Good morning, ladies and gentlemen. Welcome to Masco Corporation's Fourth Quarter and Full Year 2021 Earnings Call. My name is Renz and I will be your operator for today's call. As a reminder, today's conference call is being recorded for replay purposes. I will now turn the call over to Mr. David Chaika, Vice President, Treasurer and Investor Relations. You may begin.

Thank you, Renz operator, and good morning. Welcome to Masco Corporation's 2021 fourth quarter and full year conference call. With me today are Keith Allman, President and CEO of Masco; and John Sznewajs, Masco's Vice President and Chief Financial Officer. Our fourth quarter earnings release and the presentation slides are available on our website under Investor Relations. Following our remarks, we will open the call for analyst questions. Please limit yourself to one question with one follow-up. If we can't take your question now, please call me directly at (313) 792-5500. Our statements today will include our views about our future performance, which constitute forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements. We described these risks and uncertainties in our risk factors and other disclosures in our Form 10-K and our Form 10-Q that we filed with the Securities and Exchange Commission. Our statements will also include non-GAAP financial metrics. Our references to operating profit and earnings per share will be as adjusted, unless otherwise noted. We reconcile these adjusted metrics to GAAP in our earnings release and presentation slides, which are available on our website under Investor Relations. With that, I'll now turn the call over to Keith.

Thank you, Dave. Good morning, everyone and thank you for joining us today. 2021 was another challenging year, but once again, we've demonstrated the strength and resilience of Masco and our 20,000 employees across the globe. I'll start this morning with some brief comments on our fourth quarter: then I'll turn to our full year results and our view on 2022. Turning to Slide 5, our top line increased 9% in the fourth quarter. This strong growth was led by our paint business, which delivered exceptional results and continued to gain share in both the PRO and DIY markets. Our operating profit declined in the quarter due to higher commodity and freight costs as inflation reached the low double digits. As a reminder, we discussed in our third quarter call that inflation would have the greatest impact on our P&L in terms of price cost lag in the fourth quarter of 2021. Partially offsetting this inflation in the fourth quarter was good expense control as SG&A in dollars was approximately flat, while as a percentage of sales improved 140 basis points. Our earnings per share for the quarter was $0.67. Turning to our segments, Plumbing grew 5% in local currency with 6% growth in North American Plumbing and 3% growth in International Plumbing. North American Plumbing performed well in the quarter as we continued to see good demand for our faucets and shower products, particularly through the e-commerce channel. Our Spa business also continued to see strong demand for its outdoor, wellness-oriented products that have a tremendous appeal to today's homeowners. And International Plumbing, Hansgrohe drove growth in many key markets including China and the UK. In our Decorative Architectural segment, Behr continued its tremendous performance with mid single-digit growth in DIY paint and over 50% growth in PRO paint. We continue to see good demand for both DIY and PRO paint and our operational excellence has enabled us to gain share in this supply-challenged market. Our lighting and bath hardware businesses also contributed to growth and margin expansion in the quarter. Now let's review our full year performance. For the full year, total company sales grew 17% and operating profit increased 11% with an operating margin of 17.4%. Strong volume growth and pricing realization was partially offset by high single-digit inflation, and a return to more normalized investments in marketing and personnel to support our growth. Our Plumbing segment grew an outstanding 22% excluding currency, led by strong growth at Delta, Hansgrohe and Watkins. Our Plumbing business is well positioned to continue to outperform the market with its leading brands, new product introductions, and operational excellence, and enters 2022 with healthy backlogs. In our Decorative Architectural segment, full year growth was 6% against the 12% comp as our business grew mid single digits with DIY down mid single digits and PRO up over 30%. PRO now accounts for approximately 30% of our paint business. Behr enters 2022 with a lot of momentum. Our relationship with our channel partner is extremely strong and we are committed to mutual growth. Our Behr brand was recently named the most trusted paint brand by an independent third-party market research firm. Our PRO paint business continues to gain share in the market and outperform the competition. And our recently launched Dynasty branded paint is performing exceptionally well. And as we exit 2021, we have shelf space in a number of adjacent paint categories such as aerosols, interior stains, and corks and sealants, all of which will help to drive growth in 2022 and further demonstrates the strength of our brand and partnership with our customers. Turning to capital allocation. Our strong cash position and cash generation allowed us to deploy nearly $1.3 billion in capital during the year. We repurchased $1 billion of our stock at an average price of $58.31 per share. This represents approximately 7% of our outstanding shares. We increased our annual dividend 68% and paid approximately $211 million in dividends to shareholders. We completed the acquisition of Steamist for approximately $56 million and we finished the year with over $925 million in cash and net leverage of 1.3 times providing us ample financial flexibility and firepower. Our strong operating profit growth, combined with our significant capital deployment resulted in exceptional financial results. We increased earnings per share by 19% to $3.70 per share. We delivered adjusted free cash flow of approximately $900 million with a conversion rate of 90%, despite an increase in working capital due to inflation and supply chain tightness, and we achieved a return on invested capital of approximately 47%. I want to thank all our 20,000 employees across the globe for their outstanding efforts throughout 2021 to deliver these exceptional results. No summary of 2021 would be complete without mentioning the significant ongoing supply chain and inflation challenges. Once again, I'd like to thank our tremendous suppliers who worked with us through these unprecedented challenges of 2021. As we exited 2021, supply chain challenges have marginally improved. However, shipping delays and labor constraints remain a challenge. We experienced high single-digit inflation overall in 2021 and expect inflation to remain persistent and to increase in 2022 as higher raw material, freight, and labor costs flow through our P&L. Importantly, however, we exited the year on a price-cost neutral basis, except for additional increases in freight logistics that occurred during the fourth quarter. We have initiated actions to cover these additional logistics price costs with price. The price cost impact in Q1 will be significantly improved compared to the fourth quarter of 2021. Now turning to 2022, I'd like to share with you our view of the markets where we compete. For the North American repair and remodel market, we expect the market growth to be in the mid single-digit range. For the paint market, we expect the DIY paint market to grow mid single digits, and the PRO paint market to grow low double digits. And for our international markets, principally Europe, we expect a low single-digit growth environment. These expectations across all markets include significant price increases. The repair and remodel market remained strong and leading home improvement indicators are robust. Home price appreciation was 18% in December, and existing home sales increased over 8% compared to the prior year. Each of these metrics has a strong correlation with our sales on a like-lagged basis. Based on these assumptions, and our expectation that we will continue to gain share and outperform the market, we anticipate Masco's growth to be in the range of approximately 4% to 8% excluding currency for 2022. We expect margins to expand modestly to approximately 17.5%, despite a significant margin headwind from pricing to recover costs and normalization of investments in the business as we continue to grow. Turning to capital allocation, our strategy remains unchanged. First and foremost, we will invest in our business to meet the current and future demand for our products. As we announced last quarter, we are expanding our production capability in Europe with a new faucet and shower plant for Hansgrohe. Additionally, we are adding manufacturing and distribution capacity to our Spa and Paint businesses to support our strong growth. These investments will likely increase our capital expenditures to just above our normal level of approximately 2% to 2.5% of sales on average, keeping in mind that CapEx was only about 1.5% in 2021. In terms of returning cash to shareholders, based on the strength of our business model and cash generation capabilities, our Board declared a quarterly dividend of $0.28 per share, a 19% increase, which would bring our annual dividend to $1.12 per share in 2022. We'll deploy our free cash flow after dividends to share repurchases or acquisitions. Based on our strong liquidity position, and our projected free cash flow, we expect to deploy at least $600 million to share repurchases or acquisitions in 2022. Lastly, there is no change to our M&A strategy. We continue to review and selectively pursue opportunities that have the right strategic fit and the right return for Masco. With our expected operating profit growth, strong pricing to recover costs, and continued capital deployment, we anticipate earnings per share to be in the range of $4.10 to $4.30 per share, representing a 14% growth at the midpoint. Now, I'll turn the call over to John to go over the fourth quarter, full year, and 2022 outlook in more detail.

Thank you, Keith, and good morning everyone. As Dave mentioned, my comments today will focus on adjusted performance, excluding the impact of rationalization and other one-time items. Turning to Slide 8, demand for our industry-leading brands remained robust. We delivered a strong finish to the year of sales increasing 9% in the quarter against the healthy 13% comp in the fourth quarter of last year. Net acquisitions and divestitures contributed 2% to growth and currency had a minimal impact. In local currency, North American sales increased 11% or 7%, excluding acquisitions. Our team's outstanding execution drove strong growth in both DIY and PRO paint, as well as faucets, showers, and spas. In local currency, international sales increased 3% or 5%, excluding acquisitions and divestitures, and gross margin of 30.7% was impacted by higher commodity and logistics costs in the quarter. As we discussed on our third-quarter call, the price cost in 2021 had an impact on our P&L in the fourth quarter. Our SG&A as a percentage of sales improved 140 basis points to 17.6% as we continued to drive cost containment activities across our business. Operating profit in the fourth quarter was $265 million, with an operating margin of 13.1% and EPS was $0.67. Turning to the full year 2021, sales increased 17% over the prior year. Net acquisitions and divestitures contributed 3% to growth, and currency contributed another 1%. In local currency, North American sales increased 14% and international sales increased 21%. Our SG&A as a percent of sales decreased 100 basis points to 16.9%. Operating profit increased to $148 million, or 11%, and operating margin of 17.4%. Lastly, our EPS increased 19% to $3.70. I want to thank our employees across the globe for their hard work, dedication, and commitment to safety that enabled us to achieve these outstanding results in another challenging year. Turning to Slide 9, Plumbing growth was 5% against a strong 14% comp during the fourth quarter of last year. Net acquisitions and divestitures contributed 3% to this growth and currency had a minimal impact. North American sales increased 6% in local currency and were 1% excluding acquisitions. This performance was aided by Delta's continued strength in their growing e-commerce channel and increased selling prices. Watkins Wellness was also a significant contributor to growth as they continued to experience strong demand for their industry-leading spas. International plumbing sales increased 3% in local currency, or 5%, excluding net acquisitions and divestitures. Hansgrohe grew sales in many of their key markets, including China and the UK. Segment operating profit in the fourth quarter was $156 million and operating margins were 12.7%. As we discussed on our third-quarter call, operating profit was impacted by an unfavorable price-cost relationship along with creative marketing and personnel expenses as we continued to invest to grow our Plumbing businesses. Turning to the full year 2021, Plumbing sales increased an outstanding 24%. Net acquisitions and divestitures contributed 4% of this growth, and currency contributed another 2%. In local currency, North American plumbing sales grew 22% or 17%, excluding acquisitions. International plumbing sales increased 21% or 22%, excluding net acquisitions and divestitures. Full-year operating profit was $931 million dollars, up $180 million or 15% and operating margin of 18.1%. Turning to Slide 10, Decorative Architectural sales increased 15% for the fourth quarter, or 14%, excluding acquisitions. Our DIY paint business grew mid single digits in the quarter against the high teens comp in the fourth quarter of last year. Our PRO paint business grew more than 50% in the quarter driven by strong professional paint demand and operational execution, resulting in share gains. We expect PRO paint demand to remain strong as contractors continue to see growing demand for their services. We also anticipate increasing our penetration with the PRO by continuing to invest along with our partner, the Home Depot, to new services and programs to retain and grow the PRO customer. Our business hardware and lighting businesses also contributed to the segment's overall growth in the quarter. Operating profit was $132 million in the quarter, up $23 million, or 21%, with margins expanding 80 basis points to 16.6%. This performance was driven by higher net selling prices, improved results in our lighting business, incremental volume, and cost productivity initiatives, partially offset by higher commodity costs. Turning to the full year 2021, sales increased 6% driven by exceptional performance of our DIY and PRO paint businesses. The teams did an outstanding job at effectively managing through numerous supply chain constraints throughout the year to deliver for our customers and gained share in the paint market. Full year operating income increased $41 million or 7% with margins expanding 20 basis points to 19.4%. Turning to Slide 11, our year-end balance sheet is strong with net debt-to-EBITDA at 1.3 times. We ended the quarter with approximately $1.9 billion of balance sheet liquidity, which includes full availability of our $1 billion revolver. Working capital as a percent of sales was 16%. With our strong operating performance and lower than normal CapEx, adjusted free cash flow was nearly $900 million, representing 90% of adjusted net income. This is a strong result when considering the significant impact of inflation and supply chain disruptions on our working capital investment throughout the year. Finally, during 2021, we repurchased more than 17.6 million shares for over $1 billion. We increased our annual dividend by 68%. Now, let's turn to Slide 12 and review our outlook for 2022. For Masco overall, we expect sales growth in the range of 4% to 8%, excluding foreign currency, with operating margins of 17.5%. Operating profit will be unfavorably impacted in the first half of the year as we experience the impact of a more normalized level of growth investments as compared to the first half of 2021. For our Plumbing segment, we expect 2022 sales growth to be in the range of 3% to 7%, excluding foreign currency. Given current exchange rates, foreign currency is expected to unfavorably impact Plumbing revenue by approximately 2% or $90 million. We anticipate full year plumbing margins will expand to approximately 19%. Margins in the first half of 2022, particularly in the first quarter, will be impacted by higher year-over-year marketing and personnel expenses as we comp against our strong margins in the first half of 2021. For Decorative Architectural segment, we expect 2022 sales to grow in the range of 6% to 10%. Looking specifically at peak growth for 2022, we currently anticipate our DIY business to increase in the high single digits, and our PRO business to increase in mid-teens. We anticipate full year Decorative Architectural margins to be approximately 18%. As we have previously discussed, in this segment, pricing actions typically only recover the dollar amount of the inflation. As a result, all else equal, operating profit dollars remain neutral from cost recovery pricing actions result in margin compression. During 2022 we also anticipate increased investment in this segment for marketing and new products that will drive future growth. Finally, as Keith mentioned earlier, our 2022 EPS estimate of $4.10 to $4.30 represents a 14% EPS growth at the midpoint of the range. This assumes a $240 million average diluted share count for the year. Additional modeling assumptions for 2022 can be found on Slide 15 in our earnings deck. With that, I'll now turn the call back over to Keith.

Thank you, John. 2021 was another dynamic year. We navigated it well and delivered exceptional results. As we enter 2022, we are poised to continue this trend of proven execution. Masco's focused business model of low ticket, repair and remodel products, with market-leading brands and products and geographic diversification, provides growth and stability through cycles. We leverage our consumer insights, broad channel relationships, scale, diversification, and our Masco operating system to drive innovation and make our businesses better. The repair and remodel industry is an attractive industry with favorable long-term fundamentals. Growth on average is approximately GDP plus 1% to 2%. Cyclical factors, such as home price appreciation and existing home turnover, have a high correlation with repair and remodel activity. Structural factors, such as demographics, the age of the housing stock, and how consumers view their homes can also drive increased repair and remodel activity. We are on the leading edge of the large millennial cohort forming households and entering the housing market. 2.7 million more homes will reach the prime remodeling ages of 20 to 39 years old over the next three years. And the COVID-19 pandemic has clearly increased the desire for more enjoyable living spaces, which has led to increased home demand and remodeling expenditures. All of these structural forces provide tailwinds for our business. As we previously outlined, our long-term outlook is comprised of above-market organic growth in the range of 3% to 5% annually. Growth from acquisitions in the range of 1% to 3%, margin expansion each year through cost productivity and volume leverage, and continued capital deployment in the form of share buybacks should contribute approximately 2% to 4% to EPS growth. Together, we expect this to result in EPS growth of at least 10% per year through cycles, plus dividend returns of approximately 1% to 2%. With favorable fundamentals, and our continued focus on executing our growth strategy, together with our strong free cash flow and capital deployment, we are positioned to continue to drive shareholder value creation for the long term. With that, we'll now open up the call for questions and answers.

Thank you. Our first question comes from the line of Kenneth Zener from Keybanc Capital Markets. Your line is now open.

Good morning, everybody.

Good morning, Ken.

Good morning, Ken.

You guys obviously talked about cost pressure, but if we could really just narrow in on architectural paint where you have PPI ops in the low teens. Obviously, there's some percentage of COGS there. But can you expand a little bit, given the inflationary environment we're in, talk to the dynamic between units and price to the extent you feel comfortable, given the inflation, I think it's warranted? But can you also help us understand, right, with so much price there, it seems like volume might not be high and you're actually getting pretty good margins because other manufacturers have faced a lot of pressure because of the absence of volume. It doesn't seem like that's such an issue with you, but if you could discuss that dynamic in that business a little more, I think we all would appreciate it?

Yes Ken, let me take a crack at the price and volume part of the question, and maybe John can contribute as I go through this. Without a doubt, price was a healthy contributor to the growth in the quarter. As we and many others implemented price to offset, as you mentioned, the significant raw material inflation that we've experienced and frankly continue to feel, after a volume decline, let's say in Q3 for the segment, volume has increased in Q4. And we expect that trend to continue into 2022, despite tough comps that we've had from 2021. So I will point out, however, and we've mentioned this consistently, that when we get priced typically, we get price to cover the cost increase of the baskets in terms of dollar impact. So that does represent some margin headwind for us this year, and we will continue to experience that. So we put price into the market and have covered our costs. We expect some margin headwinds, so that's consistent with what we've talked about. However, we are seeing some volume improvement, and we expect that to continue to occur.

And then Ken, the only thing I would add to Keith's comments are kind of two with respect to the performance and specifically in the fourth quarter, one specifically for the fourth quarter, and then one in 2022. So if you look at the margin expansion that we experienced in the fourth quarter, a good chunk of that is attributable to the improved performance of Kichler during the quarter. They improved significantly compared to the results in the fourth quarter of last year. And maybe just one another comment to emphasize what Keith said about 2022 for paint, we continued to experience inflation and we think we're going to experience further inflation here in 2022 as paint as well will continue to inflate. And so, we'll have to continue to work through those challenges as we go through 2022, but we feel confident in our position.

I appreciate that. And I guess sticking with paint, it doesn't sound like you've had as much material constraints, perhaps as the industry. And if that's the case, obviously, you have great relationships with your suppliers, but the flip side of that is, can you really expand? You've had such success in the PRO category, can you just give us a better sense of why it is not just supply access that's giving you the share gain expand on your confidence, in your success today if you would on that PRO paint and you've obviously cracked that enough there, I believe. Thank you.

It's been tough without a doubt and there's, you know, there's no one single thing I would point to, there's really several. As I talked in the past, I think we have an outstanding research and development department in our coatings business that has been able to work through challenges as it relates to changes in inbound supply and being able to take on different suppliers. We have a tremendous supply base, and those companies that we have long-term relationships with, have done phenomenal things for us and continue to do phenomenal things. So I can't thank our supply chain enough. And then of course, the folks in our company that have really worked incredibly hard and really put good thinking into how to manage through this crisis. And it hasn't been without its challenges. I mean, we're far from perfect, but we've done pretty well. I think we've at the end of the day demonstrated operational excellence and what the Masco operating system can do these past couple of quarters. And it's afforded us the opportunity to get more of our paint into more professionals' hands and when that happens, it's good for us. As I said, we've recently been awarded again, some nice accolades around service. You're well aware of the awards that we've received in terms of our quality, and our net promoter scores and our experience, et cetera. So we have a very good product and it's been beneficial for us to be able to leverage our supply chain excellence and our supply base and our people to get more people to try it. And as I said, when pros try it, they tend to like it. And it's we're up against tough competition, there's no question about it, but I'm very confident in our outlook of mid-teens growth in PRO paint for 2022.

Thank you.

Thank you. Our next question is from the line of Michael Rehaut with J.P. Morgan. Please go ahead.

Thank you. Good morning, everyone, and congratulations on the results. I have a couple of questions to get a better understanding of the growth throughout the year, particularly regarding the Plumbing segment margins. You've experienced a few quarters of year-over-year margin declines. Should we expect that trend to continue, at least in the first quarter? Additionally, can you provide any insights on the top line growth considering the challenging comparisons in the first half?

Yes, Mike it's John. I mean, I'll take a crack at this and Keith feel free to jump in. So, if you think about margins for 2022 like compared to 2021, just given the strong comps that we faced in the first half of the year, and from the fact that the way inflation rolled out through 2021, with it not really impacting the P&L too much in the first half of the year and being much more significant impact to our P&L in the back half of the year. But that leads us to believe that that is if we go into ’22, you kind of see a mirror image of 2021, meaning that a little bit more margin pressure in the first half year as we recover costs to offset the inflation, but then as we lapped the inflation and going to the back half of the year, we should see margins expanding in the back half of the year. In terms of top line cadence, I think it’s fairly balanced through the year, not a significant difference between first half, second half of the year, Mike, and it feels pretty straightforward at this point. So, we like where we’re positioned. As Keith mentioned in the prepared remarks, we’re seeing good growth both domestically and internationally. So, we would feel good about where Plumbing is positioned in here, expects margin expansion in 2022.

Yes, Mike, I think in terms of overall market growth and what we're expecting for North America, as I talked, we’re looking at mid-single digits, and that's including price, and then in our international market is probably in that low single digit type of growth environment and our expectation is to outperform those.

Mike one, just one last piece, we do think that our margins bottomed out in Q4 and then we should see sequential improvement in Plumbing margins as we go into Q1.

Thank you, that was very helpful. I appreciate it. I have a question about PRO paint. The last two quarters have shown impressive results, and you're forecasting double-digit growth for 2022. I noticed a competitor has added PRO paint to Home Depot alongside your offerings. Could you discuss how that announcement affects your situation, particularly at Home Depot or in general? I'm interested in understanding why you're still expecting strong growth rates, especially if it relates to market share and product availability, which have been beneficial for you recently. Will that continue in the coming quarters? Also, could you touch on any broader competitive dynamics regarding PRO paint? Thank you.

Yes, Mike I’ll start. The recent announcement doesn’t change our strategy or outlook in any way. Our relationship with our channel partners is extremely strong, really hasn’t ever been better. We're committed to mutual growth. We have significant discussions around our strategy and how we’re now going to continue to drive that together. So, the relationship is really strong. We're not losing any shelf space. The recent news is mainly switching out of some other products in the aisle, not replacing ours, so it's not a shelf space issue. So we’re confident in our paint business for the reasons that we talked about. When you have the best quality, and the best brand, and the best service, and the ability through your supply chain to get it into more hands and that’s a good sales pitch for us, and we have an outstanding sales force out there. So that, plus the fundamentals of the market, both cyclical and structural, give us plenty of reasons to feel very good about our paint business. And then additionally we want some shelf space in adjacent categories as well which further demonstrates the strength of our quality and our brand and what the consumer thinks about it. Things like, as I mentioned, the aerosol, interior stains, corks, and sealants and stuff like that. So there's plenty of reasons to feel good about our paint business and we do.

Okay, thank you.

Thank you. Our next question is from the line of Adam with Zelman & Associates. Please go ahead.

Hey, thanks for taking my question, everyone. Just on the inflation piece, I know you mentioned it was up low double digits in the fourth quarter. What are you assuming in your 2022 guidance and maybe by segment, would be helpful?

Sure, let me take a crack at that, Adam. Overall, I think that inflation for 2021 was kind of high single digits. As we look into 2022, we expect the impact to be up modestly from 2021. It could be low double digits in the first half of the year. That said, if we specifically look at paint, we do think it could ramp up to 20% for the first part of 2022, so the first half of 2022. So, we are expecting this inflation to continue at least in the first part of the year.

Got it thanks and then just and you talked about Kichler driving the margin expansion Decorative overall, if we just isolate paint are those margins down year-over-year in the fourth quarter?

No, paint margins were not down year-over-year.

Got it. Thank you.

Thank you. Our next question is from the line of Mike Dahl with RBC Capital Markets. Your line is now open.

Thanks for taking my questions. I wanted to stick with paint. Keith, in the opening remarks you made a comment about having some wins and getting some shelf space in aerosol, stains, corks. Wondering if you could give us any sort of sense of magnitude of what the impacts from those will be within your guidance from a top line standpoint? And that when we think about margin impacts, I know you said a couple times now on paint keeping in mind that it's dollar cost not margin neutral on inflation, but wondering whether these adjacencies are comparable margins or should we think about the margin profile a little bit differently and if that’s having an impact?

What I'm most excited about what these additional spaces that we're getting into is it really highlights the strength of the Behr brand, and it really serves as more of a billboard for us in the aisle and builds momentum with regard to the overall brand. Honestly, in terms of the overall size of these wins, at least for now, compared to our overall paint business, it's not that big of a win, and I'm not going to get into the specific margin breakdowns of it. In terms of the price-cost relationship as it relates to price recovery for costs only, not getting margin on that, just to kind of give you a little bit of back of the envelope math, a 5% increase in cost where we recover only the cost but not the margin equates to about 100 basis points of margin erosion. So that gives you a flavor for the kind of challenges we're looking at in the dynamics that we have. The new wins, they're not that large compared to the overall segment now, but I think very positive for us for the reasons I mentioned.

Okay, great, yes that makes sense, thanks. My second question is on the investment side, it sounds like there’s a step up in both Plumbing and décor, when we think about investments whether it's personnel or other investments around marketing. Can you help us get and kind of quantify from year-on-year standpoint how those investments look by segment?

Yes, Mike on that one, it’s just the continuation of putting some of the investment back into the business that pulled back on during 2020. So, in terms of the actual dollars of investments, it's modest in terms of the ongoing investment as we talked for 2021 and we're looking to put about $40 million back into the business. Most of that is going to be in the Plumbing segment, and I’d say, we made progress along those lines. I'd say the dollar amount, we saw some room to go in terms of investment as we go into 2022, but I wouldn't say it's significant from here.

Yes, we are closely monitoring these investments to ensure we are receiving appropriate returns. We are not looking to simply raise our SG&A back to historical levels. In 2022, while we are increasing our spending, our SG&A as a percentage of sales should remain around 17%. Regarding capacity, we typically allocate between 2% and 2.5% of revenue for CapEx, and we have been on the lower end of that range for several years. In the coming years, we will likely approach the higher end. The major projects we announced are expected to come online around 2023, but our primary focus for capital allocation is reinvesting in our business. This strategy provides the best return, is the least risky, and gives us the most confidence. These capital investments will be spread out over the next few years, and as mentioned, should position us toward the higher end of the range for a couple of years.

All right, thanks Keith. Thanks, John.

Thank you. The next one we have from the line of John Lovallo with UBS. Please go ahead.

Good morning guys and thank you for taking my questions. The first one, just to dovetail off of Mike's, when would you anticipate reaching that sort of normalized SG&A run rate? And the investments that you're speaking of, just to be clear, are they contemplated in that $40 million or is there incremental on top of that?

Hey John, that's not additional on top of it. I would estimate that we will likely reach that run rate in the latter half of the year. We will also be careful in how we invest as we evaluate demand for 2022.

Okay, got it. That’s helpful. And then with the Watkins backlog coming in, which is very strong at the end of the year, how should we sort of think of the potential benefit to the plumbing margin with that backlog flowing through?

I think, I'd point you to our overall guide for the Plumbing right around that 18%.

Yes, John, when you consider the plumbing segment, I would say it's more accurate to say closer to 19% rather than 18%. I anticipate that the volume will remain robust throughout the year, contributing consistently to achieving that 19% margin. However, I don't expect it to exceed that significantly due to the strength of the backlogs.

Got it. Thank you.

Thank you. The next one, we have the line of Susan Maklari with Goldman Sachs. Your line is now open.

Thank you. Good morning everyone. My first question is, can you just give us some color across the business of where inventories sit as you come into this year and recognizing that you don't oftentimes have extended backlogs in most of these operations, but any commentary on the backlog? And your thoughts on the ability to sort of catch up the share as the supply chains continue to improve?

We've made a little bit of improvement, but I'd say, Susan, it's a mixed bag. If you look across the different products, the channels and geographies, I would say generally speaking, that we're still a little bit light, so that might represent a little bit of tailwind for us. But really, we're getting back fairly close to where we want to be, but there's a little bit of upside, I would say.

Okay, all right, that’s helpful. And then as we think about the longer-term trajectory of the businesses, especially in terms of the margins, can you talk a little bit about where you think the business can continue to go over time? It feels like we are sitting with certainly a stronger housing backdrop over the longer term as we go through. You're obviously doing a lot of initiatives around new products, those kinds of company-specific efforts. How do we think about what that will mean for you over time and where things can go?

I would first note that the past couple of years have been unusual, particularly with significant inflation this year and the initial austerity measures taken at the start of the pandemic to maintain liquidity. This was followed by a noticeable spike in demand, as people's perceptions of their homes changed during the pandemic, influencing their willingness to invest in them. It has indeed been a strange couple of years. Looking ahead, our margins are decent, but our goal is to enhance them further. This improvement will be gradual rather than in large increments. We anticipate a decline in base volume of 25% to 30%, and we will continue to invest in growth, even when these investments precede the growth we hope to achieve. As we consider the competitive landscape and the value of our current offerings, we are focused on making slight advancements in our margins as we progress.

Okay, that’s helpful. Thank you and good luck.

Thank you.

Thank you. The next one, we have the line of Phil Ng with Jefferies. Please go ahead.

Hey guys. John, you were really trying to give us some color on how to think about the margin progression on Plumbing. Any handholding on the DAP segment, appreciating you're probably seeing a lot more inflation to start the year? And when we look out to 2023, assuming inflation kind of stays steady and then not pull back, is there an opportunity to kind of get that back to that 19% range over time?

As we evaluate the Decorative Architectural segment for the year, there are a few points to note. First, looking back at our progress in 2021, we encountered significant challenges in the second quarter due to the Texas freeze impacts from Q1 of last year. This influenced our Q2 results. For 2022, compared to 2021, I anticipate stronger growth in the first half of the year in comparison to the latter half. This is mainly due to the pricing adjustments we implemented in 2021 and the relatively softer comparisons we had in the second quarter of 2022. Concerning margin progression for 2022, it’s important to remember that, as we recover from inflation costs, it will affect our margins. Therefore, we expect to see some margin compression, which we have been transparent about, and we don’t foresee significant improvements as we move through the year. The first half may face more impact than the second half, depending on inflation trends. Despite this, we remain confident in achieving an 18% margin. Looking at the fourth quarter, we noticed some margin compression on the paint side due to the price-cost recovery actions discussed earlier.

Phil, I would tell you that this is not a static environment. I think we certainly have a view of where the overall inflation is going to be, and we based our plans on that, and we have the commitment to price/cost neutrality and we've demonstrated the ability to get that and all those things, but it's not static. I mean, as John alluded to in the fourth quarter, we had high teens raw material inflation back in the fourth quarter. And we think that's going to be in the mid-20%, still to come here in the first quarter of 2022. So there are some moving parts here, and we need to continue to work through them.

Yes, that's fair. I mean a lot of inflation, so you're managing through that. When we think about rate hikes, certainly seeing a lot of volatility in the equity markets, Keith you think your business should be a little more insulated? Curious how you're thinking about that impacting your business? And any way to kind of parse out your sales guidance for the full year, how much is price versus volumes?

Yes, you hit the nail on the head. So we have made significant changes and by design have reduced the cyclicality of Masco, less cyclical, more resilient, less distance peak to trough, less time, peak to peak. So that is really what we've changed and built the portfolio for. So we believe and it's demonstrated that the R&R market is more correlated with home price appreciation, existing home turnover, and consumer confidence and the like versus interest rates, particularly with many repair and remodel projects not financed with mortgage debt. So we believe that, that dynamic alone provides some pretty good insulation from concerns about rates, but then there's the structural factors. And you think about the demographics and the number of homes, you think back to that 2002 to 2006 time period when we were building 1.9, 2.0 million kind of homes, those are now starting to age to that juicy age of 16 to 20 years where significant remodeling occurs. So that structural aspect and the COVID impact in terms of how people are viewing their house, plus the millennial cohort coming in, as I talked about. So we feel that through our designed work on the portfolio and what that portfolio now depends on in terms of the consumer rather than interest rates that we're in pretty good shape.

Any color on parsing out price versus volumes?

Yes, Phil, I'd say both will contribute to growth, I'd say in this inflationary environment in 2022.

But we still are looking at volume across both segments, but yes, as John said, price will be the majority of it.

Okay, thank you. I really appreciate the color guys.

Thank you. The next one we have the line of Stephen Kim with Evercore ISI. Your line is now open.

Yes, thanks so much, I appreciate it. I just want to clean up a couple of things here. One thing in paint, I believe you mentioned sequentially by comps here, I just want to make sure that I was understanding that if $1 million impairment to goodwill and then I was just wondering what that was related to?

Sure, Stephen, in terms of inflation, you're right, yes, we do expect additional placement from here. We are continuing to see inputs, both titanium dioxide and resins continue to inflate as we enter 2022. So we do expect that to be continuing to increase in 2022. As it relates to the goodwill impairment charge that we took out was related to Kichler. While Kichler has enjoyed improved performance in 2021 and returned to growth and actually had some nice, both productivity and profit improvement in the year. But as a result of the inflation that impacted the business, both initially starting in 2019 with the tariffs evolved then in 2021 with what took place with the inflation and how it overall impacted the business, we made the determination that it was appropriate to lower the carrying value of the business and took the noncash charge in the fourth quarter. This said, we like how the team has performed. We like how the business is standing today. And so we feel much better about how this business is positioned.

Okay. Is there any goodwill remaining in Kichler at this point?

There's a small amount of goodwill that's remaining, Stephen.

Okay great. You mentioned the cadence of sales and backlog, and I'm curious about the top line, especially in Plumbing. When we analyze your growth in light of the pandemic's year-over-year fluctuations, it seems the fourth quarter could see a significant year-over-year increase on a multi-year basis. However, there is also some normal seasonality in that sector. I understand you indicated there might be some unpredictability in sales growth, particularly in Q2. Is there similar variability in plumbing? Should we expect that organic sales growth will remain relatively stable throughout the year?

It should be pretty stable throughout the year with maybe a little bit better in the back half of the year, Stephen. But I don't think there's anything new, there's not a meaningful driver to make a huge distinction between the first half and second half.

Okay, that’s helpful. Okay, thanks very much.

Thank you. The next one we have the line of Garik Shmois with Loop Capital. Please go ahead.

Hi, thanks for taking my question. Apologies for the short-term focused question here first, but just wondering if you're seeing any pronounced absenteeism related to COVID and if there's any production inefficiencies that impacted 4Q or could impact 1Q?

Yes, we are still facing challenges with that. In the latter half of the year, the Omicron variant has caused an increase in absenteeism, which aligns with what is being observed across the country. We are experiencing higher absenteeism in our factories, and this is also affecting our supply base, continuing to pose a challenge. Recent data suggests that the situation may be improving, but we will have to wait and see. Our expectation is that this level of absenteeism will persist, and we need to find the best ways to manage it. It is definitely an ongoing challenge.

Garik, that was more of a Q1 comment than a Q4 comment.

Okay, great, thanks for the clarification. Follow-up question is on pricing. You talked about putting through pricing to offset some recent transportation costs. You also talked about increasing inflation, particularly in paint. I'm just wondering if your guidance assumes the need for additional pricing from here or does that assume all the pricing actions that you already put through are going to be enough to drive the margins in your outlook?

Yes. What we're observing, especially with ongoing inflation, indicates that while we have implemented significant pricing adjustments so far, we anticipate the necessity for additional pricing actions as we move into 2022.

I see. Thank you very much.

Thank you. We have time for one last question, and it would be from Eric Bosshard with Cleveland Research. Your line is open.

Thank you. Curious in the Plumbing segment, the North American growth was slower in 4Q than I think we've seen in what was a strong year. Just curious in that business in 4Q and into 1Q, what you're seeing go on in terms of consumer demand or channel fill or product mix specifically in that business?

Yes, it continues to remain strong. Our incoming order rate, our backlogs are solid. And importantly, we have not seen, if you will, a trade down in the mix as it relates to a reaction to the significant price that us and others have put into the markets. So where we sit right now, it's pretty stable.

Great, thank you. That’s all I had.

Thank you for your continued interest in Masco and joining us on the call this morning. That concludes today's call.

This concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day.