driven by our Command adhesives and Scotch blue painters tapes.

To drive volumes in these and other critical brands, we increased first quarter advertising and merchandising investments by over 40%.

And even with this higher investment levels, first quarter profits in consumer and office rose 33% to $219 million, and margins were a healthy 24%.

All businesses drove double digit profit gains in the quarter.

Finally, I'd be remiss if I did not mention that 2010 marks the 30th anniversary of Post-It note.

Three decades after its introduction, this category defining brand continues to grow with a slew of new offerings and adjacent solutions.

Please turn to slide 12.

In safety, security and protection services, sales grew 20.4% in the first quarter.

Local currency growth was 14.7%, and currency effects added a 5.7% to first quarter's sales.

As in the past few quarters, the biggest growth driver here was our personal protection business, or more specifically, respiratory products.

As a global leader in protective respirators, we have seen significant growth related to H1N1 virus for several quarters running.

We estimate that H1N1 related sales were approximately $45 million in the quarter, which is about one-half the impact we saw in the fourth quarter, so clearly, the impact has began to wane.

On the flip side, the industrial manufacturing sector is picking up, resulting in additional respiratory growth.

We expect this transition to continue, which should help us successfully manage the wind down of H1N1 related activity.

Elsewhere in safety and security and protection services, we saw outstanding growth in the roofing granules business which we attribute primarily to inventory build at this point.

Until we see signs of residential construction and roof replacement activity is fundamentally improving, we'll remain cautious about growth in any one quarter.

We also posted solid growth in our building and commercial services business where we continue to take market share in the area of floor pads and cleaners including Scotchgard branded floor finishing systems.

You can see here on the chart that we had a nice win in the first quarter involving Johns Hopkins Medical Center.

First quarter operating profit was $181 million in safety, security and protection services, up 46% year-on-year and margins were 22.4%.

Please turn to slide 13 for our final business review, healthcare.

Through the worst of last year's recession, we are often reminded of how important it was to have a thriving healthcare business in our portfolio.

End markets in this business continue to grow nicely and generally speaking, those markets are highly stable.

First quarter sales in healthcare were $1.1 billion, up 12% in dollars and 7.6% in local currency.

Foreign exchange impacts added 4.6% to first quarter sales.

Sales increased in most every business within healthcare, led by double digit currency sales growth in both infection prevention and in skin and wound care.

We are seeing good demand in a number of important areas including skin integrity and advanced wound care.

We also continue to drive growth with our new Tegaderm CHG dressing for IV sites, which was recently launched in both western Europe and Brazil.

Elsewhere in healthcare, we drove solid single digit local currency growth throughout most of the portfolio.

Drug delivery systems grew nicely as demand picked up for traditional inhaler fields.

Oral care continued to accelerate growth with orthodontic products showing particularly strength during the quarter.

And we drove mid single digit local currency growth in health information systems where we recently introduced our new 3M mobile detection software for iPhone, BlackBerry and Windows mobile platforms.

Looking at sales by geography, local currency grew in all major areas led by Latin America at 19% and Asia-Pacific at 16%.

Operating profits rose 13% to $347 million, and margins were just over 31%.

Healthcare continues to gain recognition both from customers and with industry experts.

For example, the business was named the number two Most Admired Company in the medical and precision equipment space by Fortune magazine.

Our oral care business once again was named Most Innovative Dental Company by the Anaheim Group.

3M oral care has now won this for five years running.

I improved safety, our Clean-Trace ATP system was chosen to monitor sanitation of food preparation at the 2010 World Expo in Shanghai.

Healthcare continues to exemplify innovation at 3M.

That concluded my review of our business segments.

So now I will turn it back to George.

Thank you very much, Pat.

Well, let's take a look now at the remainder of the year.

I like being on this side of the gradient a lot better than I did the other, but in reality, the forecasting risk is no easier when you have very large growth rates and when you have very large contractions.

But I will do my best to de-mystify for you what is happening.

There certainly is a lot of forward momentum in our sales volume, but the big unknown is how this will play out in the coming quarters.

We also saw good sales growth in the fourth quarter.

We can think of one observation being a data point, two being a trend and three or more to me is a pattern.

So I think we are close to seeing whether this growth is in fact a pattern or just an temporary aberration of the way the economy is dealing with recovery.

Perhaps we had inventory others didn't or we could finance it where others couldn't.

(inaudible) my target it will slip back as growth normalizes and credit availability improves.

An optimist could argue once won, the shares is ours to lose, not our to win.

I've heard comments in the news media that anyone now doubting a strong US recovery is silly.

As Voltaire said, "Doubt may be uncomfortable, but certainty is far more ridiculous." There is nothing magical about where demand comes from.

It comes only when and from where people and companies spend money.

We observed increased order slowing in long-cycle companies which gives us more optimism now on the likelihood of sustainability.

New housing starts in the United States increased in March by about 20% year-over-year to an annualized rate of $626,000, which is also 1.6% up on February.

Non-transportation related durable goods orders rose by about 3%, and we saw that in some of the appliance makers' results.

US auto were the best performers and improved by 21%, a much more helpful number that starts with a low base.

Total sales in these factors are only a bit more than $100 billion annually, hardly a big stimulus in the US.

In contrast to these gains, US commercial construction will probably still get worse before it gets better.

Now, do I expect capital spending in telecoms or electric utilities to increase in the immediate future?

In summary, I don't think we should look to the US for a big recovery in 2010.

More likely it is going to be a slow patchy and gradual recovery punctuated by periods of occasionally economic back sliding.

Unemployment rates falling will likely be the genesis of any sustained US recovery, and productivity gains sucked up a lot of any increased demand.

So we retain the right to be cautious in this period of uncertainty while driving for much more growth as we can get meantime as conditions unfold.

But just because we are conscious and conservative doesn't mean we won't and can't drive for good growth.

We have already shown that.

Fortunately, by far the biggest piece of our recovery is coming from overseas markets, substantially, but not only in emerging markets.

It's also coming from large developed Asian economies such as Korea, Taiwan and even Japan.

Japan sales grew in the first quarter by 35%, by 38% in March.

So hope for overseas growth is still much better than the United States.

Demand at this rate is likely to be maintained, at least until the middle of the second quarter.

Imagery transients talked about two quarters to settle in the downward economic slide, and the dynamics are probably by directional, so that element of growth might subside in early Q3.

H1N1 demand is also pulling, as Pat said, and we'll face a 1.5% growth headwind for that in the second half, though I also believe industrial demand will offset some of that anticipated decline and new low cost credit will help too.

High material and wage cost in the second half were also a factor.

For your information, US PPI increased by 6% year-over-year in the first quarter.

And you have the simple arithmetic issue of higher year-over-year comps in the second half.

This argues for a conservative stance in the second half, at least for now.

The main point, however, is that no matter what shape the recovery takes, we are in a much stronger position to outpace economic growth than we ever were even one short year ago.

Our forecast of when the turn would come was very accurate, and that avoided the need to overreact.

We never pulled back on investing on the future, and that has to be helping.

So let me address our outlook for the year.

With a strong first quarter behind us, we are raising our full year 2010 expectations.

We now believe that organic sales growth will come in between 10% to 12% versus the prior expectation of 5% to 7%.

That is almost doubling our forecast sales growth rate.

We also expect that earnings per share will fall somewhere within the demand of $5.40 to $5.60 on an adjusted basis versus the prior expectation of $4.90 to $5.10.

We anticipate that operating margins will return to the 22% plus level for the year, which is a level we last saw in 2007.

So the business has really responded well coming out of the recession.

The 2010 tax rate, excluding Medicare Part D charge, is expected to be less than or equal to 28%.

And finally, weighted average shares outstanding should fall somewhere between $723 million and $727 million for 2010 in total.

And that concludes our formal comments today, and we would be happy now to address your questions.

Thank you very much everybody for listening.

(Operator Instructions) Our first question comes from the line of Scott Davis with Morgan Stanley.

Please proceed with your question.

Hi.

Good morning guys.

Good morning, Scott.

A pretty big core growth number you put together there.

We thought it was pretty good, Scott.

(laughter) About three years of growth in one quarter?

Anyways, a couple of things, guys.

You didn't spend a whole lot of time in the presentation talking about the use of this free cash flow, and you are sitting very nicely on a fairly large cash balance and you obviously had some dry powder there.

What's out there?

You've got a little bit of share count slippage in your forecast.

Is there anything holding you you back from buying back shares, or is that just reflection on how strong the M&A environment could potentially be for you this year?

Scott, obviously that's a very good question, and I guess the way we are thinking of it is of course, funding all of our growth opportunities is the highest priority for the Company.

You look at our results in our returns, that's obviously what we think is the best payback for the shareholders and we think the long-term growth prospect for the Company.

So we'll continue to push the organic side of it.

We did indicate that we are going to increase some of our investment programs and the like, but importantly, we are active in the M&A market.

We haven't announced anything.

We are looking at a fair amount of deals that are in the pipeline.

Neither George or I feel compelled, though, to be pushed to utilize the cash that we have inappropriately.

So we will remain our cautious selves as we always have been and always will be, but we are looking at a number of deals across our businesses, probably more focused internationally than our recent track record would lead you to believe.

Of course, part of it is we do have more cash outside the US and more of our cash generation capability is outside the United States, and we think we have huge growth potentials outside the United States as well.

We made a number of small strategic deals in home care that we talked about and the like, and so we are prospecting for those across the globe as we speak.

But I would guess it will be more like the second half of the year before you would see much relative to anything of size.

Scott, also be assured that we are following the same pattern that we always have.

It's likely to be close to core, it will be very easily manageable.

I don't think Pat or I see any hugely disruptive or blockbuster acquisitions.

And when you look behind these numbers, one thing that perhaps we didn't emphasize as strongly as we might have done, is we have a lot of places in this new advance technologies that we released, Scott, where the capacity has just been marked up immediately.

So we do have some pretty good internal choices, although they obviously -- a small relative spend to them they are relative to some of the things that you are speaking about.

So all in all, I think the situation gives us great choices, and we'll develop as the year unfolds.

Sure.

Guys, as a follow on, your Asia-Pacific growth numbers 47%, big numbers, and if I was to make one critique of the last several years, I would say that I thought your Asia-Pacific growth was a little -- or China in particular, a little bit disappointing versus the potential.

Obviously, we've inflected up there.

What do you attribute that to?

Is there a wider roll out of SKUs?

Is it capacity?

Is it sales?

What do you attribute that inflection point in emerging markets?

We've been building plans, Scott, there the last few years.

There's no question having locally available capacity is part of the issue, and I think you know that we followed a China for China strategy.

We don't use China as an export source.

The other thing is that starting, really about a year ago, we began to hire a lot of extra people, put a lot of extra money, we have growth expansion plans in industrial, in consumer and office, in medical.

So the money is being put to work, Scott and now we are beginning to see some of the opportunity coming through.

So we are actually in the process of a reorganization where we get even closer contact with the market, and I think clearly, the numbers demonstrate but the future holds wonderful prospect for that part of the world.

And we are doing the same in India and in Russia too, Scott.

We are building a new lab there and since our last quarter conference call, that has turned out to be for us the loudest, turned out to be an absolute money back guarantee on growth.

So I think it's reasonable to expect that this will continue, notwithstanding any other issues that China itself may have on the economy.

Scott, that was the piece I was going to pick up on, was that I think the piece that would really start to see a lot of traction on is our local lab capability in places like China, have really started to develop a lot of new product ideas.

So you mentioned SKUs and so fourth, that we are getting a lot of new products out of our, call it our developing market, lab organization these days to get products that are more appropriate for the markets.

Obviously it's working, so congrats, guys.

Thanks.

Thanks.

Our next question comes from the line of Jeff Sprague of Vertical Research Partners.

Please proceed.

Thank you.

Good morning, everyone.

Good morning.

George, as you said, there's a lot of different things and it's maybe hard to totally deconstruct the magnitude of your out performance.

But I wonder if you can elaborate on the idea that you or Pat alluded to, I don't recall now, that competitors cut perhaps too far and were left flat footed by this.

And clearly, they will try to rebound, but I guess just thinking about the competitive dynamics, what can you do to try, I guess two things.

How big of an impact do you think that was and what can you do to extend that lead now that you have established it in a few key areas?

I don't -- I even made this comment, Jeff, that this violates by engineering training of trying to determine a small number by subtracting the difference in two large numbers, both of which have got either errors or variability in them.

So it's really hard to get down on those numbers, and it's especially muddy, Jeff, when you see the huge number of markets we serve and the huge number of products.

So everything ends up being a little bit of this and a little bit of that.

But we are seeing some competitors getting weaker.

I think one of the -- I really want to try to do my level best to impress on you the hugely significant change in the way that we want to market here, particularly in the optical business.

In the old days, we tended to serve the OEM markets.

We were a little bit disconnected, if we are fair, from our -- from the set manufacturers, in particular.

We have altered that completely.

We gone right to the end markets, we' reestablished trust and I think in the end, most of these guys, Jeff, they believe in us.

They believe that is is the place where the innovation is coming.

Those 3D products you are seeing coming into the market, this is stuff that is being innovated by 3M, even to facilitating some of this LED technology, is being facilitated by 3M.

So one thing that is very, very different here is the relationship between us and our customers, and I'm hoping -- of course one can never be certain, I'm hoping that what that does is secure and at least maybe in some cases if we are drifting away, that we get early warnings.

But I still -- I'm hard pressed, unless Pat's got a better idea, to absolutely quantify how much of that early share, shall we say, that we are grabbing.

It really is very difficult for me to know the answer.

We'll ponder it to you Jeff, unless Matt or Pat has a better idea.

Jeff, I don't think we can give you a precise answer numerically.

We can probably give you some more qualitative.

We saw going into the recession that a number of large OEMs wanted to secure a much more reliable supply chain, and we saw that really play out through last year as far as gaining new designs.

We just didn't see the volume until the recovery came.

I think the flip side is also happening now is that as the economy improves, I think there is some competitors who are having a more difficult time responding.

So I think we are getting some business back on that side.

But I would say it's pretty much across many of our industrial and electronic businesses, okay, that have been very successful in gaining business there.

And a separate question, just pick one end market to talk about, maybe if there's others you want to elaborate on, but the push in the labels, what you are doing with A1, how significant is that market opportunity, and how should we think about the rollout there over the next six to 12 months?

I think, Jeff, that market for labels is of the order, $500,000 a year, and A1's $80 million or so.

So I think the -- it's a very nice marketplace clearly and as you would expect, 3M is the innovator in that area.

So I think it's a nice adjacency, very much core to us.

It's adhesives and coating and materials science.

So I think it obviously depends on the end market reaction and whether we are successful at getting competitive conversions in the marketplace, and there's some tough competition.

But I think that we will be successful in that market not only in the coming year, but I think ultimately innovation and great service is going to be the difference for us.

I think it is going to be a good market for us, Jeff.

Thanks a lot.

Our next question comes from the line of Terry Darling of Goldman Sachs.

Please proceed.

Thank you.

Good morning.

Congratulations, gentlemen.

Thank you Terry.

I wondering if I could understand some of the pieces of guidance a little bit better and come at it from a couple of different angles.

The first one would just be very simplistically, if you take your first quarter earnings by four, it's at the high end of guidance.

But we are building momentum, March versus January, February.

Can you just take us through your thinking on cadence quarterly earnings, cadence throughout the year?

I guess your comments would lead me to think you think that the second quarter is up from the first, but maybe the second half is down, at least as implied by the guidance there, maybe start with that.

Terry, you are trying to trap me back into a quarterly guidance, okay, which you know we are not going to do.

But let me try to give you a little bit of a flavor.

Yes, you can take it our first quarter, you annualize it.

You kind of get to the high end of the ranges, kind of one way of approaching.

Of course, you have some unusual things.

Q1 we got the stock option expense, it hits that, okay, and we actually had a lower tax rate, okay, in Q1.

Those have a tendancy to offset each other.

But do expect that our normal trend would be that Q2, Q3 are higher, okay, than Q1, Q4.

It would be a normal course of events is the way that we would see it.

Now of course, the comps are going to get from a reporting standpoint a little bit unusual here, because of course, the second quarter was weaker last year than as the year progressed at the back end of 2009, you ended up with some stronger periods.

And of course, we had a very strong performance in the back half of the year relative to H1N1 demand, both on the top line, which was -- would probably impact our comps this year by about a point and a half in the back half of the year from a revenue perspective and obviously from an earnings standpoint as well.

But do expect that generally speaking Q2, Q3, okay, should run probably a little bit ahead of Q1, and then Q4 naturally would have a tendency to fall off a little bit off of Q3, Q4.

So I don't see anything that is highly unusual this year from a traditional seasonality perspective.

Okay, and then from another angle, trying to understand what's implied in the incremental margins and guidance.

And if I take the high end of the range on EPS and the low end of the range on organic and I look at what the incrementals are implied for the rest of the year versus -- 2Q versus 4Q of last year, kind of looks like 17%, 20% incremental margins.

You mentioned a couple other factors in there.

I just want to make sure I'm clear on what you've changed on some of these items.

I think I heard you say you are taking R&D up a $100 million versus previous?

I guess, Terry, two things.

One is, let's start with the year as a total, okay?

For the year, when you look at our top -- our change in our top line, bottom line, effectively our incremental margins in that 35% to 40% range which is our long term rate that we've been running to and kind of guide to.

Of course, we did a little bit better in the first quarter.

What we said is that we, with some of our new growth investments which will start to kick in back towards the back half of the year., we had already talked about maybe $150 million going into the year.

We said that we'll probably invest another $40 million or so and in George's comments, he kind of wrapped R&D together, okay, and talked about a $100 million increase in R&D and of course, these new growth programs would be part of it.

So that's part of the impact that will hit us on kind of an incremental basis on a going forward basis.

Also remember that starting with the second quarter, we will relaunch some of our compensation related programs like merit plans and so forth that we had frozen for the last year or so.

So if you look at the back half of the year, it's more of a -- if you look at the top line to bottom line, it's more reflective of pulling through our operating margin, okay, level is for the back half of the year.

And has anything changed on the raw material price of raw material spread assumptions?

I'd say not change hugely.

You should expect that material cost will start kicking up here in Q2 on us, but that's been in our plan.

Of course, we have some very aggressive cost reduction programs on the material side as well, trying to offset as much of those as possible.

So I would not put it as a significant change from our prior expectations.

And I wasn't exactly clear on the H1N1 delta.

Maybe just tell us what you are now looking for that business to be down in total for the year maybe.

Okay.

I'll give you an order of magnitude.

More than likely, our 2010 level will be in the $100 million range revenue.

Last year we did about $250 million.

So -- and of course, you got a significant change will be first half of this year and Arroyo was last half of last year is when the impacts were.

So you get a benefit in first and second quarter this year and then really, you get kind of the deterioration in the back half of next year, Terry.

Terry, we had in each of the third and fourth quarter about roughly $90 million to $95 million of H1N1 related sales.

Last year.

Last year.

So that is the 1.5 point drag that George referred to in the second half of the year.

Again, Terry, offset by an unknown amount of industrial betterment which we have not factored into the number, but which would help lift us.

And we do have a very nice new product program where we are getting ready to launch that might compensate some of that volume.

So we maybe be being pessimistic on that, but I think we are trying to tell you the best that we know on the profile on those sales of the year.

Helpful.

I'll ask one more and get out of the way here.

D&G margins were one of the big upsides here in the first quarter.

If we go back historically, you have gotten those as high as 30% plus.

It doesn't sound like you see inventory as a problem there, George.

No.

What keeps us from continuing to track higher with those margins?

Well first of all, you are not going to track higher, because we are not going to go back to the margins that we had three to five years ago.

Just the dynamics of that industry will not allow that to happen, Terry.

So I think when you look at the margins that D&G had, 24% margins in that collective business is a very good result.

And realistically, as long as the optical business maintains strong here, which we expect it to do here in the near future, we'll be able to run at those kinds of rates.

Okay.

Thanks very much.

Thanks.

Our next question comes from the line of Laurence Alexander of Jefferies & Company.

Please proceed with your question.

Good morning.

Good morning.

Two quick questions on your growth rate.

First, as you look at doubling your growth rate assumption for this year, how much of that change in perspective was driven by your electronics exposure?

And secondly, as you think longer term, how much of the market share gains on the retail side do you think is permanent versus transitory?

Well, I guess on the retail side, we see that as being more permanent.

We don't see that as being transitory change at all, Laurence.

I guess I haven't looked at the change in guidance by end market, per se.

If you just looked at us taking our guidance up by five points, you can argue that maybe a third to 40% of that probably is kind of be electronics related.

That'd be a little bit higher than what our percent of our total business, okay, in electronics.

But when you look at I think where the growth rate and so forth is and across some of our businesses, that would probably be more of an order of magnitude number, Laurence.

Thank you.

Our next question comes from the line of Bob Cornell of Barclays Capital.

Please proceed with your question.

Good morning, everybody.

Hey Bob, welcome back.

Thanks.

You had to put up a good quarter for me, I appreciate it.

I think we get did message.

The $1.40 was great and the guidance may have an element of caution in it.

A lot of questions have been asked.

I would say in terms of the pyramid pricing, you mentioned traffic as one business that has benefited from the impairment pricing strategy, and maybe you can just comment broadly across the portfolio how much you saw there.

I don't have a complete number for the pyramid as a whole.

As George said, we are trying to dissect the pieces.

George, do you want to comment?

I was going to say, one number we calculated for last year, we thought about $200 million of additional sales are coming from this managed pyramid strategy.

Of course, we've only just started it, and you can imagine Bob, that this is a step wide strategy for us.

We have many more areas that we can attack.

So it's -- and I think the thing that is being so nice is that we haven't seen deteriorating margins.

We've managed to get the cost on those products right, and the pricing expectations have been, I think, well managed.

So I don't know if we should expect that to be double this year, up to 400, but gives you some kind of sighting shot on what contribution it makes to our numbers this year.

Yes, I agree.

Looks like you guys are doing a lot right.

Looking forward to the following.

Thanks, Bob.

Our next question comes from the line of Steven Winoker of Bernstein.

Please proceed with your question.

Good morning.

Good morning, Steve.

First question is around the exceptional growth in Asia-Pac.

It was down 26% last year in core growth, up 46% first quarter this year.

How much of that was optical systems?

I know optical systems doubled in total, but have you looked at it within Asia-Pac?

I'm trying to get a sense for much of Asia-Pacific was really optical related.

We'll have to probably pull that out.

You guys happen to know -- we can call you back specifically on that, Steve.

Let me move on to the next question, then.

Within the healthcare margins, they hit 31-1.

I know you've talked about reinvestment in the second half overall and a lot of the cost coming back historically.

Can you comment on how you -- is your vision for margins in that business completely consistent with where you guys were when you talked about in the last four or five months?

I think it is, Steve.

What we've said is that over a long-term period of time, that that business may be in the high yield, the high 20s.

It's a great business, and the more volume they get, it's a very profitable business.

So it's able to maintain a 30% type margin without really starving it.

What we are hoping to do is over time, that what we can do is find additional growth investments in that business, which may bring its margins down.

But I don't anticipate that is going to happen overnight.

That would be more of a gradual change as compared to a kind of a one-quarter movement.

It's really -- it's a fantastic business and if you just do the math, it's pretty hard to bring that margin down if you have got any kind of growth going on there at all.

Sorry, Steve.

I was going to say behind the scenes there is a lot of work going on moving that business, obviously protecting the core that we have, but moving that business to an even more advance footing.

So we are looking at investments in advanced home care, a lot of work on using very advanced mathematics for diagnostics.

Extracting signals from some of the devices we have been using there.

So we are doing some internal development on that and looking at at least one or possibly two acquisitions in that area.

So I think what you are going to see is a kind of a bit of a technological mix up, more electronics, more software, more mathematics that will augment the great businesses we already have.

And actually, even in some senses, repositioning that business a little bit, taking on various areas of healthcare.

In particular, various areas of the hospital, operating theaters and so on and so forth and putting together a fully integrated a suite of products to meet all of the needs, consumable needs in particular that are in those areas.

So I think the strategy is beginning to unfold.

The steps are being taken, Steve.

It's a bit of a watch this space, but I've given you a little bit of a preview of some of the ways, places that we are thinking in this business.

Perhaps right, I think you are going to see margins -- I don't see them dropping below the high 20s but for a time, we will spend more money on that and hopefully, this will remain for many, many years one of the, just the great business of 3M, a wonderful, wonderful business.

Steve, it's Matt.

On your first question, historically a few years ago, virtually all of the growth in Asia was optical for a while, but this quarter it was quite balanced.

Optical was probably a little under a third of the growth in Asia-Pacific, and the remainder was really spread across the rest of the portfolio.

Fantastic.

And on pricing, given the big snap back, you talked about ita little bit, what kind of pricing pressures or desperation are you seeing as volume come back from the competitive set and you guys are actually facing across the businesses?

Steve, I wouldn't characterize it at all as any kind of an abnormal pressure.

I think part of, of course, what you are seeing is, I think demand has snapped back so rapidly here in Q1 in a number of spaces, the biggest concern we've had was suppliers.

I think others have had is supply capability as much as anything right now, and I think once you get the supply system where it needs to be, then obviously, you can get into a price discussions.

But right now, I think the biggest concern a lot of us have is, can we get product?

Okay.

And your answer to that as you look forward and plan your --?

We are planning kind of a flat pricing environment for the year this year, Steve, and we haven't changed that view.

Okay.

And lastly on the R&D front I know you increased spending $100 million.

Sales were so far ahead of that thought that you faced a lower percentage of sales on that.

As you look forward and temper the growth rates a little bit, your overall R&D spending, is it that you just don't have -- would you spend more if you had the right projects at this point?

How do you think about funding that?

You talked about the $40 million of new investment.

How should we think about that?

We have the -- at the beginning of the year, we have a process where we look not only at the R&D spend, but new business development spend, and we obviously try to make a balanced judgment on how much extra we are going to invest to make sure that we don't damage the overall number.

So it's a little bit of a baby bear balancing act.

So we have the ideas, and is what we chose to do in this first quarter because things are so strong is we accelerated the investment.

That pattern, I think is likely to continue during the year if this thing stays very, very strong.

We'll see what else we can do to reinvest, knowing full well that this is an accelerant to our growth.

This is -- it will cost us something in the near term, but will be very, very powerful for us in the long term.

So I don't think you should think that we are out of ideas.

In fact, it's the complete opposite.

We are -- it is one of the real changes in the Company as it's really gained traction in this reinvigoration of R&D that these wonderful new ideas are all over the place, and it's just a question of us prioritizing, funding, while at the same time balancing what we do for the market.

Great, thank you.

Fantastic.

Thanks, Steve.

And our last question comes from the line of Stephen Tusa of JPMorgan.

Please proceed with your question.

Hi.

Good morning.

Good morning, Steve.

You talked about some of the temporary costs coming back in into the second quarter.

Is that significant, or maybe if you can just flesh it out a bit.

Steve, I don't see it as being significant.

It's obviously manageable within the size of our business and obviously, taking into consideration in our kind of guidance for the year.

I think on the comp side, it's about $0.04 to $0.05 on a quarterly basis is what we are putting back into the system.

But we can make that.

Okay.

And then as far as the earnings that you gave at the beginning of the year which is always very helpful, aside from the obvious things you've already talked about like price cost and some of the organic dynamics, is there anything else in there that is changing in that bridge?

No.

I would say the big change, Steve has really been the volume side.

If you go back to our December meeting or any other conversation we've had is, the biggest change in that whole waterfall really has been on the volume side of the equation.

Just one last question on the level of growth you saw in the first quarter.

Maybe this just because it's picked up in the back half of the year, but seasonally, the first quarter relative to the fourth quarter has at least as things pick up -- if you look back from '03 to '07, the average increase has been about 4%, and the sequential increase this quarter was about 4%.

Obviously, the comp is tremendously easy and I'm not discounting the growth rates.

The growth rates were off the charts year-over-year, no doubt about it.

But is there -- are we missing something there?

Is there another reason -- is there another way we should look at this to judge how strong it is, just to judge the progression of the economy here?

Yes.

And you got an appropriate comment.

If you look at year-over-year and so forth from a comp standpoint, but Stephen, really coming off the fourth quarter, you have to remember that fourth quarter was actually a good quarter for us.

We had a very decent quarter, especially vis-a-vis any kind of the economic indicators and the like.

So we've seen good sequential change in our business, and actually, what makes us feel good about increasing our guidance for the whole year is really the rate of change that we've had in our business.

So I don't see there was anything unusual there at all.

Okay.

And then one last question, the progression for the rest of the year.

Obviously another -- a good second quarter coming on the organic side, and you gave a slide last conference call talking about the second half growth rate at 2% to 4%.

Are there any -- are you bumping up the back half to the second half as well?

I'm curious as to the progression of the organic growth through the rest of the year.

Steve, you of course --

And is the fourth quarter positive?

Well yes, it should be positive, okay?

And I just want to remind you, the back half of the year, as Matt had pointed out, H1N1, we did have a headwind of about a point and a half in the back half of the year, but we'll be positive.

If you take our guidance and you kind of extrapolate it, it implies a 7% to 10% growth rate through the back half of the year.

You can anticipate, just because of the comps, it will probably be a little bit better in the second quarter than it is in the back half of the year, but that's how we are thinking of the business.

Is that 2 to 4 goes up, obviously?

Yes, it does, yes.

Okay, alright.

Thanks.

Great quarter.

Thanks, Steve.

Thank you very much everybody.

We'll close our call right now.

Thank you very much for listening.

We very much appreciate the time you spent with us, and we look forward in talking to you again at the next quarter.

Thanks, everybody.