Good morning. My name is Rob and I will be your conference Operator today. At this time, I would like to welcome everyone to the JELD-WEN Holding Inc. Fourth Quarter, 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [ Operator Instructions]. Thank you. Chris Teachout, Director of Investor Relations, you may begin your conference.

Thank you. Good morning, everyone. We issued our earnings press release this morning and posted a slide presentation to the Investor Relations portion of our website, which we will be referencing during this call. I'm joined today by Gary Michel, Chair, President, and CEO, and John Linker, our CFO. Before we begin, I would like to remind everyone that during this call, we will be making certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to a variety of risks and uncertainties, including those set forth in our earnings release and provided in our Forms 10-K and 10-Q filed with the SEC. JELD-WEN does not undertake any duty to update forward-looking statements, including the guidance we are providing with respect to certain expectations for future results. Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to their most directly comparable financial measure calculated under GAAP can be found in our earnings release and in the appendix to this presentation. I would now like to turn the call over to Gary (ph).

Thanks, Chris. Good morning, everyone. And thank you for joining us today. Over the past few years, we have focused on deploying operational and commercial excellence initiatives as the strategic foundation to propel JELD-WEN 's long-term growth strategy, leveraging our premier performance culture as a competitive advantage. Those efforts paid off for us in 2021 as we delivered an excellent year of financial performance with record revenue and core revenue growth. End markets were strong, driving robust customer demand for our world-class brands. Our operations were healthy, allowing us to maintain market-leading lead times. And we successfully navigated a challenging year of sharply accelerating inflation. And as we will discuss in a few minutes, we made significant progress on growth initiatives that we expect will position us for a breakout year of financial performance in 2022. I want to thank our global associates and our channel and supply chain partners for their unwavering dedication to serving customers with the highest quality products and delivering as record-setting performance in a challenging environment. To summarize, our 2021 performance, net revenues increased 12.7%, driven by a 10% increase in core revenue, with all segments contributing to core revenue growth. Our adjusted EBITDA grew 4.2% driven by a favorable price realization and positive volume mix, which was partially offset by headwinds from inflation. We successfully offset material and freight inflation with pricing actions. However, the net impact compressed our margin rate. We head into this fiscal year knowing that the foundation of our operations is strong. Our commercial excellence initiatives are driving business and the company is prime for sustainable growth and margin expansion, which I will touch on shortly. Please turn to page four as I share a few highlights from the fourth quarter. In Q4, demand remained strong in each of our…

Thanks, Gary, and good morning, everyone. I'll start on page 7. Fourth quarter, net revenue increased 11.8% to $1.3 billion, driven by a sequential improvement in both pricing and volume mix. This was our sixth consecutive quarter of core revenue growth. Adjusted EBITDA improved 4.0%, to $120.1 million while adjusted EBITDA margin compressed due to the impact of inflation. EPS and adjusted EPS increased 7%, to $0.45 and $0.48 respectively. Relative to the outlook we provided on our last call, improved throughput and price realization, drove revenue growth that exceeded our revenue outlook range, while sharply higher than anticipated inflation held EBITDA at the low end of our outlook range. Full-year net revenue was $4.8 billion, an increase of 12.7% overall and 10% on a core basis, excluding the impact of foreign exchange. This core growth rate exceeded the target range of 6% to 8% annualized growth established at our Investor Day in May of last year. With a healthy demand backdrop and a pipeline full of innovation, we are well-positioned to continue this momentum into 2022 with above-market revenue growth. Full-year adjusted EBITDA improved 4.2% to $465.1 million. EPS increased 91% to $1.72 and adjusted EPS increased 15% to $1.80. By all accounts, 2021 was an extraordinary year. As our team overcame unexpected headwinds to deliver for our channel partners and customers. The commitment of our team members enabled us to deliver these strong financial results with revenue and earnings growth against a challenging operating environment. Page 8 provides detail of our revenue drivers. I'll highlight the record pricing realization of 11% in the quarter and 7% on a year-to-date basis. Fourth quarter pricing improved sequentially as we realized the benefit of additional rounds of price actions to offset raw material and freight inclusion. North America led the way…

Thank you, John. Please turn to Page 13. Let me share our outlook for market growth. We expect housing fundamentals to remain favorable in each of our end markets in 2022, driving increased demand for our products. In North America, we expect residential new construction and R&R activity to remain robust, driven by continued strong home ownership trends and consumers ' desire to improve their homes. Fundamentals remain supportive, including historically low interest rates, healthy consumer discretionary budgets, and record home equity accumulation. We also expect labor availability and supply chains to improve throughout the year, allowing build times to normalize, hoping to alleviate pressures on home affordability. In Europe, we expect housing activity to remain positive, but market growth will moderate toward pre -pandemic levels in the low single-digits. Economic growth remains positive and should accelerate modestly as countries continue to recover from the impact of COVID-19. We believe this will drive positive activity and will support growth in each of our end markets and channels. And in Australasia, activity should remain robust as the market continues its recovery from a multi-year housing recession. Record housing starts and the overall strength in housing demand due to government program incentives, low interest rates, and solid economic growth are a positive backdrop for our performance this year. Given the recent strength in housing starts, we expect some moderation of growth from these peak levels towards year-end. In summary, we expect that favorable housing fundamentals in each of our regions, combined with our unique growth drivers, will accelerate above-market growth in 2022. Please turn to Page 14. We expect total consolidated revenue growth between 7% and 10% for 2022, which includes a small headwind from foreign exchange. This revenue outlook is supported by core growth from all three segments, df with North America delivering the highest growth rate. Additionally, we expect to deliver full year adjusted EBITDA in the range of $520 million to $565 million. Our margin improvement implied by this guidance is a result of volume growth, including accretive new product launches, our strong pipeline of productivity projects, and the benefit of price increases already deployed to offset continued inflation. In addition, we expect our capital expenditures to range from a $130 million to $150 million. As we look ahead, we are laser-focused on delivering new market-leading product and service innovation and growth for our customers. We believe JELD-WEN's global footprint, multifaceted growth platform, world-class brand, and premier performing culture combined with the favorable housing backdrop, will deliver more organic growth, margin expansion, and compounding cash flow. Thank you for joining us this morning. John and I will now take your questions.

At this time, I would like to remind everyone, [Operator Instructions]. Your first question comes from the line of John Lovallo from UBS. Your line is open.

Good morning, guys. And thank you for taking my questions. The first one is maybe Gary, can you get into some of the specific levers that you guys can pull in addition to pricing that could help hit that 2022 margin target. And should we expect both 1Q and 2Q margins to be down on a year-over-year basis. And maybe just along the same lines, is there any change in the cadence that you're expecting to hit the 2025 margin targets.

Thanks John. Good morning and thanks for those questions. Very good ones. Yeah, let's talk about 2022. Obviously, we're seeing sequential improvement in price offsetting inflation, we actually -- your kind of saw that number of cardio, fourth quarter, so accelerated third quarter, fourth quarter, and into this year, we will see that accelerate as the year goes on. Really what's driving our growth and in our guidance here in the -- 2022 are strong markets for sure the ability to get price to offset inflation and then [Indiscernible] specific payouts for [Indiscernible] on investments that we've made in growth, both for capacity expansion. For example, in margin accretive businesses like our VPI multi-family business, where we've just recently opened in East Coast facility which has a potential to double our capacity for that business, continue expansion in our exterior door business, which has been growing significantly over the last couple of years and will continue to grow this year, as well as our introduction of our [Indiscernible] products this year, our composite window, patio door product, which again is also an accretive margin product and one that we're very, very excited to have out in the marketplace, and we expect significant growth there as well as margin expansion. The other products that I talked about in the prepared remarks in Europe and in Australasia are also margin accretive. So if you think about price offset, more than offsetting inflation throughout the year accelerating and those accretive growth initiatives and capacity expansion in margin accretive products, we've got a real nice setup for 2022.

Okay, that's helpful. And then, my second question, could you help with just the magnitude of the new price increases in 2022 and maybe how much carryover should we expect from 2021? And then, are you seeing any shift in consumer preference towards lower-priced products given the amount of pricing put through?

There will be some carryover, John. John speaking. We did have some price increases took effect in the late half of the year, as we talked about, sort of that third round of pricing actions. But I guess what I'm saying at this point we've got visibility to the price that's embedded in our outlook. We've either already taken either the combination of carryover and/or new pricing actions that we've already implemented and communicated to the market. Those are all out there. And we at this point, we don't need to take any additional action to achieve the pricing that's embedded in our outlook. But in terms of quantifying carryover versus new price, I'm not sure we're going to parse that out of the guide. And I would say no on the mix or trade down, we're definitely not seeing any notable sort of trade down in terms of lower priced product that's really seems to be an environment where the manufacturers, you have products who had inventory and who can meet the time, that seems to be sort of trumping the price of products because point consumers and builders, just new products and seeing less sensitivity towards price.

Got it. Thank you.

Your next question comes from the line of Deepa Raghavan from Wells Fargo Securities. Your line is open.

Hi, good morning, everyone. Thanks for taking my question. A little bit a big picture and more relevant to the interest rate backdrop currently. Are you factoring in any slowdown in the North American segment, either in the new build market or R&R activity in the second half and any thoughts how you think the current backdrop with the interest rates being high [Indiscernible] could or could not influence?

Thank you for that question. What we're seeing is a very strong backdrop. You asked specifically about North America in residential and R&R, we're seeing a very strong backdrop. We just spend some time with customers over IBS and over the last several weeks, and we're seeing a strong demand continuing in residential new construction and the setup for the R&R market continues to be strong as well as there's low housing stocks across most of the country. High equity positions and strong construed sewer budgets right now. It continues to focus on upgrading and remodeling as well. So we think there's a pretty strong backdrop there. We haven't seen any interest rate movements that are better curtailing that at this point, obviously we will look out for that, but I think on the [Indiscernible] side that we're seeing is the backlog of new orders is certainly there sufficient to carry us through this year and we're looking at and we see is labor constraints and supply chain constraints loosening up in that channel in order to have those new orders journey to build.

Okay, that's helpful. And just -- you mentioned labor constraints so just -- and you also mentioned your sequential throughput has improved since bottoming in August. Can you talk through what your expectations are in 2022 or expecting that, you obviously are expecting labor constraints to improve, but how much of that could drive? Is it a couple of percentage points on the top? Is it one percentage point on the volume line that you'd expect to add to 2022?

So in the last responds to labor constraints, I was mostly referring to there were residential construction and in the trades and their ability to complete there. So I think that's going to start working its way through, there's challenges there, obviously. In our own operations, we saw the biggest challenges last summer, and we started to work -- we actually used our own JEM tools, our own Joe and excess Model tools around problem-solving in looking at how can we attract developer chain, people within our operations. And we saw sequential improvements in what we would call absenteeism or our ability to staff our facilities, and that's really would help us drive that sequential throughput improvements through the remainder of last year and will continue into this year. We watched things like the COVID-19, this Omicron, which I think is mostly behind us at this point, but we're starting to continue that sequential throughput through the year. I don't know that my fidelity is good enough to put up a 2% improvement or a number on that deeper for you. But I will tell you that built into our guidance is our ability to continue to use the tools that we put out there to staff our facilities appropriately and to make sure that throughput continues to improve, which is a fundamental output of our JEM.

Okay. Sorry, just a quick clarification question for me. So you're assuming -- just to be clear, you have only taken price -- prices that have been implemented so far in your guide, right? Not any upcoming price increases.

Yes, there is prices that have been implemented, but haven't actually started being realized yet due to customer notification days in certain markets. But in terms of us taking the actions and making communications, that's correct. We -- we've taken the actions that we need to deliver, the pricing the full year, if not all, hitting the P&L yet in Q1.

Great. Thanks so much, appreciate it. Good luck.

Thanks

Thank you.

Our next question comes from the line of Matthew Bouley from Barclays. Your line is open.

Morning, everyone. Thanks for taking the questions. Wanted to ask about the site transformation efforts. That was helpful color you gave up top on sort of the benefit, the capacity and labor productivity. I think I heard you say you plan to deploy three times the number of events across your operations this year globally. Curious if you could put a little more color around that. How many more sites will you deploy this model to? And there's sort of a benchmark we can look to around annual capacity expansion that you're targeting from that program. Thank you.

Thanks Matt for the question and good morning. Yeah. We're really excited about the movement that we may be talking about JEM for well, three and half years or so. And after the first kind of deployment of basic problem-solving tools and some basic tools across the entire enterprise, we obviously have seen great benefits there. In 2021, we identified our 14 model value streams, which really is an end-to-end look at portions of our business and deploying when I guess you might even call it something like JEM 2.0, a deeper look on more narrow part of our business that actually makes a big difference in how we are performing. where you're seeing a lot of that work is around cycle time improvement in our facility that are showing up as competitively advantaged lead times in our business. We've been able to talk about significant improvements in lead time last year and throughput compared to our competitors in the area of vinyl windows, for example, and into your next year doors. So it's really given us capacity expansion without having to deploy a whole lot of capital in those areas. so as we talk about taking our -- what we call, rapid improvement events, some might call them Kaizen events, we're deploying those across those 14 value streams at all points, from order entry all the way through to cash collection. But a lot of the focus is on our operations. We take the same type of work and employ -- deploy that to other operations. But the major focus is on these 14 value streams that have the biggest push. Once we start to get the advantage out of that math, we'll take those 14 and obviously expand them to further value streams across the country -- the company. We have targeted numbers for that. We know where we'll go next, but we really want to make sure that we make a difference that sticks and they're what we learned in the 14 model value streams is applicable, and we can look across the aggressive our operations to take stare at work through them.

Got it. No, that's really helpful color there, Gary. Thank you for that. Second one on just back to the guide and revenue guidance for the year. So the 7% to 10% revenue growth in '22, I know you're not quantifying carryover price versus any new price. But high level, is there a split between price and volume that you're assuming that you can speak to, and is there any cadence to the volume side through the four quarters that we should be aware of? Thank you.

Sure. In the 7% to 10%, as Gary mentioned in the prepared remarks, that's all-in, including FX number so there's about a 2% estimate right now for the headwind that we have from FX on a core basis. We're implying that excluding FX, that the core revenue growth is more in the 9% to 11% range if you strip out that 2% -- or 9% to 12% range just about the FX. And I would say certainly pricing is more than half of that given the amount of pricing that we're having to put through to offset inflation, but volume mix is definitely strong and definitely positive. In terms of the cadence, I think Q1 will be positive on the volume mix, but it has risk of being flat just given what we're seeing in some of our markets right now still on labor availability in Europe and Australia related to COVID, but we're certainly hopeful that that gets behind us so we can meet the demand we've got and we've got a strong backlog and strong order book. Just anxious to be able to push that out to customers. And so the volume will come as the year progresses.

Got it. Well, thanks, John, thanks, Gary, and good luck.

Thanks, Matt.

Your next question comes from the line of Phil Ng from Jefferies. Your line is open.

Hey, guys, John, I've lost track the amount of price increase you guys have announced since last year. So it could be helpful to refresh us since the last call late last year. What incremental price increases have you announced in your bigger markets and how does that layer in? And then I guess a follow-up on the margin side of things, you said margins up year-over-year, but should we expect it to inflect positively year-over-year by 2Q, it sounds like 1Q you still have some catch-up?

Good morning, Philip. I would say that in terms of the price increases, yes, that's a lot to keep track up, just given the number of markets that we're in. We'll focus on North America because that's probably are -- of interest. The most recent change was in the wholesale channel, which was an all products price increase that took effect the beginning of the year, so that was effective as of January 1. And then, our retail price increases are layered in as the first quarter progresses. They're not -- not quite as a bright line like that so that would be the most recent round of pricing that was done. And then, as you get into Europe and Australia, that the timing is different given the desperate nature of customers and channels there. In terms of margin cadence, yes. Margins, we do expect margins to be down in Q1 primarily due just to the impact of inflation. And although we're covering it in dollar terms, it's still a headwind to rate. Second quarter, probably getting closer back to flat margins and then seeing some very nice margin uplift in the second half of the year.

Got it. That's really great color, John. A question for Gary. You guys have been buying back your stock pretty proactively. Valuations are actually pretty depressed here. Just curious, how are you thinking about capital deployment for 2022. You've hinted at maybe doing more M&A as well. I'm curious, what are you seeing out there from a pipeline standpoint and just any color on valuation? And certainly, in the public markets, you've seen some multiple compression here.

Yeah. We are -- thanks for the question. So we continue to look at opportunities as we talked about in our Investor Day. We laid out a plan for a strategy for growth and in areas that we were most interested in potentially bolting on, and there's a number of things in our pipeline without getting specific, we're always nurturing those and looking at valuations that makes sense. We did a significant buyback when the opportunity presented itself last year and we'll continue to look at that. And we've got a number of great projects internally that continue to pay off for us. I look at 2022 a little bit, as a payout year for some of those investments. We talked about earlier, open the capacity expansion side of the equation. Look at VPI, the average recruited a couple of years ago, really paying out is we're about to see the benefits of doubling the capacity in that business, which is part of that strategy. So we're looking for more VPI, more opportunities to add onto our strategy that we laid out back last year.

Thanks a lot. Great color.

Your next question comes from the line of Mike Dahl from RBC Capital Markets. Your line is open.

Hi, this is actually Chris on for Mike, thanks for taking our questions. Just wanted to touch on your expectations on cost inflation this year, particularly in the back half of the year. I realize that you guys could go out with incremental pricing, but what are you assuming in terms of year-over-year inflation and costs and the cadence of that between the first half and the back half of the year?

Certainly, we'll have some favorable comps on inflation as we get into the back half of the year, as we think about what the curve looked like in 2021. The -- we still expect inflation in Q3, Q4, but the magnitude will be much less than what we expect here in Q1, Q2. I'd say from a percent standpoint on both that material and freight bucket of costs, I would say the inflation will be slightly less than 2021. and on a percentage terms. But in dollar terms -- in terms of the dollars, we have to cover inflation, but the magnitude is pretty close to the same in 2022 in terms of 2021. So it's still a big challenge that we've got to overcome and we're well-positioned to do that.

Got it. Appreciate that and then just to follow-up on the year price cost in your outlook there. Obviously it's, you guys said you were expecting it to be positive this quarter ended up costing the phone the other way. Obviously, the volatile situation there, but just your confidence on achieving price cost favorability in that region. Given notably pieces.

And you're asking specifically about Europe?

I think the biggest unforeseen challenge it came out of Europe is the utility side and utilities and natural gas to respect and Q3, Q4, and we did not have visibility to the magnitude of that fully. I would say price cost in Q1 would be similar to our other regions in terms of being neutral in dollar terms. I wouldn't really call out anything really unique about that. It's just the magnitude of the utility inflation ruffles stand a bit on the log side that goes into our sawmill. And then metals continue to be an area of inflation as well. Just given that the steel that we use in our steel doors, steel frame business.

I appreciate the color.

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

Thank you. Good morning, everyone. My first question is around the special order products that you have. Can you just give us a bit more color on the order trends that you're seeing there and how things are coming together as we enter '22? And then I guess with that, can you also talk a little bit about the various channels and how you're thinking about some of the volume and mix that will flow through the retail side versus the wholesale side for this year, where those inventories standard as we come into '22?

Good morning, Sue, and thank you for the question. I'll start with the retail question. Retail and really R&R markets have been fairly stable and growing for the last several years. They continue to be pretty strong. We have seen a mix shift or a strong mix towards stock units, as you pointed out, over the last couple of years. That mix has been changing over 2021 and improving towards special orders which are margin accretive for us. We're seeing that trend continue. Stock levels are getting to be in pretty good shape. We're in that season now where we expect to true up stock units, in IL units in retail. So we're going to keep our eye open for that, but we are seeing special orders continue to trend more favorably and you'll hopefully we will get back to pre -pandemic levels sometime in 2022. On the traditional channel, the wholesale channel, we've actually seen significant acceleration in orders. Really over the last several quarters, they've really been growing in North America. Part of that is from builder and some of that's from R&R. So that's been trending in the right direction. And we've been pretty excited to see that happen as well. And just like I said earlier, general stray in both residential new construction and the R&R market is really driving all that.

Okay. That's very helpful color. And then, when we look at the capex guide, the $130 million to $150 million for this year, it is somewhat of a step-up relative to where you've been the last two years. And I know you talked a bit about some of the projects that you're seeing in terms of capacity adds and those things. But any color on anything specific to highlight within that and how you think about the ramp that will come through in there and what's maybe baked at the lower end versus the higher end of that range.

As you think about 2021, how the year played out, our guide for capex. At this point last year for 2021 is actually pretty similar to what we're guiding to for 2022 as the year progressed. Just like a lot of industry is lead times for equipment and things got pushed out. And so we did not accomplish all of the projects in 2021 that we had hoped to. So these are everything from automation to productivity and safety and maintenance side projects, and so I think I would frame up the 2022 guide is moving up to a more normalized type of spend level where we see great opportunities to invest in ourselves, as Gary mentioned, and IRR pay-back projects for productivity type initiatives, as well as some selected capacity expansion projects and target products, but outside of that, there's really nothing unique to call out in terms of the phasing other than getting back to a more normalized spend is a lead times from our suppliers for these large equipment purchases, get back to more normalized levels.

Thanks for the color and good luck with everything.

Thank you.

Thank you.

Your next question comes from the line of Mike Reinhart from JP Morgan. Your line is open.

Hi, thanks. Good morning, everyone. Mike Reinhart. First question. I wanted to go back to the guidance for a second and appreciate the earlier color where you said that the nine to 12 core being driven more by price, I think that more than half a bit from price. Then so on the volume side, I was trying to get a sense Gary, you laid out earlier in the call different types of initiatives you've been implemented. Anything, capacity, expansion, investment in labor. Also, various new products. I'm just trying to get a sense, particularly in North America, if we could zero in there for a moment. If there's any way to quantify what that impact of the different either capacity expansion or new product initiatives, what that impact represents in terms of the overall thought for volume growth. Let's say, if volume growth perhaps is less than half of the 9-12, so let's say, maybe something in the 2% to 4% range. I'm just putting a number out there. Is that 2% to 4% or let's say 3% to 5% primarily driven by end-market growth? How much is driven by these different company initiatives like capacity and new products?

Yes. I think you've got the basic elements, obviously, putting the price aside. We've got some unique initiatives, unique developments within JELD-WEN when that are driving growth. I'd speak of it a little bit of as a payout year for us on some of the investments that we have made. You are clearly gaining share and some of our categories have required us to put in some of these capacity expansions as well. My share desire demand for our products. So if you think about the things that are building up that those JELD-WEN specific growth initiatives above and beyond market share gain is expansion -- the investment in expansion around or -- you asked specific about North America. So around our exterior fiberglass door business, that's been growing incredibly over the last several years, gained share. Again, new products, new door systems, that donors and customers really liked because they add value in their ability to say labor, easier to install, plus they're modern styles. The expansion our VPI business. We said we were going to move that business East. It's just incredible the amount of attention and amount of demand we're not getting up and down the East Coast based on opening our new facility in States of North Carolina, again, the opportunity to ultimately double that size of that business. And then the expansion and the addition of our oral aligned composite businesses this year. will also add revenue. All of those are accretive as well to our margin position. If you think about what those -- in addition to share gain and price, there's probably about a $100 million of additional growth just related to those initiatives alone in North -- or part of those in North America. You then add on what we're doing in Europe and Australasia and you get the additional growth of the company.

Okay. No, that's helpful, appreciate that. I guess, secondly, looking at the margin progression, when you think about this year or rather in the fourth quarter, you were able to neutralize material freight with price, and yet you had the margin contraction driven by other factors. You talked about the overall, maybe first quarter margin is down, second quarter margin is flat, and then expansion in the back half. Ostensibly, but from a price cost standpoint, how should we think about the first and second quarters should be more neutral and then more positive in the back half or the other factors that you've mentioned driving the margin contraction in 4Q or the last two or three quarters, those kind of also turning around.

I'd say, for the progression price cost in Q1 should be sort of -- in dollar terms, should be in that neutral area for pre -pricing material and freight inflation. That neutral and dollars that is still a headwind to margin rate. rate though. And then, I'd say getting slightly better in Q2 and then it's really Q3, Q4 where that price cost succumbs accretive to margins in the back half of the year. I think in terms of our other margin drivers, we've got positive productivity and manufacturing efficiencies baked into the plan from all the work we're doing on JEM. And you've also got favorability from the leverage on the volume that Gary just outlined. And then we're anticipating this mix situation that was a headwind in Europe in Q4 was a headwind to margins, but that will at some point give us some relief. And so there's a lot of visibility to the levers that will drive margin improvement. But certainly in the first half of the year, that's getting diluted by inflation in terms of a rate standpoint.

Great. Thank you.

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

Hey, good morning, everyone. Thanks for taking my questions. Just first for clarity. Embedded in your '22 guidance, are you all baking in cost where we sit today the end of December or February or are you all expecting some further cost inflation?

I'd say we do expect year-over-year inflation throughout the year. I don't -- I wouldn't say we're expecting the inflation to get worse from where we are today.

Okay. And then you all mentioned that pricing is offsetting material and freight inflation here in the Fourth Quarter, and I'm looking at gross margins. I think fell over 400 basis points, I'm just trying to understand how much of labor inflation might have impacted that number and just some of your expectations for the labor component to trend in 2022

Yes. Labor inflation in the quarter was certainly significant. I mean, I think we're from a terminology standpoint. We're thinking of that more as an investment. I mean, we are doing targeted wage increases in certain plant to make sure we can attract and retain the right labor. And so it is an inflation costs headwind, but it's also -- we view it as a payback on that. If you get the right labor and retain it, then you can get the volume throughput and get it out. But I'd say in Q4, the in dollar terms, labor inflation was in the $15 million range, something like that. If you want to try and put a number on it, which would be my bad estimate.

Okay. Okay. Thanks. And then final one for me, just trying to understand SG&A a little bit. As a percent of sales, it had been increasing earlier this year, but then here in the fourth quarter, I think you all were able to walk it down 400 basis points or so to some of the lowest levels that you had on a blended basis for the full year, it was in the low 14% range, I believe. I'm just trying to understand your expectations for SG&A in 2022, given some of the accelerated investments or overhead spend just trying to understand what level you all are comfortable running you?

There's certainly a lot of areas that we'd like to make investments in and use some of the pricing that we've been receiving from the market to not only offset inflation, but fund R&D, innovation and growth. And so I think on an absolute basis, you're right, we did a good job managing cost control in 2021. But if you were to think about JELD-WEN relative to other peers, there is an opportunity for us to really invest more in SG&A as a percent of sales. And so as we think about the future, we'll be looking for those highest payback investments that we can make. And a lot of it is tied to funding growth. And so we think about what's baked into the plan. In 2022, there's definitely some increased SG&A year-over-year. But those are projects that we can tag along and talk a lot depending on how the business is performing. And -- but all of them would be -- there's new initiatives will be tied to driving more growth in the future.

All right, thank you.

And your final question comes from the line of Steven Ramsey from Thompson Research Group. Your line is open.

Hi, good morning. I wanted to think about Australasia for a minute. In 2021 passing the 2019 levels and getting closer to the 2018 recent peak, do you think you reached 2018 sales levels this year or is that something next year? I would expect new construction activity rebounds and the progress in R&R allows you to surpass those levels in the coming years. So just any color there.

Yeah. We're pretty excited about what's going on in Australasia and Australia in particular. We've seen year 2021 was a, I believe a record year in orders -- new home orders. We do expect the order rates probably be off a little bit this year, but the issue is some of the build time, that this cycle times there in Australia are pushed out months. I mean, they're huge backlog of un -billed demand. So we're for this very same as we were talking about year labor availability and supply chain. So we're in a really good position to supply the residential new construction market, we think that they are backlog's pretty well-known. We're going to see growth in start to finish it this year, and it will be dependent on how the builders and the contractors were able to stay to the job and complete though. So I think it's kind of a smooth sailing for residential construction in Australasia this year to borders just reopened. Things are starting to get back to normal. They still have -- they were probably hurt -- hit the most by full shutdowns anywhere in the world. So as that opens back up and labor availability starts to find its way to home building, those orders are going to turn into start. So we're pretty bullish on where we are in Australasia. The results are certainly sequentially improving and I think after a two-year recession in housing, we're pretty excited about where we are.

Great. and then thinking about Europe increased market penetration, I guess, what are the key ways you intend to do so through this year and how much of the benefits there hit in 2022 or does it build and have a fuller impact in 2023?

Yes. We've been -- when we laid out our strategy for Europe last year at our Investor Day, really around a few things. But one around taking the various product categories that we already make and sell it in certain markets. And moving those into markets that we currently sell other products. So we complete our product portfolio line-up there [Indiscernible] in the prepared remarks about technical doors or fire [Indiscernible] doors from Central Europe, for example, into the U.K. That'll be a dramatic driver for us. Additionally, we've got the opportunity and we've been doing some nice innovation, in Europe, particularly around sustainable towards connectivity and the like. Some fixtures there are definitely some of that. Some of that work is definitely driving growth and will drive growth in 2022 and beyond in Europe. But it also becomes the platforms for work that we're doing around the world. And then we've got opportunities where there's additional geographic expansion that we can do where -- there are markets that we under serve today where we can take our full product portfolio. It looks a lot like what we sell in other countries and other regions and take that across other countries in Europe. So that's our overall strategy in a nutshell for Europe, we will see growth in 2022 and it will continue to accelerate as new innovation comes along and we continue to transfer products across markets.

Thanks.

And this brings us to the end of our question-and-answer period. I turn the call back over to the management team for some closing remarks.

Thank you all for joining us today and thank you for your continued interest in JELD-WEN. As we said earlier, our markets are strong. We like the way out for where we are in 2022. Our operations continue to be healthy, giving us competitive lead times in many of the categories and markets that we serve. Obviously, we're navigating the inflation challenges with price offsetting material and freight inflation. We expect that to accelerate the benefit for us in 2022. And we've got a number of gentleman's specific initiatives that are driving growth and productivity in 2022. So we're pretty excited for the setup. We look forward to spending more time with you as the quarter progresses and updating you on our progress. Again, thanks for joining us today and thank you for your great questions.

This concludes today's conference call. Thank you for your participation. You may now disconnect.