Masco Corporation (MAS) Q3 2021 Earnings Call Transcript

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Masco Corporation (MAS -4.48%)
Q3 2021 Earnings Call
Oct 27, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, welcome to the Masco Third Quarter Earnings Call. My name is Jumeirah, and I will be your operator for today's call. [Operator Instructions]

I will now turn the call over to David Chaika, Vice President, Treasurer and Investor Relations. You may begin.

David Chaika -- Vice President, Treasurer and Investor Relations

Thank you, operator, and good morning. Welcome to Masco Corporation's 2021 third quarter conference call. With me today are Keith Allman, President and CEO of Masco; and John Sznewajs, Masco's Vice President and Chief Financial Officer. Our third quarter earnings release and the presentation slides that we will refer to today are available on our website under Investor Relations. Following our remarks, we will open the call for analyst questions. Please limit yourself to one question with one follow-up. If we can't take your question now, please call me directly at 313-792-5500.

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

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

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

Keith Allman -- President and Chief Executive Officer

Thank you, Dave. Good morning, everyone, and thank you for joining us today. I'm proud of the way our team continues to execute in these dynamic times. In the third quarter, sales increased to 11%, our fifth consecutive quarter of double-digit top line growth. This was against a strong 16% comp from last year. This growth came as we continue to face significant supply chain challenges. Certain raw materials were hard to come by, such as resins, microchips and even pallets.

Freight congestion in ports and lack of trucking capacity contributed to increased delays in shipping and receiving goods and labor shortages, continue to be a challenge. I would like to thank both our employees and our tremendous supplier partners who together have worked tirelessly to address these challenges. They have kept our plants running, and our customers supplied, resulting an outstanding top line performance.

Operating margin for the quarter was 17.5% as we executed our planned transition to a more normalized level of SG&A expense to support our brands, innovation and new products.

Moving to our segment performance, beginning with Plumbing. Sales increased 15% excluding currency, led by exceptional growth in North America and international faucets and showers and our spa business. These results highlight the strength of our plumbing platform diversity across geographies and channels. To support our continued international growth, Hansgrohe recently announced plans to invest in a new manufacturing facility in Serbia. This additional capacity will enable further growth and further strengthen Hansgrohe's capabilities to serve its customers. We plan to invest approximately $100 million in this project over the next three years.

And our Decorative Architectural segment sales grew 4% against a robust 19% comp from the third quarter of 2020. Propane had an exceptional growth of over 45% in the quarter, helping to offset moderating demand in DIY paint. DIY paint declined mid single-digits against a tremendous comp of over 25% in the third quarter of 2020. We continue to see indications of DIY paint demand stabilization as demand was fairly consistent throughout the quarter. When compared to our third quarter 2019 sales, our DIY paint sales were up over 20%, a clear indication of a reengaged homeowner and strong home improvement fundamentals.

Lastly, Behr Paint was recently recognized as the Home Depot Partner of the Year in the paint department. This recognition was a result of successfully keeping the Home Depot on stock during the DIY surge last year. Our continued investment in our joint effort to grow the PRO paint category, and our commitment to bringing new and innovative products such as our recently launched Behr Dynasty to The Home Depot, each of these has contributed to tremendous growth for both Behr Paint and the Home Depot. And this recognition is a testament to the strength of our partnership.

Moving on to capital allocation. We continued our share buyback activity during the quarter by repurchasing 2.2 million shares for $128 million. In addition, we anticipate deploying approximately $150 million in the fourth quarter, bringing our total share repurchases to over $1 billion for the year.

Now let me give you an update on what we are experiencing with inflation. The second half of 2021 is largely unfolding as anticipated. We experienced low double-digit inflation in the third quarter and we expect mid teens inflation in the fourth quarter. We have taken pricing actions across both segments, and expect to achieve price cost neutrality by year-end. It has been an extremely dynamic year and our supply chain and commercial teams have done an exceptional job managing through the many challenges. Because of this outstanding execution and continued strong demand for our products, we are maintaining the midpoint of our previous guide and expect to achieve earnings -- full-year earnings per share in the range of $3.67 to $3.73.

Lastly, before I turn the call over to John, we are pleased to share with you that our comprehensive 2020 Corporate Sustainability Report is now available on our website. This report demonstrates our commitment to environmental, social and governance responsibility. During a year of unparalleled change, our team members remained committed to maintaining our strong reputation for ethical business practices, reducing our environmental impact and enhancing our DE&I efforts. I'm proud of the hard work we are doing every day to ensure that our employees feel a sense of inclusion, belonging and support.

Our progress in ESG is a priority for our Board and our executive leadership team. I hope you will take the time to read more about how our long-term sustainability influences the way we run our business, operate our facilities and contribute to the community.

With that, I'll now turn the call over to John for additional details on our third quarter results. John?

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

Thank you, Keith, and good morning, everyone. As Dave mentioned, my comments today will focus on adjusted performance excluding the impact of rationalization and other one-time items.

Turning to slide seven. Demand for our industry-leading brands remains strong and our teams executed exceptionally well in a dynamic environment. This resulted in another strong quarter of double-digit top line growth. Sales increased to 11% against an impressive 16% comp in the third quarter of last year. Net acquisitions contributed 2% growth and currency had a minimal impact.

In local currency, North American sales increased 9% or 6% excluding acquisitions. The strong performance was driven by outstanding execution to achieve volume growth in propane, faucets, showers and spas, and by increased selling prices. In local currency, international sales increased a robust 15% or 18% excluding acquisitions and divestitures against the healthy 9% comp.

Gross margin of 34.2% is impacted by higher commodity and logistics cost in the quarter. We expect this inflation will have peak impact on our P&L in the fourth quarter. We will offset these costs with additional pricing actions and productivity initiatives. We expect the exit this year price cost neutral.

SG&A as a percentage of sales was 16.7%. As planned during the quarter, we increased certain expenses such as headcount, advertising and marketing to a more normalized level to support our brands. We expect this increase to continue into the fourth quarter and these costs continue to normalize. Operating profit in the third quarter was $385 million, with an operating margin of 17.5%, our EPS was $0.99.

Turning to slide eight. Plumbing growth continued to be strong with sales up 16% against the 13% comp in the third quarter of last year. Net acquisitions contributed 2% to its growth and currency contributed another 1%. North American sales increased 16% or 10%, excluding acquisitions. Delta led this outstanding performance, delivering another quarter of robust double-digit growth driven by strength in e-commerce and trade channels. With strong brand recognition and channel relationships, Delta continues to drive consumer demand for its products.

Watkins Wellness also contributed to growth in the quarter with both demand and our backlog remained strong. International plumbing sales increased 15% in local currency or 18%, excluding net acquisitions. Hansgrohe delivered strong growth and demand continue to improve across Europe and numerous other countries. Hansgrohe's key markets of Germany, China and the UK, all grew double-digits in the quarter.

Segment operating profit in the third quarter was $248 million and operating margin was 18.7%. Operating profit was impacted by the planned increases in SG&A that I mentioned earlier, as well as an unfavorable price/cost relationship. This was partially offset by strong incremental volume. We anticipate additional SG&A increases in commodity inflation will most significantly impact this segment's operating margins in the fourth quarter. We will mitigate the commodity inflation with additional pricing and productivity actions, we expect to be price cost neutral as we enter 2022. For full-year 2021, we continue to expect Plumbing segment sales growth to be in 22% to 24% and operating margins of approximately 18.5%.

Turning to slide nine. Decorative Architectural sales increased 4% for the third quarter and 3% excluding acquisitions. Our DIY paint business declined mid single-digits in the quarter against more than 25% comp in the third quarter of last year. Despite this decline, DIY paint demand appears to be stabilizing, as we have seen relatively consistent demand since July. When comparing to Q3 2019, our third quarter DIY sales are up over 20%. Our propane business delivered exceptional growth of more than 45% in the quarter, as paint contractors are applying top rated Behr paint to more commercial and residential projects. We expect demand in this channel to remain strong as propane contractors report growing demand for their services. When comparing to Q3 2019, our third quarter PRO sales are up over 35%.

Segment operating margin in the third quarter was 19% and operating profit was $166 million. Operating profit was impacted by lower volume, with increased commodity costs and higher marketing expense to support the new Behr Dynasty product launch, partially offset by higher net selling prices. For full-year 2021, we continue to expect Decorative Architectural sales growth will be in the range of 2% to 5%, and operating margin to be approximately 19%.

Turning to slide 10. Our balance sheet is strong with net debt-to-EBITDA at 1.3 times. We ended the quarter with approximately $1.9 billion of balance sheet liquidity, which includes full availability of our $1 billion revolver. Working capital as a percent of sales, including our recent acquisitions, was 17%. Finally, we repurchased more than 15.2 million shares in 2021 for $878 [Phonetic] million. This is approximately 6% of our outstanding share count at the beginning of the year. We expect to deploy approximately $150 million for share repurchases or acquisitions in the fourth quarter as we continue to aggressively return capital to shareholders.

And turning to our full year guidance, we have summarized our expectations for 2021 on slide 11. We continue to anticipate overall sales growth of 14% to $16, and operating margin of approximately 17.5%. Lastly, we are maintaining our 2021 EPS estimate midpoint, but narrowing the range to $3.67 to $3.73 growth at the midpoint of the range. This assumes the 252 million average diluted share count for the year. Additional modeling assumptions for 2021 can be found on slide 14 of our earnings deck.

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

Keith Allman -- President and Chief Executive Officer

Thank you, John. Demand for our products and home renovation remained strong at at a much higher levels than experienced in 2019. When you compare our third quarter performance to Q3 2019, revenue is 28% higher, operating profit is 29% higher, operating margin is 10 basis points higher and adjusted earnings per share is an outstanding 62% higher. With our demonstrated supply chain excellence and our ability to offset inflation with price, we believe we are well positioned to carry this momentum into 2022 and deliver margin expansion and double-digit growth consistent with our long-term outlook. We look forward to sharing our details for 2022 outlook on our fourth quarter call in February.

I'll now open the call up to questions. Operator?

Questions and Answers:

Operator

[Operator Instructions] Your first question will come from the line of Matthew Bouley with Barclays. Please proceed with your question.

Matthew Bouley -- Barclays -- Analyst

Good morning, everyone. Thanks for taking the questions and congrats on the results in a pretty tough environment here. First question on the propane strength, recognizing some of the drivers of broader sort of do it for me strength here and the project demand. John, you just mentioned, just given how strong it was. Was there anything else where you think you may have had some sort of structural success in boosting awareness or market share of Behr PRO or conversely, should we be aware of any more transitory benefits perhaps as customers are sort of hustling to find paints where they can. And you guys have done a great job of keeping their PRO in stock. And how should we think about that balance? Thank you.

Keith Allman -- President and Chief Executive Officer

Matt, this is Keith. I'll take this and, John, you can add in if you have other comments. I think there are few things that that really contribute to that 45% growth that we saw in the quarter in PRO. First and foremost, we had really outstanding supply chain execution. I can't say enough about our supply chain teams, our research and development teams that we're able to move formulations and our suppliers. We've been working with the supply base and have been pretty consistent in our supply registered for like 20 years. So those relationships really paid off in our hard work in supply chain and R&D. So really good availability of product and supply chain execution in general. And we continue to invest in our brands, we've talked about that and we've talked about that last quarter and we continue to invest in our brands and having that leading brand, having the leading quality, having the leading service levels, all contributes, especially in tough and dicey times like we've just gone through. And we continue to execute in terms of new product introductions and our innovation pipeline such as Behr Dynasty, a new line of Aerosol paint, interior, stains, caulks and other adjacencies. So our ability to not only have that supply chain execution, but continue with the basics of the business of investing in the brands and executing new product introductions, all paid off. And I think all those -- all those things are helping to drive demand. And we saw that in our performance, in the 45% growth that we saw in PRO, and we think that's enable us to get new customers, and now it's up to us to to develop the loyalty, which we've demonstrated an ability to do so. It was a very challenging quarter for us in across paint, that both PRO and DIY, but I'm very happy with the execution.

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

Yeah, Matt, the one thing that I would add to Keith's comments is that I think it's also a reflection of investment that we've made over many years in this program with feet on the street both calling on outsiders on paying contractors as well as investment in people inside Home Depot stores and also Home Depot's investment in this program. So it's been the joint partnership that we developed here after the PRO, and I think really help drive the success that we experienced here in the third quarter.

Matthew Bouley -- Barclays -- Analyst

That's great color. Thank you both for that. Second one just on Asian supply chain where you guys have a relatively robust footprint. So just, I guess, a two parter, any quantification you can give, maybe on sort of the near-term cost impacts of everything going on with ocean shipping and transportation from Asia. And then just longer term thoughts on any sort of supply chain repositioning that, that sort of come about as a result of all these recent challenges. Thank you.

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

Sure, sure, Matthew. And probably like everyone else, that's reported so far this earnings season. Yeah, we've faced supply chain challenges coming across the Pacific. And you may have seen elevated costs to get containers across to the United States. And we've seen it's also resulting in delays in getting product to the port systems here in United States, whether it's on the West Coast or any of the other ports that we bring product in. So the good news is even though we've experienced some of that, we have also, as a result pass-through some of the price increase down because of the raw material inflation that because of some of the logistics inflation that we've experienced. And so that is -- we feel good about our ability to get their price and that's a portion of which allows us to feel good about being price cost neutral, and as we exit here in 2021.

Keith Allman -- President and Chief Executive Officer

Yeah, I'd just add a little bit to John's comments, I think, not strictly in the Asian supply chain. But overall, when you look at inflation, we're experiencing and we experienced low double-digit inflation in the third quarter. And we're expecting in that mid-teens region in the fourth quarter. And as John mentioned, good work on our commercial teams and we will exit the year in price cost neutral.

Matthew Bouley -- Barclays -- Analyst

All right. Well, thank you both and congrats on that hard work.

Keith Allman -- President and Chief Executive Officer

Thank you.

Operator

Your next question will come from the line of Susan Maklari from Goldman Sachs. Please proceed with your question.

Susan Maklari -- Goldman Sachs -- Analyst

Thank you. Good morning, everyone. My first question is just following up on some of the exposure in terms of inflation and inputs there. Can you talk a bit to what you're seeing in terms of some of the core commodity exposure, things like maybe copper, brass and any of the sort of chemical inputs on the paint side. And I know you talked about seeing that mid-teens inflation in the fourth quarter, but just any more detail on how to think about where, what those trends are?

Keith Allman -- President and Chief Executive Officer

Sure. As I think, we've all read and seen broadly across the industry there has been broad based inflation and we're experiencing that same thing. We're seeing it in metals, zinc and copper, as you mentioned, and that's across both our segments, particularly in the hardware and the decorative of piece of architectural as well as, obviously, in brass and plumbing. We've seen in polymers, and again, that's across both our segments. Resins and paint, plastics in our plumbing valvetrain, for example, with our cross-linked polyethylene and our cartridges for the valves, we're seeing it there. And then, again, same sort of story across both segments and logistics. Container costs continue to escalate even things like pallets and of course, over-the-road trucking costs associated with some of the labor constraints that are broadly there in the trucking industry. So it's broad based inflation, and we expect to continue to see that in the fourth quarter, and as we mentioned, done some good work and we'll continue to do work in the fourth quarter as it relates to achieving price cost neutrality by the end of the year.

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

Yes, so maybe to put a final point on Keith's comments. I think for the fourth quarter and probably the peak of inflation for the year, I suspect will appeal mid teens inflation in total across the company. There probably will be low-teens in the Plumbing segment and probably high-teens in our paint business. So pretty significant inflation. But as Keith mentioned, it seems we've done a terrific job of working to offset those costs here as we exit 2021.

Susan Maklari -- Goldman Sachs -- Analyst

Okay, that's very helpful color. And then as a follow-up, can you talk a little bit about what you're seeing across the various channels within plumbing, I know that you kind of highlighted some strength within the e-commerce as well as the trade channels there. Can you just give us some commentary on how the various channels are moving, and any implications as we think about the margin trajectory there as some of those may be continue to strengthen?

Keith Allman -- President and Chief Executive Officer

Yeah, we're really seeing again strong broad-based growth in plumbing. So if you look at geographically as we spoke in the prepared remarks, international is strong, we were -- very good growth in China, in the UK and in Germany, which are our core markets for Hansgrohe, and then good growth here in North America.

With regards to channel and slicing it up by channel. Very strong performance in e-commerce. We've invested our best and brightest talent there. We've invested our capital in terms of acquisitions to build and we've been working for a number of years in terms of our internal capabilities from logistics to pick and pack quantities of one to handling returns, marketing and generating more efficient search, a better purchase journey for the consumers, etc. So a lot of work has gone into that. But we saw a real strong growth, particularly in plumbing and e-commerce and also in the trade channel. And then, strong, as we mentioned, strong, strong PRO growth in paint. So really good performance across multiple channels and multiple geographies.

And I think, Susan, that speaks to the work we've done in terms of the portfolio of driving affordable smaller ticket items that are involved in quicker remodels, if you will, and smaller jobs as well as obviously being part of that bigger ticket job what executed. So that diversity across geographies, channels, price points etc., has really delivered for us a nice robust portfolio. And I think that's a big part of it.

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

Susan, maybe to give you a little bit more color on one specific channel. Let me talk a little bit about the e-commerce channel and the recent acquisition of Kraus, and how that's aided our e-commerce growth. So Kraus -- the Kraus we bought in the beginning, really the tail-end of last year, and the integration is going well and they continue to perform above our expectations. We've made some good investments along with Kraus's complementary products and online presence, and they help to actually strengthen some of Delta's market leading offerings to drive future growth. One of the things we specifically have done is, with the help of Kraus, we've launched Delta branded things online, utilizing their offering and this is really a good contributor to our growth here in the back half of 2021. So e-commerce, Delta was strong in e-commerce before we acquired Kraus, and the Kraus acquisition has really complimented Delta's strength in the online channel to accelerate its growth.

Susan Maklari -- Goldman Sachs -- Analyst

Great. That's very helpful color. Thank you and good luck with everything.

Keith Allman -- President and Chief Executive Officer

Thank you.

Operator

Your next question will come from the line of Mike Dahl from RBC Capital Markets. Please proceed with your question.

Mike Dahl -- RBC Capital Markets -- Analyst

Good morning. Thanks for taking my questions. Really exceptional results across the segments, particularly in paint, in light of what some of your peers are saying. So as a couple of follow-ups. Keith, I know you mentioned a couple of things around your supply chain partners and how you kind of successfully managed there, but it is striking in terms of your ability to not just get product, but keep the inflation lower than what I think most of your public peers have talked about in that segment. So I'd love to hear just a little more detail or color on exactly kind of how you've managed this or what do you think you've done differently than some of your peers over the last few months.

Keith Allman -- President and Chief Executive Officer

Well, at the risk of maybe being redundant to what I've already talked about. I can't overstate what our supply chain teams have been able to do and it's a product of a great partnership with Home Depot and the simplification and the focus that we have. We work hard to understand the The Home Depot consumer and we work hard to understand the Home Depot supply chain and fundamentally everything that we do is geared toward and focused on that customer and those consumers. And because of that I think that makes us fleet of foot, it makes us and it helps us be able to do the sorts of things that we need to do and react quickly when times get tough. It's just -- it's mind boggling when you think about the types of formulations that we had to go through in our R&D department in terms of changes and revalidations to be able to move from one supplier to a next to be it on colorant or resins and really that's across our entire business, but specifically in paint.

I think when you look at our formulations and how -- what goes into our formulations and what was particularly tight in terms of capacity, I think that gave us a little bit of advantage. And it has not been easy. We have changes to the challenges and we continue to have challenges. But fundamentally, I do think it has to do with the extreme focus and dedication we have on a specific customer and the consumers, and the ability to manage that versus say having a more complex line up where we have different types of coatings and different types of customers, and those sorts of things. So it's an attribute to simplification 80-20 focus on our teams and absolutely the highest quality workforce particularly in supply chain and R&D.

Mike Dahl -- RBC Capital Markets -- Analyst

That's great. Thank you. And then just as a follow-up, Behr Dynasty, specifically, can you help us kind of size what the contribution was from a topline perspective in the quarter? And you talked about some increased marketing cost around that. Just how should we be thinking about that program in the fourth quarter and on a go-forward basis and healthy adoption then or the sell through?

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

Yeah. Mike, it's John. So I think the impact on the quarter is relatively light. Yeah, there was a small loading of about $20 million in the quarter. It's obviously helped to the top line growth number, but it wasn't a huge driver of our overall growth.

Keith Allman -- President and Chief Executive Officer

Yeah. We're excited about Dynasty, I'd say it's going very well. It's our best paint ever. Best scuff resistant, most one color, high colors, fast drying, LEED certified Greenguard. It's just extremely good paint. It's our highest price point yet. But when you match it with those attributes, it's a good value. I mean, my father bought some of it. Let me say, he's excited as they get and well, that's only one point, it's indicative of what kind of value this can bring. And it's an example of how our deep and extended relationship with people can really help. We consistently bring that innovative new products and market leading attributes and we do that. I'd like to think of our teams fighting above their weight class. We are focused. And to your earlier question on supply chain, it kind of shows itself here with Dynasty, very happy with Dynasty and the launch.

Mike Dahl -- RBC Capital Markets -- Analyst

Yeah. Great. Okay. Thank you.

Operator

Your next question comes from the line of Phil Ng from Jefferies. Please proceed with your question.

Phil Ng -- Jefferies -- Analyst

Hey, guys, congrats on a really impressive quarter in a challenging backdrop, and great to see demand being really strong here. Any color on how you're thinking about organic growth as we look out to 2022, since your comps to get a little tougher in the first half and how much line of sight do you have?

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

Yeah. Phil its John. You're right. The comp as we go into the first part of 2022 will be tough, obviously, when we post 31% growth in the Q1 and 53% growth in Q2. In plumbing as I should say, 25% overall, 24% in Q1, 24% in Q2, those are tough comps to go up against. That said, as I mentioned on my prepared remarks, we've got continued good backlogs in a number of our businesses that we have visibility into. We mentioned the fact that Watkins our wellness business continues to have a very strong backlog of probably several hundred million dollars. Our plumbing businesses, both Hansgrohe and Delta to the extent that we look at their backlogs, they are bigger than they would historically be at this time of the year, given the seasonality of things generally slowing down. So we do think that the first part of -- growth going into the first part of 2022 will be good, but obviously, we're up against some pretty tough comps.

Beyond that, Keith, I don't know, paint is, got a little bit less visibility into the backlog of paint other than on the PRO business we see some of the commercial projects coming through.

Keith Allman -- President and Chief Executive Officer

Yeah. I'd add, our international markets were also recovering nicely. And we'll have more detail on 2022 in our fourth quarter call.

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

Phil, but I would say that, if you think about the macro trends where we stand right now, the macro trends really set up for a good 2022. The two big ones that we watch, because it really does impact our low ticket repair model portfolio of products that we have. Our existing home turnover and home price appreciation and as you know, those two have been very good. And why are those two on to the fact that consumer's balance sheet is very good. All statistics say that $2 trillion of more savings as a result of the pandemic that the consumers are sitting on now. And the fact that the home is -- for a vast majority of consumers, it's their largest investment. We think this environment bodes well for continued investment in homes. We're hearing about backlogs of big ticket projects with contractors. So we think that the supply chain tightness that the consumers have experienced have contributed to that backlog of big ticket projects. And so going into 2022, we think the environment set for good growth.

Phil Ng -- Jefferies -- Analyst

That's really helpful. Any color on how you're thinking about when supply chain kind of normalizes and appreciate some of these challenges? I think there was an expectation for maybe restocking inventory channel in the fourth quarter. Any color on how that has kind of progressed is that more of an opportunity when we think about 2022 as well? Thanks a lot, guys.

Keith Allman -- President and Chief Executive Officer

It's very difficult to predict the supply chain in this environment. I think some things will have a little bit more lasting impact. I think logistics will probably remain tight. Well into 2022, our -- if you will, the blood pressure metric that we look at is our fill rates coming from our supply base and our timeliness and accuracy of delivery dates versus promise. And those are starting to improve. Now, we have a long way to go. We're not back to where we need to be. But I would say in terms of our supply and incoming, we are starting to see some improvement and a little bit of stabilization as we look at those two key metrics. Jumeirah, I think we can go to the next question.

Operator

Your next question will come from the line Adam Baumgarten from Zelman. Please proceed with your question.

Adam Baumgarten -- Zelman & Associates -- Analyst

Hey, guys, thanks for taking the questions. Good morning. Just looking at decorative on the implied 4Q guidance, it's somewhat similar revenue growth compared to 3Q. Do you expect the similar PRO outperformance to continue through the end of the year?

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

Yeah, we would -- I think, Adam, we expect PRO to remain strong as we go through the balance of the year. Whether it's going to be the same 45 plus percent growth we realized in Q3 is yet to be determined. But based on what we're hearing from PRO contractors based on the projects that, that we're hearing in terms of contracts or backlogs, we do think the PRO demand will continue to be quite good.

Adam Baumgarten -- Zelman & Associates -- Analyst

Okay. Got it. Thanks. And then just on the SG&A spend kind of normalizing, when do you expect to reach that full normalized run rate? Is it by the end of this year, or will it drag into next year?

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

It will probably drag into next year, Adam. If you think about our SG&A spend, we've talked since the beginning of the year about $40 million of spend that we pulled out of the system last year during the height of the pandemic. And we'll slowly layer that back in over the course of the next several quarters. Keith mentioned earlier, we're investing in our brands, we're investing in innovation, we're investing in headcount, and it's all reflecting in itself in some of the top line growth that you've witnessed today -- that we reported today. So some of that investment, we'll be mindful of it. We are not going to just let it all flow back in. So suffice it to say that our businesses have their fingers on the dials and are actively managing that cost as it comes back in.

Adam Baumgarten -- Zelman & Associates -- Analyst

Thank you.

Operator

Your next question will come from the line Garik Shmois from Loop Capital. Please proceed with your question.

Garik Shmois -- Loop Capital Markets -- Analyst

Hi, thanks. Good morning. Just given the rising price points and inflation, just wondering if you could speak to any change in mix that you might be seeing in plumbing and paint, and if that's being impacted at all?

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

Garik, mix really wasn't that big of an issue in the quarter. There may have been a little bit of slightly favorable mix in plumbing as we've seen a little bit greater strength in Europe, which can tend to be, I mean, we get more projects, which means our AXOR brand does a little bit better. And maybe some of our spa business is trended to a little bit more of a favorable mix. But beyond that it wasn't all that impactful in the quarter.

Garik Shmois -- Loop Capital Markets -- Analyst

Okay, thanks. And then to the extent you can provide a little bit more color on your expectations for margin expansion in 2022, recognizing you provide more guidance after next quarter. But given you are going to be likely exiting this year a price cost neutrality, would you anticipate margin expansion across your businesses to begin early in the year?

Keith Allman -- President and Chief Executive Officer

We've talked about this and we haven't changed our outlook, and that is that we have nice dropdown and incremental volume we'll exit the year at price cost neutrality. There still is questions about where commodities will move if at all in 2022, and I can remember that if they do, we will handle that as we have in the past with productivity and further price if needed. So, we throw all that all together, as we've talked in the past, we're looking at margin expansion, not in the hundreds of basis points, more in the tens of basis points. But our commitment and how we drive our leadership teams and how we structure our variable compensation for those teams is growth above market and margin expansion. That's fundamentally part of our culture and how we drive our businesses. And that's what we will achieve in 2022.

Garik Shmois -- Loop Capital Markets -- Analyst

Great. Thank you.

Operator

Your next question will come from the line of Deepa Raghavan from Wells Fargo Securities. Please proceed with your question.

Deepa Raghavan -- Wells Fargo Securities -- Analyst

Hi, good morning, all. Thanks for taking the question. Let me start with some October trends. Just curious how that has trended so far? Are you seeing any seasonality, rebounding anything that you are able to talk to on October so far, please?

Keith Allman -- President and Chief Executive Officer

Yeah, I think we've really moved to talking about our quarter and how we've exited the quarter, and we're not going to get into slice and dice that up on a monthly basis. And the reason is because there is ebbs and flows, different parts of our businesses launch products, have fill and different things happen. So, it's more productive and a better indicator for how we're doing for our business if we stick to the core.

Deepa Raghavan -- Wells Fargo Securities -- Analyst

Okay, understood. How about the quarter then? Any surprises, either positive or negative during Q3? And anything that you would point us out as we look into 2022, to be aware of that we shouldn't probably carry forward?

Keith Allman -- President and Chief Executive Officer

In terms of surprises, it's not -- it's playing out as we expected. As I said in our opening comments, I will say that while I have a high expectation of our supply chain team, I was pleasantly surprised and happy to see how well we really performed. We talked about it in paint. The same could be said in Plumbing and that had a real impact on our business and how we fared competitively. So, that was, well, maybe not a surprise, it certainly was nice to see, and I'm proud of the teams.

Deepa Raghavan -- Wells Fargo Securities -- Analyst

Great. It was a nice quarter though. Thanks so much.

Keith Allman -- President and Chief Executive Officer

Thank you.

Operator

Your next question will come from the line of Keith Hughes. Please proceed with your question.

Keith Hughes -- Truist Securities -- Analyst

Thank you. Questions in Plumbing, I guess, looking at the growth both in North America and Europe, can you give us some sort of a feel how much of that growth in units and how much of that growth is price mix?

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

Keith, as we look at it, we did see good volume growth in Plumbing both domestically and internationally. So -- and don't get any acquisitions contributed the growth as well. But if you factor out the acquisitions, I'd say, if you had to weight the two of volume mix versus price, I'd say in Plumbing you much more heavily weighted on volume than you would on price in the quarter.

Keith Hughes -- Truist Securities -- Analyst

Okay. Looking the difference in growth rates, excluding acquisition between North America and international, international to get that higher, was there certain regions internationally that really stood out that pushed it higher than the US?

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

So internationally, yeah, the three that we mentioned that grew double digits were Germany, China, and the UK. And as you might expect Germany and China had a relatively easy comps compared to given the third quarter of last year. China was actually growing nicely in the third quarter of last year and continued to grow. So that was a bit of a positive surprise for us, just the strength of the Chinese market over there. But other than that, if you factor out those three large markets, but it's broadly across the 140 markets that Hansgrohe sells into, nearly all experienced some form of growth. I mean, there were a couple of small -- very small markets that we sell into that didn't grow. But, I'd say 135 of the 140 countries we sell into, grew in the third quarter.

Keith Hughes -- Truist Securities -- Analyst

Okay. Thank you.

Operator

Your next question will come from the line of Stephen Kim with Evercore ISI. Please proceed with your question.

Stephen Kim -- Evercore ISI -- Analyst

Yeah, thanks a lot guys. Couple of questions on Dec-Archi, specifically, paint, Keith I'm reminded about how Behr has this long-standing history of just excellent fulfillment. And it was good to see that. I guess, that really was a standout again, this quarter. Into DIY segment of the business, if we look at things kind of in terms of a kind of a two-year stack in your commentary, it kind of suggests that there might have been a modest volume acceleration in 3Q, but I'm assuming that and I'm just wondering, was that all just price? Did you actually see any kind of volume acceleration in 3Q? And then on the PRO side of the business, builders scrambling around sending guys to Home Depot to go get paint, to get homes closed. I'm wondering, how much of a benefit do you think that was to the up 45%? And do you think that business can be sticky?

Keith Allman -- President and Chief Executive Officer

So, couple of parts to your question. Firstly, yeah, we did see some positivity in terms of gallonage, when you look at DIY Q3 2021 versus Q3 2019. So, we did see some slight positive gallonage there in terms of overall volume. And obviously with the price, we saw some very nice revenue volume when you do that comparison stack over 2019.

In terms of was our supply chain performance versus competition of factor in and getting a look for some PROs? I would say yes. And it's incumbent on us to make that as sticky as we can. And we'll see, I'll tell you, I feel good about it. This new Dynasty brand is being applied and installed by some professionals, we're obviously seeing our PRO line of paint that continues to be installed by professionals and it's working well and the brand has pull with consumers. And so, when you think about the PRO and the resi repaint, as well as some of the commercial and more multifamily looks that we're getting, I think, we fare well. But it's incumbent on us to start to develop that kind of loyalty in those PROs like we have in other PROs. So, I think it was certainly a factor and we'll work as hard as we can to make it sticky.

Stephen Kim -- Evercore ISI -- Analyst

Yeah, certainly you have the opportunity, so that's good. If you look at -- I just wanted to clarify one thing about your many comments on cost inflation. Were there any sub segments worth calling out let's say lighting or hardware or Hansgrohe, whatever, where you actually were price cost neutral already in 3Q or where you expect to be price cost neutral in 4Q? I don't just mean by year end, but I mean actually in 4Q. And could you comment specifically on labor inflation in your outlook?

Keith Allman -- President and Chief Executive Officer

Yeah, well, I'm not going to get into slicing and dicing it by individual commodities, or products, or segments, and that sort of thing as it relates to price cost, but in terms of labor, that continues to be a challenge, as we talked about. And that's one of the things that we're working very hard to do as it relates to programs, whether white collar or blue collar. As it relates to safety in our factories and programs for different work engagements if you will, or different work methodologies as it relates to work from home or hybrid or come into the office sort of thing to appeal to as much of the labor as we can. And that includes in some cases some wage increases and wage inflation. So, yes, labor is an issue, and I think that's globally across industry. But we're also seeing that.

Stephen Kim -- Evercore ISI -- Analyst

Okay. Makes sense. Thanks guys.

Keith Allman -- President and Chief Executive Officer

Thanks, Steve.

Operator

Your next will come from the line of David MacGregor from Longbow Research. Please proceed with your question.

David MacGregor -- Longbow Research -- Analyst

Yes, good morning, everyone. And Keith, congratulations on a great quarter. A lot of great execution. I wanted to just -- you talked about trying to achieve price or you will achieve price cost neutrality by the end of the year. And I guess, I'm just wondering thinking about the extent to which would that push on pricing here in the second half, how much carryover pricing you would have into 2022? And also, if I could just get some clarification around that price cost comment, you noted that you'd be price cost neutral in Plumbing, but if you mentioned it for decorative architecture, I may have missed that. Are you expecting with the higher inflation in decorative architecture to be price cost neutral by year end there as well?

Keith Allman -- President and Chief Executive Officer

Yes, we are across, across Masco.

David MacGregor -- Longbow Research -- Analyst

Okay. And carry over pricing for 2022, what are your thoughts there?

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

Yeah, David, there will be some carryover pricing into 2022. We'll get into more color on that on our fourth quarter call in February.

David MacGregor -- Longbow Research -- Analyst

Okay. All right. I guess, second question, just obviously a very strong market share performance in PRO paint, but could you just talk about where else within your product makes you may have gained share in the quarter?

Keith Allman -- President and Chief Executive Officer

Well, we had a very solid performance in Plumbing, Plumbing trade in particular, e-commerce continues to be -- we believe we're a leader in e-commerce and we continue to -- we believe gain share. I'll tell you that it's very difficult to accurately pin down overall market volume in a particular quarter. So that we'll see as we in the year and we go through our models that we use to estimate total market size, but I believe we're gaining share in trade Plumbing and e-commerce certainly would think we're gaining share in our spa business, and our wellness business and Watkins that continues to perform quite well. And when I look at our growth in Europe versus what our competition is doing, I believe we're gaining share at Hansgrohe as well. But again, it's difficult. I like to speak with absolute numbers and run it through our market model. And it's very difficult to see the actual market size quarter-to-quarter, but we're doing well in Watkins, doing well in Europe with Hansgrohe, certainly in Plumbing and the propane you talked about.

David MacGregor -- Longbow Research -- Analyst

Great. Thanks very much.

Operator

Your next question will come from the line of Ken Zener from Key. Please proceed with your question.

Ken Zener -- KeyBanc Capital Markets -- Analyst

Good morning, everybody.

Keith Allman -- President and Chief Executive Officer

Good morning.

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

Hi, Ken.

Ken Zener -- KeyBanc Capital Markets -- Analyst

Paint, up 4% headline as noted the volumes were down, which contributed to that operating margin. Could you maybe discriminate if you look at the paint PPI index, it says PPI was up about 10% in the third quarter. Could you maybe give us a sense of that pricing magnitude and then for those three buckets that hit operating margins, the volume commodity costs, marketing expenses, could you maybe give us a sense of magnitude of those buckets? Thank you.

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

Yes, Ken. So, in terms of our paint inflation that we felt in the quarter, we were up mid-teens in inflation in paint. So, and that was the inflation that we thought and that paint obviously had an impact on the margin that we developed. In terms of -- I'm not familiar with the PPI index, but I think, that addresses your question.

Ken Zener -- KeyBanc Capital Markets -- Analyst

Right. And then the impact for the volume versus the other -- the commodity cost for the margin impact?

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

So, if you think about -- yeah, so obviously with volumes being down that had a pretty negative impact on the margins, as well as some of the investment that we put back into the business during the quarter, I think, those are the two probably bigger impacts with pricing being a small offset to those.

Ken Zener -- KeyBanc Capital Markets -- Analyst

Thank you very much.

Operator

Your next question will come from the line of Steven Ramsey from Thompson Research Group. Please proceed with your question.

Steven Ramsey -- Thompson Research Group -- Analyst

Good morning. Some of our recent channel checks point to some companies reducing skews to focus on better margin, better volume products, given the supply chain issues. Are you doing this in any product categories? And if so, would it be on a near-term or long-term basis?

Keith Allman -- President and Chief Executive Officer

Part of our ability to perform as well as we did with respect to supply chain. And this was in Plumbing was simplifying our assortment for a limited period of time. It was for a couple months, I believe, in that range to allow our suppliers to do less changeovers have longer runs and ultimately do a better job of supplying our customers. So, there was a little bit of that, but it was short-lived, it helped out, as I said, our supply base with longer run. But that was basically simplification and 80-20 thinking as part of the Masco Operating System. And we applied that in this case during this tough issue around supply chain, but that's over for the most part, those skews are back in line and that's, again, part of what gives me confidence that we're starting to get some relief on some of these issues as it relates to supply chain, particularly from our great supplier partners.

Steven Ramsey -- Thompson Research Group -- Analyst

Great. And then maybe taking that topic and thinking broader the supply chain and labor issues, are they forcing you to make changes to fill demand and support margins in the near term that will have to be kind of reversed or changed in a major way as the supply chain environment normalizes over the next one year plus?

Keith Allman -- President and Chief Executive Officer

Could restate that question for me? I wasn't tracking with you. I apologize.

Steven Ramsey -- Thompson Research Group -- Analyst

I guess, what I'm getting at is the near-term changes to manage this environment that you are having to make, will those have to be reversed in a major way as the supply chain and labor market normalizes over the next three to six quarters?

Keith Allman -- President and Chief Executive Officer

No. No reversing of any kind of things. I was just indicating that we did take some of our lower volume complexity offline for a couple months to give our suppliers a breather to lengthen their runs. That's all.

Steven Ramsey -- Thompson Research Group -- Analyst

Great. Thank you.

Operator

We do have a question in queue from a participant that did not record their name or their firm name, but they are calling from a 216 area code. Caller, please state your name and firm and provide for your question.

Eric Bosshard -- Cleveland Research -- Analyst

Sounds like me. It's Eric Bosshard, Cleveland Research. Two things. First of all, the incremental pricing, you have to take incremental pricing now, or in 4Q to offset the incremental inflation?

Keith Allman -- President and Chief Executive Officer

Yes, we will be implementing price in the fourth quarter, Eric, to help offset inflation, yes.

Eric Bosshard -- Cleveland Research -- Analyst

Is that in both businesses?

Keith Allman -- President and Chief Executive Officer

Yeah. Across the company.

Eric Bosshard -- Cleveland Research -- Analyst

Okay. And then secondly, in terms of faucets or Plumbing, I'm curious if you're seeing within the business any change in mix in terms of what consumers are buying as you've raised price or as you're managing the product offering if you've seen any notable change in behavior from consumers?

Keith Allman -- President and Chief Executive Officer

Not really, no. The mix change as John talked about was relatively small and more associated with different regions growing that tend to be higher mix like Europe growing quite well. And that tended to be higher mix and our spas continue to grow, which is a higher price point. But we're not seeing any mix shift as it relates to pricing changes.

Eric Bosshard -- Cleveland Research -- Analyst

Okay. Thank you.

Keith Allman -- President and Chief Executive Officer

Thank you.

Operator

And we do have time for one final question, which will come from the line of Truman Patterson with Wolfe Research. Please proceed with your question.

Truman Patterson -- Wolfe Research -- Analyst

Hey, good morning, everyone. Just wanted to hop on for a couple items that I don't think have been touched on yet. Clearly, very strong growth in the PRO paint business. Just wanted to understand in order to make this stickier, have you all started targeting, I don't know, local or regional builders for exclusive contracts or any other kind of sales strategies to make sure that this momentum continues moving forward?

Keith Allman -- President and Chief Executive Officer

We're not going to get into the competitive nature in terms of our salesforce execution and what we're going after. But fundamentally it's about understanding the value that we bring and then targeting the customers that would appreciate that value the most. So, we're not going after all of our every PRO that's out there, we definitely are segmenting. And that's part again, of our 80-20 simplification where we believe we have the best chance that's where we'll put our sales efforts. So we are targeting our sales approach and we are looking at different attributes for those specific customers. I won't go and say specific long-term contracts or anything of that sort. I won't get into specifics, but along those lines of targeting our offer to what the customer values the most is exactly what our culture is about.

Truman Patterson -- Wolfe Research -- Analyst

Okay. And then on the M&A strategy, you're generating strong free cash flow, $850 million of cash on the balance sheet. Could you just give an update of your overall strategy there, the pipeline of deals and valuations we've been hearing that they are fairly elevated?

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

Yeah, Truman it's John. I think a good way to think about our M&A strategy is take a look at our four recent acquisitions we've done in the last year. So, we did four, of the four, each of them are very aligned with the strategy of one of our business units. So, in the case of Kraus, Delta is looking to grow their e-commerce strategy and Kraus is a great compliment to Delta's already strong presence in the e-commerce channel. And it's going enhance that.

Similarly, we bought Steamist, one of the leading steam shower businesses. That focuses on Delta's strength with their trade business, with the steam shower businesses is of demand and it's hand in glove there. Obviously, the applicator business that we bought earlier in the year, compliments Behr's paint offering, and then the high-style drain business we bought in Europe compliments Hansgrohe's high style showers and process. And so, as you think about where we're focusing our efforts, it's on these smaller bolt-on, tuck-in type businesses that have an alignment with the strategy of one of our business units. And yes, that's really focusing on both paint and plumbing. So, our team that we've got in place is doing a great job of the cultivation of new, smaller businesses. And I would anticipate there will be future acquisitions obviously we can't foreshadow the timing of those. But the team is working hard.

Part of the reason that we're focusing on these, Truman, also is to your point the valuations as you move up in terms of the size are quite high and so we see better value in the lower middle market. And so that's where we're focusing our efforts at this time. And then I think we'll continue to focus in our efforts in that lower middle market over the coming months and quarters.

Truman Patterson -- Wolfe Research -- Analyst

All right. Thank you all.

Keith Allman -- President and Chief Executive Officer

Thank you.

David Chaika -- Vice President, Treasurer and Investor Relations

I would like to thank everyone for joining us today and for your interest in Masco. That concludes today's call.

Duration: 62 minutes

Call participants:

David Chaika -- Vice President, Treasurer and Investor Relations

Keith Allman -- President and Chief Executive Officer

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

Matthew Bouley -- Barclays -- Analyst

Susan Maklari -- Goldman Sachs -- Analyst

Mike Dahl -- RBC Capital Markets -- Analyst

Phil Ng -- Jefferies -- Analyst

Adam Baumgarten -- Zelman & Associates -- Analyst

Garik Shmois -- Loop Capital Markets -- Analyst

Deepa Raghavan -- Wells Fargo Securities -- Analyst

Keith Hughes -- Truist Securities -- Analyst

Stephen Kim -- Evercore ISI -- Analyst

David MacGregor -- Longbow Research -- Analyst

Ken Zener -- KeyBanc Capital Markets -- Analyst

Steven Ramsey -- Thompson Research Group -- Analyst

Eric Bosshard -- Cleveland Research -- Analyst

Truman Patterson -- Wolfe Research -- Analyst

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