Good afternoon. My name is Holly and I'll be your conference operator today. At this time, we'd like to welcome everyone to the Fortune Brands' Fourth Quarter and Full Year 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, we will have a question-and-answer session. I would now like to turn the call over to Senior Vice President of Finance and Investor Relations, Mr. Dave Barry. Sir, you may begin the call.

Good afternoon, everyone and welcome to the Fortune Brands Home & Security fourth quarter and full year 2021 investor call and webcast. Hopefully, everyone has had a chance to review the earnings release issued earlier. The earnings release and the audio replay of the webcast of this call can be found in the Investors section of our fbhs.com website. I want to remind everyone that the forward-looking statements we make on the call today, either in our prepared remarks or in the associated question-and-answer session, are based on current expectations and market outlook and are subject to certain risks and uncertainties that may cause actual results to differ materially from those currently anticipated. These risks are detailed in our various filings with the SEC. The company does not undertake any obligation to update or revise any forward-looking statements except as required by law. Any references to operating profit or margin, earnings per share, or cash flow on today's call will focus on our results on a before charges and gains basis unless otherwise specified. With me on the call today are Nick Fink, our Chief Executive Officer; and Pat Hallinan, our Chief Financial Officer. Following our prepared remarks, we have allowed time to address some questions. I will now turn the call over to Nick.

Thank you, Dave and thank you to everyone for joining us on the call today. I hope that everyone had a safe and enjoyable holiday season and best wishes for 2022. Following an extraordinary 2020, our teams once again delivered outstanding performance in 2021. Our strong fourth quarter results kept a remarkable year at Fortune Brands, including exceptional sales, operating income, and earnings per share growth. I'm particularly proud of how we delivered for our employees, customers, and consumers while also achieving 50 basis points of operating margin improvement. We accomplished these results despite facing numerous external headwinds, including supply chain disruptions and extreme inflation. Importantly, we also made progress on our Fortune Brands Advantage capabilities and continued investing in our leading brands to drive innovation, expand capacity, and serve our customers. As a result of our team's outstanding work in 2021, the company is well-positioned to continue outperforming a strong housing market in the years to come. In the fourth quarter, sales grew over 18% or 13% organically, with all of our businesses delivering double-digit growth, driven by continued strong POS demand across all channels. Operating income grew 7% and EPS grew 6% as operating leverage in the quarter was impacted by labor availability constraints, supply chain inefficiencies, and inflation ahead of price. Despite these challenges, we made full year operating margin progress and delivered a 37% increase in full year earnings per share versus 2020. Additionally, in 2021, we increased our investment in the business by $85 million, returned over $590 million of capital to shareholders, executed capacity expansions across the portfolio, and recently acquired Solar Innovations, a leading producer of wide-opening door systems and outdoor closures that will join our Therma-Tru family. The pandemic period, now into its ninth quarter, continues to cause a variety of challenges. One constant remains our ability to meet these challenges head-on and get results for our shareholders, notwithstanding the environment. Our Fortune Brands Advantage capabilities leveraged across the portfolio helped offset extreme inflation by reducing costs, executing strategic price increases, and building stronger, deeper supplier relationships. Our people, driven by our culture of excellence, continued to position our portfolio of leading brands to capture the upside in the strong housing market. Additionally, we will remain agile in our response to any short-term headwinds that may come our way. We continue to see strong demand for our products, and our team is working hard at meeting that demand. We are making progress on strategic initiatives. And later in the call, Pat will provide details around our 2022 investments, which further position us for profitable growth. The work that we have done to position the company to outperform extends beyond our exceptional financial results. We continue to advance our key environmental, social, and governance focus areas. In addition to our work on safety, diversity, and inclusion, water conservation, and recycling, we recently took an important step in mitigating climate change by setting carbon emission reduction and renewable energy goals. Furthermore, during 2021, we partnered with the W.K. Kellogg Foundation's expanding equity program to enhance our comprehensive equity strategy and further our diversity, equity, and inclusion initiatives; which will have a measurable impact in 2022 and beyond. We are acutely aware of the responsibility we have of keeping all of our associates safe. Our safety records are among the best in the industry, and we invest to ensure that all newly acquired companies meet our extremely high safety standards as quickly as possible. This is one of the ESG synergies that we bring to bear when we acquire a business. Our safety performance is a point of pride for us, and our entire team is committed to keeping the bar high. We look forward to highlighting our full ESG progress in our upcoming 2021 ESG report, which will be released next quarter. All of our work is being recognized. We've seen consistent improvement in our scores by key ESG raters. For the third consecutive year, Newsweek named Fortune Brands as one of America's Most Responsible Companies. And just today, we've once again been named as one of Fortune Magazine's World Most Admired Companies. I'm proud to lead a company where our associates are so passionate about realizing our purpose of fulfilling dreams of home in an ethical, responsible, and sustainable way. As we looked to the year ahead, all of the progress that we have made over the past two years has positioned us extremely well to create further value for all of our stakeholders. POS demand remains strong, and our commitment to further expand and develop our Fortune Brands Advantage capabilities will bolster our operating model and create extra fuel for growth. We aim to further our momentum in 2022 by identifying additional strategic investment opportunities, including our digital transformation. This initiative will be the next core competency in our suite of Fortune Brands Advantage capabilities, and we are developing a digital center of excellence to further enhance brand and innovation, accelerate growth, and improve operating efficiency. This strategy developed in earnest in 2021 will be executed in 2022 and beyond. I am very excited to announce that May Russell will be joining our company in the coming weeks as our first-ever Chief Digital Officer. May joins us from Ford, where she was a Senior Technology Executive serving as the Chief Technology Officer for Ford Commercial Solutions and had global responsibility for the award-winning Ford and Lincoln apps, the digital consumer interface for all vehicles, vehicle connectivity, safety, and security products, and for the digitization of fleet management. Our ability to attract talent like May speaks to the tremendous opportunity that we have to transform Fortune Brands into a consumer-first, digitally enabled growth platform. We believe the potential for digital transformation within our portfolio is remarkable, and I'm excited to speak more about our digital initiatives throughout the year. Finally, I want to sincerely thank our dedicated team members who continue to work so hard to keep our people safe and our facilities operating. I am so proud of our teams who are not only caring for each other, but who are doing so while serving strong demand for home products. Our people are the foundation upon which our business is built, and they drove our outstanding results in 2021. Turning to the remainder of our remarks today, first I will share what we are seeing in housing in the home products market. I'll then highlight key takeaways from our fourth quarter and full year results, as well as discuss our key initiatives across the portfolio and how we expect these to evolve over time. Pat will then provide highlights on our financial results and thoughts around our future financial performance expectations for 2022. Now turning to some thoughts on the housing market. As I've mentioned, demand remains strong. Due to the demographic and fundamental trends favoring both new construction and repair and remodel, we expect the long-term expansion of housing and building products to continue. New construction activity had a robust year in 2021 and would have been even stronger if unimpeded by labor availability and supply chain inefficiencies. With all-time record low existing housing inventory in the U.S., inventory is turning over nearly as fast as it is becoming available. There are simply not enough homes to purchase. Our wholesale and builder momentum, which persisted through all of 2021, is showing signs of continued strength as we begin 2022. Our exposure to the new construction industry continues to give us incremental tailwinds and a powerful installed base. Repair and remodel activity remains robust across our product categories, and our POS was strong during the fourth quarter. With record low supply and an aged housing stock, more homes are requiring significant repair and remodel spending. We saw clear above-market growth across our portfolio, as our leading brands are centered around the most in-focused spending areas of the house, the kitchen, the bathroom, and the outdoors. Repair and remodel has been supported by tremendous home equity wealth, which has grown by trillions of dollars in the past year. While we expect interest rates to increase, as the Federal Reserve works to combat inflation, 30-year mortgage rates, which currently hover around 3.5%, remain attractive. Coupled with compelling demographics, this financial backdrop is supportive of continued new construction and repair and remodel spending. We continue to believe in a long-term runway for housing expansion, driven by demographics and fundamentals and underpinned by lower supply and aged homes. This multi-year runway for growth provides a significant long-term opportunity for new construction and repair and remodel. We intend to outperform the strong market and will stay agile to both capture opportunities and quickly respond if short-term headwinds arise. Now let me turn to our performance in the fourth quarter and full year, as well as how we're positioning ourselves to be even stronger across our portfolio. Total company sales were up over 18% for the fourth quarter, capping off a superb year of 26% revenue growth versus a year ago. This performance is demonstrative of strong demand, but also of our ability to source, manufacture, and ship in a complex supply chain environment. Sales were up double digits across all businesses during the quarter, compared to a strong fourth quarter last year. Operating margins were 13.4% for the fourth quarter and 14.6% for the full year. As I mentioned earlier, consistent with our long-term strategy to deliver for shareholders, we made 50 basis points of overall margin progression in 2021 despite numerous headwinds during the year and investing an additional $85 million in strategic initiatives. Now, turning to our individual businesses, starting with Plumbing. Our Global Plumbing Group continued to outperform its global and U.S. markets, with sales up double digits in the quarter, led by the wholesale channel in the U.S. for both Moen and House of Rohl brands. Operating margins were 20.8%. We experienced sales growth across all brands and regions, including growth in China despite the selling market. Full year results were exceptional, delivering sales growth of over 25% and operating margin of 22.9%. Momentum remains strong across the group. We invested heavily in plumbing in 2021, further perpetuating the flywheel of top and bottom line outperformance for this world-class business. Investments in marketing and innovation clearly resonate with consumers and continue to fuel our remarkable results. Additional investments in capacity and distribution will further elevate customer service and provide additional opportunities for growth. In the fourth quarter, we opened a new retail-focused distribution center. And in 2022, we expect to invest in a new West Coast distribution center and to expand capacity for growth at our UK manufacturing sites. We're also very excited about the innovation taking place in Plumbing today. Our Moen smart water network was unveiled at the Consumer Electronics Show and is the first step in enabling consumers to digitally control water throughout the home. We have a strong leadership position and are in the early stages of what we expect to be widespread adoption of smart home water management by consumers, builders, and insurers. Our growing smart water ecosystem will continue to add inventive products and services at an increasing rate, leveraging our growing digital capabilities. Turning to Outdoors & Security. For the fourth quarter and full year, sales were up over 40% or high teens, excluding LARSON. Doors, decking, and security all grew double digits in the quarter and for the full year, highlighting widespread strength across the business. Operating margin was 15.9% for the fourth quarter and 14.9% for the year, increases over the previous year in both cases. Outdoor living continues to show sustained momentum and we are focused on expanding our presence in this attractive category. Sales in our legacy door operations grew high teens in the quarter, driven by strong wholesale sales. Our robust distribution network is a differentiator in both our doors and decking brands, and we continue to deepen our ties with our key channel partners. At LARSON, we delivered a successful year of integration, performed ahead of our acquisition expectations, and are enthusiastic about the ability for LARSON and Therma-Tru to work together to achieve further synergies in 2022 and beyond. To further expand our leadership position in entry openings, we recently acquired Solar Innovations, a leading producer of wide opening door systems and outdoor enclosures. We are excited to bring their leading product innovations into our door portfolio and to welcome their employees to the Fortune Brands family. Our Fiberon decking brand continues to perform very well, growing above 20% for the quarter and the full year. Our success in decking is the result of the strong channel building and product development that we have executed since acquiring the brand. Conversion from wood to advanced composite materials accelerated over the past few years as the benefits are increasingly resonating with consumers. Additional capacity has come online during the fourth quarter and we will expand capacity incrementally throughout 2022. To further accelerate our growth, we will be developing a greenfield facility with construction beginning in 2022. This investment will be executed in phases and we will control the pace of capacity additions based on the demand outlook, which we forecast to be very strong for years to come. Turning to Security. Strong performance continued as sales increased in low double digits in the quarter, driven by continued recovery and outperformance in commercial and international channels, bolstered by solid performance in our core North American retail market. The security team continues to make progress towards its strategic goals, including innovation-led growth and margin expansion. As you can see, the Outdoors & Security team executed well across multiple initiatives in 2021 and are set up to achieve even more into the future. Finally, turning to Cabinets. Sales increased mid-teens for the fourth quarter and full year, with growth across product lines at all price points. Full year operating margin was 10.1%. The Cabinets industry has been exposed to particularly high levels of variability during the pandemic. And yet our team is overcoming labor availability challenges, supply chain constraints, and extreme material and freight inflation. While our margin performance was short of the targeted progress that we wish to make in 2021, it is also a testament to how agile the business has become, given the challenges it faced and overcame in a very short amount of time. Demand remains strong, and we continue to work through our elevated order backlog. We're progressing well with our margin enhancement initiatives and the results will be even more evident as the pace of supply chain volatility subsides. Our business is well-positioned across price points to win the share that we want and we are executing strategies to increase efficiency and to align our growth with the highest returning opportunities. Within our value price point Cabinets, we continue to win versus both domestic players and from importers who are shipping into the U.S. with longer lead times and significantly higher costs. Our mantra line continues to take share, and the sales of this brand more than doubled in 2021. Demand remains strong in our make-to-order segment, especially within premium, though operations were impacted by labor availability and freight costs in the fourth quarter. We continue to make progress on our strategic initiatives, and we expect to drive margin progression in 2022. The trajectory of this margin progression will be concentrated in the back half of the year as we continue to work through labor and supply chain headwinds and realize incremental price as we reduce our backlog. We are deploying Fortune Brands Advantage tools, including complexity reduction to advance our margin progress, and we remain on track to achieve our long-term margin targets. In summary, in 2021, we celebrated 10 years as a public company. We have consistently produced exceptional results while simultaneously investing in key strategic initiatives that will drive the business for the future. We have the team to continue to deliver above-market growth and outperformance, and we'll maintain the discipline, agility, and execution for which we've become known. Our future looks every bit as bright, or brighter, as we look forward to the next 10 years. As noted, the U.S. remains millions of homes short of demand and Fortune Brands is well-positioned to capture an increasing share of that expansion. We will undoubtedly face challenges in the future, just as we have over the past decade. However, in the face of those challenges, our team will do what we do best; leverage our amazing brands, innovation, and operating efficiency to produce products, which enrich the lives of millions while delivering for stakeholders. Our 2022 outlook, which Pat will speak to in greater detail, reflects our confidence in the strength of our markets and business. We expect continued top-line growth driving leverage through the P&L, increasing margins, and creating further value for our stakeholders. Our investment in CapEx outlook is reflective of our burgeoning opportunity set with profitable growth levers to pull at each of our brands. Our balance sheet is strong, and positions us to continue to drive incremental value organically and inorganically. We are very excited for the future. With that, I will turn the call over to Pat, who will speak to our financial results and outlook.

Thanks, Nick. As a reminder, the majority of my comments will focus on income before charges and gains in order to best reflect ongoing business performance. Additionally, all comparisons will be made against the same period last year, unless otherwise noted. Let me start with our fourth quarter and full year results. Sales were $2 billion, up 18%, and consolidated operating income was $264 million, up 7%. Total company operating margin was 13.4%. EPS was $1.32, up 6%. For the full year, sales were $7.7 billion, up 26%, and consolidated operating income was $1.1 billion, up 30%. Total company operating margin improved 50 basis points to 14.6%, and EPS grew 37% to $5.73. Our teams continue to overcome pandemic-related challenges to serve our channel partners and consumers amid a dynamic operating and supply chain environment. These remarkable results are a testament to their commitment. We remain highly focused on driving outperformance, including above-market growth and margin progression. Achieving both in 2021 was an extraordinary accomplishment and positions us to continue doing so in 2022. Our portfolio of innovative and quality brands with leading market positions continues to resonate with homeowners. Our value creation journey is fueled by a strong market and deployment of our Fortune Brands Advantage capabilities, driving incremental investment dollars and increased operating margin. Now let me provide more color on our segment results, beginning with Plumbing. Sales for the fourth quarter were $704 million, up $66 million or 10%, or up 9% adjusted for FX. Fourth quarter growth was driven by U.S. wholesale and strong double-digit growth at the House of ROHL. Importantly, POS remained strong during the quarter, including in retail. For the full year, sales were up over 25%. Plumbing operating income increased 6%, to $147 million in the fourth quarter. Operating income for the full year was $633 million, an increase of 29%. Operating margin was 20.8% for the quarter and 22.9% for the full year. Materials inflation and elevated freight costs continued in the quarter, and we expect price to fully offset inflation around the end of the first quarter. Our Plumbing business continues to outperform expectations, and the team delivered an outstanding year in the face of numerous challenges. We are carrying strong momentum into 2022 for continued above-market growth and strong margins. Turning to Outdoors & Security. Sales for the fourth quarter were $514 million, up $148 million or 40%, driven by the addition of LARSON and double-digit growth in doors, decking, and security. Excluding LARSON, organic growth was 17%. Full year sales were $2 billion, an increase of 44%. Organically, sales increased 15%. We expect this strong growth to continue in 2022, led by Decking and Doors. Door sales benefited from a continued strong new construction environment as sales were up high teens in the fourth quarter and mid-teens for the full year. We expect strong sales growth to continue in 2022. As housing supply remains low, favorable demand fundamentals persist, and new construction completions catch up with orders as supply chain and labor availability constraints ease throughout the year. Decking sales growth exceeded 20% for the quarter and the full year as consumers continue to prioritize outdoor living and increasingly choose advanced composite materials over traditional wood decking. We added incremental capacity in the fourth quarter and we'll continue to increase capacity in 2022 by further optimizing our existing footprint. Additionally, we will begin construction in 2022 on a greenfield expansion to further accelerate our growth. We will phase investment dollars and capacity over a number of years flexing with the pace of expected strong underlying growth. Demand remains strong. We expect Fiberon to grow above 20% in 2022. Security sales momentum continued in the fourth quarter, with low double-digit sales growth contributing to mid-teens growth for the year. North American retail sales remained solid and outperformance in commercial and international, leading to continued above-market growth. 2021 was a strong year for security. We expect growth momentum and incremental margin progress to continue in 2022. Outdoors & Security segment operating income was $82 million during the quarter, up 41%, driven by strong performance across the segment. Operating income for the full year was $305 million, an increase of approximately 49%. Segment operating margin for Outdoors & Security increased 10 basis points for the quarter to 15.9% and was 14.9% for the full year, up 40 basis points. Turning to Cabinets, sales for the fourth quarter were $745 million, an increase of 14%. Full year sales were $2.9 billion, up 16%. Growth was strong in both stock and make-to-order. Operating income in the fourth quarter was $67 million, down 13% or $10 million, and full year operating income was $287 million, up 12% or $31 million. Operating margin was 8.9% for the quarter and 10.1% for the full year. Cabinets margin performance, especially in the second half, was impacted by extreme material and freight inflation ahead of price. Further, labor availability and supply chain challenges resulted in operating inefficiencies and shipments below forecast. We expect labor supply chain effectiveness to improve throughout 2022, and price to start fully offsetting inflation in the middle of the first half of the year. We expect margin progress to reaccelerate in the second quarter and increase throughout the second half of 2022. Turning to the balance sheet. Our balance sheet remains strong with cash of $472 million, net debt of $2.2 billion, and our net debt-to-EBITDA leverage is now 1.7 times. We finished the year with $730 million of total liquidity on our revolver. Our 2021 free cash flow of $518 million includes increased investment in our inventory to service customers and 2022 growth, while our cash conversion of 65% was below our three-year average of around 100%. We expect our conversion rate to improve in 2022 to between 70% and 80%, then to progress higher beyond 2022 when inventory returns to normal levels as supply chains heal. In summary, our teams delivered exceptional 2021 results in the face of numerous challenges. In addition to making 50 basis points of operating margin progress, we continue to invest in the business to accelerate our opportunities for future growth and margin expansion across the portfolio. We are committed to investing further, including in our digital transformation to pursue increasing growth and to better connect with customers and partners in a more meaningful way. Before turning to the details of our outlook for 2022, let me first provide some thoughts on the market backdrop and our approach to creating value regardless of the environment. We believe that strong demand fundamentals in our core markets support a multiyear housing expansion. Still, the challenges of labor availability and supply chain constraints continue in early 2022. Additionally, if Fed rate actions surprise the housing market, it could create near-term distortions to this long-term market strength. We will confront such instances in 2022, as we have the past two years, by aggressively managing our P&L and balance sheet. We will maintain investment in top priority growth and differentiation initiatives, such as in our Fortune Brands Advantage capabilities, and we'll deploy capital with a focus on long-term value creation. With that backdrop, let me discuss the specifics of our 2022 outlook. Based on the global market for our products growing 3% to 5%, with the U.S. housing market growing 4% to 6% and within this market forecast, we expect U.S. new construction growth at/or above 6% to 7%, and U.S. R&R growth at/or above 3% to 5%. Based on those assumptions, we expect full-year sales growth of 5.5% to 7.5%. We expect full-year EPS within the range of $6.35 to $6.55 on a before charges and gains basis, of which the implied midpoint equates to an increase of 13% versus our record 2021 results. This EPS range includes the impact of approximately $0.05 from an additional fiscal week in the fourth quarter at our Plumbing and Outdoors & Security segments. This outlook assumes COVID-driven challenges continue to impact the first half of 2022 in a manner similar to the second half of 2021. We believe underlying demand is greater. If these challenges abate more quickly, this would create upside to our forecast. Better insight to these upside opportunities will unfold during the first half of 2022, and we will refine our guidance as merited. Specifically, our outlook for each business as it relates to our overall guidance, plumbing net sales growth of 5% to 7%, with operating margins around 23%. Outdoors & Security net sales growth of 8% to 10% with segment operating margins around 16.5%. Our Solar Innovations acquisition will not contribute meaningfully to Outdoors & Security income in 2022, as we invest to integrate their product line into our doors offering. Cabinets net sales growth of 4.5% to 6.5% with operating margins of 11% to 12%. We expect 2022 free cash flow of approximately $615 million to $700 million and anticipate a cash conversion rate between 70% and 80%. Our free cash flow forecast includes capital expenditures of $375 million to $425 million, inclusive of growth investments in our Decking, Plumbing, and Doors operations that enhance capacity and capabilities meaningfully. Our balance sheet and cash flow remains strong, and we expect to actively deploy capital for value creation, consistent with our track record. Following our organic investment priorities, M&A and share repurchases remain our other top allocation priorities, with the continued Plumbing & Outdoors & Security focus for M&A. The annual EPS outlook includes the following assumptions: corporate expenses of about $125 million to $135 million, including digital transformation investments of $15 million to $25 million; interest expense of approximately $89 million to $94 million; a tax rate between 24.5% and 25%; average fully diluted shares of approximately $137 million to $138 million. We have put together a strong 2022 plan that builds off two robust years for our housing markets. We anticipate solid sales and double-digit EPS growth, as well as an acceleration of operating margin. As discussed, we expect several of the challenges that governed growth and margins during 2021 to continue into 2022. We have price and cost actions in place to offset inflation. And we expect margins to inflect positively by the second quarter and accelerate through the balance of the year. To be clear, we are in the midst of a long runway of fundamental housing growth, and we expect prolonged market strength for our products. Supply of available housing remains extremely low, and the importance of the home remains top of mind for consumers. We expect our sales to continue outperforming the market and our margin progression to remain accelerated, averaging 70 to 100 basis points in 2022, targeting 75-plus basis points each of the next two to three years. We are excited about the future and thankful for the commitment from all of our associates who contributed to a strong 2021. We are as excited about the next 10 years as we were about the last. I will now pass the call back to Dave to open the call for questions.

Thanks, Pat. That concludes our prepared remarks on the fourth quarter and for the full year. We will now begin taking a limited number of questions. Since there may be a number of you who would like to ask a question, I will ask that you limit your initial questions to two and then reenter the queue to ask additional questions. I will now turn the call back over to the operator to begin the question-and-answer session. Operator, can you open the line for questions? Thank you.

Hey guys. Solid quarter in a challenging backdrop. And Pat, I appreciate you giving us a full year outlook. But wanted to see if you could drill down on the shape of the year, any color on orders, and what your customers are saying since comps are a little tougher to begin the year. And then on a price cost standpoint and margins, how should we think about that cadence through the course of the year and what's embedded in that assumption? Are you assuming inflation kind of levels off, and you effectively have all the pricing you need out there already?

Hey Phil. Good to hear from you. Why don’t I just kick off? I'll answer the first part of your question, what we're seeing from a demand perspective, and then Pat can speak to the shape of the year and some of the assumptions that we've made in our expectations. I'd say demand, as we just indicated, for all 2021 remained robust through the end of the year and remains robust into 2022. And so looking over some of the POS dollars, we're seeing strength through the start of the year, I would say at or slightly above 21%, which had a pretty robust start to the year. Now, we're going to get into some funky comps over the course of the next few quarters. And so we expect some swings and roundabouts, but that fundamental strength that you're seeing persist in demand, both in retail and wholesale, is there. And so that gives us a degree of confidence around the market both from a new construction and repair and remodel perspective.

Yes. I concur with Nick. A lot of good signs from an end market demand perspective in both retail and wholesale. A few things to think about, though, as you think about the shape of the year and where we kind of ended last year because we did have a lot of the inflation come about in the back half of the year. An important note, we do have, I'd say, over 90%, maybe even above 95% of the pricing and cost actions in place to drive the margin profile for 2022. But it will flow from about the second quarter through the back half of the year. So a few important things to appreciate. Last year, 2021, we had about $290 million of inflation, which is about 7.5% of COGS, just a little bit less than that. But 80% of that inflation hit in the back half of the year and 40% of that inflation hit in the fourth quarter. So, we'll come out of the gate in Q1 with a lot of that type of inflation hitting businesses that have the longer supply chains like Plumbing & Security. And so we'll have a margin profile in the first quarter that's a little bit like the margin profile we had in the fourth quarter, like 13%-ish. We're going to be 15 to 15.5%-ish in the second quarter, and then above 16% in the back half of the year. And that's the way the margin profile will play out. And even with strong demand in the first quarter that we're experiencing, I do expect Omicron absenteeism in a broad range of our facilities to keep shipment-based volume in the quarter more like at mid-single-digit sales growth in the first quarter. But as Nick was saying, we feel very good about the year from early signs of demand and from preparation against price and cost. But I do think we'll carry in some of what you saw in the fourth quarter into the first quarter of the year.

Got it. That's really helpful. And just one last one for me, you're guiding to a pretty sharp step-up in CapEx. Can you kind of unpack what's driving that? I mean, you talked about this greenfield facility for decking. Give us some color on how much that deck could unlock and how that kind of ramps up? And any color on that digital investment you've talked about as well in terms of the CapEx for that investment?

I will discuss the numbers related to both topics. Nick may want to provide additional insights, particularly regarding digital. Our capital expenditure profile has been somewhat conservative until around the middle of last year, but due to strong growth since the second half of 2020, we now need to invest to support the immediate growth in front of us and our long-term growth goals. Consequently, we expect elevated capital expenditure in 2022 and 2023, approximately $400 million, with a variance of around $25 million. Of that $400 million, about $200 million will be allocated to decking, and roughly $110 million to $120 million will go towards the initial phases of a new facility in Tennessee. Additionally, around $50 million will be spent on enhancing capacity in our existing facilities through technology that improves throughput in decking. We are also investing in a new facility in the UK for our luxury plumbing brands, which will serve various brands in the EMEA market, along with adding a distribution center for plumbing on the West Coast and expanding our door facility. This level of investment is beyond our usual incremental adjustments and aligns with both our short-term and long-term growth plans, which should yield quick returns. Regarding the new facility, we will roll it out carefully, as it has the potential to become a significant production and volume hub over time, growing in accordance with demand and market conditions. As for the digital transformation, we have been discussing our capabilities for several years now, including strategic sourcing and supplier development. Digital transformation is the next step in this process, and we invested $5 million this year to initiate it. Therefore, 2022 is not starting from scratch. We will be making various investments that will enhance our connected products and e-commerce capabilities while also unlocking data and market insights to help manage supply and demand more effectively. We aim to centralize these investments to leverage our market insights and capabilities across the entire portfolio.

I want to highlight a few key points from what Pat mentioned. Firstly, regarding our capital expenditures, we are pleased to be at a stage where we are investing. We anticipate close to 20% organic growth next year and in our future forecasts. This will not only allow us to serve our customers effectively but also enhance our efficiency. We recently opened a new distribution center focused on retail in Plumbing at the end of the year, and we have seen significant improvements in the supply chain as we begin to operate at more efficient levels. These are indeed the best investments we can make, yielding high returns. As Pat pointed out, we will be prudent in managing the pace of investments, particularly for the new facility, incrementally allocating funds as demand arises, and we are being very cautious about it. On the digital front, I want to reiterate that we have demonstrated our ability to leverage our capabilities across the company over the last few years to drive growth and improve margins, which will further fuel our growth. Digital is the next key component of our Fortune Brands Advantage capabilities. As Pat mentioned, we invested about $5 million in 2021 to pilot various initiatives and are already seeing positive results. For instance, in our e-commerce sector for Plumbing, Cheri Phyfer and her team have led our efforts with a focus on excellence, resulting in significant market share gains and positioning us at the top in just four quarters. This motivates us to continue building these capabilities and demonstrates the impact we can achieve when we commit to them. Moreover, by utilizing mobile and cloud technologies, along with procurement data, we can take advantage of economies of scale to make centralized investments, develop talent, and leverage resources across the entire company to enhance our expected outcomes.

Got it. Super.

Thank you. Good afternoon, everyone. My first question is about growth for 2022. Can you elaborate on how much of that growth will come from volume compared to price, especially since some of the actions taken last year are starting to show results? Additionally, could you discuss how you view a potential change in the rate environment and its implications for housing? Lastly, considering the various products and price points in your portfolio, are there specific areas where we might observe relative gains or potential weaknesses in demand?

Sure, I can provide some insights on that. When we assess our growth expectations, we determine that a significant portion of our pricing is already established for the year. As Pat pointed out, 90% of that is in the market and agreed upon. Therefore, while it requires considerable effort to address backlogs and access that new pricing, this is primarily what will drive our anticipated growth. We are not relying heavily on significant volume increases, and as you've heard from our market outlook, we are taking a conservative approach this year. We will observe how the market evolves in the upcoming quarters. We are also preparing our supply chain and inventory accordingly, as reflected in our cash flow figures, to meet potential demand if it arises, but we're cautious about taking on too much volume growth. Our expectations for volume growth are modest, with price being the main growth factor for 2022, although there is potential for faster acceleration. Regarding demand, we do not see any significant decline; it remains quite stable. It would be simplistic to say we are experiencing strong demand in some areas and weak in others; it has been consistently solid overall. Factors such as demographics, limited housing supply, aging housing stock, and record home equity are all contributing to this stability. Regarding interest rates, they have already increased by about 50 basis points and are around 3.5% for 30-year mortgages, which remain quite a bit lower than they were at the end of 2018, when they were approximately 4.9%. The Mortgage Bankers Association projects rates to reach 4% by year-end, suggesting there is considerable leeway for rates to rise without significantly impacting affordability. A notable present challenge is the extremely low inventory in the market, with a monthly supply of existing homes being only 1.7 times the demand. Should unexpected rate hikes occur that are not well communicated, it could pose a risk. However, if rate changes happen gradually and are clearly conveyed to the market, we believe there is ample room for growth.

Okay. That's very helpful color. Thank you. And then I'm hoping if you can also speak a little bit about the Solar Innovations deal that you announced yesterday. Can you perhaps just give us an overview of the business and talk about what made this attractive for you? And perhaps how this furthers the outdoor segment that you've been growing on and some of the core innovations and focus that you have across the company?

Yes, I'd be delighted to say, we're very excited about Solar Innovation. It's actually a company that we've been coveting for some time and entertaining conversations with their founders. We've done a remarkable job. And it is a very fast-growing segment of the doors market, right? And so it's the big, wide opening doors you think about, particularly in commercial space as you see in the big wall that opens fully. It's about 50% commercial, 50% residential application, and the car of the category has been double-digit for the last three to five years, perhaps even a bit beyond that. Now what's interesting is it's very highly engineered, technology-driven in the sense that there are a lot of patents protecting the technology. And so when I visited, it's kind of amazing, it moved a 2,000-pound door with a finger, right? And you don't just do that. And how the technology works, how the sealing works, and the ability to build the door that’s flush to the ground and have it drained to the outdoors. I mean, all of this is highly technical stuff. And what we see an opportunity is to take that technology and combine it with Therma-Tru, which is the leading exterior door brand. By the way, the number one builder brand in our entire portfolio and really start to lead with some standardized product and embrace this growing segment of the market. And what you really do, then you start to create indoor outdoor spaces, right, open the entire living space to the outdoors, integrate it with the decking products, some of the screening products that we have through LARSON, and really start to create much, much more of an integrated portfolio. So very excited about the ability to access it through this acquisition. The other thing that allows us to do is build on our more nascent commercial capability because this does have a big commercial application. And you might have noticed as well, Fiberon is also getting into some of the commercial space with our Wildwood product, which is some of the cladding phenomenal product and a much better application for exterior siding than wood in that decorative architectural space. And so we're planning on combining all of that to really kind of turbocharge both the commercial space, but also our ability to access this high-end sophisticated area of large opening.

Okay. That’s very helpful color. Thank you, and good luck.

Thanks.

Hi everyone. Good afternoon. Thanks for taking my questions. I guess, maybe starting on margins. If you could talk about what gives you the confidence that margins will start to inflect positively in Q2. I mean, it seems like that maybe was pushed out a little bit here. I mean you're starting to see supply chain improvements? Or is it really simply just starting to lap some of that meaningful cost inflation as you get into mid-year? And then just on that same vein, just on COGS inflation, you talked about the $290 million in 2021. How should we think about the dollar inflation in 2022 that's embedded in guidance?

There are several factors that give us confidence in margins for 2022. Most actions we’ve implemented are already in place, though some will take effect late in Q1 or early in Q2 due to negotiated timing with channel partners or because we are working through our backlog before the new prices kick in. This delay is why the effects are happening later than we initially anticipated. Additionally, some of the inflation we experienced from 2021 was slightly higher than we expected in Q3. By the end of Q1, we expect to be about breakeven on price versus cost, with a positive shift by Q2. We believe our strategic actions are sound, and we've been leveraging our selling, general, and administrative expenses effectively over the past three years. This year, despite investing $85 million in capabilities, we have successfully managed these expenses and plan to do so again next year. Our brands continue to perform well without the need for promotional discounts, which further supports our confidence in both our near-term and long-term margin goals. We need to manage the inflation we’ve experienced this quarter and implement the new pricing for incoming orders. While we are cautious about inflation, many areas have stabilized, including hardwoods and some types of wood board, but overall, we see more stability rather than declines. The rate of new inflation has decreased. Regarding our cost of goods sold, we've seen an increase from $3.9 billion in 2020 to $4.9 billion in 2021, and we're expecting at least a mid-single-digit percentage increase in 2022, which translates to at least $300 million. This amount represents the lower end of our projections, and we are ready to respond if inflation proves to be higher.

Thanks for that. I would like to know if there is still an opportunity for restocking in 2022 across your retail and wholesale customers if demand remains stable and supply improves.

Yes, I might say there's some. It definitely got better over the course of the year. And so, we've been trying to be very strategic about servicing the high-runner SKUs and getting those where consumers need them. So I'd say, it's still behind on kind of C&D SKUs. There's still some of our businesses that frankly had to have customers in allocation all of 2021, and so we do think there's continued restocking in 2022, but we are in a better spot than we were this time a year ago. Thank you.

Thanks.

Hey. Good afternoon, everyone, and thanks for taking my questions. So just wanted to follow up on the prior question. On second quarter margins, being up year-over-year, is this the case for your thoughts on each of the segments? I'm really hoping you can walk us through those? Are any of the segments catching up with inflation a little bit faster, taking a little bit longer than that 2Q timeframe? And then, wanted to dig in a little bit more into what's incorporated into guidance assuming that cost inflation does tick higher from here? Are there any incremental levers that you can pull to offset continued inflation without really impacting guidance?

Yes. I'll touch on a few things. Nick may add. As your first comment on Q2 margins, what I would expect is Q2 margins to be in a similar ZIP code as Q2 of 2021. But recall, Q2 margins in 2021 were quite strong. They were 15.4% in 2021. I mean you would expect a 200-plus basis sequential margin improvement from Q1 2022 to Q2 2022. So, that's where you're going to see it Truman is as we move sequentially from Q1 to Q2, you're going to see a big uptick driven by pricing fully coming into effect. But when you look year-over-year, we had exceptionally strong first half margins in 2021 and in particular, in Q2. I think across the board, you would expect strength in margins across the business, though always remember in plumbing, depending on when we're phasing investments. Plumbing is always going to be dancing around its margin plumbing for the year is around 23%. It might be closer to 22% in the first quarter and then 23%, plus or minus, for the balance of the year. In terms of how we would adjust as the year went on, if different things unfolded. All of our teams, we are pretty darn good at managing the P&L. I think we've kind of had that as a trademark for quite some time. And especially when the downturn hit in Q1, Q2 of 2020, we managed the P&L very effectively on the way down, as well as we have on the way up since. And I'd say the last two years have really gotten all of our businesses into a much tighter cadence on monitoring inbound costs, both materials and freight and labor. And then for better or worse, we're just in a much tighter coordination with our channel partners to be prepared to take price more frequently than would be typical in the building products industry. And that's the capability we will carry forward into 2022, and we will move nimbly throughout 2022 to hold to our guidance. I mean we've tried to anticipate in our guidance, as we mentioned in our prepared remarks, that we're at least for the first half, carrying many of the same dynamics. And we do expect there to be things that unfold throughout the year, but we will manage them effectively and make the margin progress we've signaled.

Okay.

And Truman, I would like to add a few thoughts on your question about margin evolution. It's difficult to overstate the effect that our backlog has had on our ability to pursue margins. If we could simply reprice the backlog, you would have seen strong margins in Q4 because the prices have been agreed upon. However, we are focused on building the business and our channel relationships for the long term. This process takes time as we work to gain and maintain market share. Pat mentioned that as we navigate this, we will see positive results. Regarding your question about potential larger risks, this team's ability to manage and respond to risk swiftly has been commendable. Reflecting on Q2 of 2020, our decremental margin was 12% when everything shut down. This is due to our financial priority of growing at a rate above the market while increasing our margins. Over the past couple of years, we have invested to accelerate both above-market growth and margin expansion. However, in challenging times, we will work to offset costs, adjust prices as necessary, and pace our investments according to the environment. We are committed to delivering for our shareholders regardless of the circumstances, which is something we take great pride in. We see significant opportunities for growth and earnings on the upside, along with various strategies to manage any short-term challenges we might encounter.

Okay, okay. Thanks for that. And then in Plumbing, I believe you all mentioned you grew in the quarter, gained market share. You all have been gaining share in China specifically for the past handful of years. I'm hoping to get an update on the Chinese real estate market, your expectations in 2022. Because I believe last quarter, you all were still expecting growth in China, just seeing if anything's changed there?

Yeah. We did see, I'd say, modest growth in China in Q4. And so the business continues to plug along. And as we look to 2022, we've obviously moderated our expectations as compared to the last few years, but we expect that business to continue to perform. And for a few reasons, I mean one is, you'll recall that our business is really outperformed both upswings and down troughs, largely because we are continuing to innovate and expand into new categories and new channels. And that's really been one of our calling cards of that business. So, for example, we've very successfully launched Moen Smart Sanitary Ware in China. It's been a really good success. We're probably only at a point where two of share in the total market, which is a huge opportunity. And so through that expansion outside of just riding the market of the housing market wave gives us a lot of opportunities. And then the second part is while the government is taking a lot of steps to take to cool the market and take speculative buying out of the market. Now you have seen some easing of that sense, but I think that easing is going to take a while to work through. That hasn't really been our exposure. Recall, we're much more exposed to Tier 1 and Tier 2 cities. Shanghai is our leading share market. And so in a market like that, we're seeing a lot more repair and remodel; people just have to upgrade aging homes. One of the first things that the Chinese consumer touches when they move into a home is the bathroom, done a lot of consumer work there. And so our exposure is a lot more favorable deliberately so, by the way, we've chosen not to chase the speculative and exposure is a lot more favorable than the totality of the Chinese market. So we've created room this year to allow that business to experience slower growth and continue to make investments it needs to make as it continues to grow, but we're confident that we'll work through this year and whatever may throw at us, and then we'll continue to put up the kind of performance we put up over the last few years. And I think this maturation from speculation to more normal regular way growth and on and on, the Chinese market is probably not a bad thing in the long run for a business like ours.