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Fortune Brands Home Security (NYSE:FBHS)
Q4 2019 Earnings Call
Jan 29, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning. My name is Jessie, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Fortune Brands' fourth-quarter 2019 earnings conference call. [Operator instructions] Thank you.

I would now like to hand the call over to Mr. Brian Lantz, senior vice president of communications and corporate administration. You may begin your conference call.

Brian Lantz -- Senior Vice President of Communications and Corporate Administration

Good afternoon, everyone. And welcome to the Fortune Brands' home and security fourth-quarter and year-end 2019 investor conference call and webcast. Hopefully, everyone has had a chance to review the news release issued earlier. The news release and the audio replay of the webcast of this call can be found in the investors section of our fbhs.com website.

I want to remind everyone that the forward-looking statements we make on the call today, either in our prepared remarks, or in the associated question-and-answer session, are based on current expectations and market outlook, and are subject to certain risks and uncertainties that may cause actual results to differ materially from those currently anticipated. These risks are detailed in our various filings with the SEC, such as our annual report on 10-K. The company does not undertake to update or revise any forward-looking statements, which speak only to the time at which they are made. Any references to operating profit, earnings per share, or cash flow on today's call, will focus on our results on a before charges and gains basis, unless otherwise specified.

With me on the call today are Nick Fink, our chief executive officer, and Pat Hallinan, our chief financial officer. Following our prepared remarks, we've allowed some time to address questions that you may have. I will now turn the call over to Nick.

Nick Fink -- Chief Executive Officer

Thank you, Brian, and thanks to everyone for joining us today. In the fourth quarter, our teams continued to execute against our growth strategies. We delivered solid results as sales grew 4%, and we continued to improve overall operating margin. I am particularly proud of our team's performance during the year.

In 2019, we experienced a housing market that grew slower than planned, as well as a variety of other external pressures, most significantly, higher tariffs. We overcame these challenges and delivered solid performance, showing that we can execute well in the challenging environment. As we enter 2020 with the backdrop of the strengthening housing market and a more stable trade and tariff environment, I'm excited about our prospects as we continue to outperform the market and make long-term investments to position our portfolio for continued growth and improving margins. Each of our segments is well-positioned to grow in 2020, and we continue to allocate resources and capital to capture high-return opportunities.

Coordinated efforts across our supply chain, legal, and pricing teams continue to work to optimize performance and mitigate the effects of tariffs. We will continue to focus on our cost structure through supply chain, manufacturing footprint optimization, and other initiatives like indirect coming to better improve margins and our financial performance in 2020 and beyond. I'm also extremely proud to note that our strict emphasis i safety resulted in record low recordable incidents and continued low loss time rates, investing in the safety and wellness of our people so that they can return home in the same or better shape than they arrived is a top priority. It is engraved in our values, our culture, and our strategy.

We are honored by the recognition and accolades that we have received for our environmental, social, and governance efforts this past year. In 2020, we're going to further advance our ESG initiatives. While we are proud of our progress so far, we are committed to continually raising the ESG bar. Our latest ESG report is available on our website.

During my remarks today, first, I will discuss our view of the U.S. home products market. Second, I will provide my thoughts on our fourth-quarter and full-year performance, and lastly, I will speak to it live in the year ahead. Then I will turn the call to Pat, and he will speak to our financial performance, as well as our 2020 outlook.

Starting with our updated view of the U.S. home products market. As we mentioned last quarter, the home products market began to pick up in September and October. That activity continued into November and December, and the environment remains encouraging into this early portion of 2020.

For the fourth quarter, we estimate that the global market for our products grew roughly 4%, with construction, returning to high-single digit growth. Key indicators are pointing to a strengthening backdrop for this year, and we continue to have a healthy consumer environment, low unemployment, and low interest rates, trends that we expect to continue throughout 2020. Though the sentiment is strong, and we are ready to execute as builder activity translates from orders to starts and into our order books as our products go into homes toward the end of the construction project. Repair and remodel activity remains stable, while we may be seeing signs of an improvement in R&R, we are assuming only a modest acceleration in our 2020 plan.

We will have a better feel for 2020 R&R by late winter or early spring. While Pat will provide specific details in his comments, we are expecting the 2020 market to be at least 200 basis points higher than the 2 to 3% market that we experienced during full-year 2019. With expected housing market improvement and solid momentum in our key growth areas between plumbing, value-priced cabinets and outdoor living, we are confident that our 2020 efforts will produce market-leading sales growth and solid margin expansion. Now, turning to our performance during the most recent quarter.

Our solid results in the fourth quarter were driven by strong execution from our teams across our businesses, producing sales growth and margin performance in each segment. In the quarter, total company sales increased 4% and operating margin was up 140 basis points to 14.1%. Our performance in the quarter was also helped by rigorous expense controls across the businesses, while we continue to make prioritized investments in key areas to support our growth opportunities. Turning to our businesses, starting with plumbing.

In the fourth quarter, the global plumbing group continued to outperform the global market, with sales growth of 12% and operating margin of 21.7%. Annual operating margin was 21.5%, and this marks the fourth consecutive year of market-leading growth at 21n& plus margins for GPG, a clear sign that our strategy is working. Our plumbing business is firing on all cylinders. It is driven by above-market growth in both China and the U.S.

We continue to expand our product offering with partnerships and adjacencies, which is resulting in accelerated share gains. [Inaudible] continues to strengthen across all metrics in total and across targeted demographics, consistent with our strategy to reenergize our core plumbing business. The growth in brand awareness, purchase intent, and loyalty throughout 2019 was especially good in our targeted entry-level demographic, which are millennial age dependents. They're the largest segment of the population and will drive household formations in new construction for years to come.

We continue to be the preferred choice for builders, and have gained share during the recent quarter and throughout this year, adding to our powerful installed base. In 2020, for the fifth year in a row, Moen was named America's most trusted faucet brand by Life Story Research. As I mentioned, we continue to reenergize the core of the flagship Moen brand through brand building and consumer-relevant innovation. By Moen is a great example of this.

We recently extended our successful digital water platform, with the addition of our voice-activated kitchen faucet, which received a great deal of acclaim at CES and won the kitchen and bath best of 2020 in the smart home category this month. Along with our flow by Moen smart leak detection system in 2019, this marks two years in a row we've won best of in the smart home technology category at the influential show. Through strategic partnerships, we are creating additional growth engines and increasing the opportunities to leverage our powerful brand and move to market assets. Recent examples in partnership wins for the brand include Moen's spa shower system, a advanced showering system that delivers a spotlight experience while using up to 45% less water than the standard channel.

And along that, the aromatherapy shower, which uses proprietary aromatherapy pots to enhance the showering experience. Both were unveiled this month at the 2020 kitchen and bath show in. These products are part of innovative partnerships that help drive Moen as the leader in consumer-driven thoughtful water solutions. Our strategy is fueling share gains, improving brand health, and is creating adjacent product opportunities across our route to market.

Our Moen China business continues to grow profitably at a double-digit growth rate. Our focus has been to target the largest Tier 1 and Tier 2 metro markets and to expand our presence with adjacent product categories. All channels are working for us, and we continue to take share. We're closely monitoring the coronavirus outbreak.

We do not anticipate a material impact on our business at this time. Finally, we are improving our showroom footprint for both Moen and the House of Roll with enhanced displays and a broader suite of on-trend product offerings. Overall, we expect TPG to continue to outperform the global market with category-leading margins through best in class brand building and exciting consumer and approach, driven innovation that will further differentiate us as an industry leader. In addition, to reenergize core with multiple growth engines, including digital water, China, M&A, and strategic partnerships.

Moving on to our doors and security division. In the quarter, doors and security sales increased 8%, and operating margin improved significantly to 14.9%, as our doors and security business returned to its previous strong operating performance levels. Operating performance in doors was solid, while managing through a retail inventory rebalancing. We believe that inventory rebalancing indoors has concluded, and the strong retail POS and recent new construction strength should prove as tailwinds as we enter 2020.

In security, we saw improved operational performance and margin expansion as last year's platform transition is behind us, and pricing is now in place to address inflation and tariffs. We saw a strong growth in decking throughout the season, including further acceleration as we begin to roll out new fiber on distribution. Capacity expansions and investment in our bicoastal facilities are under way to support planned growth over the next three years. And finally, turning to cabinets.

For cabinets, fourth-quarter sales were roughly flat versus a year ago, excluding the comparison to a 53rd week in 2018. Operating margin was 10.1%. We continue to see store sales growth in value-priced products, which were offset by lower sales and higher-priced products during the quarter. In fact, our in-stock value price orders were up 18% in the month of December.

Additionally, new construction orders are accelerating growth in our builder channel as well. Under new cabinet's president, Dave Banyard, cost out and capacity rebalancing initiatives are accelerating for semi-custom and custom products. Initially, we're ramping up our value price capacity and leveraging our Mexico and other low-cost country supply chain to meet demand that's exceeding our initial expectations. Anti-dumping duties and tariffs are meaningfully reducing Chinese imports.

We're continuing to add capacity and extend the further rollout of our Mantra, EVE and Orvana lines across our 4,500 kitchen and bath dealers, as well as leverage our strong Aristokraft brand, all of which are targeted at the heart of this opportunity. Our Mantra line, which we've already rolled out in the Northeast, is having tremendous success selling demand from value price point products in our key dealer channel. We are aggressively moving to add capacity to expand this line in other markets. We're also seeing high interest through our retail home center channel, given our innovative lines of new products and ability to serve the channel with consistency and quality.

I expect us to capture share throughout this year and beyond and increasing margin levels. To sum up the quarter as a whole, we continued to outperform a more modestly growing market, and offset tariffs by expanding and growing categories and channels, launching innovation and integrating key partnerships, transforming our supply chain, taking price, and staying in front of the ever changing landscape. I am proud of our team's ability to deliver in this environment. Our performance in the quarter and in 2019 as a whole, speaks to our team's ability to manage the business tightly during slower periods and to capture share and position us to generate even higher growth during accelerated cycles.

Now looking ahead to 2020, we entered 2020, encouraged by the strengthening marketplace, as well as consumer and builder confidence. There is significant demand for U.S. housing, and the rate of growth will be dependent on the availability of supply factors such as labor. We have built a plan to outperform on a reasonable set of assumptions, and see upside should the market be even better.

Against that backdrop, we have multiple avenues of growth, and our teams are focused on capturing the most profitable of these opportunities. By focusing on growth opportunities and cost optimization, we will continue to achieve share gains and margin expansion, accelerating value creation for investors. Our 2020 plan assumes a more stable trading tariff environment, and we expect to offset all tariff expense by proactive supply chain actions and if necessary, for us. In 2020, I've challenged our associates to pursue the next phase of growth with increased focus to drive further value for our shareholders.

As Pat will describe in more detail, we have a 2020 plan in place that reflects U.S. market growth improving on the back of new construction, marketing-leading performance in the U.S. and abroad, especially in China, potential upside to our plan would also occur if the market improves more than we expect, and/or we achieve greater than expected gains in cabinets at the anti-dumping countervailing duty situation plays out. We expect to drive margin expansion by cabinets and doors and security improvement initiatives while maintaining industry-leading margins in plumbing.

We also expect to deliver mid-single digit sales growth and high single to double digit EPS growth. Our objectives for 2020 remain to deliver market-leading sales growth and margin improvement approaching 50 basis points. I will now turn the call over to Pat.

Pat Hallinan -- Chief Financial Officer

Thanks, Nick. As a reminder, the majority of my comments will focus on income before charges and gains in order to best reflect ongoing business performance. Let me start with our fourth-quarter results. Sales were 1.47 billion, up 4% from a year ago.

Consolidated operating income for the quarter was 207 million, up 15%, or $26 million, compared to the same quarter last year. Total company operating margin was 14.1%, up 140 basis points over the same quarter last year. EPS was $1 for the quarter, up 16% and versus $0.86 the same quarter last year. We remain pleased by our team's continued ability to grow sales and earnings during a period of softer market growth, but persistence of a challenging trade environment and while navigating significant supply chain transitions in a number of our businesses.

Now, let me provide more color on our segment results, beginning with plumbing. Sales for the fourth quarter were 548 million, up 60 million, or 12%. Continued strong double-digit growth, driven by results in China and the U.S., which powered through the continued market weakness in Canada and Mexico. Tolling operating income increased 9% to 119 million for the current quarter.

Operating income for the full year was 436 million, an increase of 10% over 2018. Operating margin for the quarter was 21.7%, and excellent results, driven by cost discipline and sales growth leverage. For the full year, plumbing operating margins came in at 21.5%. Full-year 2019 sales crossed 2 billion for the first time, up 8% versus 2018, up 9%, adjusting for FX.

We concluded our fourth straight year of strong growth and over 21% margins. Our strategies are clearly working, and we expect another strong year for plumbing in 2020. Doors and security sales for the fourth quarter were 331 million, up 24 million, or 8%, driven by fiber on and operational improvement in our security business. Door sales were flat as retail inventory rebalancing continued through the fourth quarter.

We believe this retail inventory rebalancing is complete, and we expect solid sales growth in 2020, as retail POS remains solid, and new construction is strengthening. Decking sales were up double digits in the quarter, in part, aided by new distribution load-ins. Security sales were up in the quarter due to strength in retail locks and commercial products, and favorable comps for last years' service issues. Operating income was 50 million during the quarter, up 85% over the same quarter last year, driven by operating improvement in doors and security, and by 2018 security costs.

Operating income for the full year was 177 million, an increase of 14% versus 2018. Segment operating margin for doors and security increased 620 basis points for the quarter over last year, to 14.9%, and was 13.2% for the full year, up slightly versus 2018 as the segment invested in fiber on. For full-year 2019, sales were 1.4 billion, an increase of 14% over the prior year. Turning to cabinets.

Sales for the fourth quarter were 591 million, which was roughly flat, if adjusted for the 53rd week in 2018. We continue to experience strong growth of value-priced products, while sales of higher-priced products contracted during the quarter. Operating income for the fourth quarter was 60 million, down 2 million versus the prior year. And for the full year, was 231 million, roughly flat to a year ago.

Operating margin for the quarter was 10.1%, and 9.7% for the full year, both up 10 basis points versus the respective 2018 period. This net of our full-year operating margin target of 10% was due to temporary inefficiencies experienced during the fourth quarter, which resulted from expanding and optimizing our Mexican manufacturing footprint. This has been rectified, and early first-quarter production rates and efficiency are already at the levels we had expected to achieve during the fourth quarter. We expect cabinets operating margin improvement in 2020 as cabinets' President Dave Banyard, accelerates our efforts to cut costs and rightsized capacity in higher-priced product segment while aggressively growing our value price point business in an efficient manner.

Full-year 2019 sales were 2.4 billion, down 1%, or roughly flat, adjusted for the 53rd week in 2018. For the total company, to sum up our full-year consolidated 2019 performance, sales increased 5% to nearly 5.8 billion, 6% adjusting for FX. EPS grew 8% to $3.60, demonstrating our ability to deliver growth and margin improvement, a slower tariff challenge market. Our total company operating margin was 50 basis points to 13.3%, in line with our full-year 2019 plan.

Free cash flow was 527 million, reflecting a conversion rate of 104%. 2020 should benefit from the expense control executed in 2019 and from an improving U.S. housing market. Before turning to the balance sheet, I want to take a moment to provide a perspective on our tariff recovery efforts and the impact on our business.

We continue to mitigate the impact of current tariffs through an extensive supply chain effort, and then when necessary, the pricing. Through this combination of actions, we were able to offset roughly 20 million of gross tariff exposure in the quarter, and offset roughly 50 million for the full year. For full-year 2020, we expect gross tariff exposure in the range of roughly 55 million, plus or minus 5 million, which we expect to offset fully with supply chain actions and if necessary, price. Turning to the balance sheet.

Our balance sheet remained strong with cash of 388 million, net debt of 1.8 billion, and our net debt to EBITDA leverage is now two times. We continue to have the capacity and flexibility to fund potential acquisitions and share repurchases. Turning to the details of our outlook for 2020. Based on the global market for our products, growing 3% to 5%, with the U.S.

housing market growing 4% to 6%, and Canada and Mexico being flat to slightly negative. Within this market forecast, we expect U.S. new construction growth of 5% to 8%, and U.S. R&R growth up 3% to 4%, based on these assumptions, we expect 2020 full-year sales growth of 5% to 6%.

We expect full-year EPS within the range of $3.83 and to $4.03. For 2020, we expect growth to be driven by a U.S. housing market fueled by strong new construction growth and by continued share gain success via our plumbing category expansion in China, decking distribution gains and value price point opportunities in Cabinet. Specifically, our outlook for each business as it relates to our overall plan, plumbing net sales growth of 5% to 7%, with operating margins of 21-plus percent.

Doors and security net sales growth of 4% to 7%, and with operating margins of 13 and a half to 14%. Cabinets net sales growth of 4% to 6%, with operating margins of 10.5 plus percent. As stated earlier, tariff exposure will be roughly 55 million, plus or minus 5 million. We expect to offset this exposure fully within 2020.

We expect 2020 free cash flow of approximately 565 million to 585 million, which includes the accelerated investments in capacity and inventory to support value price point products and cabinets and new composite decking customers. We expect a cash conversion rate at or above 95%. The annual EPS outlook includes the following assumptions. Corporate expenses of about 85 million.

Interest expense of approximately 85 to 90 million. A tax rate between 25% and 26%. And average fully diluted shares of approximately 141 million. To summarize, we have put together a 2020 plan that provides solid sales and EPS growth.

Potential exists for upside to our plans and guidance as some combination of the following occurs. Labor is available to address fully the U.S. new construction demand that appears to be high single to double digit in nature. If U.S.

R&R growth improved beyond the 3% to 4% assumed in our plan. If the impact of anti-dumping and countervailing duties on cabinets from China accelerates meaningfully beyond that experience during the latter portion of the fourth quarter of 2019. Better insight to these upside opportunities will unfold during the first half. As this occurs, and as merited, we would adjust our guidance accordingly.

Our teams remain committed to driving market being sales performance, and to continued operating margin improvement. I will now pass the call back to Brian for some closing remarks.

Brian Lantz -- Senior Vice President of Communications and Corporate Administration

Thanks, Pat. That concludes our prepared remarks on the fourth quarter and full year of 2019. We will now begin taking a limited number of questions. Since there may be a number of you who would like to ask a question, I'd ask that you limit your initial questions to two, and then reenter the queue to ask additional questions.

I will now turn the call back over to the operator to begin the question and answer session. Operator?

Questions & Answers:


Operator

Thank you. [Operator instructions] Your first question comes from Justin Speer with Zelman and Associates. Your line is open.

Justin Speer -- Zelman and Associates -- Analyst

Thanks, guys. Appreciate it. I wanted to start with cabinets. Just looking at that growth there? I know it was muddled by the 53rd week last year.

But with what you're seeing with anti-dumping duties, curious what you're seeing on the ground real-time, and how you think your book of business will grow relative to the market in light of what you're seeing with the antidumping duties and the impact on Chinese imports?

Pat Hallinan -- Chief Financial Officer

Justin, I'll start with -- if you take a step back from that, start -- there's no question there is a ton of demand for value price point cemetery. We saw that come through frankly, throughout the whole year, particularly strong in the fourth quarter. And in December, I mean, plus 18% for orders for that part of the marketplace. So, you take that as a backdrop.

We have the product suite, that's well set against that. We're putting in capacity to serve that. And then, as you look to the anti-dumping countervailing duties to the extent that materializes or materializes even quicker than we would anticipate. I think that's an additional demand tailwind.

So, as you think about it, I mean, it's been a healthy, very, very healthy part of the business even prior to these antidumping duties coming into effect. And now, as we see them come into effect there's a potential tailwind. As we said before, there was a very big inventory hangover that needs to work its way through the system. Our estimation is that's probably coming out around now as we head into Q1 and beyond.

But if you look -- if you step back, and you look at our overall plan, we're projecting 4 to 6% growth for the segment. That's a pretty significant departure away from what's been, call it, flat to down over the last couple of years. And even as a category inclusive of subsidizing ports, we would've estimated that we're in the 2 to 3% range. And so, we are seeing it come through.

We've got a significant amount, I'd say, baked into the year. But beyond that, it's going to take a couple of years for the kind of capacity to be built in to service that part of the market with the quality and service that our customers expect of us if we were to size that. Now, we would guess that's probably 200 to $300 million incremental opportunity that for our business at the part of the business that we want to go after with the margin structure we want to go after, and we fully intend, as we continue to roll out these products and put in the capacity to go get that business.

Justin Speer -- Zelman and Associates -- Analyst

Excellent. And then, just one follow-up question for plumbing. The growth there has been really special, and I wanted to maybe get some context, if you can unpack that growth for us by your regions or core markets, and really help us understand what's going on in China. It's been a really good growth there, but what you're doing there, and how much runway you have in that growth initiative?

Brian Lantz -- Senior Vice President of Communications and Corporate Administration

OK. Well, I'll give you some high-level views, and then I'll turn it over to Pat can give you some specifics. I'd say, first, if you step back, you look at a quarter like Q4, lights-out performance, you look at a year like 2019 in a 9% ex-FX in what was a slow market. So, I'd say, thank you for the compliment, really solid performance.

And to put up that kind of performance, it really has to come across the whole portfolio. So, you do have a business that has really been firing on all cylinders. The way they're going about that, I'd say, is two-fold. One has been a really strong focus on reenergizing the business.

So that is the nonbrand in the U.S. market. And really powering that through the twin engines of brand building and innovation. Now on the brand-building front, we rolled out about a year now, our hero for beautiful water campaign.

And we're seeing market improvement across all spectrums of brand health, awareness, loyalty, purchase intent, and it's driving share gains. And as we mentioned in the remarks, particularly with our targeted demographic, which is the entry-level homebuyer, particularly really no age to adults. And so that is a really important part. And we didn't start but we brand to begin with.

We started with a strong brand. And so -- and I really commend the team's willingness to kind of disrupt themselves and drive performance there. You take that brand building, and then you couple it with some of the innovation that you might have seen at biz and the consumer-relevant innovation that we're bringing, which is not only helping to our share gains is helping drive reappraisal of the brand. And so, those are two really powerful pillars that are helping drive the business, and then we layer on against that reenergized core, what we call our growth engines.

So, China is one of them, some of the partnerships that we brought to bear, digital waters and other. If you look at China specifically, the growth has been excellent. The team is performing really, really well. We really do emphasize that it needs to be sustainable, profitable growth, and so, we want to see really nice leverage coming through that P&L and creating their fuel to reinvest in the business.

They did a great job of that in 2019. And what they've been particularly strong at is taking our core assets of Moen brand and our route to market and great key customer relationships, and using it to leverage category expansion beyond just faucets and showering. And so, for example, we entered sanitary wear, where we're, I'd say, we probably have about one point of market share today, starting to put up some really significant growth there. And so, we feel that the path ahead of us is really, really got a long runway as we continue to expand beyond the core into areas in which, you know, there's plenty of room to still grow.

Pat, do you have any other color around?

Pat Hallinan -- Chief Financial Officer

No, I would build on the comments around sustainable profitable growth. I think, Justin, our expectation on the market in China. So, the overall market is 5% or less, so we're expecting the economy, inclusive of the housing economy, to slow down in China. But a lot of the strength of our growth has been through category expansion, by getting into product lines that we're not into in NAFTA, things like sanitary wear, and our market share of sanitary wear in China is less than 1%.

And so, while we would fully expect the Chinese market to moderate, there's two things that we feel still remain in our favor there, is, one, the Chinese government does rely on housing for its overall GDP growth. So we think it's going to moderate, but not greater in the near term, and then second, we have a lot of growth from category expansion to go. And so, we're managing our business in China, just like we do here in the U.S. in the broader NAFTA region, which is sustainable, profitable growth, and we expect that of the team on the ground in China, and they've delivered very well against that.

Justin Speer -- Zelman and Associates -- Analyst

Thank you.

Operator

Your next question comes from Phil with Jefferies. Your line is open.

Phil Ng -- Jefferies -- Analyst

Hey, guys. Your 4 to 6% sales guidance for cabinets, that's pretty impressive sharp reacceleration. Just curious if you could unpack for us, if you've layered any pricing, and help us understand how many points of growth you've layered in for the tariff dynamic we're taking share in, and remind us, like how much of your business in cabinets is tied in new construction?

Pat Hallinan -- Chief Financial Officer

Yeah, I would say, first, I'll reference 2019. So, you look at full-year 2019, which, adjusting for the 53rd week, is a roughly flat year you were seeing, in any -- we have multiple value price point product offerings. You're seeing mid-single digit to high-single digit growth for pre-existing brands. Obviously, things that are new like Mantra are growing off of, you know, a new base, so growing rapidly, but off of a new base.

We would expect next year that all of our entry price point brands, which are, you know, quickly becoming over 50% of our business, they finished 2019 at, you know, in the high 40% of our business, will probably be in the 50 to 55% of our business next year. We're going to expect them to be growing in the high single to low-double digit range across a range of product lines that service that market, and we're going to expect the rest of the business to be toward flat. And that there is some improvement in that as well. We've been pulling back from certain parts of the higher price point business, and we've also seen some stability of semi-custom in the dealer channel, not perfect stability yet.

So that's our outlook, and we would expect a lot of that growth above the market, you know, because you're thinking of a 4 to 6% housing market, when you're talking value price point brands growing roughly double that. You know, that is in part on the China import situation, but it's just also in part on consumers and trades people continuing to shift toward value price point products, whether they were using imports or not previously.

Phil Ng -- Jefferies -- Analyst

Got it. OK. That's really helpful. Sorry.

Nick Fink -- Chief Executive Officer

You're really starting to see the effect of the pivot and the balance of the portfolio as the growing part, which has been growing really well for a while. It's just become the majority of the portfolio, you just have to balance that more toward growth. And as Pat referenced, those trends of kind of accelerated value price point and more stabilized dealer semi-custom. We saw that toward the end of the year.

And so, as that plays through, you just get a much better growth mix.

Phil Ng -- Jefferies -- Analyst

Got it. That's helpful. And from a growth and performance standpoint, great to see doors and security bounce back. You know, help us understand the key drivers for what you're targeting for 2020.

Certainly, the door side of things levered to new construction. Are you starting to see that part of the business reaccelerate? And some of the operational and tariff dynamics on your security side, is it pretty much behind you, and we should expect that part of the business kind of reaccelerate from a growth standpoint and profitability standpoint? Thanks.

Nick Fink -- Chief Executive Officer

OK. Let me -- OK, I think those in products, and then I'll hand it to Pat for a little bit more color. I'd say, if you step back from doors and security, I would start with a lot of growth that we expect to come out of Fiberon, so we're very, very focused on the expansion of the Fiberon opportunity. And as a reminder, the main opportunity there is against what that's 80% of the market.

And as we go in there, we saw a strong consumer brand, again, kind of unbranded wood, and put the expansion into our bicoastal footprint. And again, it's our new distribution gains. You know, we expect a fair amount of growth to come out of that business. That started to go in at the end of last year, as we start to shift toward our distribution gains, and I'd say that was tracking ahead of expectations.

So, we feel very good about the Fiberon opportunity, and we'll talk to that in a bit more detail. If you go over to doors, doors, from a POS perspective, actually performed really well in the fourth quarter. We had some inventory rebalancing inside of retail where we believe we're through that now. And then, we do expect, as you point out, to see some acceleration on the wholesale side with exposure to new construction there.

And inventory was fair throughout the year. And so that is a nice opportunity as we through that rebalancing. And in security, yes, through the operational challenges associated with that kind of product platform change that we did, we saw the big bounce back in margin, which was really healthy, and then some nice performance coming through. And so, that will be much more post that, just kind of back to good execution mode.

Pat Hallinan -- Chief Financial Officer

Yeah. I mean, so all the businesses grew, both in the quarter and the year. And I think as you look -- that's referencing '19, obviously. As you look into 2020, as Nick referenced, we would expect decking to grow roughly mid-teens or better.

We would expect doors to move with the U.S. new construction and R&R market, It's probably 60-plus percent new construction, so it's going to be in the mid-single digits, and it will travel higher than that. If the labor is available, but because it certainly seems like there's new construction demand, that's really strong. And then, we would expect our security business to be in the low to mid-single digits, depending on the mix of business.

But you know, all businesses grew in the quarter and the year. The issues that challenged us at the end of '18 in security are long behind us, and the team is very focused on both growth and margin expansion, you know, across all the business units.

Phil Ng -- Jefferies -- Analyst

That's great color. Thanks a lot.

Operator

Your next question comes from Timothy Wojs with Baird. Your line is open.

Timothy Wojs -- Robert W. Baird and Company -- Analyst

Hey, guys. Good afternoon.

Nick Fink -- Chief Executive Officer

Hey, Tim.

Pat Hallinan -- Chief Financial Officer

Tim.

Timothy Wojs -- Robert W. Baird and Company -- Analyst

Maybe just on cabinets. Maybe, if you could give us just a little bit of an update on where you feel you are from a capacity standpoint, particularly on the semi-custom business. So, I think that that business is maybe undershot your expectations in 2019? And it seems like you're seeing a little bit of a recovery there. So just kind of curious when you think you can align some of the capacity there for more of a kind of flat to flattish type market?

Nick Fink -- Chief Executive Officer

Yeah, I would estimate, we'll be through that kind of by the end of 2020. So, there's still some work to do. Most of the work has been done the team's put a lot of gates. I think now we're probably in the final stretches, but expect a bit more to come out as we just rebalance it and make it more efficient.

And, you know, it's not -- it wasn't just as simple as kind of taking a bit out. The route to doing that was a big amount of work against creating a network that was far more flexible across all of our nodes than you historically have seen in the cabinet business. And so, as we come on the backside, it's really about having a more effective footprint, I think, is the way to think about it, probably, more variable ability to drive across different areas of it. And so, if we're growth were to come through that, we would have the flexibility to address it, but we'd start out from a much better cost position.

I estimate by the end of the year, we're probably through that. I'd say it's been pretty accelerating, with Dave Banyard's leadership in there, and really pressing on both accelerators of getting through the semi-custom rebalancing, as well as putting in more capacity on the value and stock side of the business where and we're seeing such growth.

Timothy Wojs -- Robert W. Baird and Company -- Analyst

OK. OK, that's helpful. And then, just on plumbing, just the overall growth guide for 2020. So, you guys did close to 9%, which is great in 2019.

And you're guiding more to slow down there, I guess, in 2020, despite seeing faster new construction. I think that business tends to be overweight new construction. So, could you just kind of true us up on why exactly that would be happening, or why is it exactly we see acceleration?

Pat Hallinan -- Chief Financial Officer

Yeah, Tim. Recall that the plumbing business, in total, has a healthy chunk, call it, two thirds or thereabouts, that is R&R. And even within that R&R, it has just a pure replace component that is a bit unique to plumbing versus the rest of our home products business. And so, we have -- we're expecting kind of a modest R&R acceleration.

They don't call it three and a half, plus or minus, half a percentage point, and pure replace tends to trail below that. And then we're moderating China a bit, and so, I think it's nothing more than the mix of a U.S. housing market that we expect, you know, to be in somewhere in the 4 to 6% range, and beat that, and then have China be in the teens or thereabouts.

Timothy Wojs -- Robert W. Baird and Company -- Analyst

OK. OK, sounds good. Appreciate the color there. Goodluck on 2020.

Nick Fink -- Chief Executive Officer

Thank you.

Operator

Your next question comes from Michael Rehaut with JP Morgan. Your line is open.

Michael Rehaut -- J.P. Morgan -- Analyst

Thanks. Good afternoon, everyone. First question I had was on how you're thinking about capital deployment this year and next. Obviously, you guys have always taken a pretty balanced approach between after, you know, the necessary capex, you know, kind of balancing it between bolt-on opportunities or acquisitions and share repurchase.

You know, with the strong free cash flow generation expected, you know, just trying to get a sense of No. 1, how you see the M&A backdrop today in terms of the opportunity set in front of you? Is it greater or lesser than it's been? And maybe talk about valuations a little bit, you know, and if that remains a little quieter this year, if we could expect an acceleration of share repurchase?

Nick Fink -- Chief Executive Officer

Sure. I'd be happy to talk about that. And so just, again, the priorities we've always been consistent and very clear. First and foremost, we do look for opportunities within the business.

Those are our highest returns, and we have some really nice things that we're investing behind that are going to drive good growth. And then next, we go to target an M&A, and it's accretive. And to the extent beyond that, we look to return excess capital to the shareholders. And so, that's kind of our clear priority in that order.

If you look within M&A specifically, our priorities are going to remain within plumbing and outdoor living, but we are also always evaluating other branded, higher-margin opportunities, where we feel that we could drive incremental value by leveraging the FBHS model into them. And you know, Fiberon is a great example of that. We had a model in the playbook that we thought we could bring to it. We had an asset in a route to market system through Therma-Tru that was best in class.

And so, bringing the brand-building capability, the route to market capability, to gain something like that has allowed us to drive a lot of value incurred for our shareholders. And so, that's how we're thinking about opportunities, specifically, with respect to flow, M&A, we saw in 2019. I think there's no question. As should be expected, I think, in a year where the housing market was slower.

Sellers probably, since year working their businesses and driving to better performance. I'm not going to get into the business of trying to predict whether things get done or not, but if I'm to measure it by the level of activity, I would say, for sure, that activity has increased, and we're definitely seeing increased imbalance that our team is working on. And so, it does feel that as we're coming into this strengthening housing market, there is increased activity in M&A. And you know, you can just sort of play out probability against that.

That said, you touched on valuations as well. We will stay disciplined. We got a good track record for being disciplined, and we will be disciplined. And against high valuations, we're really going to focus on the quality of synergies, and the quality of value creation that we can bring and hold the bar high on that.

With respect to buybacks, we do run our model against the stock, and against our plan, and what we expect our plan to deliver in terms of value accretion for shareholders, and tend to look opportunistically to buy stock, as we have in the past. In 2019, we spent about $100 million, and our stock is still undervalued. There's a way to go. And so, as we kind of balance out those opportunities, we'll be testing the value against what we know to be our value creation as we go along.

Michael Rehaut -- J.P. Morgan -- Analyst

Great. Thank you very much. I appreciate all those comments. I guess, for my second question, I just wanted to revisit cabinets for a moment.

Obviously, a big transition over the last couple of years. And you know, the comments you made around the new management team, continuing to accelerate some of the transition work that you're doing, just wanted to get a little bit of perspective in terms of, perhaps, what inning you think we're in in terms of that transition? Because, obviously, we've heard a lot of, you know, the restructuring and the capacity shifts have been ongoing now for, perhaps, 18 months or so. So just trying to get a sense of where we are in that process? How much further you think we need to go? Because, obviously, that also comes along with it, maybe a little bit higher or temporary area of expense or disruption or inefficiency. And would there be another step function improvement, let's say, if we're still getting through that this year, another step function improvement and profitability to expect in '21?

Nick Fink -- Chief Executive Officer

Sure. I'd start by saying, I think we're in the later innings of the pivot in U.S. It's been going on for a long time, and it has been monumental, shifting the footprint to the extent we've shifted it. I think the outcomes of the fruit that's bearing off of that is the kind of growth that we're expecting in 2020.

And so, if you think about it, we've had to make the change to get to a point where our footprint supports that kind of growth. That would indicate to me that we're in the later stages of the pivot, and come to a point where in 2020, indicating 4 to 6% growth with meaningful margin progress. Now, we're not done, but a lot of the changes are well under way, and now, we're starting to see the benefits. Now, you look a little bit, even within Q4, and we're encouraged by seeing really, really strong orders at that value price point, where we're putting in capacity, plus 18% for December, and seeing stabilized semi-custom orders in Q4 in our dealer channel against that semi-custom business.

And then, you look to the margin performance within that, and Pat touched on this, that we saw some temporary inefficiency as we ramped more Mexico capacity. And you're right, I mean, it is very hard to do when you experience inefficiency along the way. We're now through that, and we're seeing the solid margin progress that we expected to see, not coming through the business, as we're through it end of December and into January. And so, just another good proof point to us that as we round the corner on the pivot, it starts to look for that kind of growth.

And margin accretion, with the business pointed in the right way, we have the capacity where we need it, and we're starting to get the performance out of it. And so, there is work to do. We will continue to be balanced in the customer activity, working really, really hard to put in more value price point capacity. And with the growth rates we're seeing, we're going to have to add capacity there.

But I believe in 2020, you're going to see the benefit of the work that's been done over the last 18 months come through from both the top line and a margin perspective.

Michael Rehaut -- J.P. Morgan -- Analyst

Great. Thanks very much.

Nick Fink -- Chief Executive Officer

Sure.

Operator

Your next question comes from Susan Maklari with Goldman Sachs. Your line is open.

Susan Maklari -- Goldman Sachs -- Analyst

Thank you, good evening.

Nick Fink -- Chief Executive Officer

Hey, Susan.

Susan Maklari -- Goldman Sachs -- Analyst

My first question is just, can you talk a little bit to the raw material environment that you are seeing as we go into 2020, how that's kind of baked into some of these margins, some of the margin guidance you've given us, and how we should be thinking about it coming through over the course of the year?

Pat Hallinan -- Chief Financial Officer

Yeah. So, for I'll start with 2019, and I'll go to 2020 to put them both in perspective. So, 2019, I'd say, total inflation, commodities, tariffs, logistics, was about 80, 85 million in total, a little more than 2% of cost of goods sold. And of that 80, 85 million, about 50-ish million was tariffs.

As we look into 2020, and we look at inflation, again, looking at those same three components, we would see full-year inflation in the 40 to 50 million range. You know, so roughly 1% of COGS, but 10 million of that is logistics. And so, in terms of inflation, it's about half the rate that we saw in 2019, and we'll offset it with supply chain and where necessary, price. Tariffs, a bit more, I'd say, a complicated element in the sense that what things are falling off versus coming on, so I kind of put tariffs into a non-inflationary discussion.

They were about 50 million in total in '19. They'll be about 55 million in total to the P&L in 2020, but that is with, again, certain things falling off, new things annualizing, and some things coming off the balance sheet. So, I think of tariffs less of an inflation driver, and more of a year over year, almost flat dynamic we're dealing with. We will exit the year with some tariff favorability as some of the balance sheet stuff comes off in the first half of the year, but you shouldn't see a margin profile cadence throughout the year that is driven by any real specific inflationary or tariff dynamic.

None of them are big enough relative to supply chain and pricing actions in the quarter. And most of what's driving the '19 result and the '20 result in terms of tariffs are different board product and other hardwood products, glass and logistics, much more so than metals.

Susan Maklari -- Goldman Sachs -- Analyst

OK. That's very helpful. Thank you. And then, you know, to follow-up, you mentioned in your remarks, Nick, that there is upside to this guide and to your results this year, depending on how things move, obviously, with all the initiatives you have going on, as well as the macro.

But as you kind of look across the business and the opportunity set and the things that you are doing, where do you see the most opportunity? Where could we expect the most upside in there, and you know, how do you think about that coming through?

Nick Fink -- Chief Executive Officer

Well, I'll take a step back, and for starters, I look at almost '19 as the proof point, right? I couldn't be prouder of our team's performance in '19. Frankly, it was a year we tended up with a softer market than we anticipated and all sorts of stuff coming at us. And the business outperformed the market, right? It solidly outperformed the market against margin accretion. And so, if you take that kind of momentum and you place it against our assumptions for '20, you know, what we've done in '20 is we built a plan that will outperform the market.

And I would take that as a starting point. Now, we've made assumptions around what we think the market will do. We're seeing some really encouraging [Inaudible] from builders. We have assumed a rate at which that activity is going to convert from both their order books, into permits starts, and then our orders.

We see R&R, and we see demand for housing. We see a really favorable interest rate environment or mortgages. We've got to make -- we've made some, I'd say, fairly prudent assumptions about the rate at which R&R could improve over the course of the year, and then, we put around at a plan which we go, well, we're going to beat that market. So, the underlying premise is to the extent that that market turns out to be better, we expect to still have market outperformance.

And that's where we'll see upside, and that upside would place us toward the high-end of our guidance, and that's conceptually how we think about it. Now where would that come through? Well, new construction is an area, which we've made a set of assumptions, to the extent that builders are able to get labor conversion in foster or productivity of labor out. There could be some upside there if R&R strengthens, or in another area, is if the anti-dumping countervailing duties have an even foster effect on our cabinets business than we've anticipated. All of those are areas for opportunity.

You know, if you look in how that plays out against the portfolio one thing that's really nice about our portfolio is we've got this balanced exposure to that R&R market, about two-thirds of the portfolio, but we've got some really nice exposure to the new construction market. And the way we work it is in a slow year like '19, we'll manage expenses very tightly to still deliver a good year for shareholders. But in a year with some market tailwind, as we expect '20 to be, we really hope to enjoy that exposure to the new construction. And that plays out to various degrees, but it plays out throughout the portfolio.

And so, I think if you look at plumbing, doors, decking, I mean, all of those, and of course, cabinets are exposed to some of that new construction tailwind.

Operator

And that's all the time that we have for questions. I turn the call back to the presenters for any closing remarks. [Operator signoff]

Duration: 61 minutes

Call participants:

Brian Lantz -- Senior Vice President of Communications and Corporate Administration

Nick Fink -- Chief Executive Officer

Pat Hallinan -- Chief Financial Officer

Justin Speer -- Zelman and Associates -- Analyst

Phil Ng -- Jefferies -- Analyst

Timothy Wojs -- Robert W. Baird and Company -- Analyst

Michael Rehaut -- J.P. Morgan -- Analyst

Susan Maklari -- Goldman Sachs -- Analyst

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