Apr 23, 2015
Operator
Welcome to the 3M first quarter earnings conference call. [Operator Instructions] I would now like to turn the call over to Matt Ginter, Vice President of Investor Relations at 3M.
Matt Ginter
Thank you. Good morning, everyone.
Welcome to our first quarter 2015 business review. On the call today are Inge Thulin, 3M's Chairman, President and Chief Executive Officer; and Nick Gangestad, our Chief Financial Officer.
Each will make some formal comments, and then we'll take your questions. As a reminder, please mark your calendars for upcoming earnings call dates, July 23, October 22 and January 26.
Also take note of our next Investor Meeting, which is scheduled for December 15. More details will be available as we get closer to that date.
Today's earnings release and the slide presentation accompanying this call are posted on our Investor Relations website at 3m.com. Please take a moment to read the forward-looking statement on Slide 2.
During today's conference call, we will make certain predictive statements that reflect our current views about 3M's future performance and financial results. These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties.
Item 1A of our most recent Form 10-K lists some of the most important risk factors that could cause actual results to differ from our predictions. Please turn to Slide 3, and I will hand out to Inge.
Inge Thulin
Thank you, Matt, and good morning, everyone. I appreciate you joining us today.
3M executed well and delivered another solid quarter of operational performance. We once again posted broad-based organic sales growth and continued to improve profitability.
Importantly, we achieved these against a more challenging first quarter economic backdrop. The rising U.S.
dollar negatively impacted revenues and profits, offset in part by hedging gains. In addition, global economic growth slowed, which we saw a bit in our growth figures.
As 3M always does, we continue to manage two things within our control; execute our plan and build for the future. I'll take you through the first quarter highlights.
Earnings were $1.85 per share, up 3% year-over-year. Sales were $7.6 billion in the quarter, down 3% versus last year.
Organic local currency growth was 3.3%. For the seventh consecutive quarter, 3M posted organic growth in every business group as well as across all geographic areas.
As I mentioned, the U.S. dollar strengthening significantly against a number of currencies, reducing sales by 6.5%.
We expanded company-wide margins to 23%, up nearly a full percentage point from last year, and all business groups delivered margins greater than 21%. Rising margins and broad-based organic growth are more evidence that our portfolio actions over the last three years are paying off.
This quarter 3M took a number of additional steps to strengthening our portfolio. We announce plans to acquire Polypore's Separations Media business for $1 billion, which will enhance our core filtration platform.
Last month, we completed acquisition of Ivera Medical, a good addition to our Health Care business; and at the same time, we completed the sales of our Static Control business in January. Also in the quarter, we returned $1.5 billion to shareholders through dividends and share repurchases.
And finally, we increased the first quarter dividend by 20% on top of 35% increase last year. Nick will now go through the details of the quarter.
Nick?
Nicholas Gangestad
Thanks, Inge, and good mornings, everyone. Please turn to Slide 4, where I'll review the components of our first quarter sales change.
As Inge mentioned, in the quarter we delivered positive organic growth in all business groups and geographic areas. Worldwide organic local currency growth was 3.3% with volumes up 2.3% and selling prices up 1%.
Two Health Care related acquisitions, namely, Treo Solutions and Ivera Medical, added 10 basis points to growth. This impact was offset by the divestiture of the Static Control business, which reduced sales by 10 basis points.
The stronger U.S. dollar reduced sales by 6.5%.
In U.S. dollars total sales declined 3.2% versus the first quarter of 2014.
The U.S. dollar strengthened significantly versus several foreign currencies during the first quarter, continuing the trend that began in 2014.
In particular, the average euro rate declined 18% versus the U.S. dollar year-on-year.
The yen declined 14% and the Brazilian real 19%. Looking more closely at organic local currency growth, Asia-Pacific led the way at 5.6%.
Safety and Graphics again posted the strongest growth in APAC at 9%, followed by Health Care at 8% and Electronics and Energy at 7%. Organic growth was 7% in China/Hong Kong or 8%, excluding electronics, similar to recent quarters.
Japan was up against a challenging comp. Recall that Japan's organic growth was 20% in the first quarter of last year, leading up to the April 1, 2014, consumption tax increase.
EMEA organic growth was slightly positive in the first quarter, with West Europe flat, Central East Europe up mid-single digits and Middle East/Africa down slightly. Organic growth in EMEA was led by Electronics and Energy and Safety and Graphics at 4% and 1%, respectively.
We posted 4% organic growth in Latin America/Canada, where Industrial, Safety and Graphics and Health Care, all grew 5%. Mexico delivered another outstanding result with 15% organic growth in the quarter and Brazil was down 2%.
The United States grew 3.1% organically with Industrial, Health Care and Consumer, each growing 4%; Safety and Graphics and Electronics and Energy, each grew 3%. Please turn to Slide 5 for the first quarter P&L highlights.
First quarter sales were $7.6 billion, down 3.2%. Operating income on the other hand increased nearly 1% to $1.7 billion, and earnings rose over 3% to $1.85 per share.
Early in the year, it became apparent that business conditions would be more uncertain, particularly given that the U.S. dollar was moving higher.
As always, we had contingency plans in place and we executed those plans as Q1 played out. Gross margin improvements and strong SG&A productivity, allowed us to increase first quarter operating margins by 90 basis points year-on-year to 22.8%.
For the full year, we expect operating margins to increase by a minimum of 1 percentage point. Let's take a closer look at this quarter's margin improvement.
Organic volume leverage added 20 basis points to operating margins, and the combination of lower raw material costs and higher selling prices contributed 120 basis points of margin expansion. We continued to generate positive selling prices changes across our businesses, boosted by 3M's world-class material science and strong new product flow, both of which are important elements of our business model.
In addition, we have been raising prices in select countries to help mitigate the impact of currency devaluations. On the raw material front, we are benefiting from both lower commodity prices and from our sourcing team's ongoing negotiation efforts.
We expect raw material benefits to gain momentum, as the year progresses. Productivity added 30 basis points to margins, as spending remains under good control in the quarter, and foreign currency impacts, net of hedge gains, were neutral to margins.
First year acquisitions were 10 basis points dilutive to our operating margin in the quarter. In addition, we continue to make other strategic investments, including disruptive R&D programs, along with business transformation and ERP.
These investments reduced operating margins by 20 basis points year-on-year. Finally, higher pension and OPEB expense reduced first quarter operating margins by 50 basis points.
As a reminder, this year's pension increase is a result of the adoption of new mortality tables along with a lower discount rate. Summarizing the first quarter P&L, our teams executed well in the face of currency headwinds and a more mixed economic backdrop.
EPS expanded year-on-year and margins increased by nearly 1 percentage point. Now, let's turn to Slide 6 for a closer look at earnings per share.
Earnings for the first quarter were $1.85 per share, an increase of 3.4%. Organic growth and margin expansion contributed $0.14 to the EPS increase in the quarter.
This included a $0.04 headwind from higher pension and OPEB expense. Foreign currency impacts, net of hedging, reduced pre-tax earnings by $90 million or the equivalents of $0.10 a share.
The first quarter tax rate was 29.5% versus 27.4% in the comparable quarter, which reduced earnings per share by $0.05. The increase was due to geographic mix, which was influenced by the strong U.S.
dollar. In addition, Q1 2014 included a one-time benefit that did not repeat.
Average diluted shares outstanding declined by 4% versus last year's first quarter, which added $0.07 to first quarter earnings per share. Now, let's review cash flow performance on Slide number 7.
We generated $1.1 billion of operating cash flow in the quarter, in line with Q1 2014. Capital expenditures were $291 million consistent with last year's first quarter.
Our full year expected CapEx range is $1.4 billion to $1.6 billion, down $100 million versus prior estimates, all due to the stronger U.S. dollar.
First quarter free cash flow was $789 million, and we converted 66% of net income to cash, in line with last year's first quarter. Note that the first quarter is typically our seasonal low.
For the full year, we continue to expect to be in the rage of 90% to 100%. As Inge mentioned earlier, we increased our first quarter per share dividend by 20%.
We paid out $652 million in cash dividends during the quarter. Gross share repurchases were $886 million in the first quarter, and we continue to plan $3 billion to $5 billion for the full year.
Now, let's review our first quarter performance on a business-by-business basis. Please go to Slide number 8.
Industrial with sales of $2.7 billion delivered organic local currency growth of 3% in the quarter. Our aerospace and commercial transportation, automotive OEM and 3M Purification businesses, all generated high single-digit growth.
We also posted positive organic growth in advanced materials and industrial adhesives and tapes. On a geographic basis, Latin America/Canada set the pace, with organic growth of 5%.
The U.S. was up 4%; Asia Pacific increased 3%; and EMEA was flat.
We continue to invest for the future within Industrial. During the quarter, we announced our intent to acquire Polypore's Separations Media business for $1 billion.
This business is a leading provider of microporous membranes and modules for filtration in the life sciences, industrial and specialty segments. The acquisition will enhance 3M's core filtration platform and help generate new growth opportunities across the company.
Wrapping up on Industrial's first quarter performance, operating income was $598 million and operating margins were 22.5%, up 20 basis points versus last year's Q1. Now, let's turn to Safety and Graphics on Slide 9.
First quarter sales in Safety and Graphics were $1.4 billion, increasing 4% organically. Personal safety grew high single-digits in the quarter.
Workers safety remains a high priority for manufacturers globally, and we're gaining share. In addition, our respiratory products are continuing to sell well in China, where air quality is an ongoing concern.
Commercial solutions and traffic safety and security, each posted positive organic growth, while roofing granules declined year-on-year. Asia-Pacific delivered 9% organic growth, Latin America/Canada increased 5%, the U.S.
was up 3% and EMEA increased 1%. Operating income was $335 million and operating margins increased 2.1 percentage points to 24.4%.
Margins in this business continue to be boosted by strong productivity and a keen focus on prioritization and portfolio management. Let's now turn to Health Care on Slide 10.
Health Care delivered sales of $1.3 billion and organic growth of 3%. Growth was strongest in food safety, critical in chronic care and health information systems.
Our infection prevention and oral care businesses also posted positive growth in the quarter. The drug delivery systems business declined year-over-year.
Geographically, organic growth in Asia-Pacific was 8%, while Latin America/Canada and the U.S. each grew 4%, EMEA declined 1%.
In developing markets, Health Care grew 10% organically, marking the 13 consecutive quarter of double-digit growth. This has been a high-priority investment area of ours for some time, as healthcare markets rapidly evolve in developing countries.
In March, we successfully closed the acquisition of Ivera Medical Corporation. This business will enhance 3M's vascular access products offerings to healthcare facilities.
Integration is going smoothly and we look forward to expanding this business globally. Health Care's operating income was $408 million and margins remain strong at 30.7%.
Note that first quarter margins absorbed 40 basis points of dilution from the Ivera and Treo acquisitions. Therefore, underlying margins were 31.1%.
Next, we will look at Electronics and Energy on Slide 11. Electronics and Energy delivered 6% organic local currency growth in the first quarter, with sales of $1.3 billion.
Organic local currency sales grew 12% in our electronics related businesses, as we continue to see strong consumer demand enhanced by spec-in wins at several OEMs. In our energy related businesses, organic local currency sales declined 3%.
The electrical markets business was flat, while telecom and renewable energy both declined year-on-year. On a geographic basis, organic growth in Electronics and Energy increased 7% in Asia-Pacific, 4% in EMEA and 3% in both U.S.
and Latin America/Canada. The divestiture of the Static Control Business, which closed on January 2, 2015, reduced sales by 90 basis points in the first quarter.
As a reminder, sales for this business were $46 million in 2014. Operating income for Electronics and Energy was $283 million and margins increased 4.1 percentage points year-over-year to 21.4%.
Recent portfolio management actions are improving our relevance with customers, enhancing our growth capabilities and contributing to higher productivity and margins. Please turn to Slide 12.
First quarter sales in Consumer were $1 billion, with organic growth of 2%. All four businesses in Consumer grew organically, led by Do-It-Yourself and Home Care, each growing mid-single digit.
Looking by geography, the U.S. grew 4% and Asia-Pacific increased 2%.
EMEA and Latin America/Canada declined slightly year-on-year. Operating income increased to $240 million and margins were 22.9%.
Margins rose 1.7 percentage points year-over-year. The business continues to drive efficiencies through investment prioritization and executing on productivity programs.
Before turning to our 2015 outlook, let me comment on corporate and unallocated. Net expense was $100 million in the first quarter versus $72 million in Q1 of 2014, with U.S.
and pension postretirement expenses being the primary reason for the increase. For the full year, we estimate corporate and unallocated net expense to be approximately $400 million.
That wraps up our first quarter results. Please turn to Slide 13, where I will address our full year planning estimates.On organic growth, we expect 3% to 6% for the year, so no change versus prior thinking.
Foreign currency translation is forecasted to reduce 2015 U.S. dollar sales by 6% to 7%, up from a previous range of 4% to 5%.
For the second quarter specifically, we expect FX to reduce sales by 8%. With respect to earnings, we now anticipate full year EPS of $7.80 to $8.10 per share versus a previous estimate of $8 to $8.30 per share.
In our fourth quarter business review on January 27, recall that we estimated our foreign currency impacts would reduce 2015 earnings by approximately $0.20 per share. Of course, since then the dollar has strengthened further.
Today we estimate that foreign currency impacts will reduce 2015 full year earnings by $0.35 to $0.40 per share, or an incremental headwind of $0.15 to $0.20 per share versus our January estimates. These figures are net of hedging.
For Q2 in particular, we anticipate that foreign currency impacts will reduce earnings by $0.13 per share. For the tax rate, we anticipate a range of 28.5% to 29.5% versus 28% to 29% prior.
The stronger U.S. dollar is impacting our profit mix by country, which is leading to a higher effective tax rate.
Finally, no change as it relates to free cash flow conversion. We continue to expect a range of 90% to 100% for the year.
I will now turn the call back to Inge for a few final comments.
Inge Thulin
Thank you, Nick. I am pleased with the performance of our team in the first quarter.
We executed our playbook and delivered solid results in a tougher external environment. Now, more than ever, our teams remain keenly focus on efficient growth, focused both on organic growth, and of course, productivity.
As Nick described, we also took a number of additional steps to carefully manage first quarter expenses in anticipation of a difficult economic environment, clearly necessary given external realities. As we navigate short term challenges we also continue to invest for long-term success.
This includes portfolio investments, as I mentioned earlier, as well as our ongoing commitment to building our core strengths. I have talked to you before about 3M's four fundamental strengths, which are leveraged across our enterprise: technology, manufacturing, global capabilities and our brand.
On technology, for example, we increased R&D investment in the quarter while at the same time managing our SG&A investments very carefully. We expanded 3M's global capabilities including breaking ground on the new customer innovation center in Chengdu in West China.
As you heard from Nick, our 3M China team continues to execute well delivering 7% organic growth. We remain very optimistic about 3M's future in China.
And our new innovation center in West China will allow us to collaborate even more closely both, the local and global customers and help us take advantage of growing opportunities in that region in China. In March, we also refreshed our brand platform, which includes our new tagline: 3M Science Applied to Life.
Through our brand work, we will enhance awareness of how 3M uses science to solve problems and improve lives. So in summary, it was a solid first quarter for 3M.
Our team performed well against tough economical headwinds, and we continue to make investments for the future. And by that we are now open to take your questions.
Operator
[Operator Instructions] And our first question comes from the line of Joe Ritchie of Goldman Sachs.
Joe Ritchie
Inge, perhaps maybe just focusing on organic growth for a second, the 3%-plus that you did this quarter was towards the lower end of your full year range, and yet as you progressed through the year your comps are going to get a little bit more difficult, so maybe you can just talk about the portfolio and the confidence and perhaps seeing some organic growth acceleration as the year progresses.
Inge Thulin
Yes, you're right. It was little bit slower than we have seen in the past.
The way I looked upon it is specifically as you came off Q4, it was around 6%, but I think overall when you look upon the economy around the world, the fourth quarter was much stronger than what we saw in the first quarter on a global basis. So I think first of all, our performance relative to IPI is in the level as we have seen in the past.
I think when you look upon our performance, as you see there, you see a little bit of lower growth in Health Care, which is related to basically one thing, but you can add them together. One, it's relative to West Europe and it's relative to our Drug Delivery Systems, that is I would say, a project-based business.
So you will have some businesses going in and out of that business based on yearend or quarter. So when I look at on Health Care, that's basically where you can see.
And our core business in Health Care did very well again, and as you see we maintain very high margin, et cetera. And when I look upon Industrial, we had 4% growth in United States for Industrial in the quarter, which is acceptable, and I think that was related very much to and became maybe some uncertainty generally speaking around what will happen to export due to the dollar strengthening and also what you saw in oil.
I think people, specifically not so much what is designed in and spec-in, but maybe on the consumables, just became a little bit cautious as you went into the quarter. So I don't see that as an issue either.
And as you know that's a big business for us, and we continue to invest in IBG. When I say big, it's our biggest.
It's 33% of our portfolio. So again Electronic and Energy did very well.
After the reorganization and realignment of that business now over two years ago, we really get good traction based on our relevance to customers and speed to market, et cetera. And Safety and Graphics had also a good quarter, and specifically in personal safety that is going into respiratory business, we are doing very well on a global basis, even it was maybe a little bit slow in West Europe in the quarter, but very well in Asia again and whole of APAC doing very, very well.
And then finally, Consumer, that you saw had a 2% growth; 4% was in U.S. which is our bigger business.
And I will say that the slowness was in West Europe, and Latin America was slow for them. So as we all know, a quarter stops and ends there is always something going in and out of the quarter.
I look very carefully on six months comparisons going back over two years, and when we look upon that over two years with six months comparisons, because you don't know always if new story is coming in Q1 or Q2, et cetera. We have for the last two years on that comparison been in the range of 4% to 6%, always in 4% to 5% during that period.
So this was on the low end, but still in the 3% to 6% that we have set for the year and when we look upon and talk to the businesses what we see going out for the year, we say that maybe Q2 would be very similar to Q1, maybe slight improvement, but we do not count too much on that. And then you will see for the rest of the year that more growth will come.
Joe Ritchie
And maybe my one follow-up question for Nick. Can you decompose the price cost for the quarter?
You had 120 basis points in benefit, what portion of it was related to FX? And can you elaborate a little bit on the raw material piece gaining momentum as the year progresses?
Nicholas Gangestad
Sure, Joe, happy to break that down. As I said earlier in total those components price in raw materials added a 120 basis points.
You can split that right down the middle. Half of that is coming from selling price increases, and half of that is coming from lower raw material commodity prices that we're paying.
And then in total what we recorded for 1% price growth for the first quarter, Joe, about two-thirds of that is directly or indirectly driven by FX movements, and about one-third of that is driven by 3M innovation and the new product flow we have.
Operator
Our next question comes from the line of Scott Davis of Barclays.
Scott Davis
A little bit of strange question for you, Inge, but when you think about China, up 7% is a very, very respectable number, but Consumer is up kind of 2-ish, and you seem to be doing really well in China in Auto and Industrial, but Consumer always seems to be a little bit of a challenge. Can you help us understand, is it a function of price points of brand, or focus is there -- when we think about the Consumer build out in China, there seems to be an opportunity for you guys, but I'm not sure your business is really that big in the grand scheme of things over there and doesn't seem to be growing up fast?
Inge Thulin
First of all, yes, we do well in China. We have good traction.
And again, this quarter we had 7% growth, n fact 8% in the core business if you take out electronics. As I talked earlier, the way the evolution of businesses are going is stopping with Industrial, followed by Electronic and Energy, then Safety, then Consumer, finally Health Care.
So Consumer part is a smaller portion in China, and so is actually Health Care as well. I think the answer to your question is that it's very much around brand awareness.
And brand is in our mind, it's where we all grew up what we are used to, et cetera. So it takes longer time in order for you to build the awareness in those businesses.
So we still see growth opportunities in China for Consumer, but in that specific market I would turn Health Care and Consumer around, and say, Health Care would get faster traction for us than Consumer. So I will say, I agree with you.
I hope we will be bigger at this point in time. I hope we're being able to grow faster, that we will over time.
So we have some very strong brands. It's just that it take time for us to get awareness and build out in the category, and we also very careful who we deal with in China relative to the channel partners.
So I think, over the time it will be big. We'll grow faster.
And we have to make sure that we get with that business good profitability for us as well, right. So we are not giving away things, and it's not only about market share, we need to make sure that we are investing in businesses where we get the good return.
And there is some very good businesses for us in China to speak, as you know, both in specifically in Industrial -- specifically Industrial. One I can't talk about purification, it is growing fantastically.
We've continued to invest in that. So I hope that will gave you a little bit of flavor why it's small.
Scott Davis
And then as a follow-up to that, I mean when you think about pricing going on getting 1% price in this type of a lower raw material environment and challenging macro in general, what is the interplay between price and volumes? I mean, did you give up some volume this quarter to get that price?
It's hard to say with some of your markets you create the categories, so it seems like you should be able to get pretty good pricing power. But clearly, with the currency moves, I would imagine if you have some local competitors that might able to keep price a little bit lower for a while and take some share, what do you think about that?
Nicholas Gangestad
Scott, we don't see that we're giving up volumes in exchange for price. And it really comes back to 3M's business model of investing in innovation, having that strong new product flow.
It gives us the ability to reflect the value that we're creating in the markets and for our customers. So it's something we're conscious of, we monitor.
But right now, Scott, we're not seeing our stance on pricing, in light of the current cost raw materials as impacting our volumes.
Operator
Our next question comes from the line of Deane Dray of RBC Capital Markets.
Deane Dray
On the topic of FX, Nick, maybe if you could help critique the effectiveness of the new hedging program, you extended the duration from 12 to 24 months, but how is that program working versus your expectations?
Nicholas Gangestad
For those that may not know what Deane is talking about, in the middle of 2014 we extended the tenure in our hedging programs to go out from our past policy of going out and hedging 12 months out to now hedge in addition to that 24 and 36 months out. And to answer your question it's going quite well, Deane.
The true impacts of going out with the tenure in 24 and 36 months, that will manifest in 2016. And if you look at the amount of deferred gains that we have in our hedging program, that's reflective of that change in our hedging program.
Deane Dray
And then a follow-up would be for Inge on the Polypore acquisition. And maybe if you could just take us through, and maybe this has a little bit of the boost that Ceradyne gave you, was where else will you apply ultrafiltration across 3M's businesses?
And then within your answer, maybe what does ultrafiltration give you that CUNO did not?
Inge Thulin
First of all, as we not have closed on Polypore, I would not like to talk about that specifically, right. So we have to respect the regulatory approvals that we are waiting for.
So I will not talk about that. But if you think about it broader relative to our filtration business, that is a huge opportunity for us.
And I will look upon that and I will combine it, if you like to think about it in terms of our non-woven technologies combined with what we have in our purification business, and then some additional technologies that will be added later on. So if you think about a global mega trend that are related to both air pollution and clean water, that is where we will play big time with the platform, as we go ahead.
So I will say that I am very encouraged actually relative to our current performance, both in purification and in personal safety that is around respiratory products. And we will build out those businesses as we go.
So think about it as a good way of us to extend our technology capabilities in order to create more value in those spaces, which is both global mega trend, but also local mega trends. And as Scott and I talked about it earlier, relative to China, this is a huge opportunity, as we all know and everyone know that.
But we need to be able to capitalize on it with technologies, because at the end of the day this is very much a regulatory business, and we need to make sure we have product that meet the standards.
Operator
Our next question comes from the line of Steven Winoker of Bernstein.
Steven Winoker
Did you all see any volume de-stocking across your distribution in any of the business units? We've been hearing some short-term trends in some other companies on that front.
Inge Thulin
De-stocking or?
Steven Winoker
De-stocking, yes?
Inge Thulin
I think that when you look upon it, I will not say, yes, bit time. But I suspect that all of us leading businesses, like we do at 3M and our customers, as some uncertainty came in Q1, as I said earlier, both relative to exports from U.S.
based on the strength of the dollar and oil price. I think that most companies, generally speaking were very careful of how you build and manage your inventory in Q1.
So I think I will be surprised, even if I don't have any facts in front of me, to say that people manage the inventory very tightly and as tight as they could in Q1, and so did we, by the way, right. So I think that's the answer.
Matt Ginter
Maybe one comment in the Consumer business, which you'll see in one of the slides, our point of sale growth was good and it was higher than our actual growth. So there may have been a little bit of inventory takeout at the retail channel.
Steven Winoker
And then, Matt, on the Consumer side, I think that was still the lowest growth since, like what, maybe the fourth quarter of '13. Was that related in any way?
Matt Ginter
Yes. That was the point.
The outdoor sales were actually better than that. So there is some adjustment there in the channel.
Steven Winoker
And then just a follow-up question on pricing. You mentioned earlier that two-thirds of the 1% pricing increase was FX related and a-third roughly it was new product development and et cetera.
So I'm just trying to get a sense, are you seeing pressure on pricing in that you think is currency driven in other markets from an export prospect from your competition. Is this something where people are trying to take advantage of it?
Nicholas Gangestad
Steve, that's something we're constantly on the lookout for as in the time volatile FX. So this is changing the competitive landscape for us.
And at this point we are not seeing evidence of it changing our competitive landscape or our ability to price in manner similar than how we priced in the past in multiple geographies, including the United States.
Operator
Our next question comes from the line of Shannon O'Callaghan of UBS.
Shannon OCallaghan
Maybe just a follow-up on the tightly managing business in the first quarter, as you mentioned you're kind of doing that with inventories and others are as well with FX and oil uncertainty. Is that uncertainty now viewed is or do you view it as having lessened, given some stabilization I guess in the prices of oil and the currencies or such that you would manage those things less tightly in 2Q or how do you view that where we stand today?
Nicholas Gangestad
In terms of managing our spending tightly, I don't see that changing as the year goes on, particularly in markets like West Europe and United States, some of our developed markets, where we're managing our spending pretty carefully right now.
Inge Thulin
Yes, I would say that there will not be any change, as we move into Q2 relative to operation. The team here is on this big time.
So there would no change short-term relative to what we need to do. And we had an aggressive plan for the year and we will do everything we can in order to make sure we deliver on that one.
Shannon OCallaghan
And then just in terms of how the first quarter progressed, we're getting sort of different stories from different companies about how the year kind of started and exited 1Q. Did you see any variation across the months of the quarter, either a slow start that improved or vice versa?
Nicholas Gangestad
Yes, that's something we're always looking at as if there is a change in trend. And as we look, as our revenue progressed through the quarter, we really did not see a meaningful trend one direction or the other throughout the quarter.
They have one-off things occurring like when Chinese New Year is and when Easter is, when we adjust for those things, we really see no meaningful trend through the quarter.
Operator
Our next question comes from the line of Nigel Coe of Morgan Stanley.
Nigel Coe
So, Nick, just wanted to go back to the raw material commentary. I think you guided for $0.15, $0.25 benefit for the full year, back in December.
And it looks like you have a $0.05 of benefit this quarter. So are we now looking at a situation where the raw material benefits are now above the $0.25, given your commentary that its more backend loaded in your plan?
Nicholas Gangestad
So in December we laid out a range of $0.15 to $0.25 that we were expecting for raw material commodity price benefits. On January 27 in our fourth quarter earnings call, we updated that, say, we now see ourselves at the high-end at $0.25.
And Nigel, what we have been seeing is this is playing out almost exactly as we've expected. From a commodity pricing, we see it fairly balanced throughout the year.
The only nuance on that is that there is some inventory channel work through of using slightly more expensive inventory to our channel, which is what makes it just a little bit less in the first quarter. But that's all progressing right to our $0.25 that I stated back in January.
Nigel Coe
And my math on benefits, on the 50 bps of benefits above $0.05, is that about right for the quarter?
Nicholas Gangestad
50 bps would be about approaching --
Matt Ginter
I think it's about $0.04, Nigel. We'll get back to you.
Nigel Coe
And then secondly on the margin bridge, I just want to understand the mutual impact of FX, because we've seen that the hedge gains would have been a net benefit to margins. So I just want to understand why that's flat?
And if possible, if you could call out, how much of the gain came through in 1Q?
Nicholas Gangestad
There is a couple of different forces their Nigel that in this quarter netted out to no change to the margin. There was the hedging gain, which is an absolute upside benefit to the margin.
But that's offset by a differential to the margin, where we source things to the extent to which our international companies source product from a U.S. dollar currency.
That has a negative impact on margins. Those two things offset each other in the first quarter of 2015.
As we look out over the remaining three quarters of the year that will likely become slightly accretive to our margin. Very similar to what we saw in second quarter and then a little more accretive in third and fourth quarter.
Nigel Coe
Any ways you could quantify that mix?
Nicholas Gangestad
Excuse me, Nigel.
Nigel Coe
Any way you can quantify that benefit?
Nicholas Gangestad
When I'm saying -- I am talking small, like 10 basis points, 20 basis points, 30 basis points. Just to put out a range on that.
Operator
Our next question comes from the line of Robert McCarthy of Stifel.
Robert McCarthy
Just one quick question on, just any update on what you're seeing with ERP and the traction in terms of your investments?
Inge Thulin
It's going well. As you know, we are sort of updated you in December and even after that.
We are rolling out as we speak now in Europe, in West Europe specifically, and the next place to go live is in Nordic. And we are rolling that out according to plan.
And as you know, we went from go, when we tested it country-by-country, now to go regional and we go in West Europe first. And I think it's the first week of the -- or we go in July, second week in July, is when we will roll out in Nordic next.
So everything is on plan.
Operator
Our next question comes from the line of Steve Tusa of JPMorgan.
Steve Tusa
On the hedging dynamics, I guess you can kind of do the math on that, I'm not sure whether it's in the 10-K or not or the 10-Q. But are you looking at for '16, if you know the euro stays where it is today.
Is there an impact there or do you go all the way out through '16?
Nicholas Gangestad
Yes, Steve, we are hedged out through '16 and in fact a little into '17. And just to put the numbers on it for 2015 versus 2016, we're estimating approximately $175 million of hedged gains to our P&L in 2015.
And if everything stayed right where it is, that would be followed by $110 million of hedge gains in 2016.
Steve Tusa
Has anything changed with regards to how the four-Xs dropping through, exclusive of the hedges? I think Danaher today talked about a higher margin on there drop through.
Matt Ginter
I guess what I'd say, Steve, is back to the couple of questions ago, the one we're hedging and the dollar is strong, net-net it should be slightly positive to margins, as Nick just alluded to, and that is our expectation for the year. So when we calculate that, when we calculate the impact, we take our numbers and pull out the sales impact from FX and the bottomline impact from FX, recount the margin; and if you're hedging, by definition, your margin should go up slightly.
Steve Tusa
So one last question just on, so basically similar growth in the second quarter to the first quarter. Should we be, say -- I mean can growth get to in this kind of economy, this kind of outlook.
Can growth get to like above 6% in the second half? I mean is that should we thinking about high end of the range type of growth in the second half of the year, I mean can it accelerate that much?
Inge Thulin
Well, we do not change our guidance for the year at this point in time. So you have 3% to 6%.
So I think you're describing correct. As I said earlier, think about it very similar to Q2 as Q1, and then we will see an acceleration in the last part of the year, second half.
And then I would not predict at this point in time how high it will go, all right, because we are not immune to the economical environment and how that will accelerate. But our performance of 1.5x to 1.7x IPI is steady, as I said historically, when I look at on those six months periods, as you and I have talked about earlier, so I'm optimistic 3% to 6% for the year.
Steve Tusa
And then just one last question. Are you guys seeing any impact from competitors, global competitors, given the foreign exchange movements?
I think of your products is pretty defendable with good modes, but anybody getting regressive out there on price?
Inge Thulin
Well, we have all type of competitors, right. We have global competitors.
We have regional competitors. We have local competitors.
So we are working with this the whole time. And I would say, as Nick said earlier, up to this point in time we have not seen any change in the behaviors versus what we see the whole time when we do business on the day-to-day basis, so answer to that no.
But of course, we have competitors, right. And they are everywhere and they are very attractive, of course, to come into spaces where we are, because nice growth and nice good margin, but we have not seen any change in their behaviors up to this point in time.
Operator
Our next question comes from the line of Jeff Sprague of Vertical Research Partners.
Jeff Sprague
Just a couple, really quick one. Just back on FX, I would imagine those hedges are in a handful of major currencies.
My question is if you -- maybe that's right or wrong, but the larger question is if you think about that $110 million hedge gain that you have for 2016, does that fully cover kind of the topline driven FX headwind you would expect in '16, if we just run through at these rates for the rest of this year and into next year.
Nicholas Gangestad
Jeff, couple of questions there to go through. One is it's largely in developed markets and those currencies that we're able to cost effectively hedge.
So currencies like the euro, the Canadian dollar, the yen, the Australian dollar, those are examples where we do the majority of our hedging. Other currencies such as Brazilian real, that's less cost effective for us to hedge in and in markets and currencies like that, our approach is to rely more on natural hedges, meaning how much do we source locally, our ability price to offset some of the FX movement, our ability to manage our cost structure in those places.
Those are part of 3M's playbook on managing FX in more developing markets. To your question on does this fully cover the currency exposure going into 2016, no it doesn't.
It's never our intense with our hedging strategy, our financial hedging strategy to offset all of the risk. We offset a portion of it to help minimize reduce volatility and we also do it to buy time for us to adjust our business models accordingly.
So it doesn't negate all of the risk in 2016, but it buys us more time and take some of the volatility off the table.
Jeff Sprague
And I'm just wondering on strategic investments, is there any change in tempo over the course of the remainder of the year?
Inge Thulin
No, there's not. I mean, we are working our plan and we're couple our years into it, as you know.
So there's no change in the tempo relative to our ERP program or investment in recession development and what we call I3 or any small restructure as we do in here or there when we have the opportunity to do it. So the plan from that perspective is working and it's working well for us.
Operator
Our next question comes from the line of Laurence Alexander of Jefferies.
Laurence Alexander
Two quick ones. Can you characterize how you see the setup for the year in European auto?
Some companies have talked about that as being most likely area for Korean [ph] chute in terms of domestic activity. And secondly are there any regions or end-markets where as you look at the sequential trends into March and April, the deceleration was sharply worse than you expected?
Inge Thulin
Well, on the European front, first of all, our automotive business globally is doing very well. I mean we have 9% growth in the quarter versus 1% growth in the auto build.
So again, we are doing very, very well. And that's a global business, so we do well with all the global players.
Relative to Europe, we have good penetration on design and spec-in there, as all other places. And you could assume that, who knows that in the later part of the year the export generally speaking for West Europe will improve, due to the dollar versus euro and other currency.
And by then by definition automotive will capitalized from that as well. So assuming that that is correct, as everyone talk about, then there will be a improved export from Europe generally speaking.
Automotive by definition is a big engine for growth in West Europe as we all know. Now, many of the automotive makers here designing and spec-in on certain places and they could use it to other parts of the world.
But many of them in Europe are exporting quite a bit outside of West Europe in terms of the manufacturing. To your second quarter, no, I will not say there was any change with more than, which is a small piece is Middle East/Africa.
Middle East/Africa, as we all know and understand due to geopolitical issues face challenges, so I would say that was not in March. I think that was for the whole first quarter was total different environment to do business.
And so I think that's the only place that we could see any change in trends, right. So that's understandable in way and you we have to manage it through the situation.
Operator
That concludes the question-and-answer portion of our conference call. I will now turn the call back over to 3M for some closing comments.
End of Q&A
Matt Ginter
This is Matt. It's obviously a very busy earnings day, so we really do appreciate you spending the hour with us.
Thank you very much. We look forward to speaking to you very soon.
Bye, bye.
Operator
Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.