Myers Industries Inc (MYE) 2011 Q3 法說會逐字稿

(audio in progress) -- and welcome to the Myers Industries 2011 third-quarter 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, Director of Investor Relations. Thank you, you may begin.

Thank you, Christine. Good morning and welcome to the Myers Industries 2011 third-quarter business performance review. I am Monica Vinay, the Director of Investor Relations, at Myers Industries. Joining me today are John Orr, President and Chief Executive Officer; David Knowles, Executive Vice President and Chief Operating Officer and Don Merril, Senior Vice President and Chief Financial Officer.

Earlier this morning, we issued a news release outlining the financial results for the third quarter of 2011. This call is being audio webcast on our new 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 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 filings. I am now pleased to turn the call over to John Orr, President and Chief Executive Officer. John?

Thank you, Monica and good morning. It is a pleasure to have you with us. We continue to make good progress as is evident by our sales, gross margin, earnings per share and operating cash flow growth this quarter. Credit for this goes mainly to our focus on adapting to raw material volatility, a more efficient use of raw materials and the benefits we are reaping from the productivity improvements made as part of our operations excellence program.

Now I would like to review our high-level results. Net sales for the third quarter were $190 million compared to $187 million in the third quarter of 2010. The sales decrease in our Lawn and Garden segment was more than offset by sales increases in all three of our other segments.

Gross profit increased 25% compared to 22.2% in the third quarter of 2010. Through successful execution of the performance improvement plans that I outlined a few minutes ago, we were able to offset year-over-year increases in raw materials of approximately 21%. This is the fifth consecutive quarter that we have increased our gross profit on a year-over-year basis.

Net income for the quarter was $7.2 million, or $0.21 per share, compared to net income of $3.2 million, or $0.09 per share, in the third quarter of 2010. On an adjusted basis, which excludes restructuring costs and other special items, our earnings per share in the third quarter was $0.14 compared to $0.09 in the third quarter of last year.

Two items created the majority of the variance between reported and adjusted income per share this quarter. Don will provide the details of those items during his section of the presentation.

As a result of our solid operating results this quarter, we generated strong cash flow, which we used in part to repurchase 1.4 million, or 4% of our outstanding stock, representing a return of cash to our shareholders of $15.1 million. We continue to maintain a balanced approach to our use of capital. This consists of maintaining our current business, growing stakeholder value through new product development, process improvements, capital for growth and bolt-on acquisitions and returning capital to stakeholders through debt reduction, dividends and share repurchases.

I will now turn the call over to Don Merril, our Chief Financial Officer, who will provide you with further details regarding our financial results. Don?

Thanks, John. Since John already reviewed sales, gross margin and net income, let's start with selling, general and administrative expenses and continue from there. SG&A expenses in the third quarter were $40.2 million compared to $35.2 million in 2010. The increase in expenses was primarily due to higher employee-related costs, professional fees and restructuring and other unusual charges of $2 million that I will describe later compared to similar charges of $400,000 in the third quarter of 2010.

Cash flow from operations during the third quarter was $31.5 million compared to $17.2 million during the third quarter of last year while cash flow from operations for the nine months ended September 30, 2011 was $40.2 million compared to cash flow from operations of $14.5 million in 2010. The increase in both the quarter and for the nine months ended September 30, 2011 is due primarily to increased earnings and a reduction in cash flow used for working capital.

Capital expenditures were $7.6 million in the third quarter of 2011 and totaled $13.3 million for the nine months ended September 30, 2011. Forecasted capital expenditures for the year continue to be in the range of $20 million to $25 million versus $20.5 million in 2010.

In the third quarter, we deployed cash flow to buy back stock, reduce our debt and make a small acquisition. As you may recall, the Company announced on May 2, 2011 that the Board of Directors authorized a stock repurchase program that enables the Company to purchase up to 5 million shares of its common stock from time to time in the open market.

On June 1, 2011, the Company subsequently announced that it had adopted a Rule 10(b)5-1 plan for the purpose of repurchasing up to 2 million shares of its common stock in accordance with the guidelines specified in Rule 10(b)5-1 of the Securities and Exchange Act of 1934.

During the quarter, the Company purchased 1,423,341 shares of stock under the plan at an average price of $10.61 resulting in a return of cash to shareholders of $15.1 million. Since the adoption of this plan through the period ended September 30, 2011, the Company had purchased 1,795,120 shares of stock at an average price of $10.48 resulting in a return of cash to shareholders of $18.8 million. Our debt net of cash and including the share repurchase was reduced by $6.4 million to $77.4 million at the end of the third quarter compared to $83.8 million at the end of the second quarter.

As for the small acquisition, on July 20, 2011, the Company announced the acquisition of tooling assets and intellectual property for Material Improvements L.P. for a new reusable plastic container used in producing, shipping and processing bulk natural cheese.

Now let me provide some details on our two earnings adjustments that John alluded to. During the third quarter of 2011, the Company recognized net favorable income tax adjustments of approximately $3.8 million that were largely the result of realizing previously reserved tax benefits related to the loss on the sale of our material handling European business in 2007 and other tax adjustments primarily resulting from changes in estimates. The tax benefit generated by the 2007 sale and the related accrued interest was recognized in the third quarter based on the expiration of the statute of limitations for assessment of these taxes.

The second adjustment involved a preliminary notification that was issued by the US Environmental Protection Agency in September 2011 adding the new Idria mercury mine site located near Hollister, California to the Superfund or National Priorities List because of alleged contaminants discharged into California waterways.

The new Idria mine, which was in operation for more than 100 years, was owned by the new Idria Quicksilver Mining Company and was operational until 1972. In 1981, the new Idria Quicksilver Mining Company was merged into Buckhorn Inc. and in 1987, Buckhorn Inc. was subsequently acquired by Myers Industries.

The EPA contends that past mining operations have resulted in mercury contamination and acid mine drainage into certain California waterways and that impacts may also have affected other downstream locations. The Company is subject to environmental laws and regulations, which may require that the Company investigate and remediate the effects of the release or disposal of materials at sites with past and present operations.

Since Buckhorn Inc. may be a potentially responsible party of the new Idria mercury mine, the Company recognized an expense of $1.9 million during the three months ended September 30, 2011 related to performing a remedial investigation and feasibility study to determine the extent of remediation, if any and the screening of alternatives. Any additional liability stemming from this matter is not determinable at this time.

Now let's turn to our business segments and their performance. Results for the third quarter are compared to the same period in 2010. I will be referencing the adjusted pretax income or loss information by segment as it appears on the reconciliation of non-GAAP financial measures included in the earnings release issued earlier today.

In our Material Handling segment, sales in the quarter were $72.1 million compared to $69.4 million last year. The segment benefited from strong demand across all markets, especially the agricultural, auto and industrial markets. The sales generated in these market segments more than offset pallet sales of $9.7 million that took place in the third quarter of 2010.

Adjusted pretax income for the quarter was $8.9 million as compared to $7.1 million in 2010. The increase of 25% is due mainly to gross margin expansion resulting from unusually favorable customer mix again this quarter. Additionally, price increases due to timing more than offset raw material inflation in the quarter.

In our Lawn and Garden segment, net sales in the quarter were $45.6 million compared to $49.6 million in the third quarter of 2010. The carryover effects of a weak spring season, combined with some recent volatility in resin prices, have led growers to take a cautious approach to the 2012 season, which resulted in lower sales volumes during the quarter.

The segment's adjusted pretax loss was $1.4 million as compared to a pretax loss of $2.5 million in the third quarter of 2010. Through the ongoing implementation of the turnaround plan put into place in 2010, which focuses on five elements -- reducing our exposure to raw material volatility by quickly passing cost changes to the market, substituting recycled or alternative materials for prime resins, providing industry best delivery and service to our customers, increasing productivity and providing a constant stream of new products to the marketplace in order to differentiate the value of our brands -- the segment continues to make progress towards its goal of consistent and predictable profitability.

In our Distribution segment, sales were $48.8 million, an increase of 6%, compared to $46 million in the third quarter of last year. Continued increases in new product offerings and new customer sales more than offset lower sales volume during the quarter. Adjusted pretax income was $4.6 million in the third quarter of both years. An unfavorable product mix in conjunction with higher selling and distribution costs offset the higher sales generated in the quarter.

In our Engineered Product segment, sales in the quarter were $29.4 million compared to $28 million in 2010. Sales generated from new products and new customers more than offset a decline in demand in the RV market, as well as the temporary interruption in the transplant auto business that continued into the third quarter.

The Engineered Product segment's adjusted pretax income was $3.1 million compared to $2.6 million in the same quarter last year. In addition to the sales increase, manufacturing productivity improvements drove the increase in income. That concludes the review of the financials. I will now turn the call back over to John. Thanks. John?

Thanks, Don. We continue to benefit from our focused execution of our strategic principles, which are centered on achieving customer dedication and strong financial results by developing strong capabilities in innovation, operations excellence and organization development. While we have seen unusually favorable demand for some of our products in our Material Handling segment, we have also benefited from dedicating resources to more profitable strategic markets and innovative new products.

The acquisition of tooling assets and intellectual property, reusable plastic container used in producing, shipping, storing and processing bulk natural cheese that Don talked about earlier is just one example that illustrates this focus.

In our Lawn and Garden segment, we continue to make progress through the successful implementation of the turnaround plan we initiated in 2010. However, while we have been able to offset higher resin prices and improved operating results on a consistent basis, soft consumer demand has led to lower than anticipated sales volumes, which has hindered our progress towards greater profitability.

Our focus on growth and innovation is driving sales increases in our Distribution segment. In addition, implementation of our distribution model transformation project called Project Enterprise, which is reducing the number of overall branches and creating regional distribution centers is nearly 70% complete. The transformation has already resulted in improved customer service through increased fill rates and will ultimately drive cost savings and lower inventory levels.

Finally, in our Engineered Product segment, our focus on customer dedication and innovation continues to drive sales growth through new customer and product channels resulting in sales increases that have more than offset lower demand due to a slow economy for some of our other products.

While the current economic backdrop has clearly impacted customer demand for some of our end products, we remain cautiously optimistic that the positive operating momentum we have created through the implementation of our performance improvement plans and the execution of our strategic principles will continue to benefit the Company.

That concludes management's presentation. I would like to turn it back over to Monica so that we can take your questions.

Thanks, John. Operator, we will now direct the Q&A phase of the presentation. Please keep in mind that in addition to Don and John, David Knowles, our COO, is also available to answer questions. Go ahead, please.

(Operator Instructions). Chris Manuel, Wells Fargo.

Good morning, gentlemen and Monica. A couple questions. First, I would like to start with new products, if I could. It was one of the areas I think you highlighted in your prepared remarks and specifically in both prepared remarks and in the press release, you cited new products in the Distribution and the Engineered Products as having been contributors to the revenue stream and the bottom line. Could you maybe give us a sense to quantify what you are beginning to see there? Is it becoming a pretty significant piece of the revenue stream and how far along are you in getting some commercial products out in the other two divisions that you didn't mention?

Sure, Chris. This is David Knowles. And let me maybe frame that for you a little bit. I think back in the first quarter, we talked about the new product process. It is a process for us and we are in the early stages of development. I think we talked about kind of a near-term goal of trying to get to 5% of revenue in new products. And we are not there yet, but we are, I would say, just short of that. And I think that's kind of how we see it through certainly through the year so far.

As we go forward, we have said we would like to, in our strategic plan, get new products to over 10% of our sales and that is but a few years down the line. That is the targets that we are aiming for. So I would say we are tracking against that. We are not to the 5% yet, but we would like to see that happen in the near future.

Engineered Products and Distribution have had a bit of a jumpstart based on some specific applications that they have worked on that have been able to hit early. Material Handling is a business that we are focusing a substantial amount of our resource on new product and we expect that to start kicking in. And I think as we get into next year, we will start to see some more results.

Material Handling itself is, I would say, around that 5% target and we would like to see that grow. We have had some good success this year with selling our IBC into new applications and that has been kind of the driver of the growth for this year. But as we go forward, we have got two or three new products in the pipeline that we think are going to start bringing some good growth numbers to that as we move forward.

Okay, that's very helpful. The next piece I wanted to touch on was, as we have started into earnings season, we have had some other companies report as well as -- or some of our other conversations through the trade channel. Discussions have centered around the end markets being very, very choppy. One month, or even a couple weeks being very good, a couple of months being weak. Certainly as you talk to your results, it sounded like Material Handling did very, very well and remained strong through the quarter for you.

But in your outlook commentary, you have talked about the slowing economy and weakening demand in certain end products. So I was hoping, whichever of you wants to take this question, but you could address maybe certain areas where you are seeing weakness, certain you are not, whether you want to talk about that by end market division as you report them or segments or however you deem appropriate. But also if you could talk a little bit about the cadence of business you did see through 3Q and what you are anticipating through the balance of the year?

This is David again and I will be happy to answer that. And I think probably the best way to answer that question is to just talk about indicators that we look for in the business. And I will start with the Distribution business. We tend to look at the Department of Transportation's miles driven index and we look at replacement tire sales and as the year has gone on, we have seen that index fall. And in fact, if you look today, that index is predicting a slight shrinking of those indicators for 2011. So that index now is at about I think minus 1% year-over-year for the year.

And I would say we are seeing that in the Distribution business. We have had some growth throughout this year. I think we are up organically around 5%, but we are starting to see the pace of that -- see the pace of that soften and I think we expect to see that continue with what this index is telling us.

If you move to the Material Handling business, we look at the MAGM index and we are definitely seeing that slow down as the year goes on. It was, at the beginning of the year, projecting kind of up double digits and we are seeing it come into the single digits and predicting next year down in the, I would say, the very low single digits.

So those indicators are I think indicative of what we are seeing in our business. As well in the markets, we are seeing industrial manufacturing start to slow a bit. And again, our focus is going to be on driving some new products to try to overcome some of that.

The Engineered Product segment, we are driven by the RV market for our Ameri-Kart business. That is definitely falling and we are driven by transplant auto sales, which, for the near term, we are seeing some real recovery in and we expect to see some recovery in transplant auto sales in the fourth quarter as some of these producers get back up to sort of full rates after the effects of the tsunami. I think in those -- that covers those.

The Lawn and Garden segment is largely a function of the weak spring. It was one of the weakest springs on record. We are seeing that flow through in the business and so our revenue has fallen in that business. And I would say the other thing that is driving that to a certain degree is we have done a pretty good job over the last year of educating the growers in that market around resin costs. And I would say, in the third quarter, we have seen some delay in purchases or in purchase behavior because there is some expectation that resin costs are going to be falling.

And I think largely that market, you know how strong the year is when you are in March through April, whether you get that sort of second planting coming through. So it is a little difficult to predict that one, but we are definitely seeing weakness from the spring season and some delay as a result of kind of anticipation around resin prices.

Okay, that is very helpful. If I could just -- I have a long list of questions. I going to ask one more and I will jump back in the queue. But if I could follow up a little bit on the Lawn and Garden piece, traditionally, your 4Q and your 1Q are the largest quarters of the year. And I also recognize that a lot of the actions you have taken over the last year or so will make that a little bit less seasonal, but normally those being the strongest quarters from an earnings contribution standpoint in particular.

How do you feel heading into the season? Do you feel that, through 3Q, maybe there was a bigger expectation from the growers and from the end markets for what the season might look like, so they have been pulling down some inventory? Do you have a sense of where things stand at this point or what is your sense of where things stand at this point for what the 2012 season might look like? Are people still sitting on some inventory, that some of this could carry and could be a bit muted through these next two big quarters for you? Or do you feel that, through this quarter, now things are thinned out and we are ready to see what mother nature brings us next year?

Sure, this is David again. Our outlook on Lawn and Garden revenue right now is driven by a couple of things. I talked a little bit about the volatility of resin causing growers to maybe delay a little bit their orders to see -- to maybe capture the benefit of a falling resin price. So it is making visibility toward that a little bit more difficult.

I would also say that the results of the weak spring -- we are estimating that there was a hangover of inventory of maybe -- of pot inventory at the grower of maybe 5% to 10% and that will have some impact on the growers' purchases, particularly as we get into the fourth quarter.

It is awfully hard to predict what it is going to be like during the season. If we have a better season than we had last year, which we certainly expect, it was a very unique season in terms of poor weather conditions, then we would expect the season to come back. And overall, we are cautious, we are cautious about it and looking to -- we are looking for a good quarter should everything fall into place, but we are going to have to wait to see some signs as we get in here into the fourth quarter.

That's helpful. I will jump back in the queue. Thanks.

Christopher Butler, Sidoti & Co.

Hi, good morning, everyone. I was wondering if you could give us an update on the progress that you have had working through some of these Lawn and Garden contracts and talking with the growers to alter the terms in order to reduce the volatility that you faced. Give us an idea of the progress that you have made thus far?

This is John Orr. I will step in. I think, Chris, we, obviously, are making progress when you look at the last five quarters. As we stated, five quarters ago was our plan. We are not finalized with our -- we are not finished with our plan as yet, but we continue to work with our customers around the volatility of resin pricing issues, which, at any given time, can jump up, can jump down. But we think we are making good progress there.

And as we move towards the end of the year with the annual said contracts there, in the last couple of years, we have been looking at high r raw material costs near the end of the year and then they have traded off to start the year to your detriment. We have seen raw materials start to decline into these negotiations. Could you give us a sense on how that may change the profitability next year, that we have already seen some raw material declines here?

Chris, this is David. I would say the major effort that we have had around managing our, what we call our material margin, so managing the volatility of our raw materials has been to try to drive our ability to quote a customer and produce the product into a very short window so that we know what the margin is going to be when we are taking that order.

That has been the major effort and I think we have been very successful at really narrowing that window of time. So our goal is to try to take -- we won't be entirely successful, but our goal is to try to take this raw material volatility out of the mix. So as raw materials go up, we are going to be pricing things accordingly and as raw materials come down, we are going to have to reflect that in our pricing as well. And that, in fact, has been how we have educated the market and our customers.

So I would like to say that we will have that perfectly passed through. I would say we have made significant strides in doing that and we will have some continued challenges as we go forward doing that, but I would expect to see a more stable margin than you've seen over the last few years in the business as we get into kind of quoting these orders and producing the product moving forward.

And you had talked about this in terms of Lawn and Garden, but maybe taking a look at the overall Company. We do have raw material costs coming down, which should help you guys a little bit, but the customers often delay purchases, as you had talked about previously. How do you see those two factors working themselves out here in the fourth quarter?

So I would say that Lawn and Garden is a very specific case, but the general theme is similar in our other businesses. Our goal has been to try to structure the way we do business with our customers. Material Handling is the other business probably that is the best to speak to the other large consumer of plastic resin. Our goal has been to try to structure our relationships with our customers so that we can pass through ups and downs of these volatile raw materials.

It has been a very unique -- the market has changed a lot in the last -- since the second half of 2008 and the size of these price spikes. So what we are trying to do is structure our arrangements with our customers to pass those through both on the upside and the downside. I think we are making progress in the Material Handling business as well.

We have some larger pieces of business in Material Handling where we have more structured mechanisms put in place to allow for the pass-through of costs and it is not perfect. There are some delays in that, but I think by and large, as you see the year go on, we will be able to pass through resin price increases on the upside. We will have to pass them back through on the downside. You may see a delay on a quarter or another quarter, but for the most part we will be getting those through and over the course of a year see that all the way pass through.

And Chris, this is Don, if I can add to that. I can tell you that, on a full-year basis, so year-to-date, our pricing has offset resin increases and if you think about that, resin increases have been up 20% some odd quarter-over-quarter. So on a full-year basis, we have been able to offset that.

All right. I appreciate your time.

And I would say that we have not seen a delay in purchases for that reason other than what I described earlier in the Lawn and Garden business.

Thank you for taking my question.

(Operator Instructions). Gary Farber, CL King.

Yes, good morning. Just a couple of questions. Can you speak to your use of recycled resins? Can you give us some sense of where you are today compared to where you might have been at the beginning of this year versus say a year ago?

Sure. We have set a goal to increase the use of what we call alternative resin or anything but prime resin in the mix of raw materials. We have made substantial progress this year. Our Lawn and Garden business has been the business that has probably made the most progress, but I don't want to undercut the progress that we've made in the Material Handling business as well. It is a goal throughout our businesses and I would say we have made substantial progress and it has certainly helped us in managing and making a more stable margin in the business.

Right. And where would you say -- I don't know if you want to use, say, a baseball analogy, I mean what inning are you in for sort of getting to where you want to go with that process?

Oh, I would say in the Lawn and Garden business, we are in the fifth inning.

And the rest of your business would be a little bit less?

Probably a little bit more. With just -- but very different requirements. You have got different technical requirements for the product in the Material Handling business than you have in the Lawn and Garden business.

And Gary, this is Don, if I could just add to that. For a lot of reasons, we really haven't commented on a percentage, if you will, of recycled and reprocessed resin as a total of our cost of goods sold. There is a lot of reasons why we don't do that and I am sure you understand those. So I think in saying that we are in the fifth inning and still going tells you that we have a ways to go, but I think if you look at our gross margins, you can see that we have made substantial improvements in not only value pricing of our product, but also reducing the cost inputs.

And would you think when you get to the end of the process that your gross margins would be above prior peaks basically?

Well, I don't know about that. We really haven't looked at gross margins in the future based on where resin would get us. I can tell you though that we have internal targets and we are headed towards those targets.

And let me just add one thing. The baseball analogy is difficult and only in one respect, that each inning that we go to gets a little harder than the prior innings because the stuff that we have done has been the somewhat easier stuff to do. We are probably converting harder conversions as we fight through the sixth, seventh, eighth and ninth.

Okay. And then just one last one. Just on acquisitions, can you just sort of update us on your thoughts on the acquisition market? What does the market look like? Do you have an active list of things you are looking at and how should we think about it?

We are, as we always say, we are an opportunistic acquirer. We took a look at the cheese box earlier this year. Although a small acquisition, we think one that's going to be very favorable to us. So we continue to look. It is one of the three priorities we have for using cash. It is really a part of growing stakeholder value. It is something that we will continue to take a look at.

And are there any particular end markets or anything that you would call out as you being interested in?

Well, we are always especially interested in our Material Handling side of our business. We think that is a growth opportunity for us. There are certain geographic areas of the world that we will continue to focus on.

Right, okay. Thanks.

Chris Manuel, Wells Fargo.

Good morning again. Just a couple quick ones to tie things up. Along the lines of using cash, things of that nature, I think you outlined a bit what you intend to do. But your repurchase program looks like you are about 30%, 40% of the way through that. Is that the most likely use of your cash here as we continue to move forward the balance of the year?

Yes, this is John. I think we have a well thought-out plan there. It is certainly depending upon the return to shareholders cash. We will continue to analyze where we are at now that we have completed our first 10b5-1. It is, obviously, something that is on our radar screen.

So the first of that component is completed. Is there -- just require Board approval or is that -- what is the intention with respect to keeping one of those open?

Well, the Board has approved a $5 million share repurchase. So we went -- we had put in place a 10b5-1 plan. And so that is where we are today. It is really based on an economic model and based on the comments that we had earlier and where our share price is today and generating cash for our shareholders, it was the right thing to do.

Okay. The question I wanted to ask was, I am going to use Gary's baseball analogy for a second, and as part of the profit improvement plan, I recognize that it is a little bit different in each one of the businesses where you are implementing it, and based on those business models being a bit different, how far along would you say you are in that process in each one of the segments both in terms of how far you are along in terms of implementing it and where we are in realizing the profit improvement in a static market from it?

I think that is a combination of Don and David can answer that one.

That was a loaded question too.

It's a long question too.

Okay, so I will try to answer it qualitatively first. We have a strategy in the business to drive continuous improvement, which means we are going to always have targets for driving productivity. We introduced a process, what we call our ops excellence process, a couple of years ago and we have been sort of building the process, building the tools, educating people, putting the right people in place over the last couple of years. And I would say 2011 has been a very good year for our extracting results out of that process. And I expect to see that continue though. It is going to get harder and harder every year as the low-hanging fruit we have kind of harvested.

We have had a few strategic things that we have been able to address in that process as well. You think back to 2009, we had the plant consolidation that we did. Distribution, we have got Project Enterprise, which I think of as more of a strategic step that we are taking from an operations excellence standpoint rather than just sort of an annual continuous improvement. We have got some more of that, but we've, I think, worked our way through a lot of that and we are working ourselves more into the continuous improvement mode.

And I would say that we are well down that path, but we have got real opportunities going forward. But they are going to require a higher level of skill and capability out of our people to drive them. But we have set an annual target for our folks in terms of driving productivity and we are going to manage against those and we are going to be more into, as we go forward, managing some kind of targets for continuous improvement and probably less into the -- unless something changes in the marketplace -- to these bigger strategic projects for doing that.

Okay. And from I guess the perspective of -- you have had five quarters or so in a row here of year-over-year improvement, but candidly the comps start to get more challenging, particularly as we work into early next year in, again, a relatively static market. Do you think that these processes will facilitate or enable you to continue to achieve that year-over-year improvement? Or how would you have me think about that?

I think you stated exactly sort of the issue that we have. The comps are going to get more difficult, but we expect to continue to drive improvement. The magnitude of the improvement as we go forward may not be as great as the improvement we have been able to get in the last year or two.

But our goal is improvement.

We will drive improvement.

We will drive improvement.

All right. That is all I had. Thank you for your time.

Ms. Vinay, we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Thank you, Christine. 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' recently updated website under the Investor Relations tab. Thank you and have a great day.

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