FBHS
#So the turnover rate has been running low- to mid-single in existing housing.
We're encouraged by the credit availability, especially at the entry level.
I think that the bigger constraint has been the inventory of existing housing that's been on the market than there is demand.
And I think if you look at Case Schiller and other pricing surveys, the pressure that you see on existing housing prices rising is because inventory's not quite where demand is.
So I'm encouraged by demand, I'm encouraged by credit availability.
I also look at, from a macro standpoint, level of spending per household on home improvements.
We're not even back to a 50-year average yet.
We've been running below that since 2008.
So we look at that and how far up are we on that curve.
It's a large number universe, so you're talking about the average is $725 to $750.
But if you actually look at those who are really remodeling, it's in the $1,500, north of that type number.
Then you look at what the home centers activity has been.
And that's running in single digits.
And I think their outlooks are more for mid-single digits for the year.
So there's a number of factors that get us pretty comfortable around a 5% rate, which is really the historic average.
I think there's potential for upside over that over the next couple of years, just based on the fact that we've underinvested in the repair/remodel side of the market.
Houses are getting older.
We've under built relative to the housing stock over eight years.
And so you're going to continue to lean on the existing housing stock.
So the turnover is one factor that used to be highly correlated, so back, I'm talking pre-2006, that was highly correlated to R&R spending.
That completely disconnected in the downturn.
It's gotten tighter, but it isn't back to that same high level of correlation.
So it's important, but it's not the only driver in R&R that we look at.
It skews by household type.
So older households are drawing from savings, and they have been for a while.
They're not really relying on credit as much.
And for a long time, we saw that in the mix coming through dealers as being a richer mix, and when they were spending, they were actually spending not constrained by credit.
Over the last 18, 24 months, we've seen much more activity at the entry level, semi-custom level, both in home centers, as well as in the dealer channel.
We think there probably is some credit support to that.
And that's, you could say it's HELOCs, you could say it's refinancing, it's general savings.
And the price points are, frankly, lower, so they can afford, they're more affordable projects at that entry-level semi-custom, so you're not needing to really finance that much of a purchase.
So I think it's a combination of those two, depending on the level of activity we're seeing.
Anecdotally, across the dealer channel, pretty consistent growth throughout the year.
So about 10% in the quarter, 10% for the whole year.
And we saw actually a mix shift a little bit more to some of that semi-custom out of the custom.
So there is more of that support in the general broader market, but pretty consistent growth rates.
Our planning assumption is pretty modest, in general, across Canada, China a couple percent growth, so low single digit type growth.
Where we're seeing success in China is really retail and e-commerce.
So the Moen brand, we've been there 20 years.
We are very well recognized.
And so just as e-commerce continues to expand across categories in China, we're benefiting from that.
So that's driving some pretty good growth from us at good margins.
And our traditional retail, where we've got 1,000 outlets in China, is supporting R&R activity that's coming through that market.
There is some softness in direct to builder, but frankly, it's just down low single digits.
So it's less than you might expect.
It might be that faucets and sinks, fairly small ticket purchase, remodeling-type ticket purchase, is holding up reasonably well.
But we obviously pressure tested it as we come to the year, and so we're looking closely at it, but so far we're seeing reasonable rates for our category, not relying upon new construction, but really more the retail side of that market.
Canada, relatively flat.
I think it depends on part of the country.
Obviously, out West, Calgary impacted by oil, but the cities are holding up okay.
And I'd just say low single digits is what we're planning on for the year.
Where we are in the mix cycle.
From a mix standpoint, we've seen continuing improvement in mix.
And I'd step back, we tested that over the summer, we did some proprietary research, some real consumer research.
And this all comes back to the consumer desire to personalize their space.
They want something rather complex, unique.
And so that's translating into consumers buying up in our mix change, so from entry-level up to first, second upgrades, more semi-custom, more unique finishes, painted versus stained looks.
Things that we can price for, not just raising prices but rather the mix is driving that.
Same on entry doors, with Thermo-Tru.
They're buying more unique glass styles, different finishes in that entry.
So I'd say we're not at peak.
I'd say it continues to improve and is driving some of that margin improvement that we see.
So the margin improvement's coming from efficiencies in our plants, but it's also coming from some of that mix improvement, as they're buying the new products that we're bringing in and mixing and matching for their own unique styles.
And that was something that we were sitting there saying, how long is this going to run for.
And actually, based on research, it's going to continue to run.
This is pretty fundamental around consumer behavior in the US, people like to customize more and more.
And so we're working hard with our designers and our channel partners to provide that mix and provide more unique looks that the consumers are going to get excited about.
Sure.
I'll start with Security.
So full-year 2015, operating margin of 12.5%.
We are, as <UNK> mentioned in his comments, we started the integration in the end of June of 2015, of Sentry Safe manufacturing into Master Lock.
That will take a year or so.
So sometime this summer we should finish that.
So at that point, at a minimum by the fourth quarter of 2016, we should be at a much higher run rate.
I'd say you could see Sentry Safe going, pre integration of the manufacturing, from 7% operating margin to 13% 14% operating margin for at least the last quarter of 2016.
And then by the time we hit 2017, if they're at a 13%, 14%, Master Lock is a 14% to 15%.
So you've taken that whole business up nicely from 12.5% this year to 14% to 15% by 2017.
But 2016 is a transition year.
We won't get a lot of the benefit until probably the fourth quarter, maybe a little bit into the third quarter.
So great profit growth potential there with that integration.
In terms of Doors, so Doors, nice growth in 2015, operating margin full-year, 10%.
Doors are much like Cabinets.
We expect them to get back to that 14%, 15% operating margin at steady state.
They're making great progress there.
I think if you looked at the guidance, midpoint of our guidance, you could see them approaching or exceeding 11% in 2016.
So again, just like Cabinets, well on track to get back to that 14% plus at steady state.
So this all goes back to the things <UNK> talked about and that really disciplined approach to sales growth that really drives profit.
So these margin improvements are across all of our segments, because it's a philosophy.
Sure.
We remain, as we have, focused on total shareholder value.
So we're very active right now on the M&A side.
We've got a lot of discussions going on, are in the midst of a number of things, and I can never predict if any of these will result.
But I'm encouraged by our level of activity.
If anything, we're busier now than we were a year ago.
And so I'd say that still is a real focus for us.
On the other side, we bought back $100 million worth of our shares, 2.1 million, in the month of January.
I'd say at the value that we're seeing in the market right now versus our plans, we'll remain looking hard at share repurchase this year.
We've still got about $148 million left under our authorization.
So we're going to look at both of those, and we've got plenty of capacity to both buy back shares and complete acquisitions.
We ended the year at only 1.4 times debt.
So we've got capacity to do things, we've got debt capacity, we've got strong free cash flow.
So we'll be very efficient with our cash.
We have been coming up on five years here, and we're going to continue to do that and there may be some really nice opportunities looking at us over the next few months.
So that's about all I can say on all that.
But I'd say we'll be balanced in our approach across those two.
The $163 million that we ended the year is what we modeled in guidance.
The guidance, that includes the need to buy back about 1 million shares just to avoid dilution.
So we bought back 2.1 in January.
1 million of that's built into the guidance; 1 million of it isn't.
In terms of corporate ---+ and we break corporate out into the G& A and then our net pension income ---+ that will go up from $63 million in 2015 to, we think, maybe $69 million in 2016, kind of guidance.
And $3 million of it is just less pension income, $2 million of it is spending on cyber security, and the other $1 million is miscellaneous.
So I'd plan on a net of $69 million.
Thank you.
We'd like to thank everyone for attending our call today and look forward to speaking with many of you again very soon.
