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Sherwin-Williams Co
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Good morning. Thank you for joining the Sherwin-Williams Company's Review of Fourth Quarter 2020 Results and our outlook for the First Quarter and Full Year Of 2021. With us on today's call are John Morikis, Chairman and CEO; Al Mistysyn, CFO; Jane Cronin, Senior Vice President and Corporate Controller; and Jim Jaye, Senior Vice President, Investor Relations and Communications. This conference call is being webcast simultaneously in listen-only mode by Issuer Direct via the Internet at www.sherwin.com. An archived replay of this webcast will be available at www.sherwin.com beginning approximately two hours after this conference call concludes.
This conference call will include certain forward-looking statements as defined under US federal securities laws with respect to sales, earnings and other matters. Any forward-looking statement speaks only as of the date on which such statement is made, and the company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. A full declaration regarding forward-looking statements is provided in the company's earnings release transmitted earlier this morning. After the Company's prepared remarks, we will open the session to questions.
I will now turn the call over to Jim Jaye.
Thank you, and good morning everyone. Sherwin-Williams delivered outstanding results in the fourth quarter. The momentum with which we exited the third quarter continued in the fourth quarter, with the pace of growth accelerating across our Pro Architectural and Industrial Customer segments. We saw continued unprecedented growth in our DIY business during the quarter, a double-digit increase in residential repaint solid expansion in new residential, modest improvements in commercial and property management, and high single-digit growth in our industrial segment.
Fourth quarter 2020 consolidated sales increased 9.1% to $4.49 billion dollars. Consolidated gross margin increased 140 basis points to 47.4%. Consolidated profit before tax increased $206.5 million to $503.9 million. The fourth quarter of 2020 included $77.4 million of acquisition-related depreciation and amortization expense. The fourth quarter of 2019 included $119.3 million of acquisition-related amortization expense and other acquisition costs, and $71.3 million of other adjustments, which included non-cash impairment charges related to indefinite lived trademarks partially offset by a Brazil indirect tax credit. Excluding these items, consolidated profit before tax increased 19.1% to $581.3 million, with flow-through of 25%.
Diluted net income per share in the quarter increased to $4.46 per share, from $2.66 per share a year ago. The fourth quarter of 2020 included acquisition-related amortization expense of $0.63 per share.
The fourth quarter of 2019 included acquisition-related amortization expense and other adjustments of $1.61 per share as described in our press release. Excluding these items, fourth quarter adjusted diluted earnings per share increased 19.2% to $5.09 per share, from $4.27 per share. EBITDA grew to $733.9 million in the quarter or 16.3% of sales. Net operating cash grew to $844.8 million in the quarter or 18.8% of sales. All three of our operating segments delivered excellent top-line growth, margin expansion and strong flow through in the quarter.
Segment margin in the Americas Group improved 270 basis points to 21.7% of sales, resulting primarily from operating leverage on the top-line growth and favorable mix. Flow-through was 51.3%. Adjusted segment margin in Consumer Brands Group improved 280 basis points to 13.6% of sales, resulting primarily from operating leverage on the double-digit top line growth. Flow-through was 34.6%. Adjusted segment margin in Performance Coatings Group improved 100 basis points to 14.4% of sales, driven by operating leverage on the high-single digit sales growth and lower input costs.
Flow-through was 28.1%. Let me now turn the call over to John Morikis for additional commentary on 2020 along with our guidance for the first quarter and full year 2021.
John?
Thank you, Jim, and good morning everyone. The strong results in our fourth quarter led to another record year for Sherwin-Williams. My deepest appreciation and respect go out to all 61,000 members of our incredible global family and to our leadership team for everything they've done. While none of us anticipated the severity of this year's challenges, our people responded as they always do when facing adversity, with extraordinary effort, with determination and with resiliency. When it mattered most, this team delivered, and I'm incredibly grateful for all they do.
To that end, our full-year 2020 results demonstrate the strength of our people, our business model and our solutions-based approach to meeting customer needs. We generated record sales despite the impacts of COVID-19. Cash from operations, net income and net income per diluted share also were in records and increased by double-digit percentages over 2019. I'd like to call out just a few full-year highlights in more detail. Sales increased 2.6%, including a negative impact of 1.1% related to currency translation, to a record $18.4 billion. Gross margin improved 240 basis points to 47.3%. EBITDA grew to a record $3.4 billion or 18.7% of sales. Segment margin expanded in all three business groups. Adjusted diluted net income per share, which excludes acquisition-related amortization expense and other items called out in our press release, increased 16.4% to $24.58 per share.
Net operating cash for the year increased to a record $3.41 billion or 18.6% of sales. We returned approximately $2.93 billion to our shareholders in the form of dividends and share buybacks, an increase of 145% over the prior year. We invested $303.8 million in our business through capital expenditures. And we retired $400 million in debt, ending the year with a debt to EBITDA ratio of 2.4 times. As Jim described, we achieved these record full-year results with a strong close to the year. Let me provide some more detail about our segment performance in the fourth quarter.
In the Americas Group, fourth quarter sales increased by 9% over the same period a year ago, including just under 2 percentage points of price and a headwind of 1.2 percentage points related to unfavorable currency translation. Same-store sales in the US and Canada were up 9.3%. We saw consistent trends across the business in the quarter, and we significantly outpaced the rate of growth we delivered in our third quarter. In Residential Repaint, our largest segment, we delivered double-digit growth in the quarter. Interior and exterior work were both strong. Existing home sales are robust, and contractors are reporting solid backlogs.
I'm also pleased to report that once again we grew this segment by double-digits on a full-year basis. We continue to see great opportunities here for share gains going forward. Demand remained unprecedented in our DIY business where sales were up by a double-digit percentage for the fourth consecutive quarter. New residential also remained an area of strength for us with the rate of growth accelerating from mid-single digits in the third quarter-to-high single digits in the fourth quarter. New housing permits and starts have been trending very well since summer, and customers are reporting solid order rates. We've not yet seen meaningful recovery in our commercial business, which was up slightly in the fourth quarter. The predominant theme remains that projects are being delayed rather than cancelled. Property maintenance was also up slightly in the quarter, though turnover in multifamily properties remains low.
Protective and Marine was down by double-digit percentage where growth in our smaller customer segments such as Flooring, Bridge and Highway and Water and Wastewater treatment, was more than offset by softness in the Oil and Gas segment. We continue to aggressively pursue opportunities in all of these end markets. From a product perspective, sales in both Interior and Exterior paint were up by double-digit percentages, with Interior becoming a larger part of the mix than it was in the third quarter, as is normal for our fourth quarter. Heavy equipment sales also were up double digits in the quarter. Contractors typically invest in this type of equipment in anticipation of solid demand. In December we announced a 3% to 4% price increase to our US and Canada customers effective February 1. We would expect to realize approximately 1.5% from price in the first quarter and just under 2% in the following quarter.
We opened 54 new stores for the full year in the US and Canada, partially offset by consolidation of underperforming stores, the majority of which were in Latin America. Along with these stores, we continue to make investments in sales reps, management trainees, innovative new product and productivity-enhancing services to drive additional growth. We're also pleased by a continuing uptick in the use of our e-commerce platform. Moving onto our Consumer Brands Group, we delivered sales growth of 13.6% in the quarter, including 1.4 percentage points of positive impact related to currency translation as DIY demand remained robust. Sales in North America increased in line with our mid-teens segment growth guidance. International demand was variable with Australia up low-double digits, Europe up low-single digits and Asia down mid-single digits, respectively.
Our global supply chain organization continued to perform at a high level in the quarter, working collaboratively with our customers and businesses to help meet the strong demand. The strong sales growth, along with prior portfolio improvements and international cost reductions, drove this significant improvement in our margin performance. Last, let me comment on our fourth quarter trends in Performance Coatings Group. Following an encouraging third quarter, we continued to build momentum across the business in the fourth quarter. Group sales increased by high single-digit percentage. The impact of currency translation was not material in the quarter. Price was positive in all regions, and all regions and all divisions generated growth.
Regionally, sales in Asia grew the fastest in the quarter, up by a strong double-digit percentage. Europe and Latin America also grew by double-digit percentages. North America sales were just slightly positive. From a divisional perspective, I'll start with our Coil Coatings business, where growth was up double digits in the quarter and positive in every region. This team continues to do a remarkable job at winning new accounts in all regions. We're also seeing the gradual resumption of selected commercial construction projects. Our Packaging Team also continues to deliver great results. Sales were up double digits in the quarter and positive in every region.
Demand for food and beverage cans remains robust. Our non-BPA coating continued to gain traction, and both we and our customers are investing in capacity expansion. Sales in the Industrial Wood division were up by a double-digit percentage in the quarter. Positive trends in new residential construction are driving increased demand for kitchen cabinetry, flooring, and furniture. We're especially encouraged by the return to growth in our General Industrial division, where sales were up by a high-single digit percentage in the quarter.
We saw a meaningful improvement in portions of our Heavy Equipment, Building Products and Container segments as well as more General Finishing. We believe the strong performance was a mix of inventory restocking by some of our customers and growing in demand. Sales were up in all regions except North America, which was down about 1% but improved significantly from the third quarter. Sales were also slightly positive in the Automotive Refinish division in the quarter. Heightened social restrictions and lower than normal holiday travel due to a resurgence in COVID pressured miles driven and collision shop volume.
Turning to our 2021 outlook, we see an operating environment with very solid North American new residential and residential repaint demand. The trajectory of recovery in Commercial and Property Maintenance is likely to be choppy and comparisons in DIY will be challenging. We anticipate Industrial demand will continue to improve as the year progresses. The impact of variables such as the timing of the COVID vaccine, the incoming US administration and proposed stimulus and infrastructure spending are hard to gauge at this point. That said, our team is skilled at adapting to any number of conditions. And we have many opportunities to grow share in all of our businesses. We'll continue to target growing at a rate that outpaces the market through customer-driven solutions based on innovation, value-added service and differentiated distribution. For the first quarter of 2021, we anticipate our consolidated net sales will increase by a high-single-digit percentage compared to the first quarter of 2020.
We expect the Americas Group to be up high-single digits. We expect Consumer Brands to be up by a mid-teens percentage, and we expect Performance Coatings Group be up by mid-to-high-single digits. For the full year 2021, we expect net sales to increase by a mid-to-high single digit percentage. First half growth is expected to be stronger than second half given the negative impact COVID had on our first half a year ago. We expect the Americas Group to be up a mid-to-high-single-digit percentage, Consumer Brands Group to be up or down by low-single-digit percentage and Performance Coatings Group to be up by a mid-single-digit percentage. We expect diluted net income per share for 2021 to be in the range of $23.87 to $24.67 per share compared to $22.08 per share earned in 2020.
Full year 2021 earnings per share guidance includes acquisition-related amortization expense of approximately $2.53 per share. On an adjusted basis, we expect full-year 2021 earnings per share of $26.40 to $27.20, an increase of 9% at the midpoint over the $24.58 we delivered in 2020. One key assumption embedded in our outlook is that the market rate of inflation for our raw material basket will be up by a low-to-mid-single-digit percentage in 2021 compared to 2020, assuming no further escalation above our current outlook and no supply disruption.
We expect to see year-over-year inflation in all four quarters, with the largest impact likely occurring in the middle two quarters. We expect the rate of inflation to be most significant on the petrochemical side of the basket. As we've demonstrated in the past, we will seek to offset these increased costs with pricing actions as appropriate.
Let me close with some additional data points and an update to our capital allocation priorities. Given volume growth, pricing actions and our ongoing continuous improvement initiatives, we expect full-year gross margin expansion. We expect to get SG&A leverage in 2021 by controlling costs tightly in non-customer facing functions.
We'll continue to make investments across the enterprise that will enhance our ability to provide differentiated solutions to our customers. We expect to return to our normal cadence with around 80 new stores opening in the US and Canada in 2021. We'll also be focused on sales reps, capacity and productivity improvements, as well as systems and product innovation. We also plan additional incremental investments in our digital platform in the Home Center channel. These investments are embedded in our full-year guidance. We expect currency exchange will not have a material impact on sales for the full year. We expect our 2021 effective tax rate to be in the low 20% range.
Our core CapEx guidance for the year is approximately $370 million. In addition to this core CapEx, we expect to make investments of approximately $100 million in 2021 related to our new headquarters and our new R&D facility project. Depreciation should be about $300 million, and amortization will be about $310 million.
Interest expense should be about $340 million. We have $25 million of long-term debt due in 2021. Historically, we've targeted dividends at about 30% of our prior-year GAAP earnings. Next month, at our Board of Directors meeting, we will recommend an annual dividend increase of 23.5% to $6.62 per share, up from $5.36 last year. We expect to continue making opportunistic share repurchases. We'll also continue to evaluate acquisitions that fit our strategy. 2020 was a very challenging year, and I'm incredibly proud of the way our team responded to deliver record sales and earnings. As 2021 begins, we're energized and more determined than ever to capitalize on the many opportunities we see in each one of our businesses.
We believe the long-term fundamental strengths of our end markets remain intact. We're poised to thrive in 2021, and as I mentioned last quarter, we feel like we're just getting started in many ways. Our team is experienced, our goals are clear. Our solutions are many, and our confidence is high. We remain focused on delivering value for all of our stakeholders over the long term.
That concludes our prepared remarks. With that I'd like to thank you for joining us this morning. And we'll be happy to take your questions.
Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] And our first question comes from the line of Ghansham Panjabi with Baird. Please proceed with your questions.
Thank you. Good morning, everybody. I guess, first off, on your fiscal year 2021 guidance, TAG up mid-to-high-single digits. Can you sort of walk us through your current view on the various subsegments in there? There has been some divergence thus far in Residential versus Commercial Construction in the US, how do you sort of expect that to evolve as the year unfolds?
Ghansham, I'd say, first, we have great confidence in the market here. We've been working very hard as you know to position the company to strategically thrive whichever way the table tilts. So while there may be some shifts in the market, we believe we'll be able to capitalize on the opportunities regardless of which way the market may move. So let me just run through quickly to answer your question. I think from a New Residential standpoint, we think coming off a high-single digits in the fourth quarter, we believe that permits are strong, and our position in New Residential is very strong. As you know, we've got a terrific position with 18 of the top 20 homebuilders. And we expect that that momentum that they are experiencing will result in some nice gains for us. We're also very pleased with the gains that we've been making with the regional builders. So from a New Residential position, we're feeling really, really good. From a Residential Repaint position, I'd say that the strength that we mentioned earlier, double digits now for six consecutive years, give us a lot of confidence in the way that this business is moving. This is driven by both Interior/Exterior work as we talked about, and homeowners now beginning to let these painters back into their homes has us feeling really good, not only about the market itself but our growing position there.
The backlog in this Residential Repaint business gives us additional confidence. There has been some question about any shift between do-it-yourself and do-it-for-me. And we believe that the do-it-yourself and do-it-for-me are both terrific opportunities. The do-it-yourself remains strong. Consumers are nesting and while there, they are choosing to jump on the opportunity to make an impactful difference in their home in a very reasonable project from an investment standpoint and time, so we're excited about the momentum that we have there as well. We're working hard. It's a relatively small percentage of our business overall, DIY, but our net promoter score even in these challenging times, both on the professional side and a DIY side are improving. So we're going to work hard to continue to retain those customers that have entered into our stores. Commercial improved significantly over the third quarter, down from double-digits to slightly positive. Still a recovery has been more muted here than the Residential Repaint and New Residential. Projects here are beginning to open back up, but with restrictions for distancing and number of people on the projects requiring PPE. So we're working closely with our contractors there. We navigate through these challenges, and we think it's a terrific opportunity for us to support our customers as they grow it in the new world here. And then finally in Property Maintenance, recovery in Property Maintenance as I mentioned earlier, remains slow but positive.
Demographics here for apartments are favorable, it's just under pressure with turns. So maintenance in Property Management, in the area of apartments has been slow, but also in areas like hotels, restaurants, etc. We are seeing in the multifamily area investments - CapEx investments to upgrade properties. This has gained traction in areas somewhat influenced by the deurbanization. And this would be where you might have C-level properties going to B and B to A. Again we've got a terrific position here with relationships with 18 of the top 20 property management companies. So I'd say whichever - I walked through those kind of quickly, but whichever way these markets tilt we're, as I mentioned, feeling really good about that. So if homeowners, who now have been called back to work, end up back on the production line or traveling for their businesses or back in their offices, wherever those gallons are sold, we like the position that we are in to be able to capitalize on it. So we're really confident about that.
And Jim, maybe you can take a moment just to talk about the macro data that supports our confidence.
Yes, John, sure. And good morning, Ghansham. If you look at the New Residential piece, obviously John mentioned it, but permits starts have been very strong since the summer. You look at in December they were up mid-single digit. The last three months it's up double digits on starts. Single family has been a bit stronger obviously then multifamily. You look at some of the other indicators. The 30-year fixed mortgage, still very supportive around 2.7 or so in December. US consumer confidence, a little bit shaky at this point, and unemployment still about 6, but we think everything that we're seeing, hearing from our customers on the new res side is very solid. And we've got the long-term view which we've articulated in the past about household formations continuing to be strong. If you look at Resi Repaint, existing home sales increased for the sixth consecutive month in December. They were up 23% year-over-year. Month supply is still pretty low. Median home prices are continuing to rise, so people have equity in their homes and feel good about repainting. You look at LIRA, the leading indicator of remodeling activity, is modestly more positive next year, and The National Association of Homebuilder Remodeling Index is also near record levels. So feel very good on that.
Maybe commercial, just to wrap up real quickly, I think commercial as John characterized it, that the recovery is a little bit choppy there. I'd go back to what we said at our Analyst Day in the fall. Strong starts at the end of 2019 and early 2020 before the pandemic hit, many of those starts are now as we get into 2020 going to start, we think and get to the painting phase. So we should see some improvement there. I think what's still less clear is the pace of new starts heading into later this year. I think there'll be a recovery, but we'll have to see how strong that is.
Hey, Ghansham, this is Al Mistysyn, only one other comment to add, because of the way 2020 unfolded with a weaker first half and a stronger second half, it's important that we get off to a good start. And as we've talked about in the past with our Paint Stores Group North America having a strong second half of 2020, up mid-single digits, and then especially with the fourth quarter being up high-single digits, that typically translates to growth in our first half and gives us confidence about the Paint Store and Architectural volume to start the year into our first half. We saw a similar result with a strong second half of 2019, which was up high-single digit, and leading to a strong first quarter of 2020, which was up high-single digits. So that's what gives us the confidence on Architectural going into the first half of the year.
Okay, that's very thorough. Thank you so much. And then just real quick for my second question on the inflation side, I mean you're very specific in terms of raw materials, in terms of how that's going to sequence in 2021. You called out pricing in TAG. How should we think about performance pricing, like what have you announced so far? Three years ago we had an inflation cycle. The industry was distracted, including you guys closing up Valspar. How are you going to approach inflation differently in this particular inflation cycle? Thanks so much.
Yes, Ghansham. I think we're in a completely different spot than where we were when we closed Valspar in 2017. As you recall, there was not a lot of price out in the market relative to industrial as raw materials were increasing in '17. And then we collectively as an industry chased it for the following two years. I think we are ahead of it in the sense that we are out with price across different of our divisions. We have more price to go as Jim or as, John talked about. It's heavier on the petrochem side. And we are absolutely out in the market with price a little bit higher than what I would say you would see on our TAG Architectural business because of the higher increase we see on petrochem; so I think you're going to see a different environment. Plus, the other thing I would add is with our confidence in the growing volume, we expect volume to be stronger in this year relative to what it was back in 2017. And I think as we've talked about, that really is what the main driver of our margins are, and we'd expect a strong first half with volume in our Performance Coatings Group that will help offset some of the raw material impacts as well.
Perfect. Thanks so much.
Thank you, Ghansham.
Our next question is from the line of Jeff Zekauskas with JPMorgan. Please proceed with your questions.
Thanks very much. Hi, good morning. Your administrative costs in the quarter were up, I don't know $65 million. Maybe they were up $55 million for the year. Did something unusual happen in the fourth quarter? And what's your outlook for administrative costs in 2021?
Yes, Jeff, if you look at the year-over-year in the fourth quarter, most of that increase was due to Brazilian tax credits and occurred in the fourth quarter. Aside from that, the remaining increases were due to higher comp and incentives, including stock-based compensation. We had a higher environmental expense in the quarter, and then we took the opportunity in the fourth quarter as we saw a stronger sales than what we had guided to - our guidance as you recalls was to be up three to seven. We ended up above the high end of that range at little bit over 9%. Some of the spending we delayed in IT infrastructure, and some of the digital initiatives across the enterprise we put some money back in there that drove that increase up a little bit. That was partially offset by a decrease in integration costs. If you look at our outlook for 2021, my expectation is interest expense will be pretty flat year-over-year. And then I would expect to be flat to down slightly on admin for the rest of the year.
And then - thank you for that. And then from a strategic point of view, I don't think you bid on Tikkurila. Can you talk about why you didn't or why that would have been a good fit or a bad fit? Can you - can you reflect on that asset as relates to Sherwin-Williams?
Jeff, I don't know that I want to talk about any one particular asset. I might give you our thinking overall and let you drive your own thinking to that. Our pipeline as we see it is robust, and we continue to evaluate what we believe are strategic fits for our company. And to us, we look at very unique and differentiated solutions and solutions that allow us to drive our customer success. And I just want to take a moment on this because I think it's important, our view is that when our customers are successful, we're successful. And when we're driving value for them, it allows us to create value for our shareholders. So we're focused on targets that drive those unique solutions. Our strategy is not going to be defined by what comes up for sale. And we're not trying to be everything to everyone nor trying to be everyone - or everywhere for everyone. We look proactively for targets that are kind of fits for our strategy, that fit us in geographic areas that we feel that are a gap, that provide a technology that we can leverage or adds to our distribution that fits our strategy. We believe we're uniquely positioned not to require acquisitions to grow. Our focus is on right now a prioritization of opportunities that we have and turning them into shareholder value. You're likely, Jeff, going to see us more doing bolt-ons more likely in the industrial space with targets to support what we call our right-to-win, not just commodities or not just a book of business. We're really focused in on those high-value areas that allow us to differentiate.
So, a great example would be - and there's a lot of talk now about infrastructure, and not to say that we're only focused on Protective and Marine, but I think it gives a good example. If I take Bridge and Highway, as an example, you're likely going to see us on the Bridge side or as we say the HVI, the high value infrastructure, not just chasing commodities. So our view is that those acquisitions that fit our ability to differentiate with unique solutions allow us to create value, not just trying to be everything to everyone everywhere.
Jeff, the only thing I would add to that is we don't have a gun to our head. We've talked about this in the past, we believe we can grow organically. And if you look at the last two years, '19 and '20, we grew sales a modest 2.3% CAGAR. That's over $800 million incremental dollars. And with that though, we grew adjusted PBT just under $640 million of flow through of 77%. I think that talks to the strength of the model and the strategy that we put in place, and then when you look at our 2021 sales guidance to be up mid-to-high-single digits, we expect to accelerate that growth in 2021.
Thank you very much.
Thank you, Jeff.
The next question is from the line of Vincent Andrews with Morgan Stanley. Please proceed with your questions.
Thank you, and good morning, everyone. I'm just trying to contextualize the performance - the impressive performance in the fourth quarter and TAG north of 9% versus I think a 4.5% comp in the prior period. And I'm assuming, particularly in Residential Repaint, that your customers don't have complete access to their customers for COVID reason. So I'm just wondering if you can help us understand or if you know from your customers sort of what percentage of their book of business or their perspective book of business, they actually have complete access to sort of exiting the fourth quarter versus maybe where they were entering or in the third quarter, just so that we can get a sense of how the opportunities that's going to progress as we move through 2021.
I think you should plan on the opportunities to be very solid. I don't have a number. I think it varies by customer and probably by geography, but as you would expect with over 3,000 sales reps and nearly 5,000 store managers out there every day working this customer, we have a very good feeling about what they're doing and through our CRM, we've got an understanding of the activity there, and I would tell you it's terrific. In a number of ways I would say the confidence that we have presents itself. The drive that we have in new account activity for further growth - there's an interesting fact. In 2020, we actually opened more new accounts, many of them in Residential Repaint in 2020 than we did in 2019. And so the visual I'd like for you to understand is that we've got this terrific customer base that's growing in their loyalty to us through the introduction of new products and innovative solutions, the digital platform. We've got a new living well introduction of products for our customers. I'd be happy to share with you in a moment here. We've got terrific service, the role that our reps play in helping these customers to be successful.
So we've got homeowners who've been home that are anxious to have their homes painted after spending maybe a little more time in there than they appreciated earlier, a desire to maintain those, painting contractors whose loyalty to our company is growing, and a strong desire for us to not only take care of those that are doing business with us now, but to grow that. And I think we're hitting on a lot of those cylinders. So as I mentioned, six years of double-digit growth, and we expect that momentum to continue.
If I could just ask on the raws and price, the February one start date versus I think last year was a June one start date, I mean what - what were you waiting for to make the price increase announcement and how - what caused the percentage increase that you chose? There are a lot of folks that are worried about further inflation in the back half and the crude oil chain further into petrochemicals or in TiO2. So are you confident that you took enough or should we think that maybe possibly you'll need to take more during the year if necessary?
Yes, Vincent. I would say the timing was really a function of the rapid increase we saw as the fourth quarter - in raw materials as the fourth quarter progressed. So we hadn't planned on going even that early because of where we thought the raw material environment was. As you know, we look at this every month, try to project what we think the basket is going to move, both with Architectural and Industrial, and when we saw the rapid increase with propylene, we adjusted the schedule and went out with a price that we think was right on Architectural. On industrial, because we had some businesses that we're still working through that process, I think it allows us to adjust what the price increases is going to be versus what we thought it was going to be. So we'll probably have to --- we're going to go out with a higher increase than what we had in Architectural. And here's the - as you know, as the year goes on, if we see raw material costs increasing more than what we have planned or what we have in our guidance, you know us, we have discipline. And we'll go out with another price increase. You saw that '10, '11 and '12 when we had to go out with five price increases in the 18-month period. That discipline is still there, and if we're not covering our costs, we'll have to go out again. But right now we feel comfortable with the price increases that are going into the market.
Thanks for the detail and looking forward to a great 2021.
Thank you, Vincent.
Our next question is from the line of Greg Melich with Evercore ISI. Please proceed with your questions.
Hi, thanks. I had two questions. One was you mentioned digital investment with the home centers. Could you get a little more specific in terms of what that is and how we should think of that strategically?
Yes, I think there is a digital investment and a home center digital investment. So I want to make sure that you're clear with our comments there, Greg. We are very excited about our relationship. We share our definition of success with our Consumer Brands customers that has us leaning forward and anxious on growing - this growing opportunity. We're interested in retention of the customers that our customers are experiencing. And we're working with them in ways to help them do that. Rather that the specifics of those details come from those customers, and the timing will be explained by those customers. Internally, ours, we're very excited about that as well. I'd splinter that out into both the do-it-yourself, again lesser part of our business. We're spending a little bit of time on to serve those customers, quite a bit of investment and attention going towards our professional digital platform, Greg.
In fact, we're going to be introducing in this first quarter a new initiative called Pro's Plus which is one suite of tools that are designed to make our customers more successful. And it's unique, and we think unique in a way that only Sherwin can bring it to the market in that it brings all elements to our customers, the in-store, the online, the rep, all of these in a way that we think will help our customers be more successful in their endeavors. So as I mentioned, we're rolling that out in the first quarter, and we're very excited about the impact that will have as well. But digital across the board, internally and externally, is something that we're focused on.
That's great. And the follow-up for Al is on leverage. The 2.4 times now with the amount of cash you generated last year. Where are you comfortable with that? Does that need to get down to two or are we at a point now that free cash flow should really just be generally buying back stock or investment M&A, whatever?
Yes, Greg, as I've talked, the target leverage that we are looking at was 2 to 2.5. I'm very comfortable at 2.4, and I think you're absolutely right. We're not going to pay down debt in 2021, and we'll use the free cash flow for M&A. And absent M&A, we're going to buy our stock back.
That's great. Good luck, guys.
Thank you, Greg.
Our next question comes from the line of Mike Sison with Wells Fargo. Please proceed with your question.
Hey guys, nice end of the year there. So sort of taking a look at the sales growth that you guys put up in '19 and 2020, yet the '21 outlook is stronger. Yet the midpoint of your guidance for EPS is a little bit less, so just curious what - given that your sales growth is pretty good, but what's sort of holding back some of the EPS growth leverage relative to the last couple of years?
Mike, we did have a little bit of a tailwind in 2020 relative to raw materials. As we've talked about with raw materials going up low to mid - mid-to-high-single digits and the pricing that we have to put it to get on top of that, unfortunately that doesn't go to our bottom line as much. But I think we're excited about the 9% on top of a 16.4% increase to your point and expect segment operating margin improvement across all segments. We do expect to see modest gross margin expansion as we have the volume growth. We have the price increases to offset inflation, but then we also have this continuous improvement culture that we've talked about in the past. And I think the teams have done a really good job and have done a lot of hard work on different levers to keep driving our operating margin in particular, not just our gross margin. And you see that, I would say in our international businesses, even flat sales in our consumer businesses. And you see significant growth in our operating profit. You see that in our Performance Coatings Group with a 4% increase in our second half, and you see nice 40%-plus flow through on that. So I think depending on how the volumes flow through our second half, depending on how raw materials are in the high end and low end of that range will tell you if we in the midpoint, high end of our guidance. So, I think we're feeling really good about a 9% increase and including with a mid-to-high-single digit growth.
Yes, with some very good investments for our future as well.
That's right.
We're feeling good about it.
Got it. And then just a quick follow-up on TAG, and I apologize if I missed this. Are you planning any new stores this year, and are there any particular areas in the country that you're going to focus on? And then just sort of a comment, I hope you have a lot of orange and brown paint readily available given the Browns are finally on its way.
Well, we love that you just made that comment, well most of us. Our Pittsburgh fan here, Al Mistysyn, is a Steeler fan, but the rest of us are right there with you. Yes, we do plan on continuing to invest in our stores. We just mentioned investments, and stores and reps are an important part of that. And we're going to be back into that range likely in the 80 to 100 as we go into 2021. And a lot of that I'll have to do with how this pandemic flows, but it's an important investment that we continue to expect to put fuel in that tank for sure.
Thank you.
Thank you.
Thanks, Mike.
Our next question comes from the line of John McNulty with BMO Capital Markets. Please proceed with your question.
Yes, thanks for taking my question. I guess two things, one on the - if we assume that the DIY markets really didn't eat much into the do-it-for-me side, I guess, how much - is there a way to think about how much pent-up demand there is just given the COVID situation in 2020? And is this, in your opinion, do we have a multi-year catch-up or is this - can a lot of it be really made up in 2021?
I think it's likely a longer build up than most would realize. I mean when you think, to your point, the do-it-for-me I think is a growing population. There was a DIY surge, about 60% of the people saying that they undertook some home improvement projects. We believe that the fact that there's such a backlog right now given the surge that we've already seen in DIY. When you talk to our painting contractors, we believe that there is still quite a bit of pent-up demand, and there is underlying long-term demand drivers we think that support that, the aging population, the home price appreciation, aging housing stock, the stock market appreciation, dual-income families. All of those we think continue to feed the do-it-for-me. And we're working really hard to be the one that those contractors turn to.
Got it. That's - that's helpful. And then maybe just kind of tied to that, you indicated equipment sales were up double digits. Is there - do you have line of sight as to who the buyers are? Is it tied more to the do-it-for-me side of the market? Is it tied more to the new residential kind of market? I guess is there a way to think about that in terms of who the buyers are and maybe where that kind of accelerated growth may be coming from?
Yes, I'd say that it seems to be strong across most segments, and the technology there is moving and our relationship with those customers. We want to be that go-to-shop for the residential repaint contractor that may be looking at the fact that they are a little shorter on labor than they would appreciate, and they see the opportunity to go faster and pick-up projects. So we want to be the go-to-supplier that can help educate them on how spray equipment could help their productivity and quality, so that along with - and we are seeing this as well a positive mix shift in quality. So we see a movement up in our quality for the same reasons. These painting contractors in many cases are finding labor painters that might be less experienced, and so spray equipment opportunities are one area to help their productivity as is the increase in quality to help minimize any call-backs or disruptions to the employer - to the homeowner while improving their productivity.
And John, as you know, I mean strong spray equipment sales is a leading indicator, and we've talked about this in the past particularly on the contractor base. That is a positive sign as we go into the first half of 2021.
For sure. Thanks very much for the color.
Thank you, John.
Next question is from the line of Arun Viswanathan with RBC Capital Markets. Please proceed with your questions.
Great, thanks. Good morning, thanks for taking my question. Congratulations on the great performance in 2020. I guess maybe I'll ask the question on Consumer and Performance. Could you just walk us through how you see both of those segments kind of evolving through '21? Obviously, you got the tough comps in Consumer in '21. I think on your last call you may have indicated that maybe in those periods you showed negative growth in Consumer. Are you still thinking that way? And then similarly in performance, just given the weak Q2, do you think that the year would actually result in that segment being above your overall sales guidance? Thanks.
Yes, Arun, let me start with the consumer. And we've guided for the full year to be up or down low-single digits, and our expectation with DIY is that we'll see that strength certainly through the first quarter and most likely into the second quarter. And it just depends on whether that continues into our third quarter or not. And so, yes, we do have two - the middle quarters up over 20% in Consumer. But I think the team has done a lot of good work on helping our customers retain and/or gain a bigger share of the DIY sales. I think we'll see how results and the market share comes out, but we believe our customers are gaining share relative to their peers, in particular our largest customer in the home center channel. I think you're going to see the investments we made through the second half of 2020 across different programs, including the Pro, start paying dividends into 2021. Granted, it's a small base, but our expectations are high in that segment, the Pro segment, and I think we're doing a lot of the right things with driving that, and we'll see how that plays out as the year unfolds. When you look at Performance Coatings Group, a strong second half similar to what I talked about with our paints - North America Paint Stores, a strong - stronger second half, in particular a strong fourth quarter translates into strong performance in our first quarter. And as you mentioned going up against a soft second quarter, we're expecting that team to grow for the year mid-single digits.
Could it be above our overall growth? Sure. It depends on what happens with infrastructure, what happens with the continued momentum we're seeing outside the US. And then really, we have a great opportunity and confidence in North America coming back. John talked about basically up low-single digits. That's about 50% of our Performance Coatings sales, and it's really encouraging to see General Industrial start picking up, which is our largest segment. Industrial Wood was up double digits, which is our second largest segment. So we feel like a lot of momentum and could it be higher than the overall company? Sure. But certainly strong first half.
You know, Arun, I'd just add this result in the PCG business, Performance Coatings business, you got to give great credit to our team, our leadership there. When things were pretty dismal and things were looking pretty challenging, this team kept their chin up and leaning forward. I'm really proud of what they accomplished. I think everything - I agree with everything Al said. I'd also add that we're leaning forward with market share gains here as well, so we're not just simply we're not relying on the market to get better. There's been a lot of terrific work that's taken - been taken place in some of the most challenging times that many of us have been through. And they really positioned our Company well. I want to thank our leadership throughout PCG here. They've done a wonderful job, and we have high expectations of them going forward as a result of the great work they're doing.
Great, thanks. And I guess just as a quick follow-up on the capital allocation side, the M&A activity in this sector seems to have picked up quite appreciably. Are you seeing interesting opportunities out there or devaluations look a little too stretched for you? And if you are seeing opportunities, are they in anything in the digital or EV space or electrification space that you'd want to pursue? Maybe you can just comment on the M&A environment.
I'd say our - I mentioned earlier, I think our pipeline is very robust. We have a number of projects that we're working on, some of which we expect to complete this year. I want to reiterate and reemphasize on both sides here, one that we don't feel as though we have a gun on our head with an absolute need for acquisitions in order to grow. I think we've proven that, and we're excited about what we see in front of us in the windshield that gives us great confidence with or without them. Now that said, on the other side, I want to be very clear, we are excited about some of these projects. We are very deliberate in what it is that we're doing. We're confident that that many of these would be a terrific fit, and we're working towards them. So we feel really good about what we have and what's out there.
And Arun, as we just talked about, our leverage ratio is within the target we want it. We have a strong balance sheet, we generate a ton of cash. And we're not worried about valuations. The valuations, as John talked about, we'll take a disciplined approach to it where we can get a return for our shareholders. And I think that's key, and I think we can get to the valuation that makes that happen.
Thanks.
Thank you, Arun.
Our next question is from the line of Steve Byrne with Bank of America. Please proceed with your question.
Yes, thank you. Just thinking about the various end markets you have in TAG. Is it reasonable to assume that the paint you sell for new - for commercial projects versus what goes into a contractors resi repaint, is a shift towards a much higher-quality paint potentially with a higher-unit price and higher margin, is that - is that mix shift towards the resi repaint, has that been a meaningful benefit to you and do you record that in the 2% price comment that you made, John, out of the 9% same-store sales or is that mix shift benefit in price not included in that 2%?
So Steve, I might suggest that you look at it in a slightly different way. Let me - let me introduce this thinking, that the positive mix shift that we're experiencing is actually in nearly every segment in TAG. So within commercial, if I could just isolate on commercial for one second, if you could imagine a project that was bid where COVID wasn't in the mind of the project estimator and they put this together, and all of a sudden now there is starts and stops and restrictions on how many people can be on a project and all the challenges that we all know. Now, you start to realize when the cost of labor is only 80% to 90% of the project, that incremental investment in a higher-quality product will actually increase their cost of goods from a paint perspective. But overall when you think about labor and the choppiness they're experiencing, it will actually make them more efficient, more profitable on that project. And so across all segments now, going beyond just the Commercial, what we are experiencing is exactly what you said, a positive mix shift in Residential Repaint. We might have painters with a little less experience, and so they don't want to be disruptive to the homeowner and have touch-up issues. They want to maybe get away with one less coat so they can get out of the home quicker, all these - durability. All of these different areas are important aspects of product mix shift in a positive direction, same with Commercial. New Residential, you look at the number of painters on a new home and the delay getting pushed out. So they want people to be able to come in, paint the home, get off with little call back or touch up. So we are experiencing this positive shift throughout our architectural business.
That's helpful. Thank you. And just wanted to ask you about that Huawei brand that you acquired with Valspar. I recall in years past there was this thinking that you can reinvigorate that paint in China, whether it's to modify that store model or change the way it's promoted or the outreach to contractors, whatever. What's your view and outlook on that brand in China? Is that still best owner for you guys or where do you think the outlook is for that brand?
Yes, Steve, I think you have to look at it in maybe two different ways, one on the Performance Coatings side and then one on the Architectural side. And I'll just comment, the small impairment we took was more on the Performance Coatings side as we continue to drive our customers and our products to Sherwin-Williams brand and Valspar. On the architectural side, I think it's part of our strategy, and I'll let John tell you about it.
Steve, one thing I think we've proved in a year with the pandemic is not a year you should try to reposition our Architectural brand in China. So I think as we move forward, there's a lot of work that we're working on. I do think there are a number of opportunities there. It is a relatively fragmented market. And there are terrific opportunities, and you should expect that we're continuing our work in establishing the most solid brand strategy moving forward - in 2020. We have high expectations for the team, but I would tell you that in 2020, we had to be somewhat understanding in that the consumer marketplace in China, with everything going on with the pandemic, was not a year we were going to gain a lot of ground in this area; so we're ramping that back up. We'll be doing a lot of testing. I wouldn't think that in 2021 we're going to move the needle by our Architectural sales in China, but we certainly believe it's a seed that needs to be planted for our future.
Very good. Thank you.
Thank you.
Our next question is from the line of David Begleiter with Deutsche Bank. Please proceed with your questions.
Thank you, John. On the large dividend increase, are you trying to target a certain yield, and if so, what is that yield?
Yes, David, you know, the 23.5% increase in the dividend to $6.62 represents 30% of our prior year EPS as reported. This has been a consistent policy of ours, and we've historically targeted that. I know you know we've gotten away from that briefly when we conserved cash through the integration of Valspar. But over the last couple of years last - this 2020, up 18.6, 2019 we're up over 31%, so we're back on that 30% of prior year EPS.
Got it. And, Al, just on the quarterly earnings progression, should it be typical this year in terms of percent of earnings in Q1 and Q2, etc., or should it be maybe a little bit different given the dynamics of the marketplace?
Yes, David, as I talked about with the stronger sales in the first half that I'd expect to see with our Performance Coatings Group and our TAG, in particular in North American Architectural, because of the somewhat easier comps that we have in the second quarter, you would expect to see a stronger first half on sales and EPS growth than you would see in our second half. But in the second half, we still expect positive sales and EPS, it's just not going to be a strong as our first half.
Thank you.
Thanks, David.
The next question is from the line of PJ Juvekar with Citigroup. Please proceed with your question.
Yes, hi. Good afternoon, everyone. Hey, John, you mentioned that you've been growing double-digit for last six years, clearly you gained share either in Residential Repaint or New Housing Construction or both. Who do you think is losing share? Is it independent dealer channel that has lost share or could it be some of your larger competitors? Can you just talk about where you - who you were taking the share from?
Yes, PJ, we don't discriminate when it comes to share gains. So we're working every market. That's what beautiful about our industry. Every market is its own independent market, and you have to win. And I would say this, that with our view, many people look at our stores because of the storefront and think we're mainly a retail store. That's not the case. We are not the company that unlocks our door and hopes that things - good things happen. Give the TAG leadership, Pete Ippolito and his entire leadership team great credit for the aggressive view that they take. We're not waiting for things to happen. And so in each market, to answer your question, there is a - there is a plan. The plan includes who are those customers that we might know and we might be doing business with that we could expand our share of wallet with. And there are some that, for whatever reason, we've not earned their trust or their business, and it's up to that local team to get to know those customers and build that relationship. So it's not one contributor. It's - I wish it were that easy. It's challenging, but we get out there every day, and this team has a wonderful mentality. This team thinks about you eat what you kill. So you need to get out there every day and hunt and provide for your family. I love the mentality they have.
Great. And quickly, I'll be brief here, but good to see industrial economy broadening out or Industrial Coatings, were you surprised to see Heavy Duty Equipment come back so quickly in the recovery? Thank you.
I was pleased to see it come back. I don't know that I would say surprised. We have a terrific leadership team in this business that is doing a wonderful job. To your point, there's been seven quarters of tough sledding, but we have really good momentum right now in three of the four regions posting double-digit gains. North America, while just slightly lagging, is trending very well. The back half of the quarter here in North America was strong, and we believe that Heavy Equipment, as well as many of these other segments that we're focused on, are really somewhat - some of them are recovering. Some of them as they recover might be rebuilding inventory. So, we're taking that into account as well. But this is a team that's aggressively out there. As I mentioned just now with TAG as far as market share gains, this team Karl Jorgenrud and his team are really working hard to gain ground, and we've got a lot of respect for them and the job they're doing.
Great. Well, your aggressiveness is showing in the results. So, thank you.
Wonderful team we have here. Thank you.
The next question comes from the line of Chris Parkinson with Credit Suisse. Please proceed with your questions.
Might be on mute, Chris. We're not hearing you.
Yes. He may be on mute at the moment. Let me check that out, gentlemen. Actually looks like we'll move on to Bob Koort with Goldman Sachs. Please proceed with your question.
This is Tom Glinski on for Bob. So I was just wondering if you could give some color on the divergent trends between Australia and China in the Architectural markets.
Yes, I'd say for us both are relatively small in what's happening for our business. Australia for us delivered flat growth for the year, significantly improved our profitability there. We've increased our efforts to develop the right platform for distribution there. And we're optimizing that platform; we've taken - I think, some really good steps in cost reduction and actions to improve the margins in Australia. And from a market standpoint, I think we're holding our own in China. As I just mentioned, I think there is the region for us in Architectural had a decline, but we believe going forward here, we have a lot of ground to be gained and a relatively small position to build on.
Yes, Tom, I would say it was a tale of two halves as well. As you know, the first half really got hit hard with COVID in China or in Asia in particular. So on a flat full year for Australia - Australia and Asia, you look at our second half both up double digits. So I think the focus of the teams and the opportunities that we have really showed in the second half, and we expect that to continue in the first half of 2021.
That's helpful and then just on the Performance Coatings side, you've discussed in the past potentially getting to operating margins around the 20% level. It sounds like pricing next year is going to be in the 3% range. Could you just talk about the outlook for margins in that business in 2021?
First - I'm going to give it to Al, but I'm going to tell you that the resolve and conviction we have on getting there has never been stronger. We got a lot of confidence in what we're doing and the teams that are delivering it. So we know we're going to get there.
Yes, Tom, I think we've made good progress in 2021. If you look at our second half operating margin, it was up 100 basis points to 15.2%. Flow through was strong. And I mentioned this earlier, over 40% on sales that were up 4%. And if you look at the volume strength, we expect in 2021 in that business, we talked about a mid-single-digit growth rate. You have price in there. The rest is going to be volume - as well as all of the hard work the team has done over the past few years right-sizing their footprint outside the US, reducing complexity by driving reduced SKUs, SKU levels, consolidating platforms to try to get scale on certain raw materials, and so a lot of hard work to drive their operating margins. We expect operating margin expansion in 2021 on that mid-single-digit growth rate even with the raw material increases that we're talking about. And on top of that, we haven't talked about it much this year, but we still have facility projects in the pipeline to rationalize in 2021. Unfortunately, or just the reality of it, we pushed those back. And so we're probably about six months delayed on those, but they're still on the table. We're committed to completing those to help continue to drive our cost down, and you'll see us as volume continues to go, and we'll make more progress on that operating margin here in the next couple of years.
That's great, thanks guys.
Thank you.
Thank you. The next question comes from the line of Christopher Parkinson with Credit Suisse. Please proceed with your questions.
Great, thank you. I'm in the office, and apparently, I forgot how to use a headset. So just very quickly on the packaging front within PC you're beginning to see some long-term secular tailwinds emerge in beverage in particular, with many of your key customers expanding capacity in various geographies. There is this idea that this growth could accelerate to the mid-single digits in terms of volumes. Do you believe that's realistic, and also just on a global basis, how do you overall characterize your current competitive positioning? Thank you.
Thanks, Chris. And I would say that we enjoy a good position, but we know that there are terrific opportunities out there from a market opportunity perspective. We do feel along with our customers that this is in fact a business that we want to invest in. Both our customers and Sherwin are continuing to invest both in technology and capacity. We are thrilled with this unique technology we have, our V70. It's the only epoxy non-BPA on the market. Others are acrylic or polyester, and this V70 is a game changer. It's more versatile. it doesn't require lines to be shut down for changeovers. The constant consistent mill thickness just gives more productivity to our customers. And so you're right, we're having discussions with them as they're asking us to be in different parts of the world to serve them. It's a unique solution for our customers.
And when we talk about our ability to add value to our customers, this is exactly it. We've got 29 patents protecting this technology. It's unique, and it helps our customers in what they're trying to do. It's exactly where we want to be, help them to be successful.
That's very helpful. And just returning to a previous question on new store openings, just as we get back into a more normalized environment, you've always been the first to stress that there still opportunities in some of your core markets in the Southeast, Midwest, etc., but just given the projected longevity of the health of US housing, what you're obviously hearing from your customers, is it perhaps still time to really focus in on some of the underpenetrated markets given the long tail? Any color would be appreciated. Thank you very much.
The answer is yes, Chris. We absolutely - we love those opportunities, and you're exactly right. We're investing in the Southeast and Southwest areas where there is growth, and equally important to us is greater market share penetration in other parts of the country. And so we're not limiting ourselves on where we're going to grow. We are - we're married to success here. And so we're going to look for the right opportunities, and we're going to drill in and find them. And I've got confidence in that in our TAG leadership team to be able to do exactly that.
Thank you very much.
Thank you, Chris.
Your next question is from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your questions.
Yes, good afternoon. Just one question with three parts I guess on the subject of share repurchases. As I look at some of the information from your press release, it looks like you repurchased quite a bit in the fourth quarter. And so I was wondering if you could comment on the dollar amount that you bought back in the quarter? Secondly, what the diluted share count would have been exiting the quarter. And then third, John, you talked a little bit about a robust M&A pipeline and desire to make bolt-ons there. I know it's early in the year, but sitting here today, I'd be curious to hear your view on potential balance between repurchases and M&A for 2021 if you have a strong feeling about that. Thank you.
Yes, Kevin. Yes, we purchased 1.6 million shares in the fourth quarter for $1.15 billion, and as I talked about coming out of the third quarter, we had a little over $600 million of cash on our balance sheet. I talked about expecting to have a strong cash generation in our fourth quarter and putting that cash to work in M&A, and absent M&A, buying our stock back. So you can - you can extend that to the full year. We had such a strong cash generation, over $3.4 billion. We returned $2.9 billion to the shareholders as John talked about in his opening comments, a 145% increase. And that just goes to our disciplined approach to our capital allocation policy. We're not going to hold cash. We're going to invest in our business and Capex and our core below 2%, with our building and facility projects, that will be over 2% for a few years here. We're going to keep driving that dividend based on earnings growth and put 30% of prior year EPS. And then absent M&A, we're going to buy our stock back, and you saw that impact in our fourth quarter. That 1.6 million shares, Kevin, really because of the way the calc works, it might have impacted the fourth quarter a few hundred thousand shares for the year. It's probably not - not quite that much, just because of the math. But I'll let John go on the M&A.
Yes, there's not much more to add. I think the point that Al made is an important one. Absent M&A, that we will be back in and buying stock. We don't - we feel we've got plenty of dry powder here, and we're excited about some of the targets that we're working on now, and we're continuing to fill that pipeline. But again, I want to be clear, while we're excited about it, we don't feel as though we have a gun pointed to our head. So we're not going to be out there just going to buy a book of business so that we can say that we're growing sales. There are going to be strategic fits and add value or we're really not interested.
Perfect. Thank you, both.
Yes.
Our next question is from the line of Ken Zener with KeyBanc Capital Markets. Please proceed with your question.
Good afternoon, John. Al, thanks for your time. Two questions, first the Industrial Wood, that's up nicely. Can you talk to the stability of the Asia business, which I know was affected by cabinet tariffs in the US versus perhaps the US shipments? And then the second question just so you have it. Your consumer margin framework, obviously this year at least you're discounting tough DIY comps, but you're also picking up a lot of volume in TAG, which is helping that business margin - that business's margin. What's your latest thinking on the longer-term margins there? Thank you very much.
Okay. I'll take the Industrial Wood, and I'll have Al jump on the Consumer margin. First, you're right. This has been a terrific rebound by a strong team. Colin Davie and his team in Industrial Wood have really been driving hard. We had growth in all regions, with three of four of our regions in double digits. The strength here that we're seeing is driven mainly in areas of kitchen cabinets, also furniture, and so when you talk about the longevity, I would say that gives us great confidence here. The backlog of orders ahead for furniture is very long. I mean some of these are out six months or more, just because of how strong orders are. So, I think our position is terrific. It's a position of strength driven off of not only just wonderful service and availability, but a growing and unique technology portfolio that helps our customers reach their goals of again terrific leadership team doing a really good job here in the face of adversity. I think they are proving our stripes here.
Yes, Ken, on the consumer margin, and you called out TAG as well. So I'm going to talk to a combined kind of architectural margin, if you will in - as the Consumer Group, our expectation even on top of a strong 2020 to have margin expansion not quite near what we saw in 2020, but the continued strong DIY that I talked about expectation to go through the first half. We'll see how that goes as it goes into our third quarter, but really you look at the strength in our TAG. And we talked about full year being up mid-to-high-single digits, and I would say typically as we talked about, our Paint Stores Group North America would be at the higher end of that range. We have a higher ongoing margin, if you will, and that will help drive that combined margin higher. And our expectation is, as you know we, when we set a new high watermark, our expectations are that our teams are going to exceed that high watermark.
I would just add, I think the volume piece is a terrific opportunity as Al mentioned. I think on both sides we're looking for that. And again, I know I'm calling out a few leaders here, but we have opportunities. When we talk about consumer while the DIY side's starting here very strong, and we feel good about it. We still believe that there are terrific opportunities for growth in our Pro side. We've got Brian Padden leading that organization. Heidi Petz was in there before, now over in our stores. These two leaders have done a terrific job positioning us we believe for continued run there. And we can go on and on about TAG. There is a lot of jet fuel in that tank. I really believe - I've said this before, we feel inside this boardroom, we feel like we're just getting started. There's a lot of opportunities, a lot of levers to pull here and we are going to be pulling them hard
Thank you very much.
Thanks, Ken.
The next question is from the line of Edlain Rodriguez with Jefferies. Please proceed with your question.
Thank you, and good afternoon, guys. Just one quick one, I mean I know it's getting late, on M&A. You've talked about areas where you might want to add in the portfolio, such as Industrial or other value sectors, but are there parts of the current portfolio that are not the best fit for you, like even if you don't have to name them? Just trying to get a sense of how satisfied you are with the current portfolio.
Yes so, just so we make sure I understand, are you suggesting - are you asking what areas are we not interested in?
No, what areas you might want to divest of the divestments.
I'm sorry. You're right, we probably wouldn't talk about any specifics, but I would say that on a regular basis we are constantly evaluating every aspect of our business, everything from program - customer programs to brands to businesses, and we're always looking at how to drive that margin and success forward. And so even down to the stores, if we found stores in some Latin America or some outlying markets. We had some in Canada where we looked at the investments that we had and said, you know what, it's not going to get the return that the hurdle that we have for ourselves. So, I'm not going to call out any specific area, but I will tell you it's a it has to be a constant discussion that we have regularly. I think it's part of the discipline that we have here at Sherwin.
Edlain, I would tell you by our businesses, by our regions, we look at growth targets, we look at scale. We look at return on sales. We look at RONA, and we look at cash flow, and we set targets in the mid - medium-to-longer term. And if we don't think we are going to be able to achieve those targets, then we look to do something else with that business, and that's what's driving these decisions.
Okay, thank you very much.
Thank you.
The next question is from the line of Garik Shmois with Loop Capital. Please proceed with your question.
Hi, thanks. Just given the recent surge in orders on the New Resi side and the builders are starting to talk again about labor constraints, just curious if you're starting to see that at all on the contractor side? And are you experiencing any extended lag in starts to when you start to also get payment?
When we get payment did you say?
Yes.
So, no, we've not experienced that. As far as the, the project flow, I don't - I wouldn't say that we're experiencing anything that's unique. I mean there have been challenges with labor. I think it's been somewhat consistent. I think there is more interest, if you will, on the part of builders to find quality products that will help accelerate construction towards close. And so, if - if you take a look at products that hide imperfections and touch up well, those are of greater interest, and so we are seeing some positive mix shift in this area.
Okay. And I guess a follow-up question, just on mix. It doesn't sound like it, but would there be any concern that mix starts to reverse as you start to pursue price increases in TAG to offset inflation?
No, actually it actually supports it more. What does come back to the point that I made earlier when you consider that labor represents about 80% to 90% of the cost of goods for most contractors, a higher quality product actually helps their efficiency, so we continue to see a positive mix shift; and we expect that to continue.
Got it. Thanks, again. Best of luck.
Yes, thank you.
Our next question is from the line of just Justin Speer with Zelman & Associates. Please proceed with your question.
Thanks, guys. I wanted to - I don't know if you will, but would it be possible for you to quantify the incremental growth investment in the fourth quarter and in 2020, particularly in Consumer Brands, and perhaps if any of that maybe is going to fall off in 2021?
Yes, Justin, I talked about on our third quarter call that you would - that historically, our fourth quarter SG&A tends to be flat with our third quarter, and you delever on a sequential basis. But I did expect to see year-over-year fourth quarter leverage, and we experienced that on a consolidated basis. I also highlighted that the level of investment we would make in the fourth quarter would be dependent on the amount of volume we are experiencing in the quarter. And as I talked about or as you see, our volume was higher in the quarter than our 3% to 7%. So, we took that opportunity to invest in our businesses, driven by Consumer and Performance Coatings, and there are some of those investments that were one-time, others that will be continuing. And the way I'd probably look at it is you're probably going to see - I'd go 50.5 on what may have been one-time versus ongoing. Some are just related quite honestly to the sales increase. But we have added head count in Consumer to go after the Pro and other investments that - in programs that we've made to help continue to retain the DIY sales that we've enjoyed this year.
So - and that's - the other part of that is really looking to our first half, and the expectation - with the expectation that we have a strong first half on sales putting those investments in in the fourth quarter and really through the second half of the year are going to pay dividends for us looking out into the second half of 2021.
Excellent. And if you could, I just wanted to revisit Ken Zener's question on the Americas Group. Just wanted to better understand if maybe this is a shift in strategy because - or maybe the game has changed a little bit, but you've had a nice tailwind from commodities and maybe some temporal cost savings that - that's certainly helped swing profit higher this year for 2020, about basis points higher in the Americas Group. And now we're - you're telling us that 22% is the new normalized kind of run rate for TAG. I guess should - is that a difference because I know historically you kind of bumped up in that 20% range. And you used to maybe plow in a growth investment. Has the game or the market changed where this 22% is the right number for us to consider as a baseline?
Yes, in TAG I would say we're going to continue to push that operating margin higher regardless of the economic environment. I think the team has done a really good job of pulling the different levers. First, as you know, Justin, is always growth. And when you're looking at TAG for 2021 for the year at mid to high single-digit growth, that allows us even in an inflationary environment to continue to invest back in our business for future growth, as well as growing our operating margin in the current year. So I think you could expect us to continue to drive that operating margin higher.
Excellent, thank you guys. I appreciate you squeaking me in.
Thanks, Justin.
Thank you. Our final question is from the line of John Roberts with UBS. Please proceed with your questions.
Yes, thanks. What's allowing you to grow in Auto Refinish? From everything we can see collision activity is down?
Well, I think if you look at Auto, there's been a lot of really good work. And I would say this, that when we're looking at Auto, one of the things to recognize is this is a terrific example I think of the synergies that are out there as it relates to the acquisition. This Ultra 9K that we brought in brings in a terrific opportunity for us to bring solutions to our customers. I think if you look historically, John, I'd say Sherwin has been really well known for their primers and their clear coats. Ultra 9K brings a different application. It's a wet-on-wet application. It helps the technician get greater throughput, increasing productivity, and it actually helps considerably in their color matching capabilities. So I think the overall application, service and ability to help our customers increase their productivity is really what's driving it. And you're right, I mean we think this is a tough and tight market. Miles driven have been down about 75% of pre-COVID miles, and claims are down. This is a team that's not waiting, and they're out there moving aggressively with new technology.
And we've been talking about this for a few quarters that we thought that this was a business that was kind of not getting the credit they deserve. A large part of it was the COVID miles and pressure hid some of that. I think you're starting to see what we've been expecting for some time, and we expect that momentum to continue.
Thank you.
Thanks, John.
Thank you. I will now turn the floor back to Jim Jaye for closing remarks.
Thank you, Rob. And once again, just to close, a huge thank you to all of our employees around the world for a great 2020 performance. And I hope it came across in our call that we're excited about 2021 and the momentum we have across our business. One quick housekeeping item; we will be holding our Annual Financial Community Presentation on Tuesday, June 8, it will be a virtual event. Again, that date is Tuesday, June 8, and more details will be forthcoming.
As always, I'll be available for your follow-up questions, as well my colleague, Eric Swanson. Look forward to speaking with all of you as we go forward in 2021. Thank you, again, for joining our call today. Have a great afternoon. Bye-bye.
Thank you. Thank you, everyone. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.