馬斯科 (MAS) 2011 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Masco Corporation 2011 fourth-quarter conference call. As a reminder, today's conference is being recorded and simultaneously webcast. If you have not received the press release and supplemental information, they are available on Masco's website, along with today's slide presentation under the Investor Relations section at www.Masco.com.

Before we begin management's presentation, the Company wants to caution you that written and oral statements made in this presentation, that reflect the Company's views about its future performance, constitute forward-looking statements. The Company's actual results may differ materially from the results discussed in the forward-looking statements, and you are cautioned against relying on them. The Company's future performance may be affected by factors discussed in the Company's risk factors contained in the Form 10-K and its 10-Qs, and in other filings the Company makes with the Securities and Exchange Commission. The Company also directs your attention to the note at the end of the earnings release, which contains a cautionary reminder about non-GAAP financial measures.

After a brief discussion by management, the call will be opened for analyst questions. If we are unable to get to your question during the conference, please call the Masco Corporation Investor Relations office at 313-792-5500. I would now like to turn the conference over to Mr. Timothy Wadhams, President and Chief Executive Officer of Masco. Mr. Wadhams, please go ahead, sir.

Thank you, Chelan, and thank all of you for joining us today for Masco's fourth-quarter 2011 earnings call. I'm joined by John Sznewajs, our CFO, and if you would please flip to slide number 3. 2011 continued to be a challenging environment. We didn't see any lift in North American housing until very late in the year. Europe continued to be unsettled from an economic standpoint, again, particularly in the second part of the year.

And we saw a mix shift in both of our major markets, less favorable. Commodity cost pressures were an issue for us. We ended the year with about $35 million of unfavorable relationship between price and commodities, and the retail environment continued to be very competitive. A lot of promotional activity. And while we had some businesses that performed very well, overall our financial performance in 2011 was disappointing. We didn't get the improvement we anticipated in certain areas, and that was disappointing to us.

If you flip to slide number 4, talk about some of our key financial data for the year. On a full-year basis our sales were flat. In the fourth quarter, we were up 1%, and to add a little color to that, our sales to key retail customers in the fourth quarter were down low single digits, and if you adjust for some of the products that we're exiting in cabinets, we would have been up low single digits. That's pretty much the same performance that we had in the third quarter. And from a trend standpoint, for us, October was down slightly, but November, December we started to see a little bit of improvement. We were up 3% in both of those months, compared to the prior year, and as we head into 2012, we've got some nice momentum. We're up mid single digits in January and that has continued into February.

In terms of earnings per share, gross margins, operating profit, we adjust those amounts to normalize them for rationalization charges and other items, and those reconciliations are in the back of the appendix, but for the full year, we were down $0.21 on an adjusted basis in terms of earnings per share. We were also off $114 million in terms of operating profit, again, on an adjusted basis, and $114 million at a 36% tax rate happens to be exactly $0.21. We think about that in three big buckets. Mix for us in 2011 was negative to the tune of about $45 million.

Price commodity relationships, as I mentioned earlier, were unfavorable, to approximately $35 million. And we had under-absorbed overhead related to the product exits, the exit of the ready-to-assemble products in cabinets of about $15 million. In the fourth quarter, our operating profit was down $6 million from last year and that's a $0.01 and our earnings per share were a $0.01 worse than last year and again, mix was the big issue in the fourth quarter. Mix was negative for us in the amount of about $19 million.

Working capital was a plus. We continue to do a good job of managing our working capital. We were down to 12.2% when you take receivables plus inventories less payables, and my sense is that's probably an all-time Masco record. So our folks are doing a great job across the enterprise in terms of managing working capital. Cash flow was relatively weak for us at $71 million, this is free cash flow after CapEx and before dividend, and we had pretty significant swing in terms of deferred income taxes from year to year which really had a significant impact there. From a balance sheet standpoint, we ended the year with $1.7 billion of cash, so we're in a very good position from a liquidity standpoint.

You flip to slide number 5, please, and while the environment was tough, and our financial results were not where we wished they were, we felt like we got a lot accomplished in 2011. We continued to rationalize our business. In the third quarter we talked about the plant closures in our window group on the West Coast, we talked about the planned disposition of some of our installation-related businesses. Those are in-process. We also mentioned at that time that we thought we'd see headcount reduction in the fourth quarter of about 750. That actually came in at about 2,000, as we had some additional headcount reductions across several of our business units.

As we mentioned in our press release, we completed the major restructuring of our North American cabinet and installation businesses, and we continued to invest in new products and programs, future growth opportunities, international growth, and strengthening our brands. And we did successfully amend our credit agreement just yesterday, to reflect some of the impairment charges that we took for goodwill and intangible assets. We believe that, during the course of 2011, that we either held or improved our share position in most of our major categories. North American cabinets would be one exception to that. We've talked about that in the past in terms of our big box position, which we continue to be number one in. And maybe a little bit earlier in the year, in terms of the dealer channel, a little bit of decline there, although we had some nice momentum coming out of the fourth quarter, with some of the new dealers that we've attracted.

If you flip to slide number 6, please, we'll take a look at cabinets. And it was a tough year for cabinets, both in North America and in Europe. If you exclude the impact of the product exits in the fourth quarter, our sales would have been up 2%, and on a full-year basis, we would have been down 5%. Our profit on a full year basis was off $44 million, reflecting volume and mix.

In that number, that includes the exit of the ready-to-assemble product group which is about $13 million in terms of under-absorbed overhead, and negative mix of about $7 million. We did have a net profit improvement in that segment of about $20 million, which offset price commodity relationships and drove the fourth quarter improvement, although somewhat modest in terms of impact. But we did have, in the second half of the year, good performance in terms of profit improvement initiatives.

If you flip to slide number 7, I want to take a look at cabinets in terms of what we think is possible in 2012. Obviously, this is a segment that's been a lot of focus for us, and we believe we've got a very solid plan for improvement in 2012. Basically, in North America, we're done with the restructuring, and as we go through the math here, it assumes a flat housing and retail environment in 2012. And we'll talk about that as we work our way through the analysis. If we segregate international and North American business, you can see in North America, we estimate that last year we did about $860 million in sales, and lost about $75 million, again, on an adjusted basis. The product exit that I mentioned earlier cost us about $13 million, so from a core loss standpoint, that takes us down to $62 million.

We've got net profit improvements that we've identified, and very clear line of sight to those, that we estimate will be about $30 million over the course of the year. We also believe, even in a flat environment, that we should see some top-side opportunity. As I mentioned, we've got some momentum in the dealer channel, and as we've discussed in the past, we've done, I think a pretty nice job of adding dealers through our dealer advantage program. We're starting to see some traction with them. We also talked a little bit at the end of the third quarter about the launch of our vanity programs and our countertop programs, predominantly on the east coast, so we think on a net basis, we ought to see even in a flat market about $30 million of incremental volume, and that would equate to about $10 million of incremental profit.

If you put all that together, that results in an estimated loss of just a little bit over $20 million. And I would point out in that number is about $7 million of cost related to idle facilities, that we have -- carrying cost and most of that is non-cash. I would also point out that, as I mentioned earlier, we're talking about a flat environment. To the extent we see any improvement in housing this year, and blue chip consensus has gone up the last couple of months, I think it's at 720 at this point in time, and we certainly hope that's correct, or maybe we'll even see a little better activity. But if you think about a 50,000 start improvement in housing on a lag basis, we estimate that would generate about $25 million of top line and about $8 million to $10 million in additional profit. Again, just to give you a perspective of what we think might be possible.

Europe, as you can see at the top of the chart here, in 2011 was $370 million of sales and about $40 million of loss on an adjusted basis. We've identified at this point about $7 million of profit improvement opportunities that we have very good line of sight to. The issue around Europe continues to be the unsettled economic conditions there. My sense is that we can improve more than that $7 million this year. We're working very hard to make that happen, but given some of the top line concerns that we've got, we'll be able to develop a little more information as we move through the year and see how things kind of play out, again, from a demand standpoint.

If you flip to slide number 8, this is installation and other services, and again, another segment that has been hit very hard in terms of the downturn. It had a tough year. But we did see some very nice improvement in the second half of the year, particularly in the fourth quarter. Fourth-quarter sales were up 12%, and we benefited from residential installation share gains, and the continued expansion of our retrofit and commercial business. Fourth-quarter sales also benefited from an increase in lag housing starts of approximately 6%. Operating margins in the fourth quarter were favorably impacted, and for the full year by incremental volume and profit improvement initiatives, and the guys continue to do a nice job of cost take-out in this segment.

If you flip to slide number 9, this gives you a little bit of perspective as to what we think is possible in terms of improvement in this segment during the year. We've got some nice momentum going into 2012, and we expect that we can continue to improve, even in a flat market, again, the basic assumption here. We closed 12 branches late in the fourth quarter, early first quarter. Those will cost us a little bit of top line, but will save us about $6 million in operating loss from 2011. We also believe that we'll have net profit improvements of about $20 million in this segment. Again, as I mentioned, and as I think you know, they've done a pretty good job of cost take-out over the last several years.

We also think that even in a flat environment that we should see some incremental revenue in this segment. We're estimating on a net basis that will be about $40 million, and that's driven by share gains and continued penetration in terms of retrofit and commercial. And you can see here that we're estimating that we think the incremental profit on that would be about $10 million. So we're looking to cut the loss in half, effectively, from $70 million to approximately $30 million, based on the actions that we've talked about here in a flat market. To the extent that we see any lift in terms of housing starts, 50,000 starts on a lag basis would generate for us about $50 million of revenue incrementally, and about $12 million to $15 million of incremental profit.

If you flip to slide number 10, Plumbing Products. Sales were up 2% in the fourth quarter. The sales increase was driven by volume for the full year. We were up 8% for the full year on price increases, and for the full year, we did have about $70 million of positive effect of currency. In the fourth quarter, our European operations were much slower than they had been for the first three quarters of the year. We're starting to see some of the impact of the slowdown in the European economies, and so we didn't get a lot of lift. In fact, I think Europe was essentially flat in the fourth quarter for us in this segment.

Having said that, faucets in North America were up low double digits in the fourth quarter, so we saw some nice penetration there. I think we talked a little earlier about the load-in in terms of some of the new product opportunities that our Delta and Peerless brands have been able to win. Operating margins were down in the quarter from 10.6% to 8.3%, and down on a full-year basis from 12.9% to 11.6%. The biggest issue impacting our business in this segment, and that's been pretty consistent all year has been mix. Mix cost us about roughly $40 million on a full-year basis in this segment, and cost us about $12 million in the fourth quarter.

In the fourth quarter, we had some additional spend that was a little bit unusual for Hansgrohe. We had some cost related to the change in their corporate status, which doesn't have a lot of impact on anything other than their corporate status in Germany. And we had some additional spend related to a building purchase in China, that relates to some lease accounting, and those aggregated about $4 million in the quarter. If you flip to slide number 11, we're off to a very strong start in 2012 in plumbing in North America. I mentioned Europe continues to be a little bit slow, and as we go into 2012 we'll continue to focus on supply chain, brand strengthening and international expansion.

If you flip to slide number 12, Decorative Architectural Products, sales in this segment were up in the fourth quarter about 4%, down 1% on a full year basis. Our sales for the full year and fourth quarter were impacted by reduced volumes and that includes the loss of the Walmart business. We talked about that. That affects both paint and our hardware business, and that was down on a full-year basis about $50 million, $55 million in terms of sales. We did benefit from price increases in this segment and that's what really drove the increase in terms of the fourth quarter, on a year-over-year basis.

Operating margins, we were down as I mentioned 14.9% to 10.1% in the quarter, 20.7% to 16.9% for the full year. And that's reflected in terms of volume declines over the course of the year, and unfavorable price-commodity relationships. We were about negative 10% in the fourth quarter and about negative 15% on a full-year basis, and we also incurred some cost for strategic growth and program-related costs during the year, $4 million in the fourth quarter, $14 million on a full year basis.

If you flip to slide number 13. Very competitive environment that we've been experiencing, in terms of the paint opportunities that we have. A lot of new products out there, a lot of promotional activity taking place. Together, the Home Depot, our channel partner, and BEHR have focused on growth for both the DIY and the pro segment in terms of our business opportunities. And really put a lot of emphasis on share gain in the second half of the year. Given the extreme nature of commodity costs, and after we, Masco, had worked very hard on productivity improvements with our -- and also from an internal perspective, and also with our suppliers, in terms of cost, we are in the process at this point in time of increasing prices for paint, with all of our customers and across all of our products. That process started early February, and should be concluded in the early second quarter.

The weather has helped. There's no question about that, and we're off to a strong start in 2012, and we expect 2012 to benefit from the continued growth of our pro initiative. We've got new product launches that began in the first quarter and are continuing through -- or excuse me, in the fourth quarter of 2011, and continuing through the first quarter. We're rolling out new colorant with low VOCs in all the Home Depot stores. We've upgraded our Premium Plus interior line with some self-priming attributes and also zero VOC, and our number one-rated Premium Plus Ultra Interior line, which is paint and primer in one, we've added an improved stain blocking capability to that paint, and those products will all be rolled out by the end of the first quarter.

Last year, as I mentioned, we spent about $10 million in support of our pro and international opportunities, and we also launched KILZ PRO-X in the first part of 2011, and we continue to execute at a very high level. An independent consumer evaluation recently continued to rate BEHR and KILZ very highly in terms of both quality and value, and we continue to enjoy fill rates in excess of 99% in terms of delivery. So we're excited about the opportunities, off to a good start in 2012 and, as I mentioned, should have pricing in place by late first quarter, early second quarter.

If you flip to slide number 14, Other Specialty Products, we're down 11% in the fourth quarter, down 3% for the full year. The fourth quarter decline reflects the expiration of the tax credit in late 2010. There was a little bit of a push in terms of top line. Our operating profit drop of $3 million in the fourth quarter really relates to the decline in sales. From a full-year standpoint, we were off $15 million. We've talked about some of the volume declines, some of the costs that we've incurred for new product launches, geographic expansion, and modestly unfavorable product mix, or excuse me -- yes, product mix in this segment.

If you flip to slide number 15, and as we think about other specialty products in 2012, we mentioned or mentioned earlier that we closed three plants in the fourth quarter. That obviously caused a little bit of disruption, but we're through most of that at this point in time, and we expect to realize some benefits from that. I think we estimated about $7 million the last time we were together. We'll continue to manage our supply chain. We continue to do a great job in terms of windows share, both in the USA and the United Kingdom. We continue to grow there, and we continue to execute on growth opportunities for Texas and Western Canada expansion. We also have some retail opportunities in terms of both the United Kingdom and the US, but we'll talk about those as they develop over time.

If you flip to slide number 16, talk a little bit about some of the information that we share with you for your modeling. We're estimating that in 2012, rationalization charges will be approximately $20 million, based on what we know today. Again, as I mentioned earlier, and we mentioned in the press release, most of the major restructuring we believe is behind us at this point in time. We do anticipate a slight increase, or about a $20 million increase in terms of general corp expense, and that's a similar situation to what we had last year. I think we mentioned last year that we expected to be up a little bit. That's usually representative of the normalization of some of our accruals for things like insurance, health benefits, workers' comp, variable compensation, things of that nature, where we might have had more favorable results than our normal trend line, and hopefully we're a little bit conservative there. We're estimating that CapEx will be about $180 million in 2012 and the rest of it is pretty straightforward.

If you flip to slide number 17, and just a couple quick comments before we open up the lines for Q&A. In 2012, we will continue to focus on investing to drive future growth, strengthening our leadership brands, driving supply chain and lean benefits, and strengthening our balance sheet. We've got some debt due in July of this year, and as we mentioned before, our intent is to re-fi about $400 million of that and pay down the rest with internal cash. And executing on new product launches, along with our cabinet and installation profit improvement initiatives.

As I mentioned, we're off to a solid start in 2012. January sales were up mid single digit. As I mentioned, that's continued into February. Housing activity seems to be picking up, and that's certainly very encouraging. And we're very focused on improving our execution in 2012, and we expect improved results as we work our way through the year.

And with that, we'll open up the lines for Q&A.

(Operator Instructions). We'll have our first question from Peter Lisnic with Robert W. Baird.

Tim, I just wanted to get a feel for -- thanks for the color on cabs and installation. If we look at plumbing and paint for 2012, can you give us an idea of what price and growth spending might do to the incremental profitability outlook there for 2012?

Yes, in terms of -- let's start with the Decorative Architectural segment, where paint is. Yes, I would guess there, Pete, that we'll see -- definitely see some pressure in terms of price commodity relationships in the first quarter. As I mentioned, we're in the process of implementing price increases at this point in time, and TiO2's been very volatile. As we get those prices in place, we should be in good shape as we work our way through the rest of the year. In terms of incremental growth spend, we do not anticipate any incremental growth spend in 2012 compared to 2011. So we shouldn't see anything incremental there.

In Plumbing, we finished the year with a positive price commodity relationship in the fourth quarter. On a full-year basis, we were down in that segment about $15 million. And that really relates to the hedge. So in the second half of the year, we started to see some improvement, minus the hedge, in terms of price commodity, and I would expect that to carry forward into 2012.

Copper's gone up a little bit but our sense is that we'll be working -- we usually have about a two quarter lag in terms of significant price volatility there. So my sense is that, if things stay where they are, we ought to see a more positive relationship and recapture some of the negative impact from last year. And we don't see any additional growth initiative spend in that segment either, as we go into this year. I mean, there will be -- there are programs that we're supporting. We probably spent about $25 million in that segment last year I think, but don't anticipate anything incremental as we get into 2012.

Okay. Perfect. Just as the follow-up question, in cabinets, in terms of the forecast or hypothetical that you laid out, how subject is that to the pricing environment improving, or remaining stable at kind of where it's at currently?

Yes, I don't think we're anticipating any significant price increases going into 2012, Pete. We had some in the latter part of last year. One of the bigger issues in our cabinet group is really international. I talked a little bit about top line risk, certainly given some of the economic issues that we face in the markets that we serve over there. The other issue that's been a big deal for us there has been the particle board issue with our Danish ready-to-assemble manufacturer. We had some negative price commodity impact throughout the year. My sense is, they had been able to get some price, so we'll be able to offset part of that but that would be a little bit of a potential headwind as well. Pete? Or -- operator, we can move on to the next caller, please.

We'll go next to Nishu Sood, Deutsche Bank.

I wanted to ask a first question about the Milgard segment and the goodwill write-down that you took there. The energy tax credits have obviously pulled forward some sales, and then depressed sales this year. So I was just wondering, as you evaluated the business, was that something that was taken into account? I mean, obviously, you would expect some rebound in sales as the effect of that kind of begins to comp into the past.

Well, I think, Pete, that's really -- excuse me, Nishu, that's really a longer-term situation. You might remember when we discussed that segment in the third quarter, we mentioned that we closed three of our manufacturing facilities and the real driver for that was really our perception. Hopefully, we're wrong. Our perception that the recovery in housing in the Western markets, given some of the problems that they have, will be a little slower than it would be in other areas of the country. As we all know, that could change pretty dramatically, but that was part of our logic, along with some improvement we've made in logistics and supply chain, where we feel like we could certainly absorb the top line opportunities from those plants. So it's really more of a reduction in terms of what we think the longer term dynamics are in the Western markets, more than anything else.

Got it. Great. Also, wanted to ask about Liberty Hardware. When we talk about Decorative Architectural, most of the time we're talking about BEHR, which obviously dominates that division, but especially in light of the goodwill mark down on the Liberty as well, I wanted to ask how trends have been there, and how that's contributed to volatility in that division's results?

Yes, we were down in terms of top line, Nishu, at Liberty over the past year but there's -- that tends to be driven a lot by very large programs. You win some, and then sometimes you lose a few, and we have been very active. I think we probably spent close to $5 million or $6 million related to new displays for Liberty as we go into 2012. We've got new bath hardware, as well as kitchen hardware, cabinet hardware, if you will, that we'll be launching. We're using the Delta brand in a couple situations in terms of bath. We've got some really good programs going into this year and in fact they're off to a very good start in January, a very good start. So we should see some improvement in that segment as both Liberty and BEHR are off to very good starts in the early part of this year. Chelan, I think we can move to the next question.

We'll go next to Michael Rehaut, JPMorgan.

First question has to do with your projections or estimates regarding starts, and how that translates into sales for both installation and cabinets. My question is around the composition of that starts, because certainly single family is a different type of start versus multi-family when you talk about larger 2,000 square foot homes versus apartments. So how should we think about, when you talk about the general increase in starts, a lot of the increase recently has been more driven by multi-family. Should we think of that more, is there a difference in revenue component? The 50,000, should we think of that more as if it's a normal single family-driven type start? Or maybe you can kind of discuss for both segments what the overall exposure is to single versus multi and if there are differences in revenue exposure.

Yes, there are differences, Mike, and we did try to factor that into our revenue increase assumptions. For example, from an installation standpoint, typically single family's about $2,000 a job, a multi-family job's about $800. There's a fairly significant change there, if you will, and you can imagine in terms of cabinets, less bathrooms, et cetera, certainly much less content. So we try to factor that in, and I believe our assumptions are based on a mix of about 70/30.

That's right.

In terms of single family versus multifamily. Our sense is that multi-family in the fourth quarter was probably closer to maybe 35%, in terms of mix. I think on the full-year basis it was in the high 20s. But we've used roughly 30%. We could be off there a little bit, but I wouldn't think that would be that dramatic. So we did try to factor that in when we estimated what we thought incremental revenue might look like as a deduct.

Okay. I appreciate that. The second question on the cabinet breakdown and the breakdown of the international within that in terms of 2011 was extremely helpful, so thank you for that. But I noticed that you focused on North America in terms of the potential opportunities for improvements, and I was wondering if you could comment on the international segment, Europe, certainly things are slowing there. What are you expecting for the operating profit? I mean, if sales continue to drift south, would that operating profit or operating loss increase, or are there initiatives that you have in that region as well?

No, no, there are definitely initiatives, Mike. You might remember that we, probably about 14 months ago, replaced the leadership at both of those businesses, one in the United Kingdom, one in our Danish facility, and so we've got new leadership in place. We've got, in effect, some new leadership team members, but again, in very demanding circumstances relative to the top line there. As we mentioned, we lost about $40 million on an adjusted basis last year. We've taken a lot of actions in the latter part of the year, particularly related to our Danish facility. We closed a plant in the fourth quarter, so that should give us some benefit going into next year. And I did identify or mention about $7 million of cost reductions that we've identified at this point in time.

That is not to suggest that we don't think that we can improve those beyond that point. I just don't want to get out ahead of ourselves at this point in time, given some of the uncertainty around the top line, and get any more direct, if you will, in terms of what we think is possible there. We certainly recognize that's a big nut in terms of the loss, and we'll be working really hard to make that -- decrease that, as much as we possibly can. I think I also mentioned that we got some pricing in the latter part of the year. We've done some things to rationalize our product group with the Danish facility. We've got some new technology in there from a ramping standpoint. We think there's some opportunities. But still a very unsettled, very uncertain kind of environment.

And to that, can you just describe the sales progression in terms of growth in the international cabinets throughout the year? I would assume that perhaps in the first half of 2011, it was maybe year-over-year positive, and it turned to year-over-year negative into the fourth quarter. Is that correct? Maybe you can give us a degree of magnitude?

John, maybe you've got that detail.

No, I mean, looking at first half, second half, Mike, we did see a little bit of deceleration into the second half of the year as things in Europe got a little bit more unsettled. As you might think, we've got one unit in the UK. That economy's been relatively stable. I mean, it's like the US, nothing real dramatic either one way or the other. It's more our Danish operation that experienced the falloff in the back half of the year.

One more question, if I could. The paint increase, do you expect that to kind of roughly offset the incremental TiO2 costs in 2012, or would you expect it to result in a net positive by the time we get to the second half?

We would anticipate it would be offset, Mike.

Okay. Thank you.

We'll go next to Dennis McGill, Zelman & Associates.

The question, first question, just around the comments you made about January and February being up mid-single, it sounds like -- well, we know the international's a drag in general in the fourth quarter. What would the domestic numbers look like against that mid-single? And could you also talk product categories, maybe what you're seeing at the extremes?

I could tell you, Dennis, I can go back and break it down, but you're right, international is basically kind of flat to down in terms of what we saw in January. But I can tell you when we look at our decorative segment, that is up double digits. I can tell you that in plumbing, that's up nicely, going into the first part of the year. So most of the strength is at retail in some of our repair, remodel activity, but also some very good numbers related to the installation-related business. So we're pretty much across the board. I'd say windows was probably a little bit slower in terms of what we're seeing in the other categories, but some pretty good momentum as we move into February.

Okay. The second question would be around the Decorative Architectural segment and I guess sort of two parts, one's a quick one. On the paints and stains business, what's a split between paint and stains? And then separately, as you think about the margin in the quarter being pretty disappointing, I would think the inventory cost would have been known going into the quarter, and rather than pursue price increases retroactively, how can we think about the ability to offset commodity inflation ahead of time as opposed to trying to get it after the fact? And along those lines, was the margin performance in the quarter what you would have expected going into the quarter or were there any puts and takes relative to those expectations?

I would say that the margin was somewhat consistent with what we anticipated, Dennis. One of the things that's kind of important when you think about the fourth quarter in that segment is that typically sales -- second and third quarter is where we see the significant sales and tend to have a big drop in the fourth quarter. And because labor is a very, very small part of their cost structure, you don't get a lot of leverage in terms of the decline. So we tend to end up in what you might kind of consider under-absorbed overhead from that perspective. So that's been pretty traditional if you go back over time and look at margin sequence.

We did have, as I mentioned unfavorable price commodity relationship in the fourth quarter in that segment, and so from that standpoint, I'd say we probably came in about what we anticipated when we went into the quarter, given what we anticipated demand was going to be. But having said that, we did get some really good traction as I mentioned coming out of the blocks in terms of early 2012. Your question on paints and stains in terms of the composition there, this is more off the top of my head, but I'm going to guess that stains are probably less than 20%, easy, maybe 15%.

I think about the 20% range.

Maybe 20%, Dennis.

I had just one thing to add to Tim's comments about the quarter, we did incur some incremental advertising in the quarter, to the tune of about $4 million or $5 million that we probably didn't anticipate going into the quarter.

Okay. That's helpful. Just to clarify a comment you made earlier on the market share gains. If you exclude the Walmart business, did you gain share in paints and stains for the year?

We would estimate, Dennis, that we held our own. I think that we may have seen a little dip early, mid-year, just in terms of some of the new product introductions that's came out, but we estimate in the fourth quarter we gained, and as we look at it overall from a full-year standpoint, we think we were basically about flat in terms of share. But having said that, as I mentioned, we've got some new products coming out as we go into 2012 and there should be some opportunity there. The weather obviously has been a little bit helpful. So we're in a real strong spot.

Thank you again.

We'll go next to Dan Oppenheim, Credit Suisse. Please check your mute function at this time, sir. Hearing no response, we'll move on to Keith Hughes, SunTrust.

Question in installed products. There was an attempt at a pretty substantial increase in installation prices mid-year last year. Did you take that price increase to your customers and were you successful getting it through?

Yes, in terms of price increases, Keith, we have been able historically to offset price increases, either through working with our suppliers or passing them along. So for us, that's generally been the way we've handled that, and haven't had a lot of negative impact in terms of price commodities.

And so we're talking double digits they were talking about last year, was that something you were able to push through?

Well, as I mentioned, one way or another we're able to offset price, yes.

Okay. And you've gained share in that business in the fourth quarter. What was the driver of the share gain?

Well, we actually -- the way we look at it, Keith, from a -- again, we can get a pretty good feel for residential installation. Some of the diversified products are a little bit tougher, but we believe that we were up in share in all four quarters last year. And the fourth quarter, we had the benefit of both share gains as well as the increase in lag starts, but we mentioned a year ago or so that when we had some challenges in terms of 2010 with share, we talk a little bit about that, as we worked our way through the year, talked a little bit about adding some resources.

The guys have done a tremendous job in terms of organizational alignment, training programs for salespeople, discipline in terms of accountability, and we're starting to see the benefits of that. We have simplified the business. We've gotten out of a lot of the diversified products that were a little bit more of a distraction, and retrofits going well. The commercial side is going very well. So we're very encouraged, even at these kind of levels, in terms of what might be possible going forward.

Final question on this. The year-over-year gain in operating loss or improvement in operating loss. Was installation the primary driver for that, the negative 6 versus negative 19 in prior year?

Yes, I wouldn't necessarily say totally insulation. I think we've got distribution in that segment. We've got retrofit. We've got commercial. So when you look at all four of those together, I think all four of those were hitting very well in the fourth quarter.

Okay.

Insulation would have been a bigger piece of it because of the increase in lag starts, and the fact that we have increased share.

Just a bigger piece of the business too.

Yes, exactly.

Thank you.

We'll go next to David Goldberg, UBS.

Hi, this is actually [Michael Clerico] on for David Goldberg. You mentioned increased competition in paint during the quarter. Was there any signs of that easing toward the latter part or even recently, given that you plan to increase price, how are you thinking this is going to translate, especially in terms of market share?

Well, in terms of increased competition, what I did mention is that mid-year, we started to see some products come out that were comparable to our paint and primer in one. We launched that about, what, two years ago?

2009.

Yes, two years ago, and obviously that has been a very positive impact on the marketplace. We saw some competitive products that claimed to have similar properties, and so there was a little bit of activity there and a little bit of -- a fair amount of promotional activity, so that really took place earlier in the year. As I mentioned, we felt like we might have been down a little bit in share, but got that back in the fourth quarter, and ended the year basically flat from that standpoint. And so from that position, we continue to be the number one paint in the do-it-yourself market.

In terms of pricing going forward, I don't see that putting any -- putting us at a competitive disadvantage. Almost all of the competitors in that channel have raised prices over time, and we don't control the retail side of that. I mean, we basically are implementing price increases to our channel partners, and that's across all customers and all products.

Okay. Thanks. Also, I'm trying to understand the effects of the unfavorable mix in plumbing, kind of what's driving that? Is it due more to increasing multi-family starts versus single family and what efforts you're making to respond to this trend? And what you think needs to happen to kind of reverse this unfavorable mix that's going on?

Yes, Michael, that's primarily related to our Hansgrohe operation which is headquartered in Germany and which is international in scope, and there's a couple things that transpire there. One is that -- they originally were a shower systems manufacturer, and they have moved more into faucets over time, and so there is a lower margin on faucets than there are on shower systems. So as we continue to see more faucets as part of the mix, we have a little bit of mix-related impact. The other thing that they do is they have done a very nice job of penetrating new markets, typically in foreign locations, other countries, and oftentimes go in with what I kind of describe as entry level products which often are more of an opening price point type of situation.

And from that standpoint what we typically see is as we enter those markets, and they've been very active there, as those markets mature, and develop, we're able to place additional products in terms of move up the scale a little bit, if you will, in terms of price point. So from that standpoint, it's really a little bit like a cost for future growth. And that's been going on now for some time. Having said that, Hansgrohe had a tremendous year last year. They had record sales. They also had very strong profitability. But most of that mix related issue is in that particular business.

Okay. Thanks, guys.

Thank you. We have time for one more question, Chelan.

We'll have that from Joshua Wilson, Raymond James.

Filling in for Sam Darkatsh this morning. Most of my questions have been answered. I wanted to dig into the paint business a little bit more. You said commodity inflation was the big issue, and we have talked some about these price increases offsetting your commodity expectations but does that mean you expect margins in 2012 for that segment to recover to 2010 levels, or what will it -- how long will it take for that to happen?

I wouldn't necessarily want to predict margins in that segment. Obviously, as we get back to higher volumes, we've got high contribution margins. That will help us in that segment. But one of the things that is evident there is, as we continue to grow in terms of our paint initiative, that tends to have a little lower margin, and so from our standpoint, our real focus has been on growth. We want to try to grow that segment. We're investing internationally. We're investing in the pro. Both of those will probably have lower margins as we continue to develop those opportunities. But we think very, very attractive returns in terms of return on assets. So, we may see over time some decline in absolute margin, but our thought would be that if we can grow our absolute profit dollars, get a good return on the assets, we'll continue to create value for our shareholders.

Okay. Thank you. That's helpful. And then just to get an update, last I heard, I believe it was not your intent to hire a new COO. Is that still the case?

Yes. Yes, we did not replace that position.

Thank you very much.

Okay. Thank you. Thank all of you for joining us today. We appreciate your attendance. Thank you.

That concludes today's conference. Thank you for your participation.