3M Co. (MMM.N): Margin Expansion Delivers, but EBO (Data Center) Steals the Show

Coming into Q3, the primary concern centered on softness in organic growth for consumer-levered business lines plus lower margins in Transportation & Electronics from lower mix of consumer electronics. While these concerns materialized for T&E (~150bps miss on organic and ~100bps miss on margins vs. consensus), the broader takeaway was that margin expansion overall came in much better than expected, as gross margins expanded +229bps YoY to 42.3%, the highest GM mark since 3Q22, driven by strong incrementals on volume leverage and operational excellence initiatives (productivity, procurement, logistics, factory closures). Operating margins also expanded 150bps excluding the 40bps impact from the accounting change. As strong as the margin performance was, the focus of the day was squarely on MMM's data center opportunity following the Amazon (potentially $6B of MMM data center revenue over the next 7 years) and GSEO agreements. If Amazon meets this target, it would provide nearly +100bps