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Fortune Brands Home & Security Inc (NYSE:FBHS)
Q1 2021 Earnings Call
Apr 29, 2021, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, my name is Jason, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fortune Brands' First Quarter 2021 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Dave Barry, Senior Vice President of Finance and Investor Relations. You may begin the conference call.

David Barry -- Senior Vice President, Finance and Investor Relations

Good afternoon everyone, and welcome to the Fortune Brands Home & Security first quarter 2021 investor conference call and webcast. I'm Dave Barry, and I recently became Senior Vice President, Finance and Investor Relations at Fortune Brands after spending the prior six years in our Plumbing segment most recently, as Chief Financial Officer. I'm excited to be here, and I look forward to working with you all in my new role.

Hopefully, everyone has had a chance to review the earnings release issued earlier. The earnings 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 in our most recent Form 10-K. The Company does not undertake any obligation to update or revise any forward-looking statements except, as required by law. Any references to operating profit or margin, 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 have a lot of time to address some questions, and I will now turn the call over to Nick.

Nicholas Fink -- Chief Executive Officer

Dave, thank you, and welcome. And thank you to everyone for joining us on the call today. I hope that you and your loved ones are all staying safe as parts of the world begins to reopen. I could have been proud of our first quarter results, which reflected broad-based acceleration of our remarkable 2020 performance. Our business performed very strongly across the board. For the quarter, our total company sales increased by 26% over last year, with each business delivering double-digit organic growth. Operating margin increased 270 basis points to 14.8% and earnings per share increased 68%.

This performance was the result of exceptional execution by our teams in the housing market, which we believe is in the early stages of a period of long-term sustainable growth. Our stellar first quarter results were meaningfully ahead of a strong market and lap a very good Q1 in 2020. Importantly, we continue to drive market beating growth while advancing our strategic agenda including accelerating our margin improvement initiatives.

Our focus on execution, efficiency and safety drove share gains and favorable operational leverage. This focus allowed us to continue to service our customers and consumers with our industry-leading brands and innovation, while also increasing investments in the business these best in class results cannot be achieved without our wonderful people. They drive what we call the Fortune Brands advantage, which I'd introduced to you one year ago. This powerful combination of a common set of capabilities including category management, global supply chain excellence and complexity reduction skills deployed across Fortune Brands we'll continue to provide both investment for sustained above market growth, and operating margin improvement into the future.

Our performance continues to demonstrate that Fortune Brands is among the most reliable providers to our channel partners, delivering high levels of service in a high demand environment, while proactively working to keep people safe. As the pandemic moves into its next stages, we've continued our efforts to keep our employees safe by working tirelessly to secure access to vaccines for our workers. Through the efforts of our local teams, we have held or planning on holding nearly 20 onsite vaccination events across our locations. We are also working with local communities to help avail local vaccination events and are engaging and educating our employees to ensure the highest vaccine adoption rates possible.

I'm proud of our safety track record during the pandemic, which continues to be a ahead of manufacturing and national benchmarks. That said, we've learned a lot about operating in this type of environment, we will apply those lessons to continuously improve, and make Fortune Brands stand out among employers.

On the back of our continued outperformance in the housing market with long-term sustainable growth momentum, we've increased the global and U.S. market expectations for our leading brands, and our financial guidance for the year. Pat will go into greater detail later, how we are successfully navigating demand-driven challenges to be able to pursue higher rates of growth, margin, earnings and cash flow for our stakeholders.

We will leverage our Fortune Brands advantage in this favorable market to accelerate operating income improvement, and continue to free up incremental cash to make strategic long-term investments in our brands, innovation, digital strategy and supply chain capacity. This will enable us to capture more opportunities and continue to increase our share gains over time.

Turning to the remainder of our remarks today. First, I will discuss what we're seeing in our home products market. I will then highlight key takeaways from our first quarter, and provide additional color on what drove the results. Finally, Pat will provide highlights on our financial results, balance sheet strength and liquidity, as well as our thoughts around increased guidance to our financial outlook for the year.

Now, turning to our views on the housing market. Long-term fundamentals for housing and home products remain very favorable, and the rate of demand has further accelerated after a strong second half of 2020. This has been widely noted, the U.S. has currently millions of homes underbuilt, as growth of housing supply has not kept up with household formations. This dynamic has grown over a long period, and we expect the unwinding to persist for a long time. With supply and balances reached a point where even at the current rate of new construction starts, it will take several years for supply and demand to come into balance.

This severely underbuilt environment impacts both new construction and repair and remodel activity, as consumers are faced with the choice of purchasing a new home or updating very aged housing stock. As a result, we are uniquely positioned with our leading brands, and channel positions to take advantage of the tailwind of long-term housing activity. A differentiated exposure to new construction, combined with our powerful channel strength in R&R will remain a lever for growth well into the future.

Additionally, demographic to reinforce, as support we need for this expansionary housing environment to persist. The key millennial generation continues to move into their home buying years, while the baby boomer generation is choosing to age in place, and is adapting their homes accordingly. The pandemic has accelerated favorable trends that were already in place and has increased focus on the value proposition of the home. Even if vaccine distribution expands, and the majority of the U.S. population is vaccinated this year, both employers and employees have seen the benefits of more flexible workplace arrangements.

This resulted shift away from a full work week in office will create continued demand for workspace in the home, and allow employees the optionality of living further from their offices. Moreover, we've also seen purchases of second homes' rise, our brand's end products are well positioned to capitalize and is likely to be lasting movement.

Turning specifically to new construction. Activity remains robust driven by these very favorable demographics, lower inventory and attractive mortgage rates. Current pace in activity seem only to be governed by the ability of builders to source land, labor and materials effectively. Although, our inventory in rising home prices might create an uneven growth trajectory, we strongly believe that favorable demographics will fuel a multiyear sustainable housing expansion.

As I mentioned, repair and remodel activity also remains very strong and has expanded into 2021 as consumers spend on home improvement projects to refurbish in the aging housing stock. With demand for homes outpacing supply, older inventory is being purchased leading to significant R&R projects as homes are modernized. For example, we saw a strong double-digit growth in the premium price point segments of our Cabinets and Plumbing businesses, indicating the strength of large ticket R&R.

Current homeowners are also driving investment, as rising home prices have increased home equity levels to an all-time record of more than $7 trillion. This significant driver of R&R activity is amplified by the fact that consumers today are sitting on $2 trillion more in saving accounts than before the start of the pandemic. This combination of favorable demographics, severe underbuilding, attractive interest rates, high home equity levels, and the focus on the home as a place for multiple enjoyment gives us confidence in our increased market forecast for 2021, and the anticipated persistent housing tailwind we expect for years to come.

Much attention in the first quarter of this year has been paid to material, and other cost inflation, as well as pressure in global supply chains. We're pulling every lever available to us to service our customers. As we have demonstrated, our ability to mitigate and overcome challenges where the demand, supply were inflationary in nature has been proven through our consistent delivery of results.

As we speak to you today, having once again delivered exceptional performance, and having increased our financial outlook for the year, for both sales and margin, we will continue to be laser-focused on driving consistent stakeholder value across the organization, no matter of the environment.

With that market backdrop some thoughts on the recent quarter. We further executed on our margin accretion objectives in the quarter, as we saw the continued benefit from our efficiency programs, which began in early 2020. Consistent with our strategy, the execution of our Fortune Brands advantaged capabilities created fuel for growth that allowed us to invest in key growth initiatives, including in our brand and product innovation, digital capabilities and capacity expansions.

Importantly, these cross company initiatives to drive long-term growth and margin improvement, as well as to free-up additional funds for investment in our key priorities are ahead of schedule, and have contributed to our growth, and margin improvement in the quarter.

With an even stronger 2021 outlook, we are accelerating investment behind our core strategies, while also delivering margin improvement above our prior expectations. At the same time, we will maintain investment discipline, knowing that the pandemic is still ongoing and expansions do not always unfold in a linear way, start to deliver consistent performance for our stakeholders.

Now, let me turn to our individual businesses, and how we're positioning for a stronger long-term future. Starting with Plumbing. Our Global Plumbing Group continued to outperform the global and U.S. markets. The business accelerated during the first quarter of this year with sales of an excess of 30% in the quarter. These strong sales drove operating leverage, resulting in a 24% OI margin, notwithstanding increased investment in brand, innovation and customer service.

We experienced very strong double-digit sales growth across all brands, channels, and regions. Even if we exclude China to isolate the first quarter of 2020's COVID impact on the business, Plumbing sales still grew in excess of 25%.

Our Moen brand continues to win in its core products and adjacencies. Our leading brand awareness, purchase intent and loyalty metrics show non-persistently resonates with the key millennial consumer. Our cutting edge marketing is winning accolades, and we are investing more behind our powerful content. Our combination of advanced smart technology, and untrend designs drive share and profit growth has known leads into finding the way humans will interact with water now, and into the future.

We made significant progress, as our Flo by Moen technology rolled up into a key builder partner, and we also increased our retail distribution. We also further expanded Moen's smart home network with our Flo by Moen digital sump pump monitor, which one accolades to CS and the prestigious cable shell. Our sustained investment in innovation brand and channel with unrelenting focus on product delivery and service levels will continue to perpetuate the cycle of outperformance for North America's leading plumbing brand.

Additionally Moen China continues to outperform its market through channel and category expansion while providing high levels of product quality and service to our customers. All of our channels grew double-digit versus their first quarter 2019 pre-COVID levels. We have rolled out increased brand investment in China, and we're seeing a very strong response to our campaign.

Finally, the House of ROHL grew in excess of 25% globally despite continued restrictions and showroom capacity in the U.S. enrolling lockdowns in Canada and Europe. The positioning of these brands is authentic luxury plumbing collections resonates with consumers for leveraging their own strong balance sheets to elevate and customize their kitchen and bathroom designs.

Turning to Outdoors and Security, sales increased by over 45% and operating margin increased by over 300 basis points to 13.5%. Organic sales, which exclude our recent LARSON came in at an impressive 15% growth. These exceptional results were driven by very strong double-digit decking and doors growth, continued growth in security and exceptional execution across the segment.

With respect to LARSON, our teams are hard at work in integrating the business, and capturing expected growth and synergies. The LARSON team has proven to be a wonderful fit with our Fortune Brands' family. There is more work to do, but we are ahead of schedule and our expectation of synergies from this addition to our portfolio are as good or better than we thought at the time we announced the transaction.

Turning to Decking. Fiberon grew in excess of 40% an impressive feed during a winter period that normally include some seasonal slowing. Momentum in our decking brand has not only continued but is strengthening. Some of the other composite board makers we continue to take increasing share from lumber decking products. Our investment thesis continues to be confirmed, as distribution expansion coupled with leveraging our Fortune Brands advantage capabilities positions Fiberon for long-term growth in a market fueled by trends in housing, outdoor living and long-term material conversion from wood to higher performing eco-friendly recycled materials.

We remain on track to add capacity mid-year, as we drive double-digit top line growth across Fiberon. With inflationary pressure on lumber although much of the last year, the price differential between commodity wood in brand and engineered decking is negligible, contributing to a greater number of customers choosing engineered materials. That said, even if lumber pricing moderates the cost benefit equation will continue to weigh heavily in favor of engineered materials, and the value proposition will continue to improve through branding and innovation.

Sales in our legacy doors brand experienced strong double-digit growth in the quarter, including robust demand in retail POS and increased wholesale activity,, as new construction ramped up during the quarter leveraging our deeply develop channels. Our advantaged single-family new construction exposure is driving results of their nature, and our team is working hard to supply increasing demand while navigating cost and supply chain challenges.

Much like at Fiberon, consumers are increasingly realizing the benefits of engineered products of a more traditional materials used in exterior doors and outdoor living. These conversion tailwinds will continue to power our doors business well ahead of the market. Our new design tools, innovation in performance of functionality and the ability to customize through technologically driven skins and coatings have expanded opportunity set in this product category, where we have deepened our position as the No.1 exterior door brand.

Turning to Security, sales grew further at this past quarter, as commercial international markets continue to open. Master Lock is continuing to demonstrate improved performance, as it progresses its transformation under its new leadership. We are employing Fortune Brands advantage capabilities within our security operations to drive growth and operating margin improvement.

In fact securities performance in the past quarter contributed to the success of overall margin progression in the segment versus a year ago. Finally, turning to Cabinets, our cabinets team again delivered excellent performance in the quarter. Sales grew low double-digits for the third quarter in a row, a single-family new construction and bigger ticket R&R increased. With strong growth across product lines at all price points, operating margins expanded by a 180 basis points over prior year to 10.8%.

That impressive margin improvement was off of the strong Q1 last year, as new construction activity produced seasonally strong results a year ago. Our Cabinets business continues to demonstrate how our hard work over the past few years produces market beating topline performance at increasing margins. We have considerably changed the way we look at both our current operations and view our future opportunities. Our work in our global low-cost supply chain is adding flexibility and resiliency to the business.

We are building a scalable and cost effective network across our platform with increased simplification and commonization driving both operating leverage and bests in class service growing share against a fragmented domestic market and against imports, which are coming in at higher cost and longer lead times. We're seeing growth at both ends of the price spectrum. Our cabinets pivot plan now in the late innings positions our business extremely well to capitalize wherever demand materializes.

In the first quarter, we delivered a double-digit growth in both our make-to-order and value-priced categories. In our make-to-order business, we're seeing strong trends as past quarter in the U.S. led by premium price points and a nice return to performance in Canada as that housing market reaccelerates. Our best-in-class dealer network continues to deliver for us.

Additionally, our cabinets' team is exploring new omnichannel opportunities and is accelerating investments in e-commerce. Within our value price point cabinets, we continue to gain share while optimizing our operations and offerings. During the quarter, demand was widespread in value cabinets across builder, dealer and retail channels. We made considerable progress in capacity and distribution with investments in the quarter in Mexico, as well as the on-time opening of our new Southeast facility to serve surging demand in Mantra and other value-priced products.

We expect another breakout year for our Mantra line in 2021, which serves the market previously addressed by importers with stylish, short lead time product. Our cabinets team has increased share by continuing to win in the market and is doing so on an advantaged replatformed cost base. More opportunity lies ahead and the team is pursuing it with the same figure and tenacity that they have demonstrated over the last few years. We are well on our journey to drive our Cabinets' business to our long-term goal of mid-teens margins.

In summary, our teams worked tirelessly to deliver on our purpose fulfilling the dreams of home and we take great pride in our impact on the quality of people's lives within the home. The world is not without challenges or risks, health, safety, or otherwise. The home provides comfort, protection, respite and is a center for human connection whether it'd be work, school, entertaining or generally forming deeper relationships between friends and family. We are central to the role of the home and our pride in that role comes through in our brands, innovation and people every day.

In addition to fulfilling the dreams of home, our company is committed to doing its part to help improve the lives of those around us for our environmental, social and governance efforts. Whether it is through our environmentally responsible products, leading safety record or diversity equity and inclusion initiatives we are continually challenging ourselves to raise the bar. I encourage you to visit our website to see our recently released ESG report.

Combined with attractive demographics, strong demand and low supply of homes, we expect our long-term multiyear tailwind for housing. As the market expands to the severe gap in housing supply, we expect to scale ahead of that demand and continue to take share consistent with our long track record. Our innovative portfolio of products is targeted at the heart of the market and there's broader channel exposure than ever before.

By leveraging our own actions to continuously improve the business and our proving resilience we intend to capture the upside of this multiyear expansion, while managing any volatility that may come our way. With our exceptional team, leading brands, strong channel positions and powerful balance sheet we are uniquely positioned to continue to drive accelerated value creation for our stakeholders. Our updated and improved 2021 outlook reflects the strength of our business with robust growth translated to operating and increased margins while we continue to invest for the long-term.

We expect to continue to outperform our markets in 2021 and beyond while fully offsetting inflation and supply chain challenges to produce even stronger results. In addition, our powerful balance sheet positions us to continue to drive incremental value creation. We are excited for what our world-class brands and people can accomplish. With that, I will turn the call over to Pat, who will speak to our financial results. Pat?

Patrick Hallinan -- Senior Vice President and 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. So let me start with our first quarter results, sales were $1.77 billion, up 26% from a year ago, organic sales growth, excluding the LARSON acquisition was up 19%. Consolidated operating income for the quarter was $262 million up 54% or $92 million compared to the same quarter last year. Total company operating margin was 14.8%, up 270 basis points over the same quarter last year. EPS were a $1.36 for the quarter, up 68% versus $0.81 for the same quarter last year. Our associates focus on safety and outperforming a strong market drove these outstanding results.

The momentum of activity in our markets was strong throughout the quarter and remains strong. While we are working hard to service the robust demand across the portfolio, we are also taking action against material and freight inflation and supply chain imbalances. We expect to offset these challenges fully to deliver higher growth and greater profitability than we planned. Our high-performing business model of leading brands and channel positions combined with further deployment of our Fortune Brands advantage drives both incremental investment and increased value to the bottom line for our stakeholders.

Now, let me provide more color on our segment results, beginning with Plumbing. Sales for the first quarter were $622 million, up a $153 million or 33% or up 30% adjusting for FX. First quarter growth was up very strong double-digits across all major brands, channels and geographies. Plumbing operating income increased 43% to a $149 million for the first quarter, operating margin for the quarter was 24% reflecting strong volume leverage despite significant investment during the quarter in our brands, strategic priorities and to maintain service level. We expect 2021 margins to be at or above 22% for the full year.

Turning to outdoors and security, sales for the first quarter were $462 million, up a $148 million or 47% driven by the addition of LARSON, as well as strong double-digit growth in doors and decking and continued growth in security. On an organic basis, sales were up 15%, we expect all product categories to drive 2021 growth. Door sales were up double-digits in the first quarter driven by consistently strong retail sales and an accelerating new construction market and decking sales were up strong double-digits in the quarter, as our distribution gains achieved new performance levels.

Demand in retail and wholesale channels remain strong. We are selling every board we can make we are on pace to bring additional capacity online in the middle of this year and are looking for options to pull forward capacity plans from 2022 and beyond. Security sales continued single-digit growth in the quarter with strength in retail and international markets. Commercial markets showed improvement throughout the quarter and are poised to continue to perform better throughout the remainder of the year.

Outdoors and Security's segment operating income was $62 million during the quarter, up 91% over the same quarter last year, driven by the addition of LARSON and performance improvement in doors, decking and security.

Segment operating margin increased 310 basis points versus the same quarter last year to 13.5%. Turning to cabinets, sales for the first quarter were $688 million, an increase of 11% over the same quarter in 2020. We continue to experience strong growth of value-priced products and sales of higher-priced make-to-order products returned to double-digit growth in the quarter with positive signal for big ticket R&R reflects consumers' increased desire and ability to invest in their homes.

Operating income in the first quarter was $75 million, up 34% or $19 million versus the prior year. Operating margin for the quarter was 10.8%, up a 180 basis points versus the same period a year ago. We expect cabinets to deliver an average second half operating margin of 13% or greater, as we benefit from our efforts to streamline operations and invest to capture additional share gains. Before turning to the balance sheet, I want to take a moment to provide perspective on material and cost inflation in the face of elevated demand and amid a backdrop of an accelerating housing market.

We continue to deploy a multitude of tools to mitigate or offset inflation within our businesses. We do this through continuous cost improvement throughout our operations. We enacted major programs during the past year and are furthering those initiatives in 2021. We also employee cost sharing with suppliers where appropriate, finely, when necessary we act via price. Through this combination of actions, we plan to offset fully all inflationary headwinds this year and expect to deliver 2021 margin improvement and remain on an increasing margin trajectory over the next several years.

Turning to the balance sheet, our balance sheet remains strong with cash of $356 million net debt of $2.3 billion and our net debt to EBITDA leverage is now at 2.1 times. We ended the first quarter with approximately $755 million of total available liquidity. We have made and we'll continue to make significant investment. We are continuously assessing opportunities to deploy capital strategically, to accelerate growth and stakeholder value creation. We will also look to continue to return capital to shareholders through opportunistic buybacks and our dividend building on the over $1 billion of capital deployed during 2020.

I would now like to address our updated market and financial outlook. Given our continued outperformance and strengthening home products market, we are raising our market and financial outlook for the full year of 2021. Based on the expectation that the global market for our products will grow 9% to 11% with the U.S. housing market growing 10% to 12% and within this market forecast, we now expect U.S. new construction growth of 11% to 14% and U.S. R&R growth of 10% to 12%. Based on these assumptions, our revised 2021 full-year sales growth is expected to be 20% to 22% or 13% to 15% on an organic basis. Our full-year operating margin is expected to be around or above 15%.

We now expect full year EPS within the range of $5.45 to $5.65 on our before charges and gains basis of which the implied midpoint equates to earnings growth, in excess of 30% over our record year in 2020. Specifically, our outlook for each business as it relates to our updated guidance includes Plumbing net sales growth of 15% to 17%, with operating margins at or above 22%. Outdoors and Security net sales growth of 43% to 47% or 11% to 13% excluding LARSON with segment operating margins up 15% to 16% or approximately 16% to 17% adjusted for purchase accounting and one-time integration expenses.

Cabinet net sales growth of 11% to 13%, with operating margins at or above 12%. We expect 2021 free cash flow of approximately $650 million to $700 million, which includes the accelerated investments in capacity and inventory to drive growth across all of our segments. We anticipate a cash conversion rate between 85% and 95%.

The revised full year EPS outlook includes the following assumptions. Corporate expenses of about a $104 million and $106 million, interest expense of approximately $82 million to $86 million, a tax rate of between 23% and 24% and average fully diluted shares of approximately $140 million to $141 million. We expect a long runway of fundamental housing growth to result in prolonged market strength for our products. We expect our sales to continue outperforming the market, which will accelerate our margin progression. Our strong balance sheet allows for us to continue to assess further opportunities to deploy capital strategically.

We see multiple path of future value creation to pursue for our stakeholders. Our company has never been better positioned to capture these opportunities. Our teams remain committed to driving market beating sales performance and continued operating margin improvement. Our revised 2021 guidance is solidly on the trajectory of the three-year outlook reflected in our updated investor presentation.

This outlook contains a compound annual sales growth rate of 8% to 11% and a 2023 operating margin target of 16% to 17% relative to a global market growth CAGAR expectation of 6% to 8%. I will now pass the call back to Dave, to open the call up for questions. Dave?

David Barry -- Senior Vice President, Finance and Investor Relations

Thanks, Pat. That concludes our prepared remarks on the first quarter. 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 will 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, will you please open the line for questions? Thank you.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Phil Ng from Jefferies. Your line is open.

Philip Ng -- Jefferies -- Analyst

Hey, guys. Congratulations on a really impressive results, and just broad-based strength across your portfolio. Last quarter, I believe, Pat, you may have mentioned that by spring you should have better line of sight in the back half of this year in terms of growth. I think previously you're baking flattish sales just given the tougher comps. So can you expand on your thinking now, and essentially what your customers are saying in terms of the outlook?

Patrick Hallinan -- Senior Vice President and Chief Financial Officer

Yeah, Phil. We definitely expect growth in the back half, and we expect to outperform that growth. If I put the market in the context by half of the year, you heard our updated market guidance which is call it roughly 10% for the full year, I'd characterize the first half is kind of mid-teens or better, and in the back half is kind of mid-single digits or better from a market growth perspective.

And then, when you think about what that means for our sale across the halves of the year, we're thinking about reported sales growth in the first half averaging around 30%, and reported sales grow in the back half averaging around 10%. So both first half and back half strength versus the market.

And then even on an organic basis our first half organic growth around 20%, and a back half organic growth around high-single digits versus the mid-single digit market. So we are expecting back half growth. We did see the strength in the housing market continue. We expect to continue to outperform it. I'd probably further clarify LARSON is probably $450-ish million in there was about $250 million of that coming in the first half. Just to kind of give you the way we see the year unfolding right now.

And I do think, at least, it seems like it's tracking this way for the first half, but it seems also likely to track this way for the back half of the year where on a quarter-by-quarter basis, looking at it in stacked margin versus those averages are helpful ways to look at these.

Philip Ng -- Jefferies -- Analyst

Yeah, that's really helpful, Pat. Good to see demand really bounce back in your make-to-order Cabinets business. Curious to get your thoughts on how you're positioned with some of the reshuffling you've done on the capacity side. And then appreciating from a dollar margins perspective value is higher, but on a EBITDA dollar contribution I think semi-custom is probably pretty additive. But just wanted to help us think about with this bounce back in big ticket. What that means for you, and then obviously on the value side as well?

Nicholas Fink -- Chief Executive Officer

Sure, Phil. Yes we're equally encouraged to see it. I mean, what you you stated is true for Cabinets. It is true for the entire portfolio. I mean the strength was just so broad-based across all products channels and geographies, it was really impressive. Really nice to see it come through and make-to-order Cabinet side, and really being, as we said in the prepared remarks really led by premium, which I think tells us something about how the consumers thinking about investing in their house. The confidence that they have in in-home values and liquidity. And so that's rolling through very nicely now.

As we've talked about previously, I mean we did a lot of work around the supply chain. We've talked a lot about the work that we did on the value side to create our highly competitive global supply chain. We've also done a lot of work on the make-to-order side to kind of take out unnecessary complexity, simplify wherever we can, commonize wherever we can, and that is helping compound a lot of the margin accretion in the business.

The work is far from done. Dave Banyard and his team continue to identify more and more opportunities to go after that, but it's well under way, and it's well understood. And so if you start to see volume flow through that make-to -order we'll see benefit there, certainly as you point out on a dollar perspective, and then also have plans to drive the margins further. So, Pat, do you want to add anything to that?

Patrick Hallinan -- Senior Vice President and Chief Financial Officer

So the thing I'd add Phil, is it's a great sign for housing in general and for our business. And when people are buying more premium priced cabinetry it just shows the confidence they have in their homes, in their home values and their willingness to invest in their home. So I think it's a great overall kind of market strength signal. I think we talked about percentages, the Cabinets' team is trying to drive both the make-to-order and the stock business to the mid-teens margin of the whole Cabinets' portfolio.

As you point out though, in the make-to-order side you sell in the boxes at two to three times, sometimes it will go more than three times the cost of the stock boxes. So the dollar profit is quite substantially higher, which allows you to leverage SG&A much more significantly. So to the extent the level of strength we're seeing continues, that will be a powerful SG&A leverage and kind of upside to the next couple of years.

Philip Ng -- Jefferies -- Analyst

And just some of the streamlining you guys have done on the made-to-order side of things, just lead times just really extending for everything. Does that kind of give you an advantage to service your customers better, and that it helps you potentially gain share?

Nicholas Fink -- Chief Executive Officer

Yeah. Over time for sure, because you're just removing unnecessary complexity. And at the end of the day you have a network that allows you to move things through the network, and put it in different places. I mean, today, as we speak today the whole system is pretty strained as a higher quality probably. So you have seen lead times for the whole industry extend at. We worked very hard to keep our lead times inside of competitors lead time, so that we can continue to gain share, but as we further build out the system, you're absolutely right that becomes a very powerful business system. We are leveraging a whole network, not one facility at a time.

Philip Ng -- Jefferies -- Analyst

Super helpful guys. Thanks a lot.

Nicholas Fink -- Chief Executive Officer

Sure. Thank you.

Operator

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

Joseph Ahlersmeyer -- Evercore Inc. -- Analyst

Hi guys, this is Joe Ahlersmeyer on for Stephen Kim. Thanks for taking my questions.

Nicholas Fink -- Chief Executive Officer

Sure, hey, Joe. How are you?

Joseph Ahlersmeyer -- Evercore Inc. -- Analyst

Good. So, great quarter. Just wanted to further discuss your prepared remarks on capacity within composite decking. You're saying you're selling everything you can make today, which is great and probably supportive of positive pricing, which the industry traditionally hasn't seen.

And certainly the investments you've previously made in distribution are helping you out with that. But how much additional breathing room to the investments that you expect to come online mid-year, give you this year, given that it sounds like you're already sort of eyeing additional investment. Could you just go into a little more detail on the runway you have and the plans to support multiyear growth in the category that doesn't seem to be showing any signs of slowing down?

Nicholas Fink -- Chief Executive Officer

Why don't I -- I'll start off and give you kind of a couple of different perspectives around it and Pat can help lay out sort of how that comes online, but the first thing, I think we're absolutely are pushing hard and getting everything we can out the door. And you're not wrong on pricing, I think you -- although defined as we've build out the Fiberon brand, we are really trying to work on leading in pricing. I think that's important.

This is a high value proposition for consumers, and it is one that is driven both by brand, and by innovation. And so it's taking from commoditize unbranded wood with a much higher value proposition and that deserves a premium. And so I think there is that equation and keeping our equation right, so the value always sits in favor of the consumer, but I think there is a pricing opportunity. And I think you'll see us start to develop a really good track record at driving that.

And then as you think about the capacity, yes, we do have more coming online, and we're looking to pull more into 2021 from 2022 and into '22 from '23. The way we've been able to approach it has been fairly incremental, a investing to get more capacity and more efficiency out of the assets we have. I think under Fortune Brands' ownership, we're getting a far greater efficiency level out of those assets, and have plans to continue to increase that. And then as we add capacity, for us it's sort of a extruder at a time, and so it's a very manageable approach to manage, to adding that capacity that these are not giant, giant big bites that we have to take. That said there may come a time where we do want to add incrementally larger footprint, but that's also something we know how to do. I mean we open facilities all the time and so I think we feel we can do that fairly efficiently.

And so we feel good about what we're adding this year. That said, I'm pretty bullish. It sounds like year or two on the category, so I don't expect that we'll find ourselves over-capacitized anytime this year or next year. Our plans are to meet the market. But as we continue to gain share we continue to sell out of the capacity we have. Pat, any color you would add on the timing standpoint?

Patrick Hallinan -- Senior Vice President and Chief Financial Officer

I would, I can echo your sentiments. I think first, we've stated, we're working to get this business to $400 million by 2023, and so we're very much on that track if not ahead of that track. I think the mix comment signal. If anything we wish we are putting in more capacity faster last year we grew this business about 25% selling every board we can make, and we're probably going to grow this business this year 20% to 25% selling every board we make, and we're just going to be constantly working to get more out of the assets we have and raise new assets for the forefront.

I think to Nick's point, most of our stuff is adding modest increment of assets at a time. They're digestible, and you can obviously slow things down as well if that were to be needed. It doesn't seem like that's going to need to be the case. And so we're not at this point in time, we're going to end up in an over-capacitized industry situation.

Joseph Ahlersmeyer -- Evercore Inc. -- Analyst

Yeah. Fantastic. Obviously, a business with great prospects. Just a quick one, if I could fit it in here on the acquisition of LARSON. The tailwind in the quarter sort of implies that it was a little bit more than 25% of the run rate sales that was discussed around the acquisition. Is there anything. I mean -- I know there was the accrual to account for kind of the last couple of weeks of 2020, but it still doesn't really seem large enough to explain that the sales in the quarter. So, was it just a stronger spring selling season in the doors' category or how should we think about I guess the cadence of the tailwind for the rest of the year?

Patrick Hallinan -- Senior Vice President and Chief Financial Officer

Yeah, I think as I said in my remarks to Phil just before this. I think there'll be a business that's had about $450 million or more for the full-year. It was a bit under $400 million last year and it's probably going to be about $250 million or thereabouts for the first half and then about $200 million for the back half. And it is about people just kind of recovering on inventory, and a busy first half of the year across the industry.

Nicholas Fink -- Chief Executive Officer

I'd add as, Joe, it just fits so well into the outdoor living envelopes. As we looked at this business, and so first asked the question, what's the primary use of the LARSON door. The first is to let light in and the second is to let air in. And to less, I mean, it might be a category that kind of originated in installation, but it's really moved into letting the outdoors into your house.

And so we see that that trend just attached to the trends that we're seeing in people wanting to better the quality of their outdoor, indoor experience and outdoor living spaces. And so, as we said in the prepared remarks, the acquisition has been even better than expected. The team is fantastic, and they're integrating really, really well. And the business is performing at a really high level. While we are still going off to the value creation synergies that we'd identified. So we're feeling very good about LARSON.

Joseph Ahlersmeyer -- Evercore Inc. -- Analyst

Thanks. Good luck, guys.

Nicholas Fink -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Truman Patterson from Wolfe Research. Your line is open.

Truman Patterson -- Wolfe Research LLC -- Analyst

Hi, good afternoon guys, and thanks for taking my questions. Appreciate it. First, wanted to touch on Fortune Brands advantage. You mentioned that there are a handful of major initiatives to help offset some inflationary pressures that are flowing through. Could you just elaborate on what are a few of those initiatives are maybe one from each segment?

Nicholas Fink -- Chief Executive Officer

Sure. How I'm happy to do that, and then I'll pass to Pat, can give you some more particulars on it. But we saw -- as we looked across the portfolio and really this is a team late '19 early '20. We've said what could we do from a business model perspective across Fortune Brands to really elevate the whole? And as we did that we identified pockets of things that we were actually a, doing really well and b, investing behind.

I mean, we're not just doing it pretty good at it, but we're doing it well, because we're putting the dollars and the people behind building capabilities, but we were doing it in pockets and yet these were things that were easily leverageable across the whole business. And so we're really organized, as a whole executive team against the Fortune Brands advantage to leverage these capabilities, and so things like in a category management.

I mean if you look at our categories we're with very few exceptions we're the leader, and in those other exceptions we're a top three in all of our categories. And so as such, we should be able to bring category inside understand how shelf is that, how we engage consumers what works best for them, where the innovation lies, price elasticities.

And so how do we become really a category management leader and build that. The other is global sourcing. I mean, we're manufacturer and a global sourcer. We have a very complex global supply chain. And there are sourcing skills and capabilities that can really not just improve the cost basis and they can do that in a very big way, but also the quality and resiliency of the sourcing base in a business and so we've invested quite heavily and centrally to build out teams to go after those opportunities.

And when I say investment this could be single-digit millions, but really that's driving double-digit millions over time. And then the third one today is really around business simplification and leveraging tools like LEAN like 80-20 but doing it in a more consistent way across the business, consistent training, speaking the same language, understanding the value chain and where we're going to get value.

And so the vision is, as we really drive these -- over time, these will just be the language we speak, these ill be the and the skills we have the capabilities we'll embed them into the business, and then be able to kind of germinate new capabilities under the Fortune Brands advantage umbrella, that will help -- going to help drive growth. And we're looking really hard right now at the investments we're making in digital.

We have unique insights across the very broad portfolio that we have about what's happening in the housing market that we can drill down to here. We built the data list across all of our products. You can see POS in everything that we do and start to ferret out trends very quickly. So we're very excited about this. And I think we wanted to start concretely, get some wins on the board and then really build momentum behind this business model over time.

Truman Patterson -- Wolfe Research LLC -- Analyst

Okay, thanks for that. And then in the prepared remarks, I don't believe I heard this. But could you give an update, either on a percentage basis or a dollar headwind your raw material inflation expectations across the portfolio and the cadence in which it hits your P&L? And then finally, I believe you all said that you would be able to offset it either through pricing or some of these initiatives that you're working on. Will that be more real-time or do you think that you'll be trailing some of these cost pressures before kind of making it up at year-end?

Patrick Hallinan -- Senior Vice President and Chief Financial Officer

Yeah. Driven inflation has been intense across materials and freight. For us specifically streams like metal, hardwood and freights have probably been the most expensive, but certainly petroleum-based resins have been challenges as well as much from the Texas store, as from listed inflation perspective.

So in intense about last year 2020, our full year COGS base was about $3.9 billion. And I'll tell you that inflation this year is going to be in kind of 4.5% to 5% of COGS range, and much of that's yet to come. And we probably had less than 20% of that flow through our Q1 P&L, much of it's therefore you're talking more than 80% is going to flow through the balance of the year, and we are going to offset it with a combination of cost actions and where necessary priced over the balance of the year. I think you should expect that across all four quarters will show a measure of margin improvement. It will be tied us during Q2 in part just because freight really surge again, at the very end of last year earnings Q1. And then we're going to be doing things to expedite components in other products for our customers who will be absorbing some unique level the freight inflation in the second quarter, but we do expect to make margin progress in the second quarter and make margin progress for the full year.

Truman Patterson -- Wolfe Research LLC -- Analyst

Well, that's a, sorry, go ahead.

Nicholas Fink -- Chief Executive Officer

This is Nick, and I'd be remiss if I didn't call out how heroic our 10 teams have been. I mean in everything from being able to secure the freight, being able to secure the raw mats, being able to, as Pat referenced in resins and or to find new resin suppliers get them tested and through the system really quickly and get that behind us really remarkable.

And I think as you see the market GAAP to our performance, and you see the outperformance of our business increase in an environment like this, a lot of that is really attributable to that team and their ability to keep our customers supplied and they've been at it for a long time now. I mean you can go back to plywood tariffs in 2017 where we had to change at a $100 million with the buy out of China into other geographies and do it very quickly. They've really become world-class experts at managing this, and so they are just excellent. And that's what gives us the confidence to basically say we'll manage this.

Patrick Hallinan -- Senior Vice President and Chief Financial Officer

Yeah, I think that the team has an incredible, as Nick referenced. I mean, since second half of 2017 they've been facing some extreme challenges. Whether it's tariffs, pandemic disruption of Asia or the latest surge of inflation, and I'd say even labor inflation is more challenging than it typically as well given these demand dynamics and the government program dynamics. We're going to offset it as I said this year as we do a heroic job and cost is a big part of it. We're not meeting just on price, the cost is contributing equally to that equation, because we want to keep our products competitive and we want to keep our channel partners competitive.

Truman Patterson -- Wolfe Research LLC -- Analyst

That's very encouraging. Thanks for taking my questions, and good luck on the upcoming quarter.

Nicholas Fink -- Chief Executive Officer

Thank you.

Patrick Hallinan -- Senior Vice President and Chief Financial Officer

Thanks.

Operator

Your next question comes from the line of Susan Marie Maklari from Goldman Sachs. Your line is open.

Susan Maklari -- Goldman Sachs -- Analyst

Thank you, and let me add my congratulations as well on a great quarter. My first question is really around thinking about the second quarter. Appreciating the guidance that you've given us for the year, but when we think about the upcoming quarter specifically. And given the fact that the comps are just so abnormally low given the shutdowns that we had last year. How are you thinking about that coming together? Is there any color you can give us on it?

Patrick Hallinan -- Senior Vice President and Chief Financial Officer

Yeah, as I said a little bit earlier in the call. So I think stacked growth quarter-by-quarter will be pretty helpful way to look at things. So if you recall last year we were down about 9% top line in the second quarter. And as I said, we're going to be averaging about 30% across the first half in terms of reported sales growth. So stacking that up that mean down 9% last year second quarter then up about high 30s to approaching 40% this year, getting to that stacked 30% for the second quarter.

And then similarly on the organic basis kind of averaging about 20% across the first half of the year. One thing I would point out is last year, while we were down 9%, in the second quarter we had really good expense and cash management in that down quarter, and our operating margin last year with sales down was 14.3%. So we managed our bottom line very effectively during the second quarter. We'll still make a margin progression this quarter, because all of our teams are working very hard on driving the business forward and contributing to the full-year margin expansion of around a 100 basis points, but it will be 50 basis points or less during that second quarter I'd say in terms of margin expansion.

Susan Maklari -- Goldman Sachs -- Analyst

Okay, that's very helpful. Thank you. And my second question is a bit more long-term in nature. It seems like across the business, you are seeing a positive mix shift. We talked about Cabinets, you mentioned that role saw a 25% growth in the quarter. Can you give us some sense of the positive mix shift. What role that's playing in the margins that you're expecting? And maybe not just for this year, but as we think about those three-year target that you outlined in the slides, how are you thinking about mix within that? And is there a potential that we actually get some lift, if the mix ends up shifting slightly more positive than what your base case assumption is?

Patrick Hallinan -- Senior Vice President and Chief Financial Officer

Yeah, I'll take it, then maybe Nick could give some color. I'd start with what is the mix signal about the market. And I think, as especially as you've seen housing activity in suburb in the Northeast, in Mid-Atlantic, Upper Midwest where you have people moving from cities out in the suburb at housing price points that are relatively high, and having a lot of confidence in the ability of those housing values to sustain, and their desire to invest in their homes because they're going to probably be spending a bit more time there than they expected to be.

It gives a lot of great signal at the housing market in terms of people investing in a larger single-family homes than doing it in a premium fashion is well under way. And it's nice and relative to the last housing expansion. This is really not happening with unsustainable home equity loans or something like that. So I said people for the most part, using cash to do it. So I think it's a great signal for the market.

I think in terms of mix and how to think about it from our business, we've been working as we've been preparing for the millennial generation to make entry price point and mid-price point product on a percentage basis every bit is attractive as premium priced product. So we've been trying to make across our portfolio, our ability to increase margin a possibility even if it was a lot of millennials buying opening price point products. So we try to not overplay Mick.

But as we've talked about with some of the questions I think we've got to with Phil on an absolute dollar basis if you're selling a $1,000 faucet instead of a $200 faucet, even that's a same percentage margin, obviously it's a lot more dollars. And so I think the upside that you're pointing to is it really allows you to leverage your fixed cost base.

And so if we were to see a pronounced and sustained mix in premium there probably be upside to some of the figures we've given out there because it'd be reasonable to assume it's kind of new news and therefore, it's kind of not in our multiyear assumptions the massive mix shift. And if that does perpetuate and sustain at the levels its about recently it would be upside just leveraging fixed cost base of higher absolute dollar contribution per unit.

Nicholas Fink -- Chief Executive Officer

And Su, I'd just add. If you think about it, what we're seeing is, I mean shift is, I guess the term in terms of the fact that it's the total and how it comes together, but it's really additive. So we're not seeing any abatement in the trends in kind of the core portfolio. All of this is coming in addition too, which is really positive. And where you look at where it's coming from as Pat referenced some of those markets are a lot healthier, home equity levels are high is a degree of confidence. Also some of our builder partners have pointed out whereas the first few years of the millennial buyer is really focused on that entry level price point, you're not having some first time home buyers for millennials, but fairly deep into their careers and are buying homes that were previously considered kind of secondary upgrade type homes.

And so are coming in and really building out those houses that every option available. And so that I think combined with some of the value that you're seeing the boomer generation Gen X kind of put back into homes as their confidence has increased in the home is really, really internally a very aged housing stock is as more and more confidence around the premium and that portfolio. So it's very exciting. As Pat said, margins are fairly comparable, but certainly dollars are higher, and a lot of design cues come out of having that portfolio that we leverage across everything.

Susan Maklari -- Goldman Sachs -- Analyst

Got you. Okay, that's very helpful color. Thank you, and good luck with everything.

Nicholas Fink -- Chief Executive Officer

Thanks, Sue.

Patrick Hallinan -- Senior Vice President and Chief Financial Officer

Thanks, Sue.

Operator

Your final question today comes from the line of Keith Hughes from Truist. Your line is open.

Nicholas Fink -- Chief Executive Officer

Hey, Keith.

Dennis -- Truist Financial -- Analyst

Yes, hi, this is Dennis Clementia in for Keith Hughes. How are you?

Nicholas Fink -- Chief Executive Officer

Hey, Dennis. How are you?

Dennis -- Truist Financial -- Analyst

Hi, great, thank you. So thanks for squeezing me in. So I just wanted to ask a quick question on Fiberon specifically pricing. Just wanted to ask whether you be anticipating doing a mid-year price increase or something along those lines? And then just one other one. In Cabinets if we're seeing some imports come back, is that having an affect on your business? Thank you.

Nicholas Fink -- Chief Executive Officer

All right, Dennis. I'll give you some color on that. Firstly, we don't comment on particular timing of price increases on a product-by-product basis, but you know I would refer you to my comments earlier, that you have seen Fiberon to start to really take a leadership position on pricing in the category, and this is a product that we -- when we purchased that it really has built out its business at the entry-level of deck for -- and our opportunity is really to move up the price spectrum, and as we built out the wholesale distribution that supports that not just in all wholesale, but also in retail, which built special order through our wholesale partners.

And so, there's both a pricing opportunity in decking as well, as a really good mix opportunity in decking, and just to come on the earlier conversation that we're having this is an area where you see better margin as you move up the price spectrum. And so we think that that is a nice opportunity, and so I think on both, you may see some tailwinds.

With respect to the imports, if you look, a couple of things I'd point out. One is it's broadly stabilized from a volume perspective. And so from a volume perspective, kind of comparable to where it was pre --- there was a big run-up in imports after the anti-dumping case was filed is important factor for when you bring it from inventory in, where it stabilized now is well below that it's sort of the volume -- the dollar levels where it was running previously.

A couple of things that are different though. While dollar levels are the same, our read on pricing in the market is that it's significantly higher than it was back in '18. And so we believe that volume is a lot less than it was, and secondly we make up a greater share of imports to our global supply chain than we did then. And so on a volume perspective, while dollars have stabilized, there have been couple of that period volume we think the quite a fair amount down.

But the really important thing about it, and why it isn't impacting us is, while to degree it's been replaced, it's been replaced by an importers who have product with longer lead times, less or few availability, and more cost. And whether it's more cost because there were legitimately competing or whether it's more cost because they're trying to shipping, it doesn't really matter. It's adding enough cost to the system. And we always said that we were going to build a global supply chain, it didn't rely on government intervention, it was going to be cost competitive, no matter what. And so it's proving to be very fast against imports. And we find that dealers are continuing to come to us looking for replacement products at an accelerating rate.

The other thing I'd call out is customers is really ramping enforcement against the trans-shippers and I think that's going to even have a further dampening effect on imports as we go forward. So the combination of that anti-dumping case, but more importantly, the work that we did to replatform our whole global supply chain has had the intended effect, and we're seeing that come through in both the topline and margin numbers now.

Dennis -- Truist Financial -- Analyst

Okay. Thank you.

Operator

At this time I turn it back to management for closing remarks.

Nicholas Fink -- Chief Executive Officer

Okay. Well, I would just say thank you everyone. Appreciate the questions. Very thoughtful. Please stay safe out there, and we look forward to talking to you soon.

Operator

[Operator Closing Remarks]

Duration: 69 minutes

Call participants:

David Barry -- Senior Vice President, Finance and Investor Relations

Nicholas Fink -- Chief Executive Officer

Patrick Hallinan -- Senior Vice President and Chief Financial Officer

Philip Ng -- Jefferies -- Analyst

Joseph Ahlersmeyer -- Evercore Inc. -- Analyst

Truman Patterson -- Wolfe Research LLC -- Analyst

Susan Maklari -- Goldman Sachs -- Analyst

Dennis -- Truist Financial -- Analyst

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