Myers Industries Inc (MYE) 2010 Q2 法說會逐字稿

Greetings and welcome to the Myers Industries 2010 Q2 and 6 months 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. I would now like to introduce your host, Mr. Max Barton. Thank you. You may begin.

Thank you. Good afternoon and welcome to the Myers Industries call to review our 2010 second quarter and six-month financial results. I'm Max Barton, Director of Investor Relations for Myers. With me today are John Orr, President and Chief Executive Officer, David Knowles, Executive Vice President and Chief Operating Officer, and Don Merril, Vice President and Chief Financial Officer. This morning we issued the news release detailing the financial results for the second quarter. If you've not yet received a copy, you can access it from our website at myersind.com under the investor relations tab. The call is also being audio webcast from our site and will be archived there along with a transcript.

Before I turn the call over to management for remarks, I'd like to remind you that we might make some forward-looking statements during the course of this call. These comments are made pursuant to the Safe Harbor Provisions of the Securities Reform Act of 1995. Such statements involve risks and uncertainties which may cause results to differ materially from those set forth in these statements. These risks and uncertainties are detailed in the Company's SEC filings and may be found in the Company's 10-K filing.

Following management's remarks, there will be a brief question-and-answer session with the investment community. I'm now pleased to turn over to John Orr, President and Chief Executive Officer. John?

Thanks, Max, and good afternoon, everyone. It's a pleasure to have you with us. As you've no doubt read, raw material cost pressures during the second quarter adversely effected our performance, primarily reflected in the Lawn and Garden segment. I'll ask David Knowles to address this issue in a few moments. Our other three businesses continued to show positive signs of recovery in their end markets -- excuse me, with favorable impact of volume, pricing, cost controls and restructuring benefits.

Just to hit the key highlights in the overall second quarter, results from continuing operations compared to last year were net sales for the quarter were $175.9 million, an increase of 6% primarily from higher unit volumes. We reported a loss net of taxes of $1.1 million or $0.03 per share, compared to a loss of $700,000 or $0.02 per share in the second quarter of 2009. Also of note, the loss from continuing operations includes special pre-tax expense, of approximately $1.6 million in 2010 and $7.4 million in 2009, both primarily related to restructuring activities as detailed in the news release.

Our six month results from continuing operations compared to last year were net sales for the first half were $362.3 million, an increase of 4%, again from overall higher unit volumes in our markets. Income net of taxes was $4.4 million or $0.13 per share, compared to $5.5 million or $0.16 per share in the first half of 2009, as discussed in the release. Income from continuing operations for the first half of 2010, includes special pre-tax expenses of approximately $2.5 million, partially offset by a gain of $700,000 from the sale of a manufacturing facility as part of our material handling restructuring program. In the same period in 2009, income from continuing operations includes special pre-tax expenses of approximately $13.6 million, primarily from our restructuring programs. Now, I'd like to turn the call over to David, excuse me, to David Knowles to review some of key performance factors in our business segments during the quarter. David?

Thank you, John. As John said, I'll focus on the frustrating challenge that we had in Lawn and Garden. However, first, let me highlight the three other business segment which delivered improvements in many operational areas. In all, we're seeing improvement in their end markets.

Let me start with our Material Handling segment. Sales were reinforced by favorable product mix for reusable bulk containers in several critical markets. We've seen customer began to release capital spending in small measures. In addition, we had stronger sales of small parts storage products to catalogers and see favorable response to many of our new product offerings there. In fact, we've made solid progress developing a pipeline of new product innovations in the Material Handling segment and expect to bring to the market a steady stream of new innovations in the future.

In the Distribution segment, sales of supplies benefited from stronger replacement tire sales, as consumers began to pick up on some of the much needed vehicle maintenance ahead of summer months. This area also benefited from increased sales of steel wheel [weights] as tire dealers and other customers make the transition from lead weights to environmentally friendly steel weights. For example, Goodyear has selected head of the industries beta brand to supply its retail and just tires network with steel wheel weights and [abated a partner] with Myers tire supply to distribute its steel wheel weights to Goodyear retail stores. In addition, we picked up new business with fleet catalogers and also through our international operations.

Sales in the Engineered Product segment continued to benefit from increased business from recreational vehicle, marine and transplant automotive markets. Wholesale shipments of RV products, mainly towable platforms, remain strong compared to last year and our business benefited from several key new business wins in the second quarter. Our transplant automotive business continued to strengthen in new orders in the industry's developments of new vehicle platforms for coming seasons. The combination of our solid sales growth and restructuring activities has generated substantial profit improvement in the engineered product segment this year.

As John mentioned earlier, our loss for the quarter was driven by a sharp increase in raw material costs has severely impacted the Lawn and Garden segment. The purchase cost of polypropylene, our primarily raw material in that business, increased approximately 80% over its purchase costs in the same quarter of 2009 and that impacted that business by over $9 million. At the same time, Lawn and Garden suffered reduced availability of its lowest cost recycled material and added to these pressures was increased cost of freight.

While the group increased prices on new orders in the second quarter, the majority of orders shipped were booked with set prices and terms well in advance of the announced price increase. Given the dramatic resin cost volatility seen this year and its unusual timing in the season, it is clear that the traditional pricing mechanisms used in Lawn and Garden industry aren't sufficient. We're engaged right now re-examining traditional industry practices in developing our approach to reduce this broad exposure to resin volatility.

Now, somewhat hidden underneath the poor profitability performance in Lawn and Garden are some clear signs of progress from our restructuring benefits and our new management team, key initiatives in the business. We saw evidence of these in the second quarter. Our restructuring continues to provide improvement in lowering non-material related plant costs, and we have more runway to go here. Our order fulfillment initiative in our plans has increased their ability to perform to schedule and our delivery matrix continue to substantially improve over the last few months and in fact, were up substantially in performing for our customers year over year.

The new product development process will introduce products into the grower direct and distribution channels during the third quarter that will further demonstrate our commitment to being a growth and innovation leader in the marketplace. As a result of these and other actions, we're demonstrating an improved position with our customers and we delivered sales growth in the second quarter over the prior year, developing what we believe will be a sustainable trend.

Okay. Thanks, David. Now to quickly review the second quarter and first half financial results from the business segments, as well as some of the other key financial metrics, I'll turn the call over to Don Merril, our Chief Financial Officer. Don?

Thanks, John. Turning to some of the other financial measures we reported in our press release this morning, g Gross profit was 19.3% in the second quarter of 2010, compared to 25% in the second quarter of 2009. As we said, the decrease primarily reflects the impact of higher raw material costs and pricing pressures in our Lawn and Garden segment. For the year to date, gross profit was 21.8% versus us 27.8% in 2009. As discussed earlier, benefits from our restructuring programs and volume gains were offset by the rapid and steady increase in raw material costs throughout the first half of the year.

SG&A declined $6.6 million in the second quarter of 2010 and $13.7 million for the first half of the year, compared to those same periods of 2009. This was primarily due to cost control and operating expenses and benefits from our restructuring programs. Total debt was reduced from $120 million at the end of the first quarter this year to $116.8 million at June 30, 2010.

Now turning our attention to continuing operations in our business segments and their performance. This is detailed in the news release and given here again for color and the benefit of those who may not have read through the release yet. Results for the second quarter and first half are all compared to the same period of 2009. In our Lawn and Garden segment, sales in the second quarter increased 6%, primarily due to the seasonal increase in demand from our grower markets. The sales decline of 4% for the first half primarily reflects the weak economic conditions earlier in the year as well as cautious inventory management by our customers. The segment's loss for both the 2010 second quarter and first half, reflect the impact of higher raw material costs which were mostly unrecoverable due to the timing and magnitude of the increases in the quarter. Pre-tax loss was $5.5 million in the quarter and $700,000 for the first half as compared to pre-tax profit of $1.2 million and $12.8 million in the same periods of 2009.

In our Material Handling segment, sales were down slightly at 4% in the quarter and 1% for the first half. As noted earlier, the segment continued to experience gradual demand recovery across its wide range markets for reusable containers and storage systems. Pre-tax income in the quarter was $3.5 million and $8.9 million for the first half, down 3% and 13% respectively. These shortfalls are primarily due to higher raw material costs which could not fully offset by favorable mix and restructuring program savings.

In our Engineered Product segment, sales were up 39% and 32% respectively for the second quarter of first half, reflecting the higher demand for our custom products in the RV and automotive markets. Profitability strengthened significantly for the quarter and first half. Pre-tax income was $3.1 million for the quarter, compared to $700,000 in the second quarter of 2009. For the first half, income was $5.6 million, compared to a loss of $300,000 for the same period in 2009.

In our Distribution segment, sales increased 9% in the second quarter and 8% for the first half. This performance tracked closely with stronger replacement tire sales as well as benefits from our increased focus on sales management activities throughout the Distribution effort. Pre-tax income increased 44% for the second quarter and 38% for the first half, primarily due to higher unit volumes and a favorable product mix of supplies. Now, I'll turn it back over to John for a wrap up. Thank you. John.

Thanks, Don. Entering the second half of the year, we see the raw material costs have moderated and the Company expects benefits from that coupled with its margin improvement initiatives and cost controls. While we are cautious in our outlook, we are optimistic that end markets will continue to recover across our businesses. Our financial position remains strong with our cash management and available credit lines providing opportunities to grow the business. This could be through potential acquisitions or purchase of new technology applications.

For example, yesterday, we announced that our Ameri-Kart business, part of our Engineering Product segment, acquired a new patent pending grain fuel tank filling technology from Enviro-Fill Incorporated. This unique overfill prevention system or OPS technology will help boat manufacturers meet mandatory 2011 refueling and emission requirements from the Environmental Protection Agency. Enviro-Fill OPS is the industry's only system to use technology that is compatible with any boats designed to automatically shut off the re-fueling nozzle when the fuel in the tank reaches 95% full without spillage. This OPS tank vent and sensor system provides venting and monitoring of the fuel level in the tank during filling and transfers a pressure signal to the deck fitting when fuel reaches a pre-determined level. The is a major technology lead for Ameri-Kart as a provider of component solutions to the marine market and will enhance the Company's growth as a key supplier to this market.

In addition, the Company has continued to invest in new low costs manufacturing technology for the Lawn and Garden segment. We are adding more co-extrusion thermal forming manufacturing capability to our business to meet the increasing demand from the grower markets for co-ex containers versus injection molded containers. Such investment will continue to position our place in the market as the single source supplier of choice with the best resources to meet customer needs.

Finally, we're also reviewing several options for realigning our industry leading Distribution segment operations to decrease costs and enhance customer service. This involves potential changes to our model with consolidated inventory locations through distribution centers while maintaining our critical strategic sales presence and representation throughout our markets. This would position us to capture greater marketshare. As we noted in the news release, updates on any such program will be provided in future earnings releases as potential actions are implemented.

With that, I thank our investors for being here today and I also thank our customers for their support and our employees for the commitment they have to the success of Myers Industries. That concludes management's presentation. I'll turn it back over to Max so we can take your questions.

Thanks, John. I'll let the operator now go ahead and direct the Q&A phase of the presentation. Go ahead, Jane.

Thank you. (Operator Instructions). Our first question comes from the line of Chris Manuel with KeyBanc Capital Markets. Please proceed with your question.

Good afternoon, gentlemen.

Hey, Chris.

Couple questions for you, let me start with volumes. Don, you did a good job walking through the revenue changes. But with all the moving parts with material costs and other things of that nature in there, do you have a sense of maybe what base organic volumes were like across each one of your four segments and how that might compare to what you would think the industry did?

I can tell you what the base growth is. I'm not really sure that I can comment on the industry growth. But I can tell you in Material Handling core growth there -- we were down a little bit quarter over quarter. However, in that business, our legacy business, our Buckhorn business, was actually up 3%. Our Akro-Mils business was way up, pushing 30% growth. And the reason why it was down is we had softer pallet sales in the quarter versus last year.

Lawn and Garden core growth was about 3% after we adjust for FX. Distribution was up 9% quarter over quarter and Engineered Products was up about 30%, most driven -- all three of our businesses within our Engineered Products division or segment had a great quarter, but our Ameri-Kart business would have led the way there.

And then, either David or John, can you comment on what you anticipate over the next -- through the balance of 2010 that that volume trajectory could continue or maybe get better, get worse, any softness, weakness that you're seeing out there?

Yes. This is David. Let me take a shot at that, Chris. If we go segment by segment, in Material Handling, we see continued growth in our traditional businesses, the legacy, Buckhorn and the Akro-Mils business. The pallet business there has been down. It's our expectation that that should begin to grow again, but we're remaining cautious and watching that one.

In the Lawn and Garden business, we expect to see a continued year over year growth. We've started to see that in the second quarter now. Our performance to your customers, I think is improving, and will yield growth in the second half. And in our Engineered Products business, we've had a strong recovery in those businesses. The RV industry through the first half is up over 100% year over year. The transplant automotive is up quite strong. We see some of that tapering off, but we still see good growth in the second half with the Engineered Products business. Distribution, we see that is on a steady trajectory of growth and we expect that to be continue.

Okay. And then a question for you, too, as well John. As we look at the Lawn and Garden business, that's a business that if memory serves you, almost doubled the size back in '06, '07 with ITML. And you guys have had a pretty dominant market leading position, at least for four or so years now.

The contracts and things of that nature, has something changed in the competitive landscape that has made contracts that you're setting more challenging today? What I'm not understanding is, there seems to be an issue with how you move material costs through that make it a hit or miss thing. You indicated you're going to start to address those, but why now? Why not a few years back? How can you fix those?

Both David and I will answer that, Chris. From my perspective, I'm still very, very bullish on this business. Unlike our Material Handling business, where 50% of our business does have contracts that allow us to recover or give back to the customer on a regular basis when the price of plastic resin goes up or down. We don't have really have that in the Lawn and Garden business. The industry has never settled on that.

Over the years, we know we've ridden it up and we've rid ridden it down, and we've always been able to be pretty quick on our feet, is the way to put it. This hit that we took was very unexpected and such a quick hit up and down that the reaction time was -- just wasn't there. Now I'm going to let David go on and talk about what we're going to actually try to do about it as best we can in a public phone call. David?

Yes. Let me just add to something John said about the mechanism. I think, Chris, the issue that we've had the mechanism hasn't changed while what we're seeing here -- I think you go back to the third quarter of '08 and now the second quarter of 2010, we're seeing much greater volatility than we've seen historically in the business. And that mechanism for how raw material costs get passed through the market really haven't changed and I think that's of course, what we need to change.

We have done a significant amount of restructuring in the business and as we were putting business together for this year, really you're talking about business that is set largely in the third quarter of any year. Most of the demand in that business is taken in the busy spring growing season. And that's what caught us this year because as we saw resin prices increase, they began to increase and then spiked in that April timeframe and then came right back down. We actually put price increases through at the end of the first quarter, but most of the orders were already booked. They're already booked considerably before that.

And I -- the answer to what we're doing going forward, we've got a new team in at Lawn and Garden right now. We've got some fresh eyes and people who have experience in dealing with this environment and we're working through a number of different mechanisms. I don't think there's going to be one mechanisms that applies to the whole industry. Think we're going to have to work at a number of different mechanisms to make sure that increases like this can get passed through into the market as they occur.

All right. And the year over year delta, did I hear you say it right, was about $9 million for -- that was the impact, the negative variance for resin in the quarter?

That's right. In the Lawn and Garden segment, that's right.

An easy way to look at that is, we buy about 30 million pounds of propylene in that quarter and the average price over that quarter was up $0.30 a pound so it's pretty easy to do the math.

Was there any -- you had a charge this quarter, I think it was a $1.6 million if memory serves. Which segments would that have showed up in?

Don will have to answer that one.

Was there any of that in the L&G segment is where I'm really going.

Very little.

Very little.

The back page of press release will work walk you through that, Chris.

Okay. I'll take a look back.

Restructuring expenses in Lawn and Garden in Q2 was $100,000.

Okay. Where I'm going with this question then is even if I take the $5.4 million loss this quarter, and if I make an adjustment back $9 million to compare apples to apples for resin, that would imply that you could have made $3.6 million. Last year you did $5.4 million to the positive. Even more higher volumes, even adjusting for material costs, there's a -- what would appear to be a degradation in the business. Is there -- the material stuff aside, I appreciate that you're doing some work on contracts. Can you maybe address as well what's changed structurally to skew the profitability outlook?

Hold on just a second. Don's getting some numbers.

I do think -- we have to take into consideration the FX for that one . If I look at Lawn and Garden, there's also some mix involved in quarter over quarter that attributed close to $1 million. That mix would be where selling lower margin products into the marketplace in the second quarter. And you've got FX out there of about $2 million.

Okay. All right. That's all I have. I'll jump back in the queue. Thank you.

Thank you. Our next question comes from the line of Christopher Butler with Sidoti & Company. Please proceed with your question.

Good afternoon, guys.

Hey, Chris.

Continuing with Lawn and Garden questions, you had mentioned that you had been putting in -- working to achieve better service for your customers. Could you touch on that a little bit more? Is this something that's costing you more money, but at this point we're not really seeing the benefit on the revenue side yet?

This is David. No. We've got a -- we've been through a fairly substantial change in that business through the restructuring that we did last year. Part of that now coming out of the restructuring that we did is a set of key initiatives. Key initiatives around order fulfillment, around plant schedule attainment, ultimately culminate in our ability to deliver on time to our customers competitively. That's really been the focus as we've gone through the changes in the restructuring that we've gone through. We had to re-establish an ability to really deliver on time competitively in the market. And that's where we're now starting to make some real progress.

It sounds as if these were metrics that had slipped a little bit due to the restructuring?

I would say, yes, that they did. They did. We've had some challenging experiences with our customers here recently. But I'll tell you in the -- as you look over the last few months, that's starting to really improve. I mentioned earlier, we're starting to see some year over year growth and I think that's a reflection of the confidence that we're starting to rebuild with our customers. To follow up on your earlier question, that's not coming at a significant cost to the business. These are things where we're sorting through and developing and improving the internal processes that we use to get our product to the customer on time.

And as we look to the third quarter with raw material costs coming down, understanding that you probably have higher costs in inventory, but could we see a profitable quarter in the third quarter or are we going to look something more similar to what you posted for the second quarter on Lawn and Garden?

You're right. As we move into the third and fourth quarter, you're going to start to see margins creep back up. We had gross margins of 7% in the second quarter in Lawn and Garden. We don't anticipate that in the third or fourth quarter. In fact, we anticipate by the time we get to the fourth quarter, those margins will be equal to or exceed the first quarter, which was around 22%.

And could you give me an idea of pricing sequentially in the different segments? What success you have had with getting any pricing through in a difficult environment?

Why don't I address that at least at a top level. In our Material Handling segment, we have a series of mechanisms that allow us to translate price through to the market as resin costs increase. Now, that doesn't cover the whole segment, but it covers a substantial amount of that segment. We have seen some price impact in the second quarter, but we expect to recapture a benefit of that more quickly in the Material Handling business. And we're able to pass that through more quickly.

In our Engineered Products business, there's some different businesses where the cost of resin is largely taken out of the equation because of how we do business. And Ameri-Kart is almost a business that's done to order. And in our WEK business, the material cost changes are translated directly to our customers. The business that is truly impacted by this is the Lawn and Garden business and it's really this mismatch between the historical pricing mechanism and this volatility that we have in resin costs.

I appreciate your time. I'll go back in the queue

Thank you. Our next question is from the line of Gary Farber with CL King and Associates. Please proceed.

Good afternoon. Thank you.

Hey, Gary.

Hey. I had a couple questions. Are you -- the gross margins in the first quarter were around 24%. Are you saying that that's possible by the fourth quarter for this year?

I was talking specifically in Lawn and Garden.

Okay. All right. But even 20% -- it was 19% in the second and 24% in the first. Would it be fair to say it would be in the middle for the balance of the year? Is that a fair way to look at it?

Are you talking --

Total gross margins.

You're talking for the Company?

Yes.

Yes. I think that's fair.

Okay. And on the Engineered Products business, even if the -- would you expect sequentially during the balance of the year that that business -- the aggregate level for revenues is going to be better? From where you were in the second quarter?

Could you -- do you mean do you think sales are going to be a little bit higher than they were in the first half?

Yes.

I think they're going to be about the same.

About the same. Okay.

Yes. I don't -- we've been on a pretty fast pace of growth in that segment in first half. The pace of growth is going to not be -- certainly not as fast in the second half of the year as it was in the first.

Great. And then also on the free cash flow profile, can you talk about what CapEx is -- what it was for the first half of the year and where it might end up for the year?

Yes. CapEx so far year to date is about $9.3 million.

Okay.

And we anticipate to be in the range of $20 million to $25 million.

$20 million to $25 million. Right. And through the first six months, you would be free cash flow positive if you took this cash flow from operations less CapEx?

Yes, we're just under.

Just under. How should we think about the back half of the year then?

I think the back half of the year, we're going to be positive.

Okay. All right and then just lastly on this Lawn and Garden segment, as the dynamic changes on pricing and things like that and how the things get -- the costs get passed through, from the outside, how should we track that? How should we track that. How will we know that things are changing or getting better? Are there any data points that we should watch?

I think the best data point for us would be on the margin side. As you look to price increases, mechanisms coming in -- what we're hoping to do is get a more -- a less volatile line based on resin. If we're able to get all that in, you'll see less volatility and you'll see us -- certainly in the short-term having margins -- getting to that $20 million to $25 million range.

Yes.

Right.

Fairly consistently

Right. The two big drivers in that business are price and raw material costs. When we see volatility in our margins, it's driven by that and I think you're right. Looking at those margins sequentially, you'll see our ability to --

You'll see them rise.

Make the change we're talking about.

You'll see less volatility there.

Right. Okay. Thanks.

Thanks, Gary

Our next question is from the line of David Leibowitz with Horizon Asset Management. Please proceed with your questions.

Good afternoon.

Hey, David.

A few unrelated items, first, the increasing in your long-term debt. How did that arise?

For the -- go ahead.

In the quarter, it's down.

For the six months, it's appears to be up or minus rating?

Yes. For the first six months of the year, we're going to be up a little bit because we are cash flow negative for the year.

Normally David, we do a lot of collection towards the end of the year. If you look at overall -- year over year, that's pretty much the way our business runs.

Seasonally, we use more cash in the first half of the year than we do in the back half of the year. What you're seeing there is an increase in our debt borrowings in the first half of the year.

But that shows up on the long-term debt line and I thought your borrowings were for the short-term.

The long-term lines shows our credit facility.

Okay. You're taking it down on the long-term to payoff your short?

We're using our credit facility to pay for current working capital needs.

Okay. Second question, the acquisition Ameri-Kart made, you did not indicate the size of the revenue of the acquired entity. Whether it is profitable or unprofitable, whether there is an NOL that comes along with it, et cetera. Could you go fill-in some of the gaps?

It is a technology is what it is. The manufacturing of the technology is now something that we will endeavor to begin to make a particular product that will go into the marine gas tank or fuel tank. It's not a company. What we bought was technology.

It's leading technology. We didn't endeavor to put the size on it yet because we're still -- there's certainly competitors in this business. And at this point, as the boat makers go to start producing next year's boats, they'll have a choice of selecting our technology or 20-year old technology. We feel very strongly that what the EPA has mandated that the only technology that will make any sense and lower the cost for the boat builders is to use ours. At that point, we'll have a better handle on what this means to us.

And how much are you paying for -- did you pay for it?

We didn't disclose the terms.

Has the deal closed?

Yes.

Yes. It is closed. It's all done. Sign, sealed and delivered.

There's no document we can find in SEC filings in other words that would tell us how much was paid?

No, not right now. But I would say there's more details to follow. But it was a very -- it was not a major investment.

Under $1 million.

All tolled, it will be under $1 million. But there's earn outs in there based on the success of the product so it's hard to say exactly what we paid for it. But the cash payments would be -- cash payments of what we know today is less than $1 million.

And the last question and it's beating a dead horse at Lawn and Garden, but is your accounting there LIFO or FIFO?

It's FIFO.

Would it make a difference if you were to convert to LIFO in the future? Is there any way a [milerated] the situation you encountered?

I don't think so. I think -- the swiftness of the increase in resin really wouldn't have helped us. It is just how the dynamics worked there. I think it really goes to what David talked about in getting the mechanisms straight and getting the pricing right in this segment to make that issue less --

If I can just add to that. That would address the timing of what this cost appears. The real issue is that the pricing is established in the third quarter and you're dealing with changing raw material costs that could effect you throughout the rest of the year. That's the issue that we need to address. I think the fix that we need to address is around that.

Thank you very much.

Thank you. Our next question is a follow-up from Chris Manuel from KeyBanc Capital Markets. Please proceed.

Good afternoon again.

Hi, Chris.

Okay. A couple more questions. One is, you answered some of it, regarding the piece that you purchased. It's a technology. It's not a an actual product that's in the market today?

It's not a product in the market today, but it will be. Because it's the product that has to go into the fuel tank so that the automatic shut off works.

Are there other applications for this product? I start to think about -- you talked about marine. Is it something that can be used in R Vs? Is it something that can be used in ATVs or --

Absolutely. Absolutely. And we have rights to that at this point. The only thing we don't have rights to would be automotive.

Okay.

The big driver to the marine is the regulations that are going into effect that's driving the need for this use.

See, it's causing the boat builders, Chris, to have to re-do every single boat design for next year. It's very expensive for them because the old system requires four valves whereas this requires one valve, and so on. There's a lot of intricacies to it, but the bottom line is it's a significant savings for the boat builder to buy our technology.

I don't know if you have any data that would suggest this, do you know how much market share you have in this today? How big of a market? Any color you could provide us on that would actually be helpful.

Yes. I don't have it at my finger tips, but there's probably 250,000 boats that will be built next year that would be able to use this technology. We seriously think that most boat builders would want to go with this technology.

Is this a large market for you today we're talking about? Is this something that's $20 million or $30 million in revenue?

No, it's not. It is -- what we think is, is it's going to be it a growth market. And just as you talked earlier, there's other applications of this besides marine. The EPA in making this mandatory for boat builders, I'm sure that as we continue on in time that other manufacturers like for RVs or ATVs and so on will require this technology in the tanks. Keep in mind, we make the tank, too.

Right.

That's a critical item here. Not only do we do gas tanks, but it also leads us then into -- if a boat builder is going to switch to our tank with this technology for fuel, they might also be interested in switching for live wells or potable water tanks and so on that we also produce.

If I can just add.

Yes.

The Ameri-Kart business acquired this as a strong position in RV and not as strong position, a fairly small position in the marine market. We think the benefit of this technology is that we'll able to sell this technology into the marine market, but it also can be sold associated with tanks and expand our sale of molded tanks into the marine market as well. That is really the process behind that acquisition.

That's helpful.

And then to markets outside of marine as they demand similar fixes.

That's perfect. That's what I needed there. The second question -- two other questions I have. One is, we can switch gears and flip over to Material Handling for a second. It's notable that you're profit is up a little bit year over year. I think you guys had had previously discussed anticipating -- if memory serves $13 million to $15 million -- or $13 million to $16 million of cost savings with -- I think a portion of those this year. How are you tracking with that? Do you have any updates as to what you would anticipate 2010 versus 2009? Those things with respect to cost savings and such?

Yes. I think we're pretty much on track toward that $13 million savings projection that we had projected for the full year. I'd say we're roughly about half of that through the first half of the year. And I think that we're finding very good results from the project. Some of those savings come from real business improvements and efficiency improvements in the plant. Some of it comes from the restructuring and closing of plants and the associated cost reductions with that, but it continues as we had planned and expected.

And if I could add, the upside to that is going to be as volume comes back in that legacy business and that Buckhorn business and Akro-Mils business, it only enhances the savings because of the increase in productivity that we've established through this project.

That's helpful. And then the last question is, I'm going to come back to it Lawn and Garden business for a second. But historically, pre-ITML days, that business would run at a neighborhood of 10% margin. 2002, '03, '04, '05 you were give or take that range. What does it -- and even if I look in 2009, it was north of 11%. These contracts have always been this way so outside of contracts, what does it take to get margins back to a better rates or directionally where you used to be? Can some of that be done by restructuring some contracts or is there anything else structurally strategically that needs to take place?

I can comment on that a little bit. If you look at our -- the volatility of our margins quarter by quarter, it's always been there. But not quite as dramatic as what we saw in the second quarter because of how the resin increases flowed to us and the timing of that. But we've always had that volatility in the second and third quarter with first and second being the strongest quarters for us.

The change that we're looking at doing here is going to decrease that volatility certainly. I do believe that we're going to get to -- if you look at gross margins, the gross margins of 22% in the first quarter, we are going to approach that 24%, 25% range by the fourth quarter. The mid 20s is somewhere where we're going to be in the short-term while this whole thing gets sorted out.

And maybe if I could just add. What did change was the volatility of resin cost, and that is where the real fix to this issue is in structuring how do we deal with that in the marketplace. If we set that aside, say with respect to the Lawn and Garden business, we feel that there is a substantial opportunity for us to improve our position in Lawn and Garden market. We have the initiatives that I spoke to earlier are gaining momentum in our ability to serve customers.

We are developing our targets at specific markets with some of these new technologies. We're bringing in some new decorative pot technology and introducing in the second half of this year. We're building on a series of actions that should be improving our position in the Lawn and Garden market over time. Again, that's setting aside this volatility. We now have to fix that volatility through how we deal with that in the marketplace.

And I'd have to believe that --- you've got a number -- you've been the largest guy in that sector for by a factor of at least two or potentially three for the last several years. If memory serves, some of those other competitors are much smaller, also pretty well extended and leveraged. If you're struggling with materials at this point, I've got to believe some of those guys aren't in existence. Could you maybe give us an update on what the competitive landscape is like in the Lawn and Garden business? If you don't mind and talk a little bit about the Material Handling business as well?

Yes. The first thing I would say is we aren't the only players in this industry that have experienced this issue and experienced this dramatic rise in raw material costs. Our competitors are certainly suffering from this issue as well, although our competitors aren't public companies reporting this in the public marketplace. I can't speak of competitors that have gone out of business at this point because of that. Because I know that it is -- but I know that it is an impact on them. It's my belief that as we work to change the way we deal with this resin volatility in the market, that we're not the only ones who are going to be working to try to do this. I wouldn't say there's other major changes in the competitive landscape that we've seen in the last few quarters. There continues to be two things that are trends.

One is the growth and acceptance of co-extruded pots through the thermoforming process. There continues to be decorative pots sold into the grower market that have come from overseas. Both of those trends we now have key initiatives and we're tracking against -- driving our business to be a winner as those trends develop. Material Handling, I would say not a major change that we can see in our competitive landscape over the last two or three quarters as well. Material handling companies aren't immune to this resin cost increase. We're seeing behavior in the marketplace that is consistent with what we would typically expect to see.

What I can say in the Material Handling business though is we have -- we introduced new products at the end of last year. We've continued into this year introducing new products in our storage bins line. We have been filling the pipeline with some new innovations in the returnable container line. I think the real story for that business over the next couple of years is going to be driving that business to more innovation and more product introductions. We think that's the future for those two businesses.

And the last question I had was as you think about the return profile some of these investments and things you're making, can you speak a little bit to what you anticipate with a return profile? How you think about that return on capital?

No, our return profile has remained the same. Actually we've increased it. We look at things in a couple of different ways. But one way to look at it -- one way we do look at it is on an ROIC basis. That target for us is between 15% and 20% and that target remains the same.

Okay. And these, these new projects are meeting those hurdles?

These new growth investments that we're talking about are all targeted to meet or exceed those hurdles.

Okay. Thank you gentlemen . Good luck in the quarter.

All right. Thanks.

Thanks

Thank you. Ladies and gentlemen, with no further questions in the queue, I would now like to turn the conference back to Mr. Max Barton.

Thanks. We thank everybody for your time. As a reminder, we'll have a transcript of the call available on the Myers website in approximately 24 hours. The replay is immediately available via webcast or call from the Myers site under the investor relations tab. Thank you all and have a very nice day

Thank you. Ladies and gentlemen, this conclude's today's teleconference. You may disconnect your lines at this time. Thank you for your participation.