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Masco Corp  (NYSE:MAS)
Q4 2018 Earnings Conference Call
Feb. 07, 2019, 8:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to Masco's Fourth Quarter and Full Year Results Conference Call. My name is Jack and I will be your operator for today's call. As a reminder, today's conference call is being recorded for replay purposes. (Operator Instructions)

I'll now turn the call over to David Chaika, Treasurer and Vice President of Investor Relations. Mr. Chaika, you may begin.

David Chaika -- Vice President, Treasurer and Investor Relations

Thank you, Jack, and good morning. Welcome to Masco Corporation's 2018 fourth Quarter and full year conference call. With me today are Keith Allman, President and CEO of Masco; and John Sznewajs, Masco's Vice President and Chief Financial Officer.

The fourth quarter earnings release and the presentation slides that we will refer to today are available on our website under Investor Relations. Following our remarks, we will open the call for analysts' questions. Please limit yourself to one question with one follow-up. If we can't take your question now, please call me directly at (313) 792-5500.

Our statements today will include our views about our future performance, which constitute forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements. We describe these risks and uncertainties in our Risk Factors and other disclosures in our Form 10-K and our Form 10-Q that we filed with the Securities and Exchange Commission.

Our statements will also include non-GAAP financial measures. Our references to operating profit and earnings per share will be as adjusted, unless otherwise noted. We reconcile these adjusted measurements to GAAP in our earnings release and presentation slides, which are available on our website under Investor Relations.

With that, I'll now turn the call over to Keith.

Keith J. Allman -- President and Chief Executive Officer

Thank you, Dave. Good morning, everyone, and thank you for joining us today. I'll begin with some brief comments on our fourth quarter before I turn to our full year results and conclude what the thoughts on 2019. Turning to slide four in the fourth quarter our top line increased 11% excluding the impact of currency, driven by strong growth in our North American plumbing operations, the benefit of our Kichler acquisition and strong growth in paints. Excluding the impact of currency, acquisitions and divestitures, sales grew 5%, operating profit grew $58 million or 23% due to increased volume, continued cost control and improved price realization. As a result, operating margins for the quarter expanded 150 basis points to 15.4%.

Our earnings per share increased 56% due to improved operating earnings, a lower tax rate and lower share count. We repurchased 9.6 million shares for $300 million in the quarter, a significant increase in our repurchase activity compared to prior quarters. We were pleased with our fourth quarter performance.

Turning to slide five; for the full year of 2018, we overcame significant inflation and delivered strong sales, operating profit and EPS growth for the full year. This growth was driven by solid consumer demand, healthy end markets and our continued focus on executing our growth and capital allocation strategies to deliver shareholder value. Sales for 2018 increased 9%, excluding the impact of currency, acquisitions and divestitures, sales grew 5%. This growth was driven by record sales years for five of our business units; Behr paint, Delta faucet, Hansgrohe, Watkins Wellness and Liberty Hardware.

Operating profit grew 6% despite significant inflationary headwinds demonstrating our ability to manage our costs and successfully implement price to offset raw material and other inflation. Earnings per share increased 29% in 2018, due to a lower tax rate of 25% increased operating earnings, lower share count and lower interest expense.

Turning to our segments, plumbing continued its strong performance in 2018. Delta gained share with its Brizo brand in showrooms, its opening price point Peerless brand at retail and we saw strength across all channels of distribution, including wholesale, retail and e-commerce. Notably Delta achieved a record year and successfully implemented a companywide ERP system. Hansgrohe's success was driven by growth in China and Germany offsetting softer conditions in certain other countries.

Watkins, our leading spa business had an outstanding year with strong performance in its core dealer network and retail channel and healthy sales of its Aquatic Fitness systems. In our Decorative Architectural Products segment, the acquisition of Kichler Lighting early in the year significantly increased sales. We've integrated Kichler into our Masco enterprise and we'll continue to drive value in 2019 by leveraging Kichler's product portfolio with existing and new customers. Realizing further operational improvements and optimizing its brand and go-to-market capabilities. Our pro paint initiative grew high single digits for the full year and we continue to invest in this large opportunity along with our partner, The Home Depot. Pro paint now represents about 25% of our coatings revenue and we expect to continue to drive high single-digit growth in the pro paint market in 2019.

In the DIY market, we are well positioned with a leading brand, the highest quality products and a great team of people and expect to continue to outgrow the DIY market in 2019. Turning to Cabinetry, we returned to topline growth in 2018 with strong 7% growth excluding the divestiture of Moores. Our repair and remodel cabinet business grew double-digits in 2018 aided significantly by our new program win with Menards. This growth, together with our business shift over the past several years has resulted in 70% of our sales in this segment, now driven by the repair and remodel market, up from approximately 60% two years ago.

In our Windows business, sales grew 1% for the full year excluding currency and our divestiture of Arrow Fastener. We achieved mid single-digit growth in our US business, while our UK business was challenged with lower demand. We took action in the UK to restructure and right size our operations during the year to match the current level of demand.

From an overall for Masco perspective, our strong growth generated over $800 million of free cash flow, for a more than 100% free cash flow conversion rate. Strong Cash flow is a hallmark of Masco, enabling us to drive shareholder value through reinvesting in the business selectively pursuing acquisitions with the right fit and return and returning cash to shareholders through share repurchases and dividends.

We deployed nearly $1.5 billion of capital during the year, consistent with our balanced capital allocation strategy. We returned $654 million to shareholders through share repurchases, we deployed $549 million for the acquisition of Kichler Lighting and we increased our dividend for the fifth consecutive year, all while reducing debt by $106 million. With this debt reduction and continued earnings growth, we finished 2018 with a very strong balance sheet. Our net debt-to-EBITDA at year end was approximately 1.7 times.

Before turning to 2019. I'd like to thank our more than 26,000 employees, both here in North America as well as across the globe for all of their efforts to help make 2018 another successful year for Masco.

Now turning to 2019; I'd like to share with you our view of the markets for the year. Consistent with many industry forecasters we expect the repair and remodel market to grow in the mid-single digit range in 2019. Those slower than the rate of growth in 2018. For new construction, we are assuming a low single-digit growth rate due mainly to labor constraints and affordability concerns understanding that recent declines in mortgage rates could help alleviate some of the affordability pressure. And for our international markets, principally Europe, we are expecting a low single-digit growth environment.

With regards to tariffs, our assumption is that the List 3 tariffs will increase to 25% on March 1st. We previously shared with you that the impact of these tariffs on Masco is less than the raw material and other inflation we effectively dealt with in 2018. As a reminder, the 25% tariffs represent approximately $150 million of annual inflation or approximately 2.7% of cost of goods sold. However, it remains to be seen what the impact these subsequent price increases will have on consumer demand.

Based on these assumptions, we expect sales growth in the range of 3% to 5% excluding currency. Margins to be similar to 2018 as we offset tariffs with supply chain initiatives, other internal productivity measures and price, and earnings per share to be in the range of $2.60 to $2.80. With our strong balance sheet, we will continue our balanced capital allocation strategy and intend to deploy approximately $600 million toward share repurchases in 2019.

Now, I'll turn the call over to John to go over our fourth quarter and full year results in more detail. John?

John G. Sznewajs -- Vice President and Chief Financial Officer

Thank you, Keith, and good morning, everyone. As Dave mentioned, most of my comments will focus on adjusted performance excluding the impact of rationalization charges, the inventory step-up related to purchase accounting for the Kichler acquisition and other onetime items.

Turning to slide 7, we finished the year strong, fourth quarter sales increased 10% or 11% in local currency. Excluding acquisitions and divestitures, sales increased 4% or 5% in local currency. Currency translation unfavorably impacted sales in the quarter by approximately $19 million. In local currency, North American sales increased 14% in the quarter, were 6% excluding acquisitions and divestitures. In local currency, international sales matched prior year in the quarter and increased 2% excluding our divestiture of Moores in the fourth quarter of 2017.

SG&A as a percent of sales decreased 190 basis points to 16.9% in the fourth quarter due to leverage on volume, lower promotional spend and cost containment. We delivered solid bottomline performance as operating income increased 23% in the quarter and margins expanded 150 basis points to 15.4%. For the fourth quarter, our EPS increased 56% to $0.64. I would like to note this performance was calculated based on a normalized tax rate of 25% versus the previously guided 26% tax rate. This change in our tax rate was driven by the issuance of recent IRS regulatory guidance regarding certain provisions of the new tax code. Due to this change, we have provided restated adjusted EPS numbers for each quarter of 2018 in the appendix on slide 23. Fourth quarter EPS was favorably impacted more than expected by approximately $0.05, consisting of approximately $0.03 benefit from the pull forward of sales in the Plumbing and Decorative segments, $0.01 due to the lower normalized tax rate of 25% and $0.01 due to the gain on asset sale in the Decorative segment.

Turning to the full year 2018, sales increased 9%. Excluding the acquisitions and divestitures, full year sales increased 5%, currency translation favorably impacted the full-year results by $47 million. In local currency North American sales increased 11% for the full year or 6% excluding acquisitions and the Arrow divestiture. Our North American teams executed well driving solid revenue growth with our strong brands, innovative products and broad product assortment continue to resonate with designers and consumers.

In local currency, international sales declined 2% for the full year or increased 1% excluding the Moores divestiture. While we experienced some international market softness in 2018, mainly in the UK, our international Hansgrohe plumbing business continued to drive growth. Our SG&A as a percent of sales decreased 90 basis points to 17.7% for the full year, as we continue to leverage our volume and control our costs. Full-year operating income increased $67 million or 6% with operating margins of 15.1%.

Lastly, our EPS increased 29% to $2.50 for the full year. As compared to our prior 2018 EPS guidance, the $2.50 in EPS includes the aggregate $0.04 EPS benefit of the sales pull forward and the gain on the sale of the building in Q4, and a $0.03 full-year EPS benefit from the normalized tax rate of 25%, down from our previously guided 26% tax rate. Our adjusted EPS calculation will continue to assume a 25% normalized tax rate for 2019.

Turning to slide eight, our Plumbing segment had a strong finish to the year, as sales in the quarter increased 6% excluding the impact of currency. This was driven by strong growth in our faucet, shower and spa businesses. The fourth quarter benefited from approximately $10 million of pull forward sales from Q1 of 2019, while currency negatively impacted sales by approximately $16 million in the quarter. North American sales increased 8% in local currency. As we experienced strong demand from our wholesale, retail, dealer and e-commerce customers. Additionally, our spa business continued to outperform by achieving a record fourth quarter with its innovative new products and industry leading brands. Our international sales in the fourth quarter grew 3% in local currency, rebounding from a soft third quarter. Hansgrohe's focus on key markets drove this performance as we experienced strong growth in Germany and China. Operating profit in the quarter increased to 11% due to incremental volume, lower spending and a neutral price cost relationship.

Turning to the full year 2018, sales increased 6% in local currency. This strong growth was driven by record years at Delta, Hansgrohe and Watkins. North American sales grew 8% in local currency, as we experienced strong growth across all channels and price points during the year. Our international plumbing sales increased 2% in local currency as Hansgrohe's performance continued to benefit from their investments in brand, design and innovation. Full-year operating profit grew 3% due to volume growth, partially offset by the price cost lag we experienced in the first three quarters of the year, mix and other expenses such as ERP spending.

For 2019, we expect the plumbing segment sales growth to be in the 3% to 5% range excluding currency, with margins similar to 2018, as we implement price to offset the impact of the proposed tariffs. Also given year-end currency exchange rates, we expect 2019 revenue will be unfavorably impacted by approximately $65 million, principally in the first and second quarters. This unfavorably -- unfavorable currency exchange results in negative EPS impact of approximately $0.01 per quarter in each of Q1 2019 and Q2 2019.

In addition, depreciation and amortization in this segment were approximately $20 million per quarter, due to increased capital investments in 2018. We also anticipate additional $5 million of expense in Q1 as we will be exhibiting at ISH, a large biennial European plumbing trade show.

Turning to slide nine, the Decorative Architectural Products segment grew 30% in the fourth quarter. Excluding the acquisition of Kichler, sales grew 8% as we experienced strong double-digit growth in our core DIY products and high single-digit growth in pro. Behr's strong DIY performance was aided by approximately $20 million of sales pulled forward from Q1 2019 due to increased year-end customer purchases to achieve incentives.

Operating income increased 42% in the quarter aided by the Kichler acquisition, increased volume and improvement in the price cost relationship, cost control in a $4 million gain on the sale of a building. Full year sales grew 20% excluding the acquisition of Kichler sales grew 5%. The solid performance was driven by our Behr pro initiative, as we achieved high single-digit growth and continued to grow share with the pro. While this pro-growth is slightly lower than our previously guided double-digit growth expectation, we are pleased with this performance considering the slowdown in the overall coatings market. Together with The Home Depot, we will continue to invest in and capitalize on the significant growth opportunity.

The solid sales growth in 2018 was also attributable to Liberty Hardware's continued share gains from successful new product introductions and program wins in the retail channel. Full-year operating income increased 13% principally due to the acquisition of Kichler, and improvement -- and an improvement in the price cost relationship and lower spending.

For Q1 2019, we expect segment's operating margins to be down approximately 200 basis points. This margin erosion in Q1 is driven by the $20 million of sales pull forward into Q4 2018, both sequential and year-over-year commodity inflation, additional investment in our pro paint initiative, the full quarter impact of Kichler, and an increase in depreciation and amortization to approximately $12 million per quarter. For the full year 2019, we expect sales growth in this segment to be in the 4% to 6% range including the benefit of approximately two months from the Kichler acquisition and operating margins to be between 17% and 18%.

Turning to slide 10, in the Cabinetry segment, excluding the Moores divestiture, sales increased 4% in the fourth quarter and 7% for the full year. The solid performance was driven by our industry-leading brands as we experienced double-digit growth in our repair, remodel business in 2018. The Cardell program at Menards is performing well, and we are pleased with its first year performance. In addition, our new home construction business matched 2017.

Segment profitability declined $1 million in the quarter and declined $8 million for the full year. The fourth quarter performance was driven by increased logistics cost and mix, as we discussed in our third quarter call. Full year profitability was also impacted by logistics costs and mix in addition to the ramp-up costs related to the Menards win. 2019, we expect flat to low-single digit sales growth due to lower demand in the cabinet market and expect segment margins would be similar to 2018.

Turning to slide 11, in our Windows segment, sales decreased 1% in the fourth quarter and declined 2% for the full year. Excluding the sale of Arrow Fastener in the second quarter of 2017 and FX, sales increased 1% for the full year. This performance was driven by Milgard, our leading Western US window business, which grew low-single digits in the quarter and mid-single digits for the full year. Milgard's growth was due to favorable pricing and in a positive mix shift toward our premium window and door products. This growth was partially offset by our UK window operation, which continues to experience market softness. Segment profitability in the fourth quarter increased $4 million, but decreased $15 million for the full year. Fourth quarter profit is due to favorable price cost and mix. Full year performance was to (inaudible) mainly driven by restructuring actions taken in the UK and the increase in Milgard's warranty related costs and inefficiencies in both the North American and UK operations.

In the first quarter of 2019, we will be implementing the ERP system in Milgard's largest California facility. As a result, we expect a modest operating loss due to lower volumes and the incremental ERP costs in the first quarter. The full year, we expect low-single digit sales growth for this segment excluding currency with modest margin improvement.

Turning to slide 12, our year-end balance sheet was strong with approximately $600 million of the balance sheet liquidity as well as full availability of our $750 million revolving credit facility. Working capital as a percent of sales finished the year at 14%, was slightly higher due to the acquisition of Kichler. This performance continues to be some of the best results in the industry. During 2018, we repurchased 18.6 million shares for approximately $654 million. And we increased our quarterly dividend by 14% to $0.12 per share. We took further action in 2018 to strengthen our balance sheet by reducing debt by $106 million. In addition, we now hold an investment grade credit rating at Standard & Poor's, Fitch and Moody's.

Going into 2019, our disciplined capital allocation strategy is unchanged. We continue to prioritize investments in our businesses to drive organic growth, we will balance acquisitions with the right strategic fit and returns with share repurchases, and we will maintain an appropriate dividend. We expect to deploy another $600 million for share repurchases in 2019 subject to market conditions. We are assuming a $290 million average share count for 2019. We generated $803 million of free cash flow in 2018 and expect to sustain a better than 100% of free cash flow conversion rate in 2019.

Lastly, as Keith mentioned earlier, our 2019 EPS estimate is $2.60 to $2.80 per share. I provided a lot of detail on our 2019 expected performance for each segment during my prepared remarks. Please see slides 27 and 28 in the appendix of our earnings deck for a list of these assumptions.

With that, I'll turn the call back over to Keith.

Keith J. Allman -- President and Chief Executive Officer

Thank you, John. Looking at 2019, while we believe that growth may moderate in 2019. The fundamentals of our business and our core repair and remodel markets are healthy. Consumer confidence and wages are growing. This increase is the consumers' willingness to invest in their home. Home prices continue to appreciate. This is highly correlated with repair and remodel spending. The age of the housing stock is increasing with 15 million owned homes greater than 30 years old. This drives increased remodeling spending and household formations have steadily increase throughout 2018, driven by the millennial demographic. This trend is projected to continue fueling housing demand for the next decade.

With our continued focus on executing our strategy including investing in our leading brands, innovation leadership and operational excellence, coupled with our strong balance sheet and liquidity position, we will continue to create shareholder value.

With that we'll now open up the line for Q&A.

Questions and Answers:

Operator

Certainly. In order to ensure that everyone has a chance to participate, we would like to request that you limit yourself to asking one question and one follow-up question during the Q&A. (Operator Instructions) Your first question comes from the line of Ken Zener with KeyBanc. Your line is open.

Kenneth Zener -- KeyBanc Capital Markets -- Analyst

Good morning, gentlemen.

Keith J. Allman -- President and Chief Executive Officer

Good morning, Ken.

Kenneth Zener -- KeyBanc Capital Markets -- Analyst

Good morning. The 8% growth we saw in North America plumbing, I was wondering if you could maybe expand on that a little bit. I'm just thinking of your Analyst Day in the past, we looked at faucets and showerheads, non-decorative (ph) and other Wellness, I just want to see how much dispersion there was between those different end markets, if you could do that for the quarter and for the year, just so we can get a sense of how those different initiatives are working?

Keith J. Allman -- President and Chief Executive Officer

Good morning, Ken. When you look at our North American plumbing market growth of 8%, we're very pleased with that and we believe that that growth is higher than the overall market. So we think we're taking share there, so we feel good about that. When you think about our international plumbing business, that's an extremely diverse set of demand spread over 135 countries and it's difficult to really nail down the market growth with that kind of aggregation. But when you look at how Hansgrohe is performing particularly in Central Europe, we're happy with that. So when you look over -- look across the Plumbing Group's overall performance and where that growth was driven, there were some good geographic dispersion, which we're pleased with.

And then when you look further as it relates to price point, we had some very good growth in the opening price point, driven the way we want it driven, meaning we launched new products to specifically address that price point. The Peerless brand, for example, we're seeing very good sales in our bathing and toilet categories, which tend to be more opening or entry price point, but we also saw strong growth in our high-end brands of Axor and Brizo for Delta and Hansgrohe respectively. And we saw very good growth as we talked in our prepared remarks in our spa business and our hot tub business. So we're seeing strong dispersed growth across both geographies, price points and across our full continuum of the portfolio. So feel good about the growth and feel good about 2019 in that segment.

Kenneth Zener -- KeyBanc Capital Markets -- Analyst

Good. And then I was just looking at the DIY paint seem to grow, I mean, it grew low double digits. Was that including the pull forward, because I think there were some other commentary from some other producers about it being kind of challenging and it seems like you didn't have the issue, if you can spend on that? Thank you very much.

John G. Sznewajs -- Vice President and Chief Financial Officer

Yeah, Ken. It's John. I -- first of all, the low double-digit growth rate does reflect or include the $20 million of sales that were pulled forward out of the first quarter into the fourth quarter. So that does help aid that growth rate a little bit. That said, we do think that the overall coatings market in 2018 just low a little bit, and so we do feel like we've probably picked up a little bit of share gain on the DIY side, not a ton. If you look at our overall growth rate for the full year, it was definitely low single digit. So a little bit of tailwind there in the fourth quarter, but for the full year, low single-digit growth.

Kenneth Zener -- KeyBanc Capital Markets -- Analyst

Thank you.

Operator

Your next question comes from the line of Michael Rehaut with J.P. Morgan. Your line is open.

Michael Rehaut -- JP Morgan -- Analyst

Thanks. Good morning, everyone, and congrats on the quarter and the year. The first question I had was looking out to 2019, your sales growth outlook of 3% to 5%, obviously by segment, you continue to execute a lot of market share gaining initiatives such as pro paint, your expansion in plumbing et cetera. I was curious, it looked though that like the 3% to 5% was more of inline with your market growth assumption. So if that is indeed correct, I was just curious about how you think about share gain opportunity in 2019, and if that's reflected at all in your outlook?

John G. Sznewajs -- Vice President and Chief Financial Officer

Yeah, Mike. One of the things that did impact our guidance for the full year on the topline, the 3% to 5%, is the fact that we did have some of that pull forward sales that impacted the fourth quarter. So that $30 million we would have typically anticipated hitting into 2019 portfolio than 2018. But if you consider the markets that we are in both the R&R market was growing kind of mid single-digit, 4% to 6% range and kind of low single digits for both new construction and international, and if you consider the fact that in particular, our Decorative Architectural segment we've got growing low single digits. If we put that all together, there is some share gain baked in there, so we do think we're growing ahead of markets. But overall, the markets are slowing a little bit for 2019. So I hope that captures the essence of your question,

Keith J. Allman -- President and Chief Executive Officer

Mike, we're seeing some good share gain opportunities to continue on our pro paint segment for sure. We have a real solid momentum in plumbing and we can see and expect that to continue and our offering as it relates to in aisle (ph) service product and brand et cetera. We feel good about that in the DIY space, while that market is a little softer. We believe will be a little softer going to 2019. So there is share gain baked into our thinking.

Michael Rehaut -- JP Morgan -- Analyst

Good to hear. Thank you for that. I guess, secondly, you mentioned that the List 3 25% tariffs are baked into your outlook for the year, your EPS guidance. Just wanted to clarify that, it still represents a $150 million of incremental headwinds and more broadly, if you could just remind us of the overall outlook for incremental raw material and tariff inflation in 2019 and how you expect to offset that between if it's possible to break it down between price productivity and whatever other offsets you have?

John G. Sznewajs -- Vice President and Chief Financial Officer

That $150 million impact, Mike, is the right number. And we've talked about that before. Of course, there is a significant amount of moving parts and potential variability there. Does do the 10% -- does that stay, how much the 25 goes in, if everything, when it goes in. So I think it's best to think about that as a very dynamic situation. And as more certainty is revealed over time, we'll be sure to share that with you and reflect that in our updates. In terms of ROCE, without a doubt, tariff is the biggest uncertainty for 2019. We are assuming in our forecast that does the tariffs do jump up to 25% mark.

When we look at other significant commodities like copper and zinc, for example, in plumbing, that has started to moderate in the back half of 2018 and we think that the level we're at, and we're assuming that the level we are at in copper and zinc will continue into the '19. So there might be a modest benefit there as we move on through the year. In coatings, while TiO2 has moderated a bit, we are continuing to see significant pricing pressures in resins. And in cabinets, plywood distribution and logistics, they remain elevated, but we think those were moderating, we think those will hold where they are currently.

In terms of how we are addressing it, certainly we're making significant moves and decisions and doing a lot of work on our supply chain. For example, we've reallocated, if you would, and moved over $30 million of plywood purchases in our Cabinet business to address countervailing duties and tariffs and the like. That's just one example. We're looking at value engineering and cost out. We're looking at productivity, we're certainly looking at other opportunities to move to other low-cost countries, and then price. And I think we've demonstrated the ability to execute on all those.

Michael Rehaut -- JP Morgan -- Analyst

Great. Thank you.

Operator

Your next question comes from the line of Michael Wood, Nomura Instinet. Your line is open.

Michael Wood -- Nomura Instinet -- Analyst

Hi, good morning. First question just wanted to ask for some more color on the DIY gallon growth and if you have any point of sale trends that you could share with us in the fourth quarter? It looks like, as you mentioned you out performed the market, and if you could provide some more color in terms of what's driving some of that relative strength?

John G. Sznewajs -- Vice President and Chief Financial Officer

So, Mike, in terms of we looking into POS, that's not ours. We can't give you too much of read through. That's a gallon growth was kind of flat to low single digits in the fourth quarter. So that's where we stand there. We feel good about that overall, and we think that's a combination of both pro and DIY. So we continue to grow the pro side, the DIY has been a little bit sluggish, but that's been the case all of 2018. So that's not necessarily new news. So yeah...

Keith J. Allman -- President and Chief Executive Officer

Yeah. I think in terms of what's driving that DIY growth in the aisle, it's a number of things, there's no one silver bullet. There certainly a big driver of it, it's our strong partnership with the Home Depot and the work we're doing in the aisle to convert foot traffic to cash paying sales to the consumer, the brand of bear is extremely strong in the DIY space and well known. Our service levels, both in the store in terms of delivery are extremely strong. So that combination of brand and service and a continued steady innovation pipeline is all part of our success in DIY.

Michael Wood -- Nomura Instinet -- Analyst

Great. Then some other building product companies that have reported have seen some destocking in fourth quarter notably Europe and US retail. Did you see that in any of your segments?

Keith J. Allman -- President and Chief Executive Officer

There is always a fluctuation with inventories at our customers, we did see a little bit of destocking in plumbing wholesale, where we've had tremendous success and that did slow down in that channel a little bit in the Q4. So there was a little bit of destocking there. But then we also had significant pull-ahead volume, which would obviously equate to restocking. We talked about that $30 million impact and over and across paint and plumbing, so really we did not see what I would characterize as any material destocking in our channels.

Michael Wood -- Nomura Instinet -- Analyst

Thank you.

Operator

Your next question comes from the line of Scott Schrier with Citi. Your line is open.

Scott Schrier -- Citigroup -- Analyst

Hi. Good morning. I'm wondering if you could talk a little bit about if there was any impact on margins this quarter that might have come from your pushing price to offset tariffs and then we have the tariffs delays. So if there is any lag there that caused a little bit of a margin tailwind there? And then understanding that's pretty uncertain, if tariff still materialize or I think turn out to be better than what we hoped for, can you speak to the elasticity of pricing that you might have for some of those price increases that you're putting through?

John G. Sznewajs -- Vice President and Chief Financial Officer

Sure, Scott. That it relates to the impact in the quarter due to pricing related to tariffs on margin, specifically to your question. When you recall that what we're trying to do or what we're pursuing with price when we pursue price to offset the tariff impact, it's just to recover the dollar amount of the tariff. So there's not any incremental margin if it's on as a result of the tariff pricing that we're putting into place, and if anything, because we are only recovering the dollar value of the tariff that actually then a slight potential for margin to decline because of that. So really no margin benefit there. I feed the second part of the question.

Keith J. Allman -- President and Chief Executive Officer

And elasticity, in terms of the elasticity, Scott, it's -- that's really difficult to nail down when you look at the environment that we're in typically the elastic studies that we do and information we have is based on in the constant environment of a particular product line goes up or down. When this -- with this kind of broad-based inflation in our -- across our markets, it's difficult to really peg that down specifically. But we are expecting that there would be some pull back in terms of demand in the categories that are effective.

Scott Schrier -- Citigroup -- Analyst

Got it. And then in the last couple of quarters, I believe that you've mentioned that you're seeing strong trends in terms of your ticket sizes. I'm curious if you anticipate that continuing or consistent with your comments about some moderation in '19 you would expect to see some even ticket sizes moderate in an environment where you have some uncertainty, and if so is that built into your guidance?

Keith J. Allman -- President and Chief Executive Officer

Mix is a good story for us, Scott. We're seeing good high-end growth in our higher priced bigger ticket items. I talked a little bit about it in terms of some very high and shower systems and Hansgrohe continue to do well. Our spa business had a record year this year. So the high end is very strong and continues to be strong for us, and we expect that continuing in the '19. We are also increasing our revenue and our growth rate in the opening price point are in the low end, and that's by design, where we've launched specific products, I talked about Peerless, we've talked about bathing and some of our toilets and vitreous China products. So we're also seeing growth there.

I think that's a good story when you have that kind of a bi-modal dispersion in your growth. The market is strong and new entries and new home owners are forming households, driving some of that opening price point. We have products to cover that. And then there is the move up phenomenon. We have products on the high end. Now, while our lower end products tend to be a little bit lower margin over time, we've done work to close that gap, but they are lower margin and when you factor at all in and how we're looking at '19, we're really not anticipating mix being a material impact.

Scott Schrier -- Citigroup -- Analyst

Great. Thanks for that. Good luck.

Operator

Your next question comes from the line of Justin Speer from Zelman & Associates. Your line is open.

Justin Speer -- Zelman & Associates -- Analyst

Hi, morning,. Thanks guys. Couple -- I had a couple of questions. One, just the broader corporate level SG&A, the management in the quarter was excellent. And I just want to understand which of that is temporal in nature, and how to think about SG&A as a percentage of revenues on a go-forward basis embedded in your guidance?

John G. Sznewajs -- Vice President and Chief Financial Officer

A portion of that favorability in SG&A this year is what we talked about terms of the gain a sale on the DAP segment, so that was about $4 million. And we did lap some investments in Q4 of 2017 tied to some pretty significant resets and program wins at -- in decorative hardware with Liberty in the shower (ph) program. So there was a bit of an easy comp If you would. We also had good cost control throughout the year and we did push certain investments into '19 to mitigate inflationary pressures, for example. In '19 we expect total SG&A for the Company to be up slightly from '18 as a percent of sales, as we pick up some of those investments that were pushed out to '19. We're going to continue to invest strategically for growth, such as marketing spend in Plumbing and additional headcounts in Deco to support the pro initiative.

Justin Speer -- Zelman & Associates -- Analyst

Okay. And then the next question, it's a 2-part question, particularly as it pertains to the Plumbing business you're looking for flat margins there, included a 25% tariff. First question is, do you already have the price in hand for that 25% tariff?

And the second question is how do margins for that business flex around a more sanguine R&R market backdrop, let's say, with low-single or flat as opposed to your 5% view and how do they look under a 10% or no tariff scenario?

Keith J. Allman -- President and Chief Executive Officer

Thanks. In terms of do we have price in hand for the 25%, no, we do not. We obviously had significant conversations and pricing actions. For the 10% we feel we're with the combination of the price and cost-outs that we've driven that were in good shape on the 10%, but more conversations would be required for sure. Should we see this go to 25% adjust. And could you repeat that second part of your question.

John G. Sznewajs -- Vice President and Chief Financial Officer

It's on the margin flex. In a low growth environment versus a no tariff scenario, so, Justin, as I think about that, assuming that commodities are constant. So let's put that in and there is a really, I mean, commodity impact. I would say that we should see some modest margin expansion, just given our leverage on incremental volume, right. And so that should help us out, and to the extent that the tariffs don't go into effect, and that has a good impact or favorable impact on consumer demand, we would typically see incremental margins of a volume in this segment kind of in the high 20% to 30% range. So we should see some -- again, some modest margin expansion in that scenario as well.

Justin Speer -- Zelman & Associates -- Analyst

But in a flat -- in a flat world, assuming a 25% tariff does go into depression that would potentially risk your guidance, since you're looking for modest growth here?

John G. Sznewajs -- Vice President and Chief Financial Officer

It could have a little bit of an impact on it, only because with 25% tariffs, we are going to be, again, the same answer I gave a couple minutes ago, won't be getting the dollar impact of that recovery on those tariff. So that if anything could present a little bit of a headwind to margins in that scenario, Justin.

Justin Speer -- Zelman & Associates -- Analyst

Thank you.

Keith J. Allman -- President and Chief Executive Officer

I think I may have heard you say something along the lines of the 25% tariff risking our guidance, just to be clear, we have incorporated into our guidance the expectation of 25% on March 1st.

Justin Speer -- Zelman & Associates -- Analyst

Understood. Thank you very much guys.

Operator

Your next question comes from the line of Nishu Sood with Deutsche Bank. Your line is open.

Nishu Sood -- Deutsche Bank -- Analyst

Thank you. And I wanted to ask first about the assumed moderation in a demand that you're baking into your '19 forecast. So on the housing side, we clearly have some indicators that housing has slowed down and I imagine you would expect that begin to impact some of your businesses in the next quarter too. On the R&R side, the assumed slowdown, is that something you've seen already in 4Q or are you just assuming that it happens given the slowdown on the new side?

Keith J. Allman -- President and Chief Executive Officer

Now we did see a little bit of a slowdown in Q4. I think in our coatings business, we saw it a little bit. I talked a little bit about our Plumbing business in the trade and wholesale, so there's a little bit of slowness there.

John G. Sznewajs -- Vice President and Chief Financial Officer

And Nishu, right. I would also say that we saw a little bit of slowdown in our Cabinet and to a degree our Windows business. We grew low single-digits for the fourth quarter in Windows, we are mid single-digits for the full year there.

Nishu Sood -- Deutsche Bank -- Analyst

Got it. And in terms just shifting gears to Cabinets and other specialty, in terms of the kind of margin turnaround there. Kind of getting us back to a double-digit, low single-digit revenue growth there seems pretty good given the greater exposure to new construction. On the margin side though we're expecting flat for the year, we have less, I would imagine that tariff impact based on your tables there and less commodities as well. So why only flat or when can we expect further improvements in the margins on those two businesses?

Keith J. Allman -- President and Chief Executive Officer

When you look at Cabinets, we had a full year margin north of 9% and when you compare that to the competition, we think we're doing pretty good there. We've got certainly some good drop-down that can come from that. We also experienced some inflation in plywood that we've dealt with, there is still a little bit more of that that could be a drag on margins. In terms of our Windows business, we've got ERP spend that we're going to continue to make into the quarter, which our experience shows this will have an impact on both the topline as well as the actual expense of that ERP system. So when you combine those things together, that's what's really led to our guidance as it relates to margin.

Nishu Sood -- Deutsche Bank -- Analyst

Got it. Okay. Thank you.

Operator

Your next question comes from the line of Stephen Kim, Evercore ISI. Your line is open.

Stephen Kim -- Evercore ISI -- Analyst

Yeah. Thanks very much guys, good quarter. Wanted to follow up on the Cabinet conversation a little bit. In Menards, I think you had indicated that it was going to be running at a run rate of about 80 million or so by, on an annualized basis, by the end of this year -- at the end of last year. I'm guessing that maybe you recognized about half of that in 2018. And if that were to be the case that would suggest that Menards alone would add about 400 basis points to your sales next year. But you've guided 0 to 3. And so I'm kind of talking -- wondering if you could talk about what you're seeing in the market environment that underlies that guidance or was there any -- is there anything that you're seeing in terms of the sales environment that that is depressing things, that is worth calling out whether it be regionally or price point wise or anything like that?

Keith J. Allman -- President and Chief Executive Officer

So, Stephen, with respect to the Menards business, while we won't break out specific customer sales, if I did a little bit better than that $40 million run rate that you suggested, so the impact for 2019 is good as you laid out there. As we go into 2019 and we consider a little bit of the deceleration we saw in 2018 and any impact of the tariffs and the pricing, particularly in a big-ticket item like Cabinetry, we do expect to see a little bit more of a market slowdown in Cabinetry going into 2019. And so that definitely weighs on our forecast for 2019.

That said, even though that we did see some of this deceleration, we do expect just some modest growth in this, because we've seen nice growth on the R&R side of our business and we've gotten back to flat sales for our new construction business. So not wild growth, but we do see a little bit of a deceleration in that area for 2019.

Stephen Kim -- Evercore ISI -- Analyst

Okay. That's helpful. But just when -- just to clarify, you're expecting some modest growth excluding or in addition to the Menards win?

Keith J. Allman -- President and Chief Executive Officer

We -- given the fact that we've taken some headwinds, given the tariffs and the decelerate or the overall market demand, I'd say it be kind of flat to very low single-digit growth ex-Menards.

Stephen Kim -- Evercore ISI -- Analyst

Ex- Menards, OK, got it. And then you talked about the outlook for housing starts, I think, being kind of low single-digit growth for the year. At this point that seems like it's reasonably conservative, but also there's a lot that still up in the air in terms of what the housing market is going to do as we just entered the spring selling season this week. And so I was curious if you see a upside to this housing starts figure that you laid out of low single-digit growth. Is there anything about your strategy that would change? And are there any particular segments that we should be expecting, you would be able to generate outsized sales or profit growth as a result of housing starts specifically?

Keith J. Allman -- President and Chief Executive Officer

If there is -- if rates start to go down a little bit, then obviously that could be an upside for us, in terms, Stephen of your direct question, if we see upside in our guidance, I would say no. I think we put our guidance rate where we think it would be, where we expect to come out based on what we know now. With regards to our specific strategy and would we change anything in our strategy, should there be an increase in housing demand? No, not really. We've got our capacities in a good spot, where we need to fulfill the demand. We've purposefully moved our portfolio to a less cyclical, higher margin, more stable state, because we think that's the right thing to do for shareholder value. We talked a little bit about doing that.

In our Cabinet business, how we shifted it now to some -- close to 70% of our business coming from repair and remodeling rather than new construction, obviously going back with one of our services business and we're continuing to drive our paint, plumbing business and our lighting business, particularly into the R&R space, so that's our strategy. We think that strategy is sound and it's working. So I would not say that we would have any material strategic change should we see Housing pickup in '19.

John G. Sznewajs -- Vice President and Chief Financial Officer

Yeah, and Steve, I just remind you that housing as a percent of our total revenue is now down to about 15%. So it's really, and to add to Keith's point, because of the strategic reposition that we've done over the years, it's really a very minor impact with the overall part of our sales, at our business.

Stephen Kim -- Evercore ISI -- Analyst

Yup. Got it. Thanks very much guys. Appreciate it.

Operator

Your next question comes from the line of Mike Dahl with RBC Capital Markets. Your line is open.

Michael Dahl -- RBC Capital markets -- Analyst

Good morning. Thanks for taking my questions. I wanted to just go back to some of the commentary around sales and thinking about the cadence of things, you guys have called out a couple of things that are idiosyncratic about the pull forward in the paint and Plumbing segments with respect to the impact on 1Q, you pointed out some margin headwinds in 1Q. But I guess at a higher level, when we think about that 3% to 5% organic sales growth, how should we think about that playing out kind of 1Q, 2Q versus the second half?

Keith J. Allman -- President and Chief Executive Officer

We've talked about some of the pressure that we're seeing in 1Q as it relates to margin and also on topline with the pull forward that we experienced in paint, Plumbing. So that would be a factor on the first quarter. When we look at that from first half to second half, it -- we certainly will see a pickup in the second quarter as those first quarter headwinds don't exist with regards to the pull forward. And then the second half to be somewhat similar to the first half, so were maybe a little bit stronger in the back half, but really pulling out the effect of the pull forward out of Q1 into Q4 of '18, really not a significant change beyond that.

Michael Dahl -- RBC Capital markets -- Analyst

Okay. Got it. And then my follow-up question, just looking at the Decorative segment in particular with respect to the 2019 guidance, I was hoping to drill down on kits were a bit more, because clearly that's a business that has potentially outsized exposure from a tariff standpoint. You've expressed some conservatism broadly speaking around what potential demand impacts could be, should the 25% go into effect. So I guess on Kichler specifically, what are you guys embedding from a growth and margin standpoint to the extent you can give us a little more detail there?

Keith J. Allman -- President and Chief Executive Officer

Yeah. I won't break it down in the specific details for Kichler, but in terms of speaking more in general terms, you may recall, we had 10 months of the Kichler in 2018, starting basically in March. So we'll have the full quarter in Q1 of Kichler. And just on face value, Kichler, that would be a margin drag as Kichler's margins are lower than the average in the segment. But particularly in Q1 that's seasonally a weaker quarter for Kichler. So that will put some drag on the segment, as we look at the performance in Q1 and that's part of our guidance, some of our prepared remarks with regards to margin in that segment. Very happy, we continue to build out the team down in Kichler, have an outstanding leader that's demonstrated performance across a number of our businesses and a number of functions.

As I interact with the dealerships and get more exposure to our customers, I am really seeing a strong brand and then also seeing an opportunity for us to bring some of our MOS (ph), and operational skills and some of our purchasing power to that area. We have an outstanding ability and opportunity to bring e-business capabilities to that business. So we're very happy with Kichler acquisition and we're going to continue to drive performance throughout the year. Understanding that given the full-year or full quarter ownership of Kichler and the fact that Q1 is the seasonally weaker quarter that will be a little bit of margin drag in the segment.

John G. Sznewajs -- Vice President and Chief Financial Officer

Yeah, Mike, or maybe just to add on to Keith's comments just a bit. If you think about how we look at the lighting business and when we talked about when we acquired the business, we really don't see the fundamental market for lighting shifting dramatically from when we initially talked about. It should grow kind of at the same rate as the overall R&R market kind of in that mid-single digit 4% to 6% range, as you might call it. That said you raised the point about the tariffs and the tariff impacts, because that have a little bit of a headwind on that. Yeah, they could, without a doubt. So something we need to look at and see how the tariffs actually roll-out in this year that placed (ph).

Michael Dahl -- RBC Capital markets -- Analyst

Okay. Thank you.

Operator

Your next question comes from the line of Matthew Bouley with Barclays. Your line is open.

Matthew Bouley -- Barclays -- Analyst

Hey, thank you for taking my questions. I just wanted to follow up on the discussion earlier around how you would kind of flex margins depending on different market assumptions, because you gave a point estimate for both Plumbing and Cabinets margins in 2019 in light of obviously a lot of moving pieces around tariffs and commodities. So I guess just what gives you confidence in such precise estimates? And then would you be able to kind of give, I guess, some more specific range or bracket around those margin estimates? Thank you.

Keith J. Allman -- President and Chief Executive Officer

I think the specificity comes from being able to identify the pull forward, for example. I think that's a significant benefit. We wanted to get some more detail in those segments, because there were so many moving parts. I think the -- historically, we understand how those businesses operate and the effect of Kichler as it relates to a seasonally slower point in time. And the fact that we own it three out of three months, instead of one out of three months there. So that was straight math and we wanted to make sure that we talked about that. So we could be more precise than that for specific quarter.

With regards to more detail, I think we've laid out the detail that we're prepared to lay out with regards to our margin performance for the year. And with respect to the impact of tariff, which is obviously the big moving piece here that we're talking about, that would have -- if those were to go away that would move us up toward the higher part of our range and we'll leave it at that and will provide more detail as we get more certainty around the number with the dates, et cetera.

Matthew Bouley -- Barclays -- Analyst

Okay. I appreciate that detail. Thank you. And then just the margin guidance specifically for Decorative, understanding the larger impacts in the first quarter, it still suggest that you're expecting a lower margin year- over-year from the second quarter to the fourth quarter. So is there any additional color on why that maybe in light of oil prices obviously moving lower. I guess how much of that would be the Kichler headwind from tariffs is mix of pro, a meaningful part of that just any additional color on why the conservatism on margins there? Thank you.

Keith J. Allman -- President and Chief Executive Officer

Kichler is a big mover there which that we've already talked about. We do expect some price commodity headwind in the first half of '19. We are going to continue to invest in hub stores and pro reps and recall that we don't anniversary our 2018 pro rep additions until the third quarter. So when you look at Kichler, you look at what we expect to be commodity headwinds particularly in the resin area that will be facing early in the year. We look at our growth investments in hub stores and pro reps and the fact that we don't anniversary some of those additions we made in '18 to late in the year. Those are combined to put our guidance in that 17% to 18% range.

John G. Sznewajs -- Vice President and Chief Financial Officer

Yeah. The one other thing I would add to that list of items that Keith just called out is our depreciation and amortization in the segment. I called that out in my prepared remarks, will be up compared to what we've experienced historically, Matthew. So that's another margin headwind a little bit, but from an EBITDA perspective, where probably EBITDA does not -- no impact on EBITDA whatsoever.

Matthew Bouley -- Barclays -- Analyst

Got it. Appreciate the detail. Thanks.

Operator

Your final question comes from the line of Susan Maklari with Credit Suisse. Your line is open.

Susan Maklari -- Credit Suisse -- Analyst

Thank you. My first question is just around, you've done a fair amount of work on the working capital side over the last year or so. How much more do you think you can do there and how should we think about that potentially adding to some of the cash generation that you expect?

John G. Sznewajs -- Vice President and Chief Financial Officer

Certainly. So we (inaudible) and thank you for noticing the fact that we've been working on working capital. Indeed, the businesses have been working hard at it. It has actually elevated a little bit from where we've been historically, a large part of that has to do with the Kichler acquisition as they carry a higher working capital than most of our business historically, our businesses, core businesses typically have done. That said, we are working with the Kichler team. We know they know that they see opportunity to reduce the working capital in their business. So there could be a little bit of a tailwind for us going forward.

And as you may know, we have all of our businesses focused on working capital. So we're -- while we are happy with what we've posted so far, we always strive to get better than within where we've been. So I think there's an opportunity to grind out a little bit better working capital as we go into 2019. That said, the one thing that will be a bit of a headwind for us in working capital is the tariffs, because the tariffs, you have to pay the government in very short period of time. I believe it's seven days and so that will impact our working capital a little bit as we go into 2019.

Susan Maklari -- Credit Suisse -- Analyst

Okay. And then my next question is just now that Kichler is integrated, how are you thinking about M&A going forward? Can you give us any color on what you've been seeing in terms of the pipeline there?

Keith J. Allman -- President and Chief Executive Officer

We have not changed our strategy in M&A, our pipeline remains solid. We're focused on identifying spaces, if you will, that we think have good fundamental growth and tailwinds and good pricing power and then we identify specific targets and then start our cultivation activity and we have a pipeline process and I'm pleased with the level of the pipeline, we really are not changing our strategy. We are -- we have a strong balance sheet that affords us the ability to do the kind of deals that we want to do as well as allocate capital on a balanced approach toward share repurchases, dividends, and of course we are going to continue to fund our brand and innovation in our existing core business. So we like what we're seeing and we're going to continue to drive it and when we are ready to do to announce a deal, we'll do that.

Susan Maklari -- Credit Suisse -- Analyst

Okay. Thank you.

Operator

This concludes the Q&A session and the Masco fourth quarter and full year results conference call. We thank you for your participation. You may now disconnect.

Duration: 67 minutes

Call participants:

David Chaika -- Vice President, Treasurer and Investor Relations

Keith J. Allman -- President and Chief Executive Officer

John G. Sznewajs -- Vice President and Chief Financial Officer

Kenneth Zener -- KeyBanc Capital Markets -- Analyst

Michael Rehaut -- JP Morgan -- Analyst

Michael Wood -- Nomura Instinet -- Analyst

Scott Schrier -- Citigroup -- Analyst

Justin Speer -- Zelman & Associates -- Analyst

Nishu Sood -- Deutsche Bank -- Analyst

Stephen Kim -- Evercore ISI -- Analyst

Michael Dahl -- RBC Capital markets -- Analyst

Matthew Bouley -- Barclays -- Analyst

Susan Maklari -- Credit Suisse -- Analyst

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