Good morning. Thank you for joining The Sherwin-Williams Company's review of the Fourth Quarter 2021 Results and their outlook for the First Quarter and Full Year of 2022.

With us on the call -- on today's call are John Morikis, Chairman, President and CEO; Al Mistysyn, CFO; Jane Cronin, Senior Vice President, Corporate Controller; and Jim Jaye, Senior Vice President, Investor Relations and Communications.

This conference call is being webcast simultaneously in listen-only mode by Issuer Direct via the Internet at www.sherwin.com. An archived replay of this webcast will be available at www.sherwin.com beginning approximately two hours after this conference call concludes.

This conference call will include certain forward-looking statements as defined under U.S. federal securities laws with respect to sales, earnings and other matters.

Any forward-looking statement speaks only as of the date on which such statement is made and the Company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information future events or otherwise.

A full declaration regarding forward-looking statements is provided in the Company's earnings release transmitted earlier this morning. After the Company's prepared remarks, we will open the session to questions. I will now turn the call over to Jim Jaye. .

Thank you and good morning, everyone. While our fourth quarter sales were within our guidance, earnings results fell short of our expectations, ending our year on a disappointing note.

As we described on our January 14 call, raw material availability did not improve as meaningfully as anticipated in the quarter and the Omicron variant put additional pressure on our company, particularly in the Americas Group and our global supply chain organization, as well as on our suppliers and our customers.

We also faced the highest inflation of the year in the fourth quarter, which we are combating with continued pricing actions. These are near-term headwinds. The good news is that demand remains strong across our end markets. We are seeing raw material supply issues improve sequentially.

We also continue to strengthen our customer relationships and take actions during the quarter that strongly position us for the long term. And we remain very confident in our strategy and, above all, our people.

Let me briefly summarize the quarterly numbers before turning to John Morikis, who will provide commentary on the full year and our outlook for 2022. Starting with the top line, fourth quarter 2021 consolidated sales increased 6.1% to $4.76 billion.

Raw material availability negatively impacted sales by an estimated high single-digit percentage, with about 65% of the impact in the Americas Group. The remaining impact was largely in the Consumer Brands Group, with an immaterial impact to Performance Coatings Group. Pricing in the quarter was in the high single-digit percentage range.

Consolidated gross margin decreased to 39.5%, driven by lower sales volume, raw material cost inflation outpacing our price increases near term and supply chain inefficiencies. SG&A expense decreased to 30.2% of sales. Consolidated profit before tax decreased to $308.9 million.

The quarter included $70.1 million of acquisition-related amortization expense. Diluted net income per share in the quarter decreased to $1.15 per share. The quarter included acquisition-related depreciation and amortization expense of $0.19 per share. Excluding these items, fourth quarter adjusted diluted earnings per share were $1.34 per share.

Moving on to our operating segments. Sales in the Americas Group increased 3%, as high single-digit pricing offset lower volume related to raw material availability. Segment margin decreased to 15.1%, resulting primarily from lower sales volume and higher raw material costs, partially offset by selling price increases.

Segment SG&A was up slightly as a percent of sales, as we continued investing in strategic growth initiatives. Sales in the Consumer Brands Group decreased 7.8% against a double-digit comparison a year ago. Sales were flat excluding the impact of the Wattyl divestiture.

Adjusted segment margin decreased to 6.3% of sales, resulting primarily from lower sales volume and higher raw material costs and supply chain inefficiencies, which were partially offset by selling price increases and good cost control. Sales in the Performance Coatings Group increased 18.7%, driven by price and volume increases.

Adjusted segment margin decreased to 8.9% of sales, as operating leverage from the higher volume, selling price increases and good cost control were more than offset by higher raw material costs, where inflation was the highest among the company's three operating segments.

Let me turn the call over to John now for additional commentary on 2021 along with our outlook for the first quarter and full year 2022..

the coatings business of the Tennant Company, the European industrial coatings business of Sika AG and Specialty Polymers Inc. Total return to shareholders in 2021 was 44.9%, which outpaced the S&P 500 and our peer group. Finally, I'd also like to mention our ESG efforts. We announced and made good progress on our next-generation targets this year.

We were recognized for various aspects of our program this year by Newsweek, Forbes and Investor's Business Daily. Given the volatility of the macroeconomic environment over the past two years, our combined results over the period are perhaps a better illustration of the underlying strength of our business.

Since the end of 2019, consolidated net sales grew $2 billion, or 11.4%. Gross profit increased $507 million, or 6.3%. Adjusted EBITDA increased $211 million, or 6.9%. GAAP diluted net income per share increased 26.9% to $6.98 per share. And adjusted diluted net income per share increased 15.8% to $8.15 per share.

Over the two-year period we've returned approximately $6.3 billion to shareholders in the form of dividends and share buybacks. As far as our fourth quarter, I'll keep my comments brief in order to get to our 2022 outlook. The key themes remain the same as in our third quarter. Demand was strong in nearly all of our end markets.

Raw material availability remained a challenge. There was some improvement, but recovery was not as quick as we would have liked. Commodity and other costs remained elevated and we continue to implement price increases. The new wrinkle was the impact of the Omicron variant, which was meaningful as we discussed on our call earlier this month.

In the Americas Group sales growth in the fourth quarter was led by Protective and Marine which was up by a double-digit percentage. New residential and property management were up in the mid-single-digit range. Res repaint and commercial were up in the low single-digit range.

DIY was down double digits against an extremely strong double-digit comparison. From a product perspective, exterior paint sales performed better than interior sales, with interior being the larger part of the mix.

We realized a high single-digit increase in price in the fourth quarter resulting from our February 1 and August 1, 2021 price increases in our mid-September 2021 surcharge. As we mentioned a new 12% price increase is effective February 1 of this year. We opened 35 net new stores in the fourth quarter.

Along with these new stores, we continue to make investments in sales reps, management trainees, innovative new products, e-commerce and productivity-enhancing services. Moving on to our Consumer Brands Group. Fourth quarter sales were basically flat to last year, excluding the impact of the Wattyl divestiture.

Sales were up low single digits in North America. That was offset by a softer sales in Europe and Asia, where COVID restrictions were more pronounced. Pricing was positive in the quarter and in the high single-digit range. Last, let me comment on the fourth quarter trends in our Performance Coatings Group.

We continue to see momentum, as this is the sixth straight quarter of growth for this business. Group sales increased by a high-teens percentage in the quarter. Price realization was in the low double-digit range and all regions and all divisions generated growth.

Regionally, sales in the quarter grew fastest in North America, followed by Europe, Latin America and Asia. Every division in the group grew with nearly all by double digits driven by robust underlying demand, new customer wins, share of wallet gains, and pricing.

Packaging was strongest followed by Coil, General Industrial, Industrial Wood and Auto Refinish respectively. Turning to our 2022 outlook. We see an operating environment with strong demand across architectural and industrial end markets. Customer labor will likely continue to be a governor on growth in some areas.

We expect raw material availability to continue improving sequentially so the trajectory remains uneven. As supply improves, we stand ready with ample capacity to quickly convert those raw materials to paint. We believe the impact of the Omicron variant on the supply chain should moderate through the first quarter.

Any additional impacts from COVID over the remainder of 2022 are hard to predict. What's not hard to predict is our determination. Our role is to influence results not to simply report them. Looking ahead, we expect to bend the curve in our favor through the very deliberate steps we've been taking.

These include arrangements and agreements with existing and new suppliers, prioritizing our product offering to our customer's, investments in additional capacity, the acquisition of a resin supplier, and actions to retain employees to produce and distribute products.

As the year goes on, we expect to be talking less and less about raw material availability and supply chain issues and more and more about volume growth, sequential gross margin improvement, and sequential margin improvement in each of our operating segments.

Our outlook also assumes that, the market rate of inflation for our raw material basket will be up by a low double-digit to mid-teens percentage in 2022 compared to 2021.

We expect to see year-over-year inflation in all four quarters, with the largest impact likely occurring in the first quarter, and gradual reductions each quarter as the year progresses. We expect all commodity categories to be meaningfully elevated.

We expect other costs, including wages and transportation to be up in the mid-to-high single-digit range. We are currently implementing additional price increases in all businesses, and will continue to do so as necessary.

For the first quarter of 2022, we anticipate our consolidated net sales will increase by a low to mid-single-digit percentage compared to the first quarter of 2021, inclusive of a low double-digit price increase, partially offset by ongoing raw material availability issues.

We expect the Americas Group to be up low to mid-single digits with North America paint stores at or above the high end of that range. We expect Consumer Brands to be down by a high single-digit to low double-digit percentage and we expect Performance Coatings to be up by a mid- to high-teens percentage.

Our full year guidance is heavily second half-weighted due to a stronger volume, the impact of pricing action and weaker second half 2021 comparison.

As you'll recall, we began 2021 with great momentum, including first half sales growth of 14.7% and adjusted EPS growth of 26.4%, before the natural disasters supply chain and COVID issues derailed the second half of the year. For the full year 2022, we expect net sales to increase by a high single-digit to low double-digit percentage.

We expect the Americas Group to be up a mid-to high single-digit percentage, again, with North American paint stores at or above the high end of the range. We expect Consumer Brands to be up a low to mid-single-digit percentage, and Performance Coatings Group to be up a high single-digit to low double-digit percentage.

We expect diluted net income per share for 2022 to be in the range of $8.40 to $8.80 per share compared to $6.98 per share earned in 2021. Full year 2022 earnings per share guidance, includes acquisition-related amortization expense of approximately $0.85 per share.

On an adjusted basis, we expect full year 2022 earnings per share of $9.25 to $9.65, an increase of 16% at the midpoint over the $8.15 we delivered in 2021. Let me close with some additional data points and an update on our capital allocation priorities.

Given volume growth, pricing actions and our ongoing continuous improvement initiatives, we would expect full year gross margin expansion. We expect to see SG&A leverage in 2022 by controlling costs tightly in noncustomer-facing functions. We will continue to make investments across the enterprise.

It will enhance our ability to provide differentiated solutions to our customers. We expect to open between 80 and 100 new stores in the US and in Canada in 2022. We'll be focused on sales reps, capacity and productivity improvements, systems as well as product innovation.

We also plan additional incremental investments in our digital platform and the home center channel. These investments are embedded in our full year guidance. We expect currency exchange will be a headwind of about 1.5% on consolidated sales. We expect our 2022 effective tax rate to be in the low 20% range.

Our core CapEx guidance for the year is approximately $415 million. In addition to this core CapEx, we expect to make investments of approximately $450 million in '22 related to our new headquarters and our R&D facility project. Both depreciation and amortization should be about $300 million each. Interest expense should be about $330 million.

We have $260 million of long-term debt due in 2022. Historically, we've targeted dividends at about 30% of prior year GAAP earnings. Next month at our Board of Directors meeting, we will recommend an annual dividend increase of 9.1% to $2.40 per share, up from $2.20 last year. We expect to continue making opportunistic share repurchases.

We'll also continue to evaluate acquisitions that fit our strategy. As we begin 2022, we remain confident in our strategy, our capabilities and the differentiated product and service solutions we bring to customers. Above all, my confidence in our people has never been higher.

Our business remains extremely well positioned and we're emerging as an even stronger Sherwin-Williams following the challenges that we have faced in the last two years. We remain steadfast in our focus on creating shareholder value. That concludes our prepared remarks.

With that, I'd like to thank you for joining us this morning and we'll be happy to take your questions..

[Operator Instructions] Thank you. And our first question is from the line of Chris Parkinson with Mizuho. Please proceed with your question. Mr. Parkinson perhaps your line is mute. You are live for question..

Sorry about that. So it seems there can be multiple steps to rebuild your margin structure and strive towards -- back towards your long-term goals, especially in consumer performance.

Just given near-term raw material shortages, hopefully getting better on a sequential basis, raw material inflation, logistics costs etcetera, et cetera all hopefully to be offset by pricing.

How should we think about what's actually embedded in your '22 guidance on margins based on those factors? And then perhaps more importantly, how should investors recalibrate expectations for the cadence of improvement in '23 and back towards your long-term goals? Any color would be appreciated. Thank you..

Yes. Sure Chris. This is Al Mistysyn. And as the 2021 unfolded with a strong -- very strong first half and a softer second half, I would say, our 2022 budget is exactly the opposite. We expect continued headwinds as John mentioned in raw materials heavily weighted to the first half. But incremental pricing.

We talked about TAG going out with a February 1 12% increase. And we're going out across all divisions and groups with pricing. So when you look -- let me start with when you look at our gross margin, our first half you'd expect to see a slight contraction with sequential improvement as the quarter goes on.

And then you start seeing gross margin recovery in our second half and that expectation is across each of the segments. And it's really volume-driven on the architectural side continued pricing catch-up on the Performance Coatings side along with the continued strong demand in volume.

And what I would expect to see is some contraction in the first half on operating margins among the segments. But I would expect to see recovery starting in our second half on the operating margins and all segments growing operating margins year-over-year in our second half.

And even including -- if our -- even including TAG even has the potential to get on top of previous years. And as you know in an inflationary environment that is our -- and you look back at our history, as we see raw material increases, we implement price to offset those raw material increases.

And as the price effectiveness continues to improve, we start to see recovery. And then as raw materials moderate and roll over, we see gross margin expansion and I can point back as I have in the past 2010 2011 2012, we saw that big run-up in titanium dioxide. We saw our margins get -- contract.

And then we saw growth from 2013 to 2016 of almost 600 basis points. We expect to see a similar environment today..

That's very helpful. And just as a quick follow-up just in terms of 2022 demand there's -- let's say more recently there's been a little bit of skepticism just given rates, housing affordability just essentially the broader inflationary environment.

Just from the Sherwin-specific angle and what you're hearing specifically from your stores, what really truly underscores your volume confidence on the macro for TAG and as well as your ability to further win share on both Pro and big boxes, just any additional insights will be very helpful? Thank you..

Chris, I think you hit on two very important points there. One is the market and our position in that market, it would be the second point. So we believe and the first indicator would be the close relationship that we have with our customers. I'll ask Jim to talk to the macro indicators that give us confidence in a moment.

But I'd say what gives me the most confidence is the nearly 3500 sales reps and over 4000 store managers that we have out there every day feeding our CRM system with data that plays back to incredible confidence that our customers have in this market. We've had we believe a pretty strong run here in a challenging market.

But our customers are telling us that as they look forward, demand continues to grow. And if you look across the segments in every one of those architectural segments, the feedback that we're getting is exactly that. This is going to be a terrific year.

Many of our customers would say their pipeline is pretty much full right now and they're looking out into the second, third quarter taking bids right now. So it's very solid. But let me ask Jim to give you a little bit on the macro numbers that reinforce what we're hearing from our customers..

Yeah. Thank you, John. And good morning, Chris. As you look across the various indicators that we've always talked about for years now, they're all pointing in a very positive direction Chris.

And I won't go through all of them, but on the residential repaint side, we look at LIRA the leading indicator of remodeling activity that was up high single-digits in the fourth quarter and they see strong double-digit growth throughout 2022. The remodeling market index also is at near record levels going forward.

Think on the new rev side when you look there in addition to John's comments about what our customers are saying permits and trends -- or permits and starts have been trending very well, since the summer. There's still a big backlog of homes that need to be built, both at the entry level and at the luxury level as well.

Mortgage rates while maybe ticking up a little bit still are largely supportive, I think. On the commercial construction side, you've got other indicators the Dodge Momentum Index, the Architectural Billing Index, all of those pointing in really strong directions. In property maintenance we're seeing good activity there.

So no matter where you look on our TAG business it feels very strong..

Yeah, our TAG and we believe also our Consumer Brands business as well there's lot of opportunity there for pricing in the market as well. But one point that I'd make in addition to the pricing availability on the Consumer Brands is what we're seeing from our contractors. We talk about gross margins and our ability to push that pricing through.

This is a market where our customers have confidence in their ability to put pricing in because of the supply/demand dynamics. So we're up putting price in to customers who have confidence in their ability to put price into the market. I've often said we typically don't receive thank you notes for putting price increases through.

And I don't expect to receive any on this round. But I will tell you our teams are very confident that our customers are almost in the mindset of okay I need to know what the price increase is going to be so I could push it through. And at the same time they're deciding, which projects they're going to take, and which ones they're not.

So the dynamics are very powerful..

It’s helpful. Thank you very much..

Thanks Chris..

Our next question is from the line of Ghansham Panjabi with Baird. Please proceed with your question..

Thank you. Good morning everybody. I guess somewhat of a follow-up. I know it's very early in the year and there's a lot going on seemingly every week.

But can you break out for us what you're assuming in terms of raw material availability for 2022 as it relates to your specific earnings guidance? And I guess I'm referring to volume catch-up and then your own inventory levels as the year unfolds?.

Yeah. So Ghansham, the availability expectation is that -- we may see some in our first quarter. We talked about our first quarter being a little bit of choppiness -- seeing a little bit of choppiness in our availability, it could be low single to mid-single digits.

But the commitment that we've gotten across our existing supplier base and our new supplier base really gives us great confidence that we'll have the raw material available to us to meet the stronger demand we expect in our first quarter and I should say stronger production in our first quarter.

So with the prioritized product line that John mentioned, we are going to build in a significantly more inventory to the end of our first quarter compared to year-end 2021 and versus last year but not to what I would say more historic levels.

So the additional inventory for TAG that we put in at the end of the year because of the sales shortfall will help us early on but you're talking 10 to 15 days of inventory.

The real growth is because of the excess capacity that we have put in and that being filled up with raw material supply and really getting ourselves in a better inventory position..

Ghansham, if I could add I think that's a terrific response by Al. I think looking long-term there's some choppiness here short-term. We understand that. But when we look long-term and why we feel our company is going to really outperform and we often talk about this coiled spring.

I look at the points that Al just mentioned and I'd like to just add a couple if I could. There certainly are opportunities to his point about the additional capacity that we've just brought on. We've got more that's coming on that is important. The other thing that I think is important to understand that we're not complacent.

You look at how we get more efficiency and more productivity out of our plants. There's work to be done here, but we're well underway in a simplification process of our products to ensure that our responsiveness and I think this would be a question some shareholders might have.

As we've come through this, how do we ensure that if anything like this were to happen again that we're the horse to bet on? And we're not sitting here waiting just trying to get out of the current situation.

And we are looking at how do we build in the response as a result of this experience to ensure that we avoid these types of issues going forward. So it does include the resin company that we bought. It does include the capacity that we just bought.

But an equally important one is the simplification of many of our product lines to allow us to be more responsive, more adaptive to the situation if it be from raw material suppliers or raw material products or to be able to move different resins around to be able to supply our customers.

So, there's a lot of really good work heavy lifting that's taking place that we're not going to see today, but it's going to help us. It's going to help us not only in situations like this in the future, but to be more responsive to our customers' needs and more reactive to opportunities going forward..

Okay. That's very helpful. And then realizing this is a difficult question to answer, but all the various nodes in the supply chain, there's so many different issues that your customers cite in their earnings calls and so on and so forth.

I'm just trying to gauge, if you were able to produce more paint, and you just wave your magic wand, and you're able to get what you need from a raw material standpoint, is there still going to be a fair amount of choppiness you think in terms of volumes on a quarterly basis, because of the other constraints that customers are citing, including appliances, labor, et cetera?.

Well, I think, we're going to have raw material -- our raw material position is going to improve. It's improving now. And as Al mentioned, between our current and new suppliers, we've got confidence that this is going to improve. That's why I made the comments earlier. I'd say it this way. We've always hated talking about weather.

I would associate our feelings with what we're talking about regarding raw materials to feel like weather. We want to get this behind us, and start talking about growing our business and talking about the incredible results we're going to post, and we're going to have the raws to be able to do that.

Now are there other issues that we're going to face like transportation and the fact that we're going to be in a race to build product through the first quarter, but we're not going to be able to build the inventory that we typically build in the first quarter to be as responsive as we like.

So there is going to be some hand-to-hand combat if you will, as we get through the year. It's going to get better, but we're going to be racing to fill the pipeline here.

And we would have liked if possible to have built more inventory in the fourth and first quarter, but we're going to be in a position to have more raw materials and more capacity to be able to respond. We'll build some inventory coming out of the first quarter, but it won't be to the traditional level that we would like going into a paint season..

Yes. Ghansham, the other thing I'd add there. I think when you look at the past two years have been really challenging, and because we've got a long tenured and experienced management team, we've been able to meet those challenges and produced solid results. We believe we are paid to influence results and not simply report them.

And I believe our management team is doing that. If you look at the midpoint of our 2022 adjusted EPS that yields a 10% three-year compounded average growth rate. And while doing that we continue to invest in the future growth of the company, and returning a significant portion to our shareholders in the form of dividends and share buybacks.

So I think what you're going to see is our volume. And I'll look at it maybe architectural volume in our first half, my expectation is because we had such a strong first half of 2021 that our architectural volume will be flat to down low single-digits. It's really our second half.

And the expectation is all the things that our global supply chain team is doing to get past -- and procurement teams get past raw material supply, get more consistent transportation and logistics set up. Our second half we're expecting to be up mid-to-high single digits in volume.

And that's really what's going to drive the operating margin improvement across our architectural businesses TAG and consumer..

Okay. Thanks so much..

Thanks, Ghansham..

Our next question comes from the line of Bob Koort with Goldman Sachs. Please proceed with your question..

Thank you very much. Maybe following on that last response, I just want to make sure I understood it properly. I think you said maybe your architectural business will be down in the first half, I think, you're implying revenues.

And I'm wondering given the pricing cadence through 2021 and then again the February price hike coming, why it would be so weak? And then even more broadly for all of 2022, I think the guidance you gave on TAG revenues seems to match almost what you would expect in pricing. So it seems like there's maybe not a whole lot of net volume.

Maybe you can give us a little more color on why that would be. Thinking of giving few range for production this year..

Yes, Bob to clarify, I was highlighting architectural volume in our first half to be flat to down. And it's because we had such a strong start to our first half last year. If you look at our first quarter, Consumer was up 25, the North America paint stores were up high single-digits and TAG was up high single-digits in our first quarter.

So I was referring to volume. And our full year TAG being up mid- to high single-digits, with the comment being that, our North America paint stores would be at or above the high end of that range. If you annualize the price increases, you're going to get to a mid-to-high single-digits.

So volume I would expect to be up and our North America paint stores to be low to mid.

Does that make sense?.

Okay. That's helpful. I appreciate that.

And then I'm just curious, if you guys have any insight on, trying to figure out, if there was double ordering, if there were maybe some false bookings throughout 2021 as your customers were scrambling in a scarcity mode is there any risk, or how do you – do you have confidence that there wasn't some of that and maybe the underlying demand is slightly weaker than you'd expect? And how do you get that comfort?.

Bob, that's not a concern for me at all. And we've got tremendous comfort and confidence that the demand is real. And as we look at the bidding activity that's taking place, the job requests that are taking place, we can verify that. So the demand is real. We've got great confidence in that..

That’s clear. Thank you, John..

Our next question is from the line of Truman Patterson with Wolfe Research. Please proceed with your question..

Hey, good morning, everyone. Thanks for taking my question. First, look I understand raw material inflation is kind of a moving target.

But if we took a snapshot as we sit today in January, I'm hoping you can discuss by fourth quarter 2022, whether raw material inflation embedded in guidance is still up year-over-year or down? And then for your full year 2022, low double-digit to mid-teens inflation could you just break out expectations by your segments?.

Yes, Truman. What I would say is for the full year, we're expecting as we said that low double-digit to mid-teens inflation. It should be the highest in the first quarter and I would expect it to sequentially improve as the year goes on and the comparisons get a little bit easier.

But I think even in our fourth quarter, you're likely to see us up low and mid-singles in the fourth quarter. I think the strong demand that's out there is helping to support the inflation that's out there. I would again expect by segment probably to still see pretty highest inflation in our Performance Coatings Group..

Yes, Truman. The only other comment I would make on that just to reiterate, still we talked about last year the increase in raw materials was heavily weighted to our Performance Coatings. When I say that about 60%. We expect to see a little bit less than that this year.

But also just you said, it our line of sight on raw material inflation is probably at best two quarters out. So looking at third or second half of this year, we'll continue to monitor the basket as we have throughout 2021. And if we see any change or increase in inflation will react with pricing quickly like we did last year..

Okay. Okay. Thanks for that. And then in the fourth quarter TAG, margins fell 660 bps year-over-year. And I know that leverage is a – volume leverage is a key component to your operating model.

I'm hoping you can help us parse out how much of this was due to volumes declining, we'll call it high single digits versus this price/cost dynamic that's going on?.

Yes. Truman, as I've said in the past, volume is the single biggest driver of operating margin improvement and that is especially the case in our TAG organization. And I would say that is almost 100% driven by the volume decline.

And if I may, I'd just like to recap the fourth quarter across each of the segments just to kind of talk about this year level set and move on to 2022. But if you look at TAG, as I mentioned, it's all volume-driven that margin. If we look at consumer, it was better than our sales guidance but primarily due to non-paint sales increasing.

And if you look at the paint gallons being less than what we expected, that again, that volume really impacts our operating margin. But we also had because global supply chain is embedded in our Consumer Brands Group because of availability we didn't meet the production plans that we had planned.

So, the supply chain inefficiency and higher raw material costs probably equally impacted the Consumer segment. So, volume is the number one driver of that impact but then the other two are probably equally weighted. And then you get into our Performance Coatings Group, nice sales gain.

But again the raw material increase quarter-to-quarter that we saw and for the full year was really about 60%-plus of the sequential increase. So, we took the front of the incremental increase in raw materials and that really drove what the impact on margins.

And as we've said this is the one segment that has more work to do on pricing to chase the increase in raw materials. They're out as I mentioned earlier with additional pricing in our first quarter and our expectation is that we will get on top of raw materials this year and see segment -- operating segment margin improvement in our second half..

Hey Al for clarity. I lost you a little bit on the TAG segment commentary for clarity.

The overwhelming majority almost all of it was entirely due to the margin decline not dollar decline was due to that lost volume leverage?.

That's right. That's right Truman..

Okay. Thank you..

Thanks Truman..

Our next question comes from the line of Jeff Zekauskas with JPMorgan. Please proceed with your question..

Thanks very much. Still want to pursue the TAG guidance for 2022 of up mid to high single-digit percentage. I think you said earlier that your volume might be up low to mid-single-digits. I mean if your prices are going to be up some high single-digit number, I realize there's a slight bit of negative currency.

I don't see how your TAG range should be mid to high single-digits unless you expect flat or negative volume growth?.

Yes. What we talked about is our North America stores being up at the high end or above the high end of that range. And if you look at so you're thinking 8% to 13% -- 12% -- or 8% to 12%.

If you look at the paint stores price increase the cadence of the increases if you think about how we annualize the price increases in paint stores we're going to be up low double-digit in our first quarter high single-digit in our first half. And that will moderate as we go through the second half to get to a mid to high single-digits.

So, that's how I get to kind of the low to mid volume..

Yes, I don't see why it would moderate really in the third quarter maybe -- I mean to that level. But to put that aside your SG&A costs I think were up 2% for the year.

So, was it that there was a lagging effect to whatever inflation you're experiencing in SG&A and you expect it to be up much more, or can you talk about your SG&A inflationary expectations in a little bit more detail?.

Sure. We look at -- although we don't really provide the full guidance by line, but to give you some direction we do expect to get leverage on our SG&A as the year progresses. We'll continue to invest as John mentioned in 80 to 100 new stores in TAG plus in our digital platform.

We'll continue to look for opportunities to invest in the Pro paints within our consumer segment and other key initiatives there. And then servicing programs through our Performance Coatings Group, but we're still going to be very focused on controlling our non-customer-facing SG&A.

And I would say if you look at how our volume unfolds throughout the year, the first half will be slower than our second half like I mentioned. So we expect to see more leverage in our second half on SG&A than we see in our first half. .

Okay. Thank you so much..

Thanks, Jeff..

Our next question is from the line of Mike Sison with Wells Fargo. Please proceed with your question..

Hi, guys. Good morning. Just curious in TAG, given you don't have as much volume or gallons as you want.

How are you sort of allocating those amongst customers? And are there particularly areas in the country are more profitable? Can you maximize mix and profitability as you think about where to put your limited volume at this point?.

I think there's a lot of really good work that's taking place, Mike, and it's a pretty good observation of you -- on your part, because we've had to make some decisions. And some of those decisions include paring down the product line to ensure that we have the products that were needed.

We've really, I think, done a terrific job in utilizing the resources or the raw materials that have become available and we treat those precious raw materials just as that. So we're manufacturing products that could best fit the needs of our customers.

And there are times when we're giving customers a product that will fit their needs, but it may not have been the product that they came in to get. And so we're working with them.

And I would say this, that as we exit this, the line of sight that we've established and the relationships that we've built with our customers is one of the reasons that we're so excited about how do you turn something bad into something good. The relationships are stronger, because our teams are working with our customers in a very unique way.

They may come in talking about wanting a product and our teams work with them to understand what is the project? What are you doing? Let me get this product for you and we're keeping our customers in paint. And that's been a big mantra within the TAG organization, is keeping our customers.

And that responsiveness, particularly at the store and rep level is a point of differentiation. We've got a number of stores out there and we're leveraging the inventory and availability in those stores in a way that, quite frankly, most companies couldn't do. And I'm really proud.

We talk a lot about One Sherwin, a mentality of doing what's best for the company. And so, there's a sharing of inventory as close to the customer as possible to be as responsive as possible. So we're not -- we're trying not to get to the decision point that you make about which customer to serve.

What we're trying to do is, get to the point where we're answering the question of what product can we get this customer to keep them moving, keep them making paint and keep them providing for their families. And as a result of that, our view of their projects has improved. They are sharing more information with us.

And that's why when we asked -- we were asked earlier about the confidence that we have in the demand, why we think it's as solid as we believe is our customers, as we've worked through this are sharing more with us than they ever have before. They trust us. We're working with them and we're partners.

And so, we're giving them products to get them off their projects on to the next ones, the next project and they're making money doing it..

Got it.

And as a quick follow-up, given that our cash have surprised to the upside, one game out of first place, but if you were to see upside or where you think you guys could surprise to the upside in 2022, where do you think you can do that? And particularly what's in your control to do that?.

Well, we're going to surprise. I would tell you this. If you look back over the last two years, while we've generated over $5.6 billion in net operating cash and we've returned $6.3 billion to our shareholders in the form of dividends and share buybacks, we've also been investing in this business, Mike.

So in our North America paint stores we've opened 133 new stores, net new stores, 180 new reps. We've added probably over 2,800 management trainees to make sure that we have a really strong future pipeline.

We've invested in our pros who paints with our Consumer Brands partners on the Performance Coating side, we're adding services and solutions that we really believe our customers are willing to pay for, because it's helping them make more money and that's what we're focused on. We've not talked about this yet, but we've been investing in innovation.

And some might say, well, how can you invest in innovation. To your first question, when we're sitting here with raw materials, having to make tough decisions about which products we're going to make, would you be investing in innovation? And the answer is yes. We are investing in innovation.

In fact, if you look over the last 10 years, we've averaged probably over 20 new products per year and that's really important. It's an important part of our strategy. And I know that firsthand, because I can remember when I was a store manager, and just learning to sell a product.

And those new products made a pretty average salesperson a much better salesperson. I would tell you, it helped me a lot. And I think it gave me confidence, and it gives our people confidence. And most importantly, I think it gives our customers confidence. And so we're investing in these products.

And these products are solutions that our customers use to help their business. And we think we're uniquely positioned to be responsive to those customers' needs in both – the needs they have that they can articulate and sometimes the unarticulated the things that they may not know.

And so it should be no surprise that, one of the surprises that we have coming down the pipe, include breakthrough technologies in areas of durability, scuff resistance, mar resistance. And it's clear with the surge in COVID variants, a key emphasis in the market right now is keeping surfaces clean.

And so you'll be hearing about some of these surprises as you say of our self-cleaning technology platforms as we move forward. But right now, naturally we're focused on the precious raw material allocation and servicing our customers. But rest assured that that's an important part of what we're doing.

I think the other areas that you should expect that might surprise is the output of the capital expenditures that we're making. We talked about capacity utilization and the incremental capacity that we've added. We've added $670 million over the last two years. We're going to get every ounce of money out of those.

We're going to put those assets to work and we're going to use them hard. I also think the – and this is a bit longer term, but as you're asking about surprises I think people will be surprised as we've invested in our new R&D facility and I just mentioned innovation.

While that's not going to be in the short term, it's going to be an important part of what helps drive our company forward, because I think the collaboration that we're going to get from our wonderful technology people that's really going to be exciting.

And then I guess just thinking off the top of my head, the last thing that I would add would be the utilization of this Specialty Polymers asset that we acquired.

I think our ability to respond and our ability to really outperform the market and really de-risk some of what comes inherent from the Gulf Coast is we believe going to be a differentiator as well. So those are things Mike I want to talk about. There's a lot more that we have up our sleeves. We're pretty excited over here about what we're working on.

We could talk about themes like what's coming down the pipe and digital and some of the other areas. But I've got a lot of confidence that, while we're excited about what we've accomplished and this quarter we would like to have a better fourth quarter but I'm really excited about where we're headed. And I really do believe that, the best is ahead.

We're just getting started..

All right. Thank you..

Our next question comes from the line of Steve Byrne with Bank of America. Please proceed with your question..

John, you just mentioned this Pros Who Paint.

What exactly is that initiative? How can you help Lowe's capture more paint contractor business? And do you see any risk from a recent initiative at Home Depot to do something similar?.

Well, we respect all our competitors Steve. So we don't just stick our head in the sand and say nothing is a risk. In fact, we often talk about a healthy paranoid life, which means we take everything as serious and nothing for granted.

But what the Pros Who Paint is an initiative that really drives effort towards these contractors, who paint as a part of a project. So our stores are focused on the painting contractor those that wake up every day with a goal of applying paint.

There's a whole host of contractors out there that could be remodelers or could – in fact, I would say, nearly every project out there, nearly every project, ends with paint on the project. And so there are customers that prefer a different shopping environment than a paint store.

And the reason is they might want to pick up drywall, they might want to pick up cabinets. They might want to pick up plumbing, whatever it might be. And so they choose their preference to be a home center platform. We've got a terrific relationship with a number of our Consumer Brands customers to focus in on this Pros Who Paints.

And we believe that there's a terrific opportunity in many cases to apply what we've learned through our TAG business both in services and actions as well as product technology to bring and to help our customers better penetrate those customers that prefer that format.

And while we have had some very limited success in that through our stores, I'd say that the terrific opportunity for us is to have much greater penetration through our home center partners just as they may have had some success with painters.

We think by looking at the market and finding these opportunities and really putting the effort in product services, all the different unique nuances on helping those customers make more money will ultimately benefit everyone..

And then just one more on this year-over-year issue with respect to TAG. You noted the year-ago volumes were very strong and you have that year-over-year headwind.

Is there a component of that year-over-year volume drag that is also has a mix shift impact on price? If the year-ago volumes were more DIY than TAG, did that result in a price benefit that is a year-over-year drag that is also something that's being reflected in the guide?.

No, I wouldn't say that's the case Steve. But when you bring up mix shift where I jump to is wanting to clarify that what we are experiencing is a very positive mix shift. Our highest quality products are the ones in greatest demand. And you could talk about a lot of issues.

One we've not talked about yet is labor, and when you talk about painting contractors trying to get as much done as possible.

They are all very well aware that getting the most out of a project, getting in and out with less callbacks being able to go back and touch up if you will, getting the lowest price gallon of paint is not the answer, in fact just the opposite.

And we do believe that part of this specialty store experience and quite frankly in many cases what we are either now or will be bringing to our home center partners allows our contractors to be more productive.

So again we're looking at helping our contractors make their labor some of whom may not be as experienced as they would like we're helping to make those laborers much more productive and more professional in their output or their finished products than they would in a lower quality you want to pay..

Yeah. See the only thing I would add is just as a reminder DIY related to -- relative to paint stores is probably about 10%. When I was talking about architectural volume in our first half versus a difficult comp that included both TAG and Consumer and Consumer had a….

25%..

25% growth in their first quarter last year..

Okay. Thank you..

Thank you Steve..

Our next question is from the line of Arun Viswanathan with RBC Capital Markets. Please proceed with your question..

Great. Thanks for taking my question. Good morning. A lot of the questions I guess have been asked. So maybe I'll just ask a couple of questions on a particular couple of verticals. So could you update us on what you're seeing in commercial construction and MRO? I know those are markets that had, kind of, lagged during the pandemic.

Has there been any improvement there? I imagine not just given the lingering effects but maybe you can just address that first?.

Underlying demand I'd say in commercial is solid. Sales we've been challenged in some of these areas as we've been pumping through availability, but of product but I'd say it feels pretty good. And the reason I say that Arun is that these projects are beginning to come back online and reaching the paint stage in many cases.

Our customers in this space have reported some of the labor constraints that we've talked about they're not only impacting the paint business. So these guys are waiting for drywallers who may be fighting for more labor to get the drywall done sooner and you keep moving up the food chain. So it's having an impact on the entire flow of the project.

But as Jim mentioned, if you look at the Dodge Momentum Index it's strong. And we have a lot of confidence that it will continue.

I'm sorry the other segment you asked about was -- MRO from a -- well, I'd say maybe on a broader sense, we could answer MRO because I think it also fits this, but maybe I could help you with Protective & Marine because it fits underneath that very well. Our business here was up and very strong. We're up double-digits.

And there's a lot of really good work here. We have spoken about our strength in petrochem and the opportunities there. The work that we've been doing in the adjacent markets is beginning to pay off. We're excited about that. And as government spending on infrastructure continues to work its way through.

While it may not be immediate, if you look longer term, we're really well positioned for that and working hard to capture that as well. So really, really, good. If you look at the professional side of every TAG segment that we have, we've got tremendous confidence.

It's a very strong market from a demand standpoint and as I mentioned, I know that from my years of experience, you know that when pricing is flowing through from our customer -- from us to our customers as well as it is. And from them to their customers, because their customers simply want the projects done and they're willing to pay to get it.

It's an indicator for us of the strength of the market..

Thanks. And just as a follow-up, maybe I can just ask about free cash flow and uses there. So it appears that maybe working capital could be a drag as you kind of sell higher-priced inventory and raws, is that right, or is it building inventory that would actually maybe benefit working capital as you move through 2022.

And so, could you just help us understand free cash flow growth in 2022 expectations, and then uses thereof, I mean have you seen valuation multiples remain elevated and thus most excess cash will be used for buybacks? Is that how we should think about free cash flow and its use here? Thanks..

Yeah, Arun. I think what we're expecting that we'll generate a slightly higher net operating cash in 2022 with the improvement in net income to your point partially offset by the increase in working capital. We expect to end of the year with significantly more architectural inventory gallons than we ended in 2021.

Plus, you're correct, there's some inflation there. As far as CapEx, as John talked about, we expect that to be about 1.9% or $415 million plus another $450 million for the Building Our Future projects. That does not include incentives. So we'll see some cash out less than that $450 million. Dividends we expect the net 9% increase to 240.

That's about a $630 million number, up 8%. So your free cash flow is going to go backwards. But as far as M&A is concerned when you look at our debt-to-EBITDA leverage ratio it was up 2.9% at the end of this year, our forecast is really for the debt-to-EBITDA approach the high-end of our range.

So at two to 2.5 times, we expect debt to be flat and really what's driving that leverage ratio down is the increase in EBITDA.

So from a balance sheet standpoint, we're going to have capacity to acquire and we're going to continue to pursue acquisitions that fit our strategy and we do expect to close the previously announced Sica acquisition in our first quarter. But -- and then you're right, absent additional M&A, we're going to buy our stock back.

We're going to be continue to be very consistent in our capital allocation philosophy and we're not going to hold cash..

Thanks..

Thanks, Arun..

Our next question comes from the line of Mike Harrison with Seaport Research. Please proceed with your question..

Hi. Good morning. I was wondering if you can break down the raw material situation a little bit further for us.

How do you see some of these specific raw material baskets behaving this year? As you look at resins, pigments solvents, additives and packaging, are you still seeing some of those go up significantly, while others are stable or maybe moderating?.

Yes Mike, a couple of comments there. I would say in '22, I think the biggest increase is you'll -- we're still expecting will be monomers, resins, solvents and packaging. We look at propylene as we've often talked about, and that really is critical to about 60% or so of our raw material basket. Been a little bit of a disconnect here recently.

We've seen propylene ticking down, but we haven't necessarily seen it in the things that we're buying that come from that feedstock. I think part of that is because of the strong demand environment that we're in. I think that also on the TiO2 side, we're seeing that tick up as well.

Inventories remain tight, given the strong demand but we feel very good about our supply of TiO2, given the really strong relationships that we have with our suppliers. .

All right. And then my other question is on the COVID situation. It seems like two weeks ago that was kind of dominating the conversation.

Maybe just give us an update on, how you're seeing the Omicron impact playing out relative to where you were two weeks ago?.

Well, I'd say it's improving. We're no different than what you would see in the marketplace itself. So, we saw the same spike and kind of decline that the rest of the country saw. So we are excited to try to get this behind us. As we mentioned earlier Mike, we're tired of talking about this stuff. I don't want to talk about COVID.

I don't want to talk about raw materials. I want to talk about growing sales and growing profits. So we can try to give you a forecast and what's happening, but we're just going to do what we do. We've got a lot of determination on this side and backed up with a lot of skill in scar tissue.

And I'd rather really not even answer this and just tell you we're going to fight through this. That's what we do. .

All right. Fair enough. Thanks very much..

Thank you, Mike..

Our next question is coming from the line of David Begleiter with Deutsche Bank. Please proceed with your question..

Thank you. Good afternoon.

John, Al just looking at Q1, how should we think about the improvement or the growth in TAG earnings versus Q4?.

Yes. So David, if you look at our fourth quarter in TAG, I talked about the volumes and the impact there. When you look at it coming into our first quarter, we're still going to see elevated raw material costs really the highest in our -- highest cost quarter for the year is our expectation.

We do expect our TAG sales to be up by a low-to-mid single digit which tells you with the higher price that our volumes are going to be backwards which again is going to put pressure on our margins. But when you look at it sequentially, we do expect to see improvement in our dollars and in our margin.

It's a small quarter, so any driver of volume, specifically when we look -- talk about the first quarter and fourth quarter, we talked about exterior sales in the Southeast and Southwest, driving the performance and assuming those hit the forecast we need to hit and expect them to hit, we should be ahead of our fourth quarter TAG EBIT margin and profit dollars.

.

Great. And just briefly John, looking at price realization on announced price increases this cycle versus prior cycles seem to be doing a little bit better.

Why is that? And is it sustainable going forward?.

Well, I think for all the reasons David that we just talked about. But actually, maybe a little more. I'd say, it's certainly a market where supply and demand is such that our customers have the confidence that speaks to the demand.

But I would also say that, our teams, if it's in our consumer business with Todd Ray and his team working really hard to help our customers be more successful or in our TAG business with Heidi Petz and her team aligning to make sure that our customers, I talked earlier about keep our customers in paint, working hard to develop products and services that have them at the right place at the right time to be able to do that or Justin Binns on our Performance Coatings side.

I mean, we're not just simply reporting. We're not just responding. Customer wants this, we don't have it. That's not who we are. What we're trying to do is influence as greatly as possible. So, we're aligning closely with our customers, where we often talk about running to the center of the fire. We're running to our customers.

We're trying to understand what is it that they need, how do we respond the best as we can. Yes, there's challenges. What do we do to keep you in paint to keep you moving.

And as a result of that, I think, while we're trying to help our customers to be successful and if it's a public company helping them to reach their goals, their numbers or a private company, who's just trying to feed their family, our goals are aligned with their goals. And when we do our jobs, we don't have to get fat and crazy with money.

We ask for our fair share, for our shareholders, while we're helping them. And that's the focus that we have. And because I think we're working really hard to do that and focusing on their success, we're adding more success in executing the price increases..

Thank you very much..

Thanks, David..

Our next question comes from the line of P.J. Juvekar with Citi. Please proceed with your question..

Yes. Hi. Good afternoon. John last year many projects got delayed with rising lumber and steel prices. In lumber after declining in second half of last year, the prices are on the move again and have gone up this year.

So do you think that's a concern for construction remodeling as project costs have gone up significantly?.

No, I don't. If you look at the LIRA as an example, and other indicators that we look at P.J., there's a very strong demand, it's a strong backlog. And I've actually heard people, including one of them on my staff named my CFO, who bought an item that was going to be a slight delay in getting it, and the price was variable.

Now not everyone may have that patience or ability to just say, okay, I want it, I'll pay whatever the market is at that time.

But there are a lot of people out there that have been pushing off the remodel of their home, or the addition that they need, or an area that requires remodeling, because it's either aging in place or the home itself needs to be fixed.

And many of them quite frankly are looking at it with the idea that prices are going up, I want to get this done and get the best price as I can right now, because it looks like this may continue. But I would tell you that I think the question that you're asking once again going back to demand. Demand is very strong..

Great. In light of time, I’ll pass it along. Thank you..

Thank you, P.J..

Thank you, P.J..

Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your question..

Yes. Thank you for taking my question. Al, I think you addressed sequential earnings in TAG already, but I'm tempted to ask about Performance Coatings in that regard, so 4Q into 1Q. If we look at history, I think, there are examples of that segment trending flat up and down in 1Q versus 4Q.

Do you have a strong feeling of directional sequential trend in performance for 1Q 2022?.

Yes, Kevin, I do believe we're going to see sequential improvement. I think that team -- for a couple of reasons. First, the team has done a terrific job of putting in price increases aggressively throughout 2021 and the need to go again in 2022.

There's no backing off on that team, the discipline around knowing they need to get the price and getting it, they are. Along with the volumes that we're seeing, we talked about our first quarter being up mid to high teens, with a high or low double-digit increase in price in our first quarter that tells you volume should be low to mid.

And I think that's going to help drive that improvement as well..

Excellent. And then I wanted to follow-up on the three acquisitions that you referenced.

Can you talk through the financial impact of those deals recognizing that they're in various stages of closing? For example, what is the contribution to sales that you're thinking about that's embedded in your guidance for the first quarter?.

Yes. For the first quarter, you know what, I would look at it net. If you look at the ANZ divestiture net of acquisitions, it’d be an immaterial headwind. Sika we don't have in our first quarter, we expect to have in our first quarter. So you're really talking about Tenant and SPI and net of ANZ, it's immaterial..

Tenant was more of a technology buy. We're going to -- we acquired that to try to take that technology and grow it throughout the company. It's a pretty small acquisition, but it does give us an opportunity. And to Al's point, the Specialty Polymers is more internal manufacturing..

Okay. Thank you very much..

Thanks, Kevin..

Our next question comes from the line of Greg Melich with Evercore ISI. Please proceed with your question..

Thanks. I wanted to follow-up on the impact of volume in raws on the gross margin.

If we look at last year holistically, would you say that raws were half of the 450 bps pressure and volume was the other half?.

Yes. I think, it may be a little more viewed on the raw material side. And here's why I would say that, Greg, we saw raw materials really ramp up in the second half of the year and not having pricing really built in to cover that until we got into August 1.

We got into a September 30 on TAG and then it was heavier on our petrochem basket and really impacted Performance Coatings. So I think raws really impacted a little bit more, because the dollar -- we couldn't offset dollar for dollar. We're close booked, couldn’t offset it. And as that impacts us you really see a margin decline.

In the specific though to like the fourth quarter, the TAG volume miss and TAG being down high single digits, really would have been the heavier driver in our fourth quarter..

Got it..

But I think if you look at it across the year it's a little heavier raws..

Raws would still be the driver. And I guess, the follow-up is sort of looking back at history and sort of how we get back to the margins we had in 2020. I think when you impact the last cycle in 2011 and 2012 it took two years to get back to where you were.

Do you -- has the business or the company changed enough for the world that, you would expect that to happen faster or slower, the cadence of recovery?.

I do think, we're different makeup of a company than we were back then, because of the Valspar acquisition. But I don't think the -- you look at the businesses within our Performance Coatings Group and the strategy around that and where we can differentiate and get paid for that. I still think that that two-year cadence is applicable.

And the other thing I'd highlight is, TAG is still over 50% of our sales. And you look at the strong volume that we expect in our second half and with the pricing activities that have taken place and what we have going in, we have a real opportunity, not only to surpass.

We certainly feel like the second half of this year will surpass 2020 or 2021, but really approach the 2020 operating margin. So I think at TAG, we could be there. I think the other two segments have more work to do..

But, Greg, I would add this that we learned an awful lot. And I would say, with that learning came incredible conviction is, when there were some of those delays and it took a little bit longer, it becomes tougher to get it as time goes out. So I agree with Al and I think that's -- those are good guidelines.

But I'd also say that, there's a lot of determination and conviction. We're going to push that as hard as we can..

That's great. Good luck guys..

Thanks, Greg..

Next question comes from the line of John Roberts with UBS. Please proceed with your question..

Just a quick one here guys. New commercial construction paint has been pretty far in advance of when the buildings are completed and painted.

Have you been able to go back and re-price that, or does that just have to roll through over time?.

There's not a single answer for that, John. In some cases, there are opportunities to adjust in many of them. But in some cases there's not. And so it's a case-by-case basis..

Okay. Thank you..

You bet..

Thanks, John..

The next question is from the line of Adam Baumgarten with Zelman. Please proceed with your question..

Hey, good afternoon, guys.

Do you expect to bring back some of the SKUs you rationalized as the raw material supply improves in the back half? And if that's the case, do you expect that to have a negative impact on margins?.

Well, what I would say is that, it's not just going to be going back to business as usual. They'll go through a very disciplined approach. And the question is going to be, if we survive this long without it why do we need to bring it back? So we want to manage our inventory and our working capital very closely.

So my answer would be that there's a disciplined approach. And if in fact you see a working capital investment it's because there's the proper return that comes along with that..

Got it.

And then just thinking about CapEx maybe beyond 2022, do you anticipate any additional headquarter-related CapEx in 2023?.

Yeah. I think you look at what we're spending so far we are going to see another similar amount in 2023 and then have it drop off into 2024..

Great. Thank you..

Our next question is from the line of Garik Shmois with Loop Capital. Please proceed with your question..

Hi. Thanks. Just one question for me. Just to be clear on the full year guidance and pricing.

Are you assuming any additional pricing is needed beyond what you've announced for the first quarter?.

I'd say in TAG, the assumption is that, there's no additional, I think has been consumer that will roll in, but I don't expect there's not in our guidance additional. Performance Coatings is a little different just because of the way they rolled pricing in 2021.

They may have some in the first quarter they may have some rolling into the second quarter. But we're not certainly planning today to have second half price increases go in..

I think our approach is this that we try to keep the increase to a minimum. And when you approach it that way, there can be a little more volatility. We don't want to be out in front of our customers asking for more than what we really absolutely can see with the hopes of covering what might be a future price increase.

And so that introduces a little more volatility, if in fact the numbers move or the prices move we've got to respond to that. But we think it's the best approach to our customers to try to keep the pricing to a minimum and have an open discussion with them about the volatile environment that we're in..

Got it. Thanks so much..

Thanks, Garik..

Our final question is from the line of Jaideep Pandya with On Field Research. Please proceed with your question..

Thank you. It's really just around M&A actually.

I mean, considering what has happened in the raw materials industry, and if you want to sort of look at it from a point of view of bulking up and increasing your size, do you think a large ticket consolidation on an interregional basis is an answer to this, or is this really how you're going about in-housing some of the resin capacity and verifying or rather putting more suppliers on your list is the way to go about sort of different way of asking but do you see large ticket consolidation in this industry? Because generally raw material crisis have brought coating consolidations.

Thank you..

Well, if I may just start with your first point about our desires to bulk up. I'd say that what is really the driver for our M&A strategy is our – is in fact our strategy. So it's not to be the biggest just not to do anything other than to put ourselves in a position to be able to best serve our customers.

And we prefer to do that in a very unique and differentiated way, bringing them solutions that help them to be successful and profitable. And so the litmus test if you will is business by business, looking at what is it that we need to be in position to be able to serve our customers. We don't have a desire to be everything to everyone, everywhere.

We're not chasing commodities. We're not it's not just about size. To us it's about driving value for our customers and shareholder value for our shareholders. And we do that by staying true to a very precise strategy. You're not going to see us jumping all over the world. Something is for sale so we're chasing it.

It's – we've got a very defined strategy. And if it bounces up against our strategy and all handsets to do it we're interested. If not we're not..

All right. Thank you so much..

You bet..

Thank you. At this time I'll turn the call back to Jim Jaye for closing remarks..

Thank you, Rob. I hope you heard today how excited we are as we enter fiscal 2022, a lot of opportunity ahead of us and we're after it. I tell you that demand is strong as you heard across all of our businesses and just a lot of confidence in our people and our capabilities. So thank you for joining us today.

As always, we'll be available for your follow-up calls and follow-up e-mails. Have a great rest of your day. Thank you..

This will conclude today's conference. Thank you for your participation. You may now disconnect your lines at this time..