Myers Industries, Inc.
Q2 2013 Earnings Call Transcript

Published: 18 Jul 2013

[Operator:]

Greetings, and welcome to the Myers Industries Second Quarter 2013 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Monica Vinay. Thank you, Ms. Vinay, you may now begin.

[Monica Vinay:]

Thank you, Cohen. Good morning and welcome to Myers Industries Second Quarter 2013 Earnings Conference Call. I’m Monica Vinay, the Director of Investor Relations at Myers Industries. Joining me today are John Orr, President and Chief Executive Officer; Gregg Branning, Senior Vice President, Chief Financial Officer, and Corporate Secretary; Joel Grant, Senior Vice President and General Manager of our Material Handling Segment; Chris Koscho, Vice President and General Manager, Lawn and Garden Segment; and Todd Smith, Vice President and General Manager, Distribution Segment. Earlier this morning, we issued two news releases, one outlined phase 2 of our restructuring of our Lawn and Garden segment. The other release was our report covering second quarter results. If you have not yet received copies of these releases, you can access them on our website at www.myersindustries.com. This call is also being webcast on our website and will be archived there along with a transcript of the call shortly after the event. Before I turn the call over to management for remarks, I would like to remind you that we may make some forward-looking statements during the course of this call. These comments are made pursuant to the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995. Such statements are based on management’s current expectations and involve risks, uncertainties, and other factors which may cause results to differ materially from those expressed or implied in these statements. Further information concerning these risks, uncertainties, and other factors is set forth in the Company’s periodic SEC filings, and may be found in the Company’s 10-K filings. I am now pleased to turn the call over to John Orr, President and Chief Executive Officer. John?

[John C. Orr:]

Thank you and good morning. It’s a pleasure to have you join us. Gregg and I will discuss the second quarter, and then we’ll open it up for questions. As Monica mentioned, we have the segment Vice Presidents and General Managers joining us today. They will be available to answer questions regarding each of their segments during the Q&A part of the presentation. Please turn to Slide 3, first I would like to discuss the second phase of our Lawn and Garden segment restructuring that was announced this morning. Phase II is targeted to deliver annual profit improvement of $8 million and is comprised of a number of actions including the closure of two manufacturing plants. This restructuring will not only lower our cost to serve, but will better position us for growth on the West Coast. On February 13, 2013, we announced phase I of our restructuring which is a product line simplification that is expected to generate annual profit improvement of $5 million. We’re pleased with the progress we’re making on phase I as it is already generating some benefits, and is expected to generate approximately $2 million in 2013, with an additional $3 million in 2014 for the total $5 million annually. The combined annual profit improvement from both phases of our restructuring of $13 million should enable our Lawn and Garden segment to generate returns above the company’s cost of capital in 2015 and increase the value of the business. On a pro forma basis, the profit improvement from both phases of our restructuring initiative is expected to result in more than a 350% increase over the Lawn and Garden Segment 2012 operating earnings, which is an adjusted EBIT increase from $3.5 million to $16.5 million. And as you will see when Gregg reviews the second quarter results by business segment, the Lawn and Garden Segment showed significantly improved operating results again this quarter compared to 2012. Now let’s review our results for the quarter. Please turn to Slide 4 on the presentation. Net sales in the second quarter of 2013 increased 12.7%, to $204 million from $181.1 million in the second quarter of 2012 reflecting strong sales in the Material Handling Segment during the quarter. Gross margin was 27.3% in the second quarter compared to 26.2% in the second quarter of 2012. Productivity improvement and material cost savings led to the increase in gross profit margin. Reported net income for the quarter was $8.3 million or $0.25 per diluted share compared to net income of $5.7 million or $0.17 per diluted share in the second quarter of 2012. This is a 47% increase in earnings per share year-over-year. On an adjusted basis, which excludes restructuring costs and other special items, our earnings per diluted share in the second quarter were also $0.25 compared to $0.17 in the second quarter of 2012. I am pleased with the progress we made in growing our second quarter results which reflects the strong performance of the Material Handling Segment and the significant profit improvement in our Lawn and Garden Segment. I’ll now turn the call over to Gregg Branning, our Chief Financial Officer, who will provide you with the details regarding our financial results. Gregg?

[Gregg Branning:]

Thanks John. Good morning, I will comment first on the overall financial results, which are summarized on Slide 4 of the presentation. After that I will review the results by business segment. I’ll review the items on Slide 4 that John didn’t already discuss. SG&A expenses in the second quarter of 2013 were $42.7 million compared to $37.4 million in the second quarter of 2012. The increase year-over-year was driven primarily by incremental SG&A expenses resulting from the acquisitions of the Novel and Jamco businesses and information technology cost associated with ERP upgrades we’ve mentioned in previous quarters. Our effective tax rate during the quarter was 30.8%. We anticipate the effective rate for the full year 2013 will be 37%. Please turn to Slide 5 of the presentation. Cash flow provided for operations for the six months ended June 30, 2013 was $30.1 million, compared to $7.9 million during the first half of 2012, reflecting the efforts we have made to better manage our working capital Capital expenditures totaled $10.2 million for the six months ended June 30, 2013 compared to $8.4 million in the first six months of 2012. We estimate the capital expenditures in 2013 will be approximately $30 million to $35 million and that more than 70% will be for growth and productivity projects. We continue to maintain a strong balance sheet, which is reflected in our low net debt to total capital ratio of 23.9%. Now let’s turn to our business segments and their performance as summarized on slides 6 through 9 of the presentation. The results are compared to the same period in 2012 and I will be referencing the adjusted pre-tax income information by segment as it appears on the reconciliation of non-GAAP financial measures included on Slide 13 of the slide presentation and in the earnings release issued earlier today. In Material Handling Segment, net sales for the second quarter increased 39% to $83.8 million compared to $60.3 million in the second quarter of 2012. Sales generated by the Novel and Jamco acquisitions and organic growth led to the increase year-over-year. Adjusted income before taxes in the Material Handling Segment was $11 million in the second quarter of 2013 compared to $9.2 million in the second quarter of 2012. The significant sales improvements coupled with the profits from our acquired Novel and Jamco businesses led to the 20% increase in net income before taxes during the quarter. Net sales in the second quarter in the Lawn and Garden Segment decreased to $40.9 million from $42.5 million in the second quarter of 2012. Softer sales volumes at the Big Box retailers contributed to lower sales during the quarter. Adjusted income before taxes in the Lawn and Garden Segment was $1.2 million in the second quarter of 2013 compared to a loss of $1.5 million in the second quarter of 2012, thereby improving $2.7 million year-over-year. The segment reduced costs by driving productivity improvements and material costs savings. Net sales in the Distribution segment were $45.9 million in the second quarter of 2013 compared to $44.2 million in the second quarter of 2012. Sales of new products coupled with market share gains in equipment sales led to this increase in sale. Adjusted income before taxes in the Distribution segment was $3.9 million in the second quarter of 2013 compared to $4.1 million in the second quarter of 2012. The distribution segment continues to be impacted by the slow replacement tire market. Additionally cost associated with an upgrade to the segment information technology system contributed to decline in adjusted income before taxes during the quarter. Net sales in the Engineered Products Segment were $37.6 million in the second quarter of 2013 compared to $38.6 million in the second quarter of 2012. Strong sales in the recreational vehicle and marine markets were slightly offset by lower custom sales during the quarter. Adjusted income before taxes in the Engineered Product segment was $5.1 million in the second quarter of 2013 compared to $4.7 million in the second quarter of 2012. Productivity improvements and a favorable product mix led to the increase in income before taxes. That concludes the financial review. I’ll now turn the call back over to John for some outlook remarks. Thank you, John?

[John C. Orr:]

Please turn to Slide 10 of the presentation. As we look forward to the second half of the year, we expect the following

[Monica Vinay:]

Thank you, John. The operator will now direct the Q&A phase of the presentation. As a reminder, in addition to John and Gregg, the following segment Vice Presidents are also available to answer questions; Joel Grant, Senior Vice President and General Manager of Material Handling; Chris Koscho, Vice President and General Manager of Lawn and Garden; Todd Smith, Vice President and General Manager of our Distribution. Go ahead please.

[Operator:]

Thank you. (Operator instructions) Our first question today is coming from Adam Josephson from KeyBanc; please proceed with your question.

[Adam Josephson:]

Thanks, good morning everyone.

[John C. Orr:]

Good morning Adam.

[Adam Josephson:]

Congratulations on a very good quarter. Couple of questions, one for Gregg on working capital, you talked about an increased focus on working capital, what might that mean for your free cash flow this year and beyond relative to historical levels for the company?

[Gregg Branning:]

I think that the big thing that we’ve seen in working capital is we’re doing a better job of managing and we saw less use of working capital through being able to reduce our receivables and better managing our payables and inventory as well. As to going forward, we would expect the second half of the year to be stronger than the first half of the year and for the full year, we would expect our cash flow from operations to be up, mid to upper single digits and continuing to improve as we go forward in out years.

[Adam Josephson:]

That’s helpful. John, one on Lawn and Garden in the restructuring, you talked about the pro forma EBIT in 2015 of 16.5 compared to 3.5 in 2012, which would represent roughly $0.25 of share of improvement which is more than a quarter of your EPS in 2012. Is there any reason not believe that your earning power has increased by that amount?

[John C. Orr:]

There is no reason to believe that it hasn’t increased by that amount, I mean, our expectation Adam with both of these projects that we’re working on is that we will have complete success with both projects and meet the objective that I stated in my prepared remarks.

[Adam Josephson:]

And just a couple of follow on to that. What led you to the decision that you can produce the greatest value out of Lawn and Garden by restructuring the business as opposed to other options?

[John C. Orr:]

We looked at many different options and again, there is still no final decision about ultimately with Lawn and Garden, but we did come to the conclusion was, the best shareholder value was to fix the business, get the business to where it was earning better than a cost of capital. Once that is completed then again, further determination can be done on the business.

[Adam Josephson:]

Great, and just lastly John, what are your preferred uses of cash at this point, how will you rank your options in terms of reinvestment in the business acquisitions and repurchases, I mean, do you think that market appreciate the scope of these cost savings opportunities that you elaborated on in Lawn and Garden?

[John C. Orr:]

Adam, as we’ve said in the past, we take a pretty balanced approach to capital allocation, as we continue to see opportunities for bolt-on acquisitions that will be a priority for us as long as we find ones that readily fit our operations, they’re quickly accretive and they generate returns above the cost of capital. I think, we’re also going to be, continue to be focused on returning cash to shareholders through share repurchases and dividend increases. I would hope that our shareholders see value in those plans as the priorities for cash.

[Adam Josephson:]

Okay, I will get back in queue, thank you.

[Operator:]

Your next question is coming from Chris Manuel from Wells Fargo, please proceed with your question.

[Christopher D. Manuel:]

Good morning and congratulations on a very strong quarter.

[John C. Orr:]

Thanks Chris and good morning.

[Christopher D. Manuel:]

A couple of questions, I mean, first let me start with, if we go through each of the businesses and I recognize you got a couple of the business, several of the business head sitting there, so hopefully they can help with this. One of the initiatives that the company has undertaken over the last few years has been developing new products and increasing that as a portion of the portfolio. Could you maybe give us a sense of through the quarter and where you are year-to-date on organic volumes in your segments and where you are with new product introductions? I think, if memory serves the target was to get to roughly 10% of the company or 10% of sales, and how progress is towards that and what you anticipate over the future?

[John C. Orr:]

Well, Chris this is John, why don’t I have Chris and Todd and Joel to just kind of speak to that and then I will come back and kind of finish it up. Go ahead, Chris.

[Chris Koscho:]

This is Chris Koscho. New product sales for us as we discussed in the last review really for us developed in the second half of the year. So, we have made significant investments to bring new products to market, really in all three of our segments Greenhouse, Nursery and Retail. As for the second quarter, I would tell you, organic growth, we were essentially flat as we mentioned in the talking points, our Greenhouse segment was really the driver of the decline year-over-year mainly due to planned production reductions in the Big Box segment and those Greenhouses that served the Big Box segment for us. So, from a new product perspective, what we will see in Lawn and Garden Segment is really going to be driven by activity in the third and fourth quarter.

[John C. Orr:]

Todd, why don’t you talk about?

[Todd Smith:]

In Distribution segment, I guess, I’ll give a little comparison with that question to the market. So, in the second quarter we were experienced some single digit growth in the replacement tire shipments, and really we’re performing against the market through our competitive service offerings and new product offerings where we were able to trend above the market in that and expect to be able to do that throughout the remainder of the year with the new product offerings.

[Christopher D. Manuel:]

Okay.

[Joel Grant:]

Hi, Chris, this is Joel Grant. In Material Handling we did not have any launches in the second quarter; we do have some planned for the second half. We’re enjoying sales from the products that have been introduced to the market, we are on our target of 5% to 6% of sales in the first half and we expect that to probably jump up a little bit in the second half, but we’re on our target as we see it for the year.

[John C. Orr:]

So, Chris, this is John and just to kind of wrap all that up, we’re on target to introduce 60 new products this year; in Q2 sales from new products and services were about 6%, 6% is our goal, the 10% that you mentioned is our internal stretch goal, but if we can hit between 6% and 10%, we’re very pleased with what we’re doing.

[Christopher D. Manuel:]

Okay, that’s helpful. If I could circle back to the Lawn and Garden Segment and I guess this is a question probably more for John because you have been, you had the history with the business for longer than Chris, but if I look at what you’re doing here, this sounds like very good return and some of the restructuring and some of the efforts here as I go through the slide. So, if you could help me maybe or maybe Chris could help with this too, some of the phasing as I would anticipate how this flows out through 2014 or through 2015, so if we were at $3.5 million EBIT in 2012, I think you mentioned that I’m looking back on my notes, so $2 million savings would come here in 2013, three more in 2014 from phase I, how does phase II roll through, is it all in 2014 or is there some of that 2014 such that we get to this $16.5 million as the number for 2015, if you understand the questions I don’t know if I’m making sense?

[John C. Orr:]

We got it, I think, Chris will have, Chris answer the question.

[Chris Koscho:]

Yeah, this is Chris Koscho and if I could just speak to each phase and then we can kind of summarize it in total, phase I that we discussed in the first quarter review really was a product line simplification. And it really involved reducing the cost that supported the complexity that we had acquired over years of acquisitions. And in that project we basically looked at our complexity and ultimately the cost that was generated to support that complexity and started a project that we did launch in the second quarter and did start to harvest those savings and we will see $2 million of that savings in 2013, we will see the remainder of that $5 million in 2014. So, the first phase as we looked at kind of restructuring the business was really focused on simplifying the business. As we moved into phase II, it became apparent that really a cost structure and a service model adjustment was required to not only serve the current market, but to serve the market that we have identified as the growth potential as we move into 2014 and 2015. So, as we talk about phase II, we will see some savings as we, slight savings, some savings as we look at the second half of 2013, we will see the remainder and all of the savings in 2014 and we will be on the run rate that we have identified as we start January of 2015.

[John C. Orr:]

Chris, this is John again, I also wanted to just add that although we’ve announced this restructuring and it’s the second restructuring, it’s not just cost cutting that we’re doing in this business, we’re also in a position to grow this segment and to do that, that growth is on the West Coast that’s why we’re opening up our facility on the West Coast. And then, I ask Chris again to talk a little bit about why we’re doing that on the West Coast as opposed to when we had an operation in say, Waco, Texas and brand, but why the difference?

[Chris Koscho:]

So, Chris for us the West Coast market has really changed in the last five years. When we looked at the West Coast multiple, several years ago, the Nursery business was in shambles, declined and at that point there was a lot of uncertainty in the Greenhouse segment, the Big Box market, the Big Box growth were being pushed to standardize on a platform that really would become a national platform that exist really east of the Rocky, that didn’t happen, the cost to convert that platform became significant and the West Coast platform will remain. So, as we look at where the growth is in our segment, we targeted that growth on the West Coast in really three buckets. We expect to see the Nursery market continue to generate organic growth as we have in the last two years and we also believe the second bucket is by being within that 24 hour to 48 hour window on the West Coast, we have identified growth potential in that second bucket as well. And I would say the third bucket is the Greenhouse segment as we position our business to kind of serve that unique platform that we have forecasted and expect to remain really the standard on the West Coast.

[Christopher D. Manuel:]

As the primary service you used to have a facility in Sparks, Nevada, I mean, probably years back, four or five years, is this…?

[John C. Orr:]

Yeah, it’s the same facility, we have just going back in and opening it up.

[Christopher D. Manuel:]

Okay. This was the second part of the question I wanted to ask with respect to John and this is where you got the history and been a help with this part, but if I look at what you’ve done in the past, when you put the businesses together in 2007, 2008 and then did some restructuring in 2008, 2009 and actually did a profit, I think, it’s higher, they’re almost $25 million in 2009. So, I guess, my question really is, I believe you can get these savings on and believe you will be able to do this. But, what gives you more confidence today to where you were in the past that A, you can achieve these saving synergies or elements of restructuring and then B, that it’s sustainable, think about that?

[John C. Orr:]

Yeah, yeah. So again, let’s kind of just walk back in the history in 2007, we made the purchase of ITML which was our largest competitor at the time, if you remember Chris, we’re going through private at that time and we were encouraged the goal private to add to our Lawn and Garden, I think, there was a rollup there, we did that. And, of course, in 2008, the world melted down, things weren’t so good. We did make money in 2008 and we made a lot of money, but again, that was done because we were raising prices at the time that resin was crashing, unfortunately next year we paid for that with our customers. So that brings us to today and why do I think and why does this whole team think that we can do what we’re going to do and that is that we’re going from two plants to one plant with this move. We have got right team in place to manage this whole restructuring and in fact, we have enlisted professional project management to help. I think Chris Koscho’s explanation of why the West Coast market is so important and the change that we would happen out there that never did happen, it would have allowed us to have the same reduction or the same type of product over the whole country versus a change that is in California. I think all of these things together give me a much better comfort feeling that we’re going to meet the objectives that we have and hopefully beat the objectives we have for these two projects. So, I’m bullish on the Lawn and Garden business, in fact, Chris and I and his team were just at the largest show in Columbus, the largest horticultural show was over the weekend and earlier in the week. I think Chris will tell you that was some very strong sentiment about the business and expectations that the market is looking better. So, I guess, maybe in a long roundabout the way that’s the answer.

[Christopher D. Manuel:]

Okay, that’s helpful. One last question, I will turn it over and that’s during the quarter your Chief Operating Officer and you will go on and went to another company here in town, could you maybe give us an update or some thoughts as to when you intend to replace or were you are in process or what…?

[John C. Orr:]

Yeah, no decision has been made at this time.

[Christopher D. Manuel:]

Okay, thank you.

[Operator:]

Thank you. Your next question is coming from Christopher Butler from Sidoti, please proceed with your question.

[Christopher Butler:]

Hi, good morning everyone.

[John C. Orr:]

Good morning, Chris.

[Christopher Butler:]

I was hoping you might be able to quantify the top line addition from the acquisitions in Material Handling and give us a little view on how those are performing for you?

[Joel Grant:]

Hi Chris, this is Joel Grant. Looking at the first quarter which discussed in Q2 sales of the combined Novel and Jamco were $15.6 million. On a year-to-date basis, the sales of those combined were $27.6 million, so those sales are slightly ahead of our expectations. We’re seeing high performances from the business and why we don’t normally give detail about pieces of the segment, we do believe it’s important to let shareholders know how they’re performing. This quarter they contributed $0.02 per share to the earnings.

[Christopher Butler:]

And in the press release it was mentioned that there was some shift of volume into the second quarter on Material Handling, could you quantify that as well for us and talk to the implications looking forward?

[Joel Grant:]

In the Material Handling business that’s quite normal, the seasonality of some of our business, the capital nature of some of our business there are shifts that go on and throughout the year. We did experience a little bit of that in Q2, I would say that looking beyond that we had high single digit organic growth within the quarter and we would look for that to continue through the balance of the year.

[John C. Orr:]

Yes, this is John Orr, just to kind of follow up on what Joel is saying there, in Material Handling business I think as you know, it’s the high CapEx business for a lot of our customers and so in some cases, they order and we expect them to take the order by the end of the quarter and then for whatever cash flow reasons they put off that taking it until the start of the next quarter. So, as Joel said, we get a lot of that variation back and forth, but I think, it’s more that says no, isn’t anything, as far as our long term strategy goes with the business.

[Christopher Butler:]

Okay. And looking at the profitability in this segment year-over-year we’re down a little bit again, if I remember correctly there is generally product mix that factors in, could you speak to that, can you speak to the competitive environment as well?

[John C. Orr:]

Well, on the mix, I think, we said on the last call, there is higher amount of automotive that’s one of the market that’s really still doing well this year. So, mix is a place of rolling it, we talked to in couple of the calls about couple of the projects that won’t repeat and those are still issues that are headwinds that we face to go through this year, completion of the year. But again, I think, we’re looking to high single digits through the rest of the year. And on a competitive dynamics there, I guess what I would say is that we don’t have any new entrance to the market, there is no offshore that’s really affecting us and so we don’t really see any change in the dynamics of number of people in the stakes and that’s not looking to change. The other thing I would say is very expensive, as you look at some of the things that we do in Material Handling, very expensive tools, very expensive equipment, so somebody has to think very long and hard about jumping into this market and that tends to limit some of the change in players and some of the change in competitive dynamics in the market.

[Christopher Butler:]

Do you match your operating income from 2012 this year in Material Handling?

[Gregg Branning:]

We typically win this goal something like that, Chris this is Gregg. We expect to have another strong year in Material Handling.

[Christopher Butler:]

And just finally, shifting gears, engineer products continues to be strong from marine sales, I think the expectation was for that to slowdown this year, you seem positive even looking into the back half of the year, is there still a slowdown to come, could you just talk to that a little bit?

[John C. Orr:]

Yeah, Chris this is John. Yeah, no, we still continue to see growth through the back half of the year in marine, marine and RV both. It appears that there has been pent up demand for marine and to RVs and our merit card business is on a record pace this year with providing products to both of those segment. So, looking into the crystal ball it looks, still looks fairly good through the end of the year.

[Christopher Butler:]

I appreciate your time.

[John C. Orr:]

Thank you.

[Operator:]

Thank you. Your next question is coming from Gary Farber from CL King, please proceed with your question.

[Gary Farber:]

Yeah, good morning. Just a couple of questions. Just on the Lawn and Garden restructuring what’s the biggest sort of logistical challenge in accomplishing and shifting the, you’re closing two plants, opening a new plant?

[John C. Orr:]

The biggest logistical challenge will be continuing to serve the market as we’re moving the equipment, we’ve outlined a day by day timeline and schedule of what we expect from a capacity needs perspective, we’ve looked at that daily and as we move the equipment and start up that equipment in the new operation, the big logistical challenge will be serving the market as we’re in season. But, we believe we planned and prepared and built the contingency plans to see that that happens and we’re able to serve the market in this season in a flawless manner.

[Gary Farber:]

Sure. What about the labor, is there any issues that you have to hire people for the new plant or things like that?

[John C. Orr:]

Absolutely, we will have to increase staffing in our middle pivotal Ohio operation and certainly today as it exist Sparks, Nevada will require staffing as well and that action will begin ASAP.

[Gary Farber:]

Okay. And then, also can you speak to the share buyback, did you do much in the way of share buyback and if so, what price and what is with your overall liquidity is currently?

[Gregg Branning:]

Yeah, the share buyback, Gary this is Gregg. We purchased just under a 102,000 shares in the quarter for $1.3 million year-to-date under our 10(d) 5-1, we spent roughly $3.3 million to repurchase just under 238,000 shares at an average price of $13 and maybe $0.07. At the end of the quarter, we had roughly 2.5 million remaining under the half price purchase plan. We ended up with net debt as you saw, just over $70 million, so we have, in a very strong position from balance sheet perspective.

[Gary Farber:]

So, just between credit line on the cash, how much do you have?

[Gregg Branning:]

Credit line, our revolver is $180 million and our senior debt is $35 million, so liquidity that would put us at $215 million, we had cash of roughly $22 million at the end of the quarter.

[Gary Farber:]

Great, okay. And acquisitions, because the ones that you have done sounds like great, really well just an update on the marketplace for that?

[John C. Orr:]

As you know, actually, earlier in the year as you probably know, there was a lot of PE guys out into the market, they’ve got a lot of money and they run in and out at time on their usual 7 to 10 year investments and I must say, the strengths. We haven’t seen a lot of other types acquisition activity, strategic activity, certainly as I said earlier, we’ll continue to look for small bolt-on acquisitions that has become a priority as long as we can make our purchase and may become quickly accretive. We generate insurance above plus the capital.

[Gary Farber:]

Okay, thanks.

[Gregg Branning:]

Thank you, Gary. This is Gregg, I want to circle back on your question on labor for Lawn and Garden that Chris mentioned, while we will be adding headcount in the two locations that Chris mentioned and one thing is important in this project of phase II is that we will have a net decrease in headcount, fairly significant one. So, but want you to walk away thinking that’s a replacement.

[Gary Farber:]

Right, okay, sure, thanks.

[Operator:]

Thank you. Your next question is coming from Brian Sponheimer from Gabelli & Company, please proceed with your question.

[Brian Sponheimer:]

Hi, good morning John, good morning Gregg.

[John C. Orr:]

Good morning, Brian.

[Brian Sponheimer:]

Just a question, most of my questions have been answered. Just on a distribution side with replacement tire sales go up being someone in the headwind, you guys mentioned that you should see a little bit of an improvement in the back half of the year. Just try and talk about quits and takes within that segment, what could help drive that?

[Todd Smith:]

This is Todd Smith, in the distribution segment, we did see single digit improvement for the second quarter and we’re able to try and add to that. At this point the expectation in the market that we have is that it remains scrap for the full year. But, with our current trend we expect to be able to trend ahead of that for the year with our service offerings and new products, and our focus on large, regional and national accounts and if the market does continue to recover, we think we will well position throughout for the year.

[Brian Sponheimer:]

Okay, thank you very much.

[Operator:]

Thank you. Your next question is a follow up from Adam Josephson from KeyBanc, please proceed with your question.

[Adam Josephson:]

Thanks again everyone, I appreciate it. Just two follow up, one Material Handling, forgive me if I repeat this, but your opportunities for organic growth in the second half of the year and beyond where do you think there will be, they’re most notable?

[Joel Grant:]

Where will be most notable, again I think, the automotive strength continues that’s one of the markets that separated itself. Our strong focus continues to be food processing and agricultural and those are the places we’re looking to make conversions, peoples that are in other forms of packaging, that’s where we will be focusing for the most part.

[Adam Josephson:]

And Joel, do you expect that those opportunities will be crucially different than what they had been over the past couple of years if you see similar runway of the next one to three years or how do you see that changing at all?

[Joel Grant:]

I think the new product part of it will be similar to what has been and again, it’s hard to tell on the automotive market what the future might bring, some of the things we hear is that it could begin to talk Rock. Agricultural things it could be just depend on the weather and depend on things that are out of our control. But, I think it would be normal to historical pattern.

[Adam Josephson:]

Thanks a lot, Joel. And John, one last one for you, just back to capital allocation prospect, and your shares have appreciated substantially since you reported a quarter ago, they’re 13 now they’re 18, as your inclination of repurchase shares change at all over that period, and how do you view share repurchases today relative to your other options?

[John C. Orr:]

Well again, we continue to look for opportunities Adam, to buyback stock and we try to time our purchases to add value to those shareholders that continue to hold our stock. Yeah, that’s the discussion that I have with Board each and every quarter about the use of our capital, again, we got a balanced approach to it. We’re trying to grow the company and we feel that as long as there are opportunities for the company it’s the best use of capital and obviously the best opportunity for shareholder value. So that’s a current and expected going forward plan.

[Adam Josephson:]

Great, thanks very much John.

[Operator:]

And your next question is a follow up from Chris Manuel from Wells Fargo, please proceed with your question.

[Christopher D. Manuel:]

Yes, one quick follow up on the, with respect to some of the restructuring things, it kind of struck me. As you’re looking at some of the improvements heading into 2015 in the L&G business, one of the areas that you targeted was specifically some growth on the West Coast piece. How much of the, out of $16.5 million that you anticipate having or $13 million of savings is predicated upon the growth in the business, in other words, if the business stayed static at the size it is or what you’re doing today, what might have looked like or how might I think about how much growth is the contributor to, between here and what you would anticipate in 2015?

[John C. Orr:]

Chris, this phase I and phase II models were built on consistent volume, flat volume so the savings that we reported assume no growth and that was really what we wanted to do and kind of build these projects to fix the cost structure, to support the business today, but more importantly to support the business growth. So, these reported assume zero growth. As part of the project, we wanted to position ourselves for growth and again, we wanted to position ourselves for growth on the West Coast in those three buckets that I outlined earlier. But, these numbers include zero assumption of growth.

[Christopher D. Manuel:]

So, then it would be fair to say that, it would also is not assuming the degradation the kind of seeing the static in that business. If you were able to grow, organically grow other pieces of business on the East Coast or Central U.S. or if that West Coast piece grows nicely there is upside into those numbers, will that be a fair way of kind of thinking the approach?

[John C. Orr:]

That is correct, absolutely.

[Christopher D. Manuel:]

Okay, thank you that’s all I have.

[Operator:]

Thank you. Our next question is a follow up from Chris Butler from Sidoti, please proceed with your question.

[Christopher Butler:]

Hi, thanks for taking my follow up. Just one research on distribution or we let you go, the volumes have been weak here for longer than I can remember distribution being weak in the past, typically this is a very stable business, people do have to replace their car tires eventually, tire wear has never been higher from reports that I have heard, when do we see this turn the corner to positive volumes again?

[Todd Smith:]

This is Todd Smith again, from a top line perspective there is noticeable changes in the market for a long period of time now and I guess, some of the things that we’ve seen changes, just with some of the technology changes and wink of tire wear is having some effect in the market. The tire replacement monitoring systems that were in 2007 changes the customer or the customers now on tire pressure and low tire pressure leads to tire wear. And so, it’s hard to quantify the impact of that but there is certainly has an impact on the market from that perspective, and so, I guess I don’t have the concrete answer on when that changes, but we know the actual impact in the market. From a bottom line perspective, as we get through our investments and I know we talked in the last call on our IT investments, we expect that bottom line to trending back to historical levels.

[Christopher Butler:]

That’s all I have, I appreciate it.

[Operator:]

Thank you. There are no further questions at this time, I would like to turn the call back over to management for any further closing comments.

[Monica Vinay:]

We thank all of you for your time and your participation. As a reminder, a transcript of this call will be available on our website within approximately 24 hours. A replay will be immediately available via webcast or call. Details can be found on the Myers Industries website under the Investor Relations tab. Thank you for joining us and have a great day.

[Operator:]

Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.