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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
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. [Operator Instructions]
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. Please turn to Slide 6. 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 2020 [ph] 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 Pink 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 [ph] paint is performing exceptionally well. And as we exit 2021, we have one 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 fire power.
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, as 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 propane 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. 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 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 cost 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. John?
Thank you, Keith and good morning everyone. And 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, price cost in 2021 had 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 strengthen 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 a $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 pain 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 anticipating 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 increase 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 yearend 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 high single digits, and our PRO business to increase 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 results 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 14% EPS growth at the midpoint of the range. This assumes a $240 million average diluted share count for the year. Additional modelling 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 $75 million millennial cohort forming households and entering the housing market. 2.7 million more homes will reach the prime remodelling 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 remodelling 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. [Operator Instructions] Our first question comes from the line of Kenneth Zener [Keybanc Capital Markets]. Your line is now open.
Good morning, everybody.
Good morning, Ken.
Good morning, Ken.
You guys obviously talked of cost pressure, but if we could really just narrow in on architectural, paint where you have PPI ops in the low teens, obviously it's -- 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, it's -- 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 there's 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 as you know, 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 experienced 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.
Right. 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 supplier, 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 it's, you know, there's no one single thing I would point to, there's really several. There's, 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 the long-term and I'm talking 20 plus years relationship 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 and they are and throughout our businesses that have really worked incredibly hard and really put good thinking to how to manage through this crisis. And it hasn't been without its challenges. I mean, it's -- we're far from perfect, but we've done pretty well. I think we've -- at the end of the day, we've 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.
Thanks. Good morning, everyone and congrats on the results. One or two, first question just to get a sense of, and I'm sorry if you've covered this earlier, the cadence, give any type of sense for the cadence throughout the year from a marginal growth -- sales growth perspective and specifically, I’m thinking about the Plumbing segment margins, and you've had a couple of quarters now of year-over-year margin declines, not sure if we should be thinking that that might continue at least in the first quarter and any comments around top line cadence given the tougher comps 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 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 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.
Okay thanks. That's very helpful guys. I appreciate it. Maybe secondly, a question on PRO paint, obviously, the last two quarters have been extremely impressive and you're now forecasting for double digit growth in 2022. Obviously, you had an announcement by a competitor adding PRO paint to Home Depot in addition to yours, was just hoping maybe just to talk, I know you probably don't like to talk about competitor's directly, but to the extent that you can kind of frame how that announcement impacts your own dynamics, either at Home Depot or just more broadly, and why you’re still expecting this stronger rate of growth if it has to do more with a game plan of that -- the market share and product availability that you've been able to, that’s been favourable for you for the last couple quarters, if that's going to continue for the next couple of quarters, and any kind of broader competitive dynamics on the PRO paint side? 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 in 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 [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 do you 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 [indiscernible] 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 flavour 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, from a -- in terms of the actual dollars of investments, its 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're keeping a close eye, Mike, on these investments as we have in the back end to make sure we're getting the return for them. So it's not like we're keen on just simply jumping up our SG&A back to historical levels. I would think about in 2022, while we're increasing in the spend area our SG&A as a percent of sales we should still hover around that 17%.
In terms of capacity, you talked about -- I think you asked a little bit about where that investment is going. Our CapEx typically averages between 2% and 2.5% of revenue. We've been on the lower end of that for a number of years. For the next couple of years, we'll probably be on the high side of that range. The large projects that we announced as they come online will have capacity for us probably in that 2023 time period, but we've always said that our number one capital allocation priority is to reinvest in our business. That's the best return we get. It's the least risky and it's one we have the most confidence in. So it's -- these will be -- these capital investments will be spaced over the next coming years, and as I said, should put us towards 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, no, that's not incremental on top of it. I'd say we'd probably be on that run rate probably in the back half of the year. And we're just going to still be -- we're going to meter that investment in as we see how demand shapes up 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, as you look at that business, I would say that the Plumbing, yes maybe to correct your point closer to 19% than 18%. And I would expect that volume if you look at that business, just given the strength of it will flow through pretty consistently through the year. So it's going to be a contributor to us achieving that 19% margin, but it's to -- I'd say there's no -- it's not going to drive us well north of that just given that strength of those 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 overtime? 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'd first point to the last couple of years and say these have been some strange times, obviously, with fairly significant inflation this year with the COVID initial austerity program where we really cut back at the beginning of the pandemic to keep a sharp eye on liquidity to a very much a spike in demand, if you will, or where people over time throughout the pandemic had a different view of where -- what their home meant to them and what they were willing to invest in their home and how they wanted that to look and feel. So it has been a strange past couple of years for sure to stating the obvious.
As we look forward in the business, our margins are pretty good, but our mantra is to continue to improve them. And that improvement will not come in hundreds of basis points chunks. It will come in rather modest improvements over time. But fundamentally, we have a drop down in that 25% to 30% on the base volume and then we're going to continue to invest for growth. And in some cases, those investments, like we've talked about in the past, come ahead of the growth, and we earn our way into that.
So as we think about the competitive forces, we think about the value of our drop down, we think about the need to improve -- invest incrementally in future growth, we're committed to slight margin expansion as we move through the years.
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?
Phil, as we look at the Decorative Architectural segment for the year, I'll tell you a couple of things. One, obviously, as you look at the cadence of our progression in 2021, obviously we faced some pretty significant headwind in the second quarter, just given the challenges from the Texas freeze in Q1 of last year and so that impacted our Q2. But as you think about, both our top line and our bottom line for 2022 as compared to 2021, I think you're going to see better growth in the first half of the year than in the back half of the year, largely that's due to some of the pricing that we put in during 2021 as well as the relatively soft comp that we had in the second quarter of 2022.
As you think about the margin progression for 2022, again, recall that in some of the comments that both Keith and I made about, as we recover the dollar cost of the inflation, it's going to impact margin. And so with that segment, I would expect to see -- we really talk very openly about the margin compression, and we really don't see that really getting much better as we go through the year. I mean, I think it'd probably be more of a first half weighted will probably be more impacted than the back half, all depending on where inflation goes. So that's how we're seeing it now with -- we're very confident though in the 18% margin. And as we think about the fourth quarter, we probably did see a little bit of margin compression on the paint side, just given that price cost recovery action that we talked about 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, 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 the 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. And then you were -- you walked through the cadence, I think in sales in backlog and I was just wondering, related to the top line, particularly in Plumbing, when we kind of look at your growth trying to cut through the pandemic year-over-year gyrations, it looks like your fourth quarter could on a multiple year stack basis, could have a pretty nice year-over-year increase, but there's also some normal seasonality in that business, too. So just kind of curious, you kind of made the case that in there would be a little bit of chunkiness I think, in terms of the sales growth, it looks like, particularly in Q2. Is there anything like that in plumbing? And should we think that the sales growth organic will be pretty 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 first half, 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're still struggling with that. And I would say, towards the back half of the year with the Omicron variant, that has increased and fairly typical of what the rest of the country is seeing. But we are seeing elevated absenteeism in our factories, and it's happening in our supply base as well, so that remains an ongoing challenge. I just looked at some recent data, and it appears that it's starting to wane, but we'll see. I think our approach -- I know that our approach is that this, expect this type of absenteeism to continue, and we've got to figure out ways to best manage it, but yes, it's an ongoing challenge, there's no question.
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 is going to be enough to drive the margins in your outlook?
Yes. I mean, Garik, what we're seeing, particularly with some of the inflation that continues. It looks like we'll need to -- I mean we've put in a lot of price to date, but we likely foresee the need for further pricing actions as we go 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.