Good day and thank you for standing by and welcome to the H.B. Fuller quarter four 2021 earnings conference call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ms. Barbara Doyle, Vice President of Investor Relations. Ma'am, please go ahead.

Thank you, operator. Welcome to H.B. Fuller's fourth quarter and fiscal year 2021 earnings call for the fiscal quarter ended November 27, 2021. Our speakers are Jim Owens, H.B. Fuller President and Chief Executive Officer, and John Corkrean, Executive Vice President and Chief Financial Officer. After our prepared remarks, we will take your questions. Please let me cover a few items before I turn the call over to Jim. First, a reminder that our comments today will include references to organic revenue, which excludes the impact of foreign currency translation on our revenues. We will also refer to adjusted non-GAAP financial measures during this call. These measures are in addition to the GAAP results reported in our earnings release and in our Forms 10-Q and 10-K. We believe that discussion of these measures is useful to investors to assist their understanding of our operating performance and how our results compare with other companies. Reconciliation of non-GAAP measures to the nearest GAAP measure is included in our earnings release. Unless otherwise specified, discussion of sales and revenue refers to organic revenues and discussion of EPS, margins, or EBITDA refers to adjusted non-GAAP measures. We will also be making forward-looking statements during this call. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Many of these risks and uncertainties are and will be exacerbated by COVID-19 and resulting deterioration of the global business and economic environment. Actual results could differ materially from these expectations due to factors discussed in our earnings release, comments made during the call, or risk factors in our Forms 10-K and 10-Q filed with the SEC and available on our website at investors.hbfuller.com. Now, I will turn the call over to Mr. Jim Owens.

Thank you, Barbara, and welcome to everyone joining the call this morning. Last evening, H.B. Fuller reported strong fourth quarter results, including 15% year-over-year revenue growth, $134 million of EBITDA at the high end of our guidance, and $1.09 of adjusted EPS. Organic revenue was up 15% versus 2020 and increased 20% compared with the pre-COVID fourth quarter of 2019. We had double-digit organic revenue growth in all three segments as a result of our innovation efforts, pricing strategies, and service levels. We also saw significant margin recovery, with gross margin up 340 basis points versus the third quarter as a result of decisive pricing actions taken during the year. And we continued to pay down debt in the quarter to substantially reduce our debt to EBITDA ratio to 3.3 times from 4.1 times a year ago. We delivered on our commitments in the quarter as we have all year, despite a rise in virtually every cost associated with serving our customers and unprecedented supply chain challenges. Our global team of 6,500 employees again demonstrated outstanding operational execution in this environment. At the beginning of 2021, we set three operating priorities: volume growth, pricing to value, and improved productivity and operational capacity. We delivered on all three of these priorities throughout the year. Volumes are up, productivity has improved, and in the fourth quarter, we saw significant benefits from our strategic pricing actions. We took swift actions early and throughout the year as persistent inflation impacted our raw materials. And in the fourth quarter, our pricing actions enabled us to catch up with material inflation and restore our margins. In 2021, we implemented over $450 million of annualized price adjustments, overcoming the annualized value of raw material cost inflation. While inflation and supply chain management have been important drivers of the results this year, it's the overall strategy, the culture, and the organizational capability that we built that is enabling the company's success. Our strategy is to deliver innovative adhesive solutions to customers faster than our competition, to collaborate effectively within our technical teams and with our global suppliers, to solve challenges and serve customers first and fastest, and to do that while consistently demonstrating H.B. Fuller's values and principles as a great place to work. It is this culture and strategy that is enabling our success. Our ability to execute today is a result of the organization we built and designed over the last several years. In 2019, we reorganized into three global business units centered on 30 end-markets, each focused on the needs of customers within that segment. We invested in our supply chain and manufacturing systems to promote flexibility, and we streamlined the organization, better aligning all employees with our strategic objectives. Because of these actions, our agility, speed to market, and operational efficiency have increased and enabled us to successfully navigate widespread inflationary pressures, shipping disruptions, raw material shortages, and numerous COVID-related impacts. Shortages still persist for many specialty chemical raw materials, plastic and metal packaging, and shipping containers, but we continue to effectively leverage our global footprint and our sourcing capabilities to deliver for our customers. Most importantly, we continue to capture new opportunities and gain share across end-markets by delivering innovative adhesive solutions to meet new consumer needs and greater demand for sustainable goods. In construction, high demand for H.B. Fuller's roofing adhesives led the way to a 29% increase in this segment's sales over the fourth quarter last year, as we helped customers deal with labor shortages. Our innovative sprayable bonding roofing solutions increase installation speed with more efficiency and are approved for use in all VOC-regulated markets. Our new-level setting products, ready-to-use grouts, mortars, and pressure-sensitive adhesive products enable new flooring to be installed more quickly and more reliably. In 2021, we won significant new business in engineering adhesives with our solutions in support of sustainable markets, including electric vehicles, energy-efficient insulated glass, automotive electronics, and solar panels. And in hygiene, health, and consumable adhesives, we are delivering innovation to meet increasing demand for more efficient and environmentally friendly packaging. In 2021, we launched new adhesives that decompose with no residue or microplastics while at the same time managing demand spikes, supply chain delays, and raw material shortages to deliver record levels of adhesives for our customers. Now let me move on to slide four to discuss fourth quarter segment performance in a little more detail. Strong performance continued in our hygiene, health, and consumables segment, where organic revenues increased by 13% year-over-year, with double-digit growth in most of our end markets and very strong results in packaging applications, tapes and labels, tissue and towel, and health and beauty. HHC organic revenues also increased 18% versus the pre-COVID fourth quarter of 2019, demonstrating strong underlying consumer demand and share gains. HHC segment EBITDA margin of 13.6% reflected the absorption of significantly higher raw material costs as well as increased variable compensation compared with last year, offset by strong pricing. EBITDA margin was up 160 basis points sequentially versus the third quarter, as strong pricing gains are driving higher margins as we exit the year. Construction adhesives had an extremely strong quarter, with organic revenues up over 29% versus the prior year and up 31% compared with Q4 of 2019. Year-over-year performance improvements in all three construction end markets were driven by volume growth associated with improving market conditions and share gains, as well as outstanding pricing execution. Construction adhesives EBITDA margin of 16.3% increased significantly year-over-year, up by 390 basis points. CA's EBITDA margin also improved by 390 basis points over the third quarter of this year, driven by volume leverage and pricing gains. The construction adhesives team drove extensive operational improvements in 2021. They have met strong demand in an extremely challenging environment, and the business is positioned with strong momentum as we enter 2022. Engineering adhesives delivered another strong quarter of results. Organic revenue increased 13% year-on-year, led by strong double-digit growth in new energy, recreational vehicles, insulated glass, woodworking, technical textiles, and footwear. Engineering adhesives EBITDA margin remained strong at over 15% and up slightly versus Q3 on strong pricing execution, offset by higher raw material costs and higher variable compensation expense. Looking ahead to 2022, we will pursue continued growth opportunities and share gains in a business environment where we believe that underlying demand remains strong and that cost inflation will persist. We anticipate the continued solid demand for hygiene and health products, packaging, paper tissues, and towels will continue into 2022. And we anticipate construction adhesives end markets will show strong improvements for the first half of 2022, with commercial activity improving throughout the year and residential activity remaining solid. And we believe that engineering adhesives end market demand will also remain strong, given a backlog of consumer demand for electronics, vehicles, and durable goods. In total, our base case planning assumptions are for organic growth in the low teens, driven by pricing and modest volume growth. Our current outlook is for raw material costs to continue to increase in 2022 versus the fourth quarter 2021 exit rate. The inflation we are seeing in Q1 is sizable, though less than the fourth quarter of 2021. We expect the raw material increases to be broad-based across the businesses and relatively consistent by region, with Asia showing less inflation to start the year than EMEA and the Americas. We will continue to price for value and will remain vigilant regarding raw material inflation. We have over $100 million in pricing actions taking effect in Q1, and we will take whatever pricing actions are necessary in 2022 to fully offset raw material cost increases and enable us to restore margins. Against a challenging economic backdrop, our performance in 2020 and in 2021 demonstrated that our business is diverse and resilient, our operations are nimble, and we are executing our strategy well. And we expect to continue to outperform our end markets again in 2022 as we face the challenges ahead. Now let me turn the call over to John Corkrean to review our fourth quarter results and our expectations for 2022 in more detail based on our planning assumptions.

Thanks, Jim. I will begin on slide five with some additional financial details on the fourth quarter. For the quarter, revenue was up 15.4% versus the same period last year. Currency had a positive impact of 0.5%. Adjusting for currency, organic revenue was up 14.9%, with volume up 1.4% and pricing having a favorable impact of 13.5% year-on-year in the quarter. Adjusted gross profit margin was 27.1%, down 40 basis points versus last year as pricing more than offset raw material increases from a dollar standpoint in the quarter, but not from a margin standpoint. However, gross profit margin was up 340 basis points versus the third quarter of this year, driven by pricing execution. Adjusted selling, general, and administrative expense was up year-on-year, reflecting higher travel and other investments to support growth, as well as higher variable compensation related to the company's strong fiscal 2021 performance. For the full year, adjusted SG&A as a percentage of revenue was 17.2%, down by 130 basis points versus 2020. Adjusted EBITDA for the quarter of $134 million was up 9% versus last year and at the high end of our planning assumptions for the quarter, reflecting strong top-line performance, driven by good pricing execution and construction adhesives market share gains. Adjusted earnings per share were $1.09, up versus the fourth quarter of 2020, despite a higher tax rate in Q4 2021, which drove a negative year-on-year impact of about $0.10 per share. Our results for the full fiscal year were also very strong. Full-year organic revenues grew 15% versus fiscal 2020. Adjusted EBITDA increased by 15% year-on-year and adjusted EPS was up 22%. For the year, cash flow from operations continued to be strong, while absorbing higher working capital requirements to support the significant sales growth and higher raw material costs throughout 2021. And we continued to reduce debt in the quarter, paying off about $40 million of debt, driving our net debt to EBITDA to 3.3 times as of the end of the year. With that, let me now turn to our guidance for the 2022 fiscal year. Based on what we know today, we anticipate full-year double-digit organic revenue growth in the range of 10% to 15%, and we estimate that currency will have a negative impact on revenue of about 2% to 3%. We expect adjusted EBITDA to be between $515 million and $535 million, representing a 10% to 15% year-on-year increase, as pricing leverage and operational efficiencies more than offset higher raw material costs. We expect our 2022 core tax rate to be between 27% and 29% compared to our 2021 core tax rate of about 27%. We expect full-year interest expense to be between $65 million and $70 million, and the average diluted share count to be about 55 million shares. These assumptions would result in full-year adjusted earnings per share in the range of $4 to $4.25. All of this guidance reflects the fact that H.B. Fuller will have one additional reporting week in fiscal 2022 compared to 2021. We estimate that the extra week will have a favorable impact on full-year revenues of approximately 2% compared with full-year 2021 and a favorable impact on full-year EBITDA of approximately $8 million to $10 million versus 2021, all occurring in the fourth quarter. Taking the extra week into consideration, as well as the typical seasonality of the business, we expect to realize 20% to 21% of full-year EBITDA dollars in the first quarter. Now let me turn the call back over to Jim to wrap us up.

Thank you, John. After we reported strong fiscal 2020 results a year ago, I said that investors should continue to expect differentiated performance from H.B. Fuller. I can say confidently today that we have demonstrated this in 2021. Significant volume growth, rigorous execution of our price-to-value strategy, and greater productivity and operational capacity enabled us to deliver a record level of revenue, volume, and profit performance in 2021. In 2022, we are positioned to again deliver double-digit organic revenue growth and nearly 20% EPS growth as we build upon the momentum we created in the last couple of years. 2020 demonstrated the resiliency of our diversified portfolio of market-leading solutions in difficult end market conditions. While 2021 showcased our ability to grow faster than our competitors and seize growth opportunities through our agile customer-centered collaborative business model. Full year 2021 organic revenue increased by 15%, led by 10% volume growth and strong contributions from pricing. Full year EBITDA dollars also increased 15% as we mitigated bottom-line impacts from the extreme raw material inflation. Our momentum accelerated in the fourth quarter as margins expanded, which positions us well for another strong year in 2022. In 2021, we also continued to increase the share of high-value adhesives in our portfolio. We did this by pursuing and winning high-growth opportunities, including new wins in electric vehicles, sustainable buildings, compostable packaging, e-commerce packaging, solar panel sealants, and new medical adhesives. These wins exemplify the innovation that has driven the strategic repositioning of our portfolio over the last decade towards specialized, higher-margin adhesive solutions. In 2010, we were a $1.3 billion company with a sizable portion of our sales in nonspecified applications. In 2021, we are a $3.3 billion company with less than 10% of our sales in nonspecified applications. Growth in specialized adhesive products in our portfolio has driven compounded double-digit growth in EBITDA dollars and a significant EBITDA margin improvement over that time period. In 2022, we will continue to invest in innovation and organically expand our portfolio of specialized adhesive applications. And where appropriate, we will also make inorganic investments. We have a strong track record of acquisitions and are viewed as a sought-after buyer within the industry, given our scale and proven integration strategy. While we have an improved balance sheet and an exciting pipeline of opportunities, we will remain disciplined buyers and committed to our strategic balance sheet target of debt-to-EBITDA below three times. Let me close by thanking our shareholders for their continued confidence in our company. 2021 was a remarkable year with enormously complex global supply issues and volatile inflationary headwinds. And H.B. Fuller lived up to the challenge. We served our customers, supported our employees, and delivered consistently for our shareholders under an exceptional business environment. We have made tremendous strides in our business over the last decade, and we accelerated our performance in 2021 with double-digit top and bottom line growth. 2022 is positioned to be another record year for H.B. Fuller, with both the top and bottom line projected to grow double digits again. Our company strategy and our execution capability is leading to year-over-year growth and margin expansion, which has us well positioned to continue this performance beyond 2022 into the years ahead. This concludes our prepared remarks today. Operator, please open the call so we can take some questions.

We have the first question from Vincent Anderson of Stifel. Your line is now open. You may ask your question.

Thanks and good morning.

Good morning, Vincent.

So I want to start off on construction. You gave a lot of detail, but I wanted to dig into maybe just a little bit more. I mean, one, that growth was pretty unseasonable. And you led with a discussion of your new sprayable roofing product, which you talked about last year. Was there anything to think about with regards to timing of sales and maybe that product specifically? And then I noticed that you said the strength was also very broad-based and you didn't call out mix in the margin improvement. So I am just trying to parse out where the new product fits in all of that and if there are any timing considerations to that strength?

Yes. I think, in all of our businesses, but construction, it shows up in the number there is the innovations behind our growth are a really important part of looking at our story. So I would say, it's not the majority of that growth. We had growth broad based across our business, but certainly in that new product. We invested in some technology that we actually purchased last year. We put in some capacity early this year, allowed us to meet what's a growing demand, right. The strategy we have put in place across all of our construction adhesive markets is to deal with the labor shortage. So finding products that allow our customers to use less labor, do the jobs faster. So it wasn't some sort of short-term blip. There's a lot of momentum in that business. And I think I have talked about the fact that just coming into the pandemic, we started seeing really good momentum both on the top and bottom line in that business. And that first quarter of 2020, there's a lot of things up and down. Certainly, there's better underlying demand, but we were at a trade show this week. Our team there is hearing from customer after customer about what a great job we are doing on the supply chain issue, supplying them what they need. So I think it's a combination of the supply chain and the innovations. And I would say, I have been saying it for a couple of quarters that you are going to be pleased with what we see in construction and I think that's going to prove to be true in 2022 as well.

All right. Thank you. And then just kind of quickly at a high level, can you talk about what you are seeing in Asian demand right now, particularly with how some of your higher-margin businesses have outsized exposure in China are performing?

Yes, China is still growing, but at a much slower rate. You would have just about every quarter asked me the question, which region is your highest growth. I would have said China, China, China. Now it's probably our lowest growth, right. So it's still growth. But if you look at the last, let's say, well, even December, January, November, slower. Slower growth than we are seeing in some other parts of the world. And a couple of factors there, right. There's the export phenomenon and certainly COVID-related slowdowns and some of the energy policies that were put in place in China. And I think everyone does expect, and given what we hear from customers, we expect an uptick here later in the year. But right now, it's a little slower in China.

Okay. And just a quick point of clarification. It's a broad-based China slowdown. It's nothing specific to the products you have focused there?

It's broad-based in China, yes. So I would say across. In EA, we have got pretty diverse business across auto, solar, or other markets that just broad-based like the rest of our business. And we don't have a CA position. And then our HHC business in China is, again, growing, just not growing at as high rates as the other businesses.

Okay. All right. Thank you. And then just a really quick one on something a bit smaller. But I see on your website, you have some products in electronically conductive adhesives. I am just curious how important that business is today to your overall strategy in electronics? And is that also an area where you are focused on additional growth?

Yes. It’s a great specific question. Most of our business is not electronic conductive adhesives, but we do have some and we see it as a good opportunity for us. We have built a very substantial electronic adhesives business by solving customers' problems faster than competitors. They are giving us these challenges. Our teams are tackling them well. But most of our products are nonconductive and it's a small area of our business today. I would say the thermally conductive area, especially with electric vehicles, is a growing part of our portfolio and growth strategy, less on electrical conductive.

Okay. Excellent. I appreciate it. Good luck on the year.

Thanks, Vincent.

Thank you. We have the next question come from the line of Jeff Zekauskas from JPMorgan. Your line is now open. You may ask your question.

Thanks very much. I think your original target was to lower debt by, I don't know, $200 million this year, and maybe you got to $120 million, maybe because working capital demands were so high. Can you talk about that? And do you have leverage targets for next year?

Yes. I think we actually did $157 million or $156 million, Jeff, this year. And I think if you dig into the balance sheet, you will see the real difference this year versus last year was inventory build. So I think as we have made some strategic decisions late in the year, both the need to deal with the fact that raw materials were more expensive but also make certain that we supply customers resulted in inventory buildup. So we adjusted our planning as we exited the year. So that's the reason why you see a difference between the numbers. Overall, given the higher EBITDA, we met some of our debt-to-EBITDA targets because we over-delivered what we expected from a bottom-line standpoint, and the 3.3 was really the kind of range we were targeting to exit this year. And so we are pretty pleased with the debt-to-EBITDA ratio exiting the year. As far as next year is concerned, I think if you look just organically at our plan, we would be below 3.0, as I mentioned in the script. We are willing to do smaller acquisitions. There are a number of opportunities in there. So if none of those come to fruition, you will see us below 3. I think you should expect us, if we do some deals, to be between three and 3.5 exiting this year. But we are committed long-term certainly to bring that into that 2.5 to three range is where we would like to be in the long run and operate within that consistently.

It looks like your demand really softened in the fourth quarter, maybe health and hygiene and engineering adhesives demand was down. What happened? Was it you didn't have enough raw materials or the order pattern was different? And in your guide for next year, you talk about sales growth. What do you think your volume growth is? And if you can talk about the individual segments, what's going on?

Yes. Well, first off, overall volume was very strong, as you pointed out, driven by construction. So the volume growth in EA and HHC was not as strong as it has been all year. But I think you have to look at what we are comparing to, Jeff, right. Q4 of last year was very strong. So if you take our volume in Q4 this year compared to Q4 of 2019 in those two businesses, still up sizably. So as a company, I think we were up 9% for the full year and 7% in volume in Q4. If you look at those two businesses, you would see some sort of similar ratio comparing it. So there was this big uptick in Q4 of last year that met the demand. But there is a supply chain that's a challenge right now, are received in full on time. So the materials we get from suppliers have been below 50%. Our suppliers are either short or late with their material. So we could have sold more. And I would say you can see in some of our end markets, whether it's chip shortages or other issues with customers, there's some issues customers are dealing with. So for all those reasons, even though there's a lot of pent-up demand we have projected low volume growth in 2022. So I think I said in the script low single digits. That's what we have built into our plans. I think there's a potential for that to be a lot larger next year, but that's what we have built our plan on. John, is there anything you want to add to that?

No. I think Jeff asked about by business segment, I would say it's probably pretty similar by business segment. We have had a little stronger volume opportunity in construction, given the momentum they have built.

So, I mean, you are going to go up against strong comparisons in the first half of next year. So are your volumes going to shrink in engineering and health and hygiene for the first couple of quarters?

No. Certainly not based on what we see today, Jeff. We see volume growth throughout the year. We see volume growth in each one of the businesses. And we are one month into the year. We see a good start. Certainly, there's a COVID effect that happened over Christmas in the first week of January with customers, but we already see that starting to abate certainly here in this country. So no, we don't see a volume decline in 2022, at least not at this point. But it's early and 2020 and 2021 showed us that our crystal balls aren't great. I will tell you, Jeff, we are very focused on delivering significant bottom-line performance this year. And given the organic growth on the pricing, you will see a lot of top-line growth in all kinds of different situations as we go through the year.

And Jim, maybe lastly for John. In the funds flow statement, there's an other cash inflow for the year of $108 million. What is that? And in your income statement, you have got an other income of, I don't know, $33 million versus $15 million, at least on a GAAP basis year-over-year. What are those two numbers? And what are they next year?

So the impact you are seeing on that other line in the cash flow statement is really offset in the other assets line, not completely, but you will see a big negative. So it's really the way that some of our swaps are revalued. And then so you really kind of have offsetting impacts in two different parts of the cash flow statement. The other income that you see and we have mentioned this before in our calls was the fact we had higher pension income in 2021 versus 2020 based on strong asset returns. So the number you will see in 2022 will be very similar to 2021, maybe slightly lower.

Okay. Great. Thank you so much.

Sure.

Thank you, Jeff.

Thank you. We have the next question come from the line of Ghansham Panjabi of Baird. Your line is now open. You may ask your question.

Hi guys. Good morning. Congrats on a very, very strong year. Good morning, Jim and John and Barbara.

Good morning, Ghansham. Thank you.

I guess on the EA segment, maybe you could just touch on the impact from any incremental supply chain bottlenecks? I mean, clearly, there's been all sorts of issues propagated also by Omicron more recently. What are you seeing on a real-time basis specific to this segment? And then your customers in HHC are also instituting quite significant price increases just as you are raising prices and others. How should we think about any impact of elasticity rolling down to you?

Yes. So yes, on EA, I think there are two questions. In the quarter, definitely, we saw some impact from things like chip production, right, that you have certain products that can't be produced and a little bit of a slowdown in China that affected their growth in the quarter. So they would have had more growth if their customers could have met some of the demand that's out there. And you see that in supply chains across all of the durable goods markets that we have. And then as far as the Omicron, as I mentioned earlier, what we have really seen is a bit of an impact that feels like it's even coming back already. So it's a one to two-week phenomenon around Christmas. We saw a very strong December, a couple of weeks where we were looking at things a little slower and then things are picking up here as we exit the month. So we will see where the world turns, but that's our impact so far along with the slowdown I mentioned in China. But not a fundamental shift, right, here in Q1 versus Q2. We see continued strong overall revenue progression. As far as price elasticity, I think the consumer goods people have needed a price increase for a while, and they are getting hit from a lot of different directions. I think, as you point out, what they are doing in the market is sticking. So I think overall, we have been a very reliable supplier in tough times, both in 2020, if you remember, there are some crazy spikes that happened, and in 2021 as the supply chain issues. So all of that served us well and as I mentioned, for us, being the innovator on the next project, the next opportunity is really important and we are winning those. So yes, so the ongoing inflation and as I mentioned, we are raising prices again here in Q1 with some pockets and some exceptions, is not impacting our volume and our position with consumer goods companies.

Got it. And then for my second question, I also have a follow-up, is the time line, what do you think is a realistic timeline for construction EBITDA margins to inflect higher? I think it's been down for obvious reasons on the raw material side since the second quarter of fiscal year 2021? And then also on the inventories, I mean, I understand what you are saying, but it's still up 40% year-over-year. So what do you think is realistic in terms of timeline to see a normalization of inventories? Or are we just in a paradigm where you are going to carry higher inventories than you have historically?

Yes. So on the first question, we have seen some inflection here this last quarter, right. I mean, I think I have made it clear that our goal is to improve our margins up to the levels we had and we committed to do that in Q3, and we saw some good progression here in Q4. And that's our goal as we go forward. It's always going to be a struggle, right. As I mentioned, we got sizable inflation here. So I am raising prices over $100 million this quarter. But as you are pushing maybe at or a little more than where raws are, you don't get good inflation. It's when the raws flatten or start to come down that you will see really good expansion of our margins. And if you can tell me when that's happened, I will tell you when my margins are going up. But right now, we are responding to this inflation, I think, very effectively. We are anticipating it and making the moves not after things happen, but before or as things happen. So yes, some margin progression throughout this year, and then when raws start to flatten out or come down, very sizable margin expansion. And then to your question around working capital, we reduced working capital as a percentage of sales by 110 basis points. So we are looking at all elements of our working capital to make certain that we manage our cash effectively. I am pretty proud of how we manage working capital overall. And that's been something we have been doing every year. So we are now down to 17.2% of revenue. Specifically on inventory, I think if you look, there's about $120 million increase in inventory at the end of the year, $110 million. Half of that is simply inflation. So it's the inflated cost of our goods that we purchase and our products. And then the other half is us building inventories for various reasons across our businesses. So we are not going to pull off of that. We think it's an important part of enabling us to serve our customers. And I think as supply chain stabilizes, we could go back to normal levels of inventory. But we are planning to have an elevated number this year and, of course, the inflation impact. So inventory will be a use of cash and not as much probably this year as it was last year, but it will be a use of cash in 2022.

Okay. And just final clarification. The low single-digit growth guidance that you gave for volumes, does that exclude the extra week or is that inclusive of the extra week? Thanks.

Excludes the extra week.

Thanks and good morning, Jim, John, and Barbara. Just wanted to go back to the incremental margin question. So what's the right way to think about incremental margins in 2022 for the three segments? Which segment do you think you could see the highest incremental margin maybe, let me ask it that way?

Yes. So I will talk broadly and then John can talk about 2022 because there's a lot of moving parts in 2022, especially given the nature of the pricing and the price that we delivered that's going to annualize into 2022. But broadly speaking, our EA and HHC businesses have the higher overall incremental margins. And I think we have typically said those are between 30% to 35%, and the HHC businesses are a little lower.

Yes. That's right. And I think Paretosh, I would say we will probably see similar margins in HHC and EA in 2022. And I think there's some opportunity probably for some expansion in CA. It's the smallest of the three, obviously.

Got it. That's very useful. And then maybe also if you could just recap, I think you have given several of these numbers, but if you could just recap where we will be in terms of closing the price-cost gap at the end of Q1 after this most recent round of price hikes?

Yes. So exiting the year, we have got more price than we had raw materials. And our expectation is out of Q1 that we will expand that again. So our goal each quarter is to have more price than there is raw materials. Now, we do have other inflationary effects in the business that we are trying to overcome as well, but that's what we are delivering and we are doing it ahead of the game.

Got it. And the last one. This 27% to 29% tax rate, is that a good number for cash taxes as well? Or would those be lower?

That's a good number for cash taxes overall, Paretosh.

Thanks, guys.

Thank you. There are no further questions at this time. I would now like to turn the call over back to Mr. Jim Owens. Sir?

Thanks. Thanks to all of our investors for your support in 2020 and 2021. We are very excited about what's coming ahead for all of us in 2022. Have a good day, everyone.

Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect.